SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


FORM 10-K

                     

(Mark One)

     [Ö]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2002
 

OR
 

         [  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 1-9247

 

Computer Associates International, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

13-2857434

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification Number)

 

One Computer Associates Plaza, Islandia, New York

11749

(Address of principal executive offices)

(Zip Code)

(631) 342-6000

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

(Title of Class)

 

(Exchange on which registered)

Common Stock, par value $.10 per share
Series One Junior Participating Preferred Stock, Class A

 

New York Stock Exchange
New York Stock Exchange

     

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes    Ö      No         .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III to this Form 10-K or any amendment to this Form 10-K. [  ]

State the aggregate market value of the voting stock held by non-affiliates of the Registrant:
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of May 10, 2002 was $7,721,378,603 based on a total of 443,757,391 shares held by non-affiliates and the closing price on the New York Stock Exchange on that date which was $17.40

Number of shares of stock outstanding at May 10, 2002:
578,512,106 shares of Common Stock, par value $.10 per share.

Documents Incorporated by Reference:
Part III - Proxy Statement to be issued in conjunction with the Registrant's Annual Stockholders' Meeting.



This Annual Report on Form 10-K contains certain forward-looking statements and information relating to Computer Associates International, Inc. (the "Company," "Registrant" or "CA") that are based on the beliefs and assumptions made by the Company's management as well as information currently available to management. When used in this document, the words "anticipate," "believe," "estimate," "expect" and similar expressions, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions, some of which are described under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors." Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements except as may be required by law.

PART I

Item 1. Business
(a) General Business Overview

   The Company is a leading enterprise software company. The Company's world-class solutions address all aspects of Process Management, Information Management and Infrastructure Management. The Company offers solutions in six focus areas under seven brand names: Unicenter® for Enterprise Management, eTrust™ for Security, BrightStor™ for Storage, CleverPath™ for Portal and Business Intelligence, AllFusion™ for Application Life Cycle Management and Advantage™ and Jasmine® for Data Management and Application Development. With its portfolio of software products and a professional services organization dedicated to understanding the needs of its customers, the Company is committed to meeting the technology requirements of businesses in every sector of the economy. The Company serves organizations in more than 100 countries including more than 95% of the Fortune 500®.

   Built upon a common infrastructure, the Company's solutions are available for use on a variety of mainframe and distributed systems. Because of its independence from hardware manufacturers, the Company provides customers with integrated solutions that are platform-neutral.

   The Company's products can be used on all major hardware platforms, operating systems and application development environments for enterprise computing. The operating environments include, among others, z/OS and OS/390 ("mainframe") from International Business Machines Corporation ("IBM"), Windows NT from Microsoft Corporation ("Microsoft"), UNIX, as provided by various hardware vendors such as Sun Microsystems, Inc. ("Sun"), Hewlett-Packard Company ("HP") and IBM, and most recently, the Linux operating system.

   The Company maintains a philosophy of internally developing products, exemplified by its flagship product family Unicenter®, the industry standard for enterprise management software, coupled with the acquisition of key technology, the integration of the two, and the establishment of a network of strategic alliances with key business partners. The Company's service philosophy is marked by a commitment to the development of an internal service staff focused on supporting the Company's software solutions and long-standing alliances with leading service providers.

   In fiscal year 2001, the Company announced its strategy to unlock shareholder value by spinning off or divesting technologies that have the potential to prosper on an independent basis. These actions will allow the Company to focus on its core technologies.

   As the first step in this strategy, the Company formed the wholly owned subsidiary, iCan-SP, Inc. ("iCan"), in fiscal year 2001 to service the hosted software market. iCan's first product offering, the iCan Provider Suite™, is a fully integrated operational support system designed specifically for the service provider industry.

   In fiscal year 2001, the Company also divested the former Sterling Software, Inc.'s Federal Systems Group, its government consulting division, to Northrop Grumman for approximately $150 million in cash. In furtherance of this strategy, in April 2002, the Company divested many of the assets comprising its interBiz™ division. The interBiz banking solutions were not sold as part of the divestiture.

   In October 2000, the Company also announced a shift in its Business Model (the "new Business Model"), offering customers the flexibility and freedom to adapt to rapidly changing requirements while reducing the risks and costs associated with traditional software licensing models. Under the new Business Model, customers can determine the length and dollar value of their software licenses. For example, the new Business Model provides customers with the flexibility to subscribe to software under month-to-month licenses or choose cost certainty by committing to a longer-term arrangement. The new Business Model also permits customers to vary their software mix as their business and technology needs change. For example, customers can contract for the right to receive unspecified future software within designated product lines.

   In March 2000, the Company acquired Sterling Software, Inc. ("Sterling") through an exchange of stock. Sterling's software solutions are used to create, control, automate and manage both traditional and enterprise systems. Sterling's portal technology provides access to data stored in corporate databases in the same way that Internet content portals provide access to the wealth of content on the Web. The acquisition was accounted for using the purchase method of accounting. See Note 2 of the Notes to Consolidated Financial Statements for additional information concerning acquisitions.

   In May 1999, the Company acquired PLATINUM technology International, inc. ("PLATINUM") in a cash transaction. PLATINUM was engaged in the design, development, marketing and support of database tools and utilities, tools for enterprise management and data warehousing and provided a wide range of professional services. The acquisition was accounted for using the purchase method of accounting. See Note 2 of the Notes to Consolidated Financial Statements for additional information concerning acquisitions.

   The Company was incorporated in Delaware in 1974 and commenced operations in 1976. In December 1981, the Company completed its initial public offering of Common Stock. The Company's Common Stock is traded on the New York Stock Exchange under the symbol "CA".

(b) Financial Information About Industry Segments

   The Company's global business is principally in a single industry segment - the design, development, marketing, licensing and support of integrated computer software products operating on a diverse range of hardware platforms and operating systems.

   See Note 4 of the Notes to Consolidated Financial Statements for financial data pertaining to the Company's geographic operations.

(c) Narrative Description of Business

Products

   The Company offers a wide array of products under its seven brand names in three strategic categories and six focus areas - the Company's 3 x 6 Strategy. The strategic categories are Process Management, Information Management and Infrastructure Management. The six focus areas are Enterprise Management, Security, Storage, Portal and Business Intelligence, Application Life Cycle Management and Data Management and Application Development.

   The Company's products manage the complex, heterogeneous systems upon which businesses depend. The Company's solutions enable customers to use the latest technologies while preserving their substantial investments in hardware, software and staff expertise. By employing a common infrastructure, the Company's developers create modular software designed to be continually and consistently improved. This pragmatic approach protects customers' investments by using scalar, evolutionary change rather than revolutionary disruption and waste.

   The Company is a leading independent supplier of software solutions for IBM mainframes as well as for distributed platforms. For over 26 years, CA solutions have enabled the Company's customers to better manage the complex mainframe environment by providing them with the tools to measure and improve computer hardware and software performance and programmer productivity. The Company's solutions, including security, scheduling, storage, automation, performance and output management products, interface with the latest release of all major hardware suppliers to manage complex mainframe and distributed platform environments in an improved manner.

   The Company's software architecture is specifically designed to assist customers' migration from a mainframe environment to distributed computing or to build new distributed systems. As the information technology landscape has changed, the Company's distributed solutions have been among the industry leaders.

   The Company's solutions also benefit from cross-product features. For example, the benefits of the Company's security offerings have been incorporated into storage and portal solutions. Such sharing of technology provides customers with robust and complete solutions.

   The Company recently announced an internal reorganization designed to align its business more closely with the interests of its customers. As part of the reorganization, five brand units were formed around the Company's brands - Unicenter, eTrust, BrightStor, CleverPath and AllFusion, and Advantage and Jasmine. Each brand unit will have dedicated development, marketing, product support and quality assurance teams. The reorganization does not affect the sales force and the Company expects that the vast majority of its customers will continue to be serviced by the same sales and sales support teams.

The Company's Three Strategic Categories

Process Management

   The Company's Process Management solutions monitor and manage critical business processes. True process management requires two levels of integration: integration of an enterprise's existing back-end systems with its new web-based systems and business-to-business ("B2B") integration between an enterprise and its partners, suppliers and service providers. The Company's application development, deployment and integration tools, such as its Advantage family of solutions, are integrated, open-standards-based and designed to assist customers in managing critical business processes.

Information Management

   The Company's unified information management solutions deliver Application Life Cycle Management, Data Management and Application Development and unique Portal and Business Intelligence capabilities. The Company provides the optimal business platform, enabling comprehensive integration of business processes, applications, databases, partner systems and data. The Company's innovative portal solution consolidates many sources of information and provides the ability to personalize it for a customer's needs. The Company's predictive analysis technology adds the ability to predict business outcomes by analyzing both historical and current session data. By presenting customers with the information in which they are most likely to be interested, this solution increases overall satisfaction with personalized service to ensure customer loyalty and drives sales through cross-selling and up-selling techniques. The Company believes that these solutions provide a competitive advantage, enabling customers to find new prospects and business opportunities. From powerful Application Life Cycle Management to Portal and Business Intelligence, the Company's information management solutions enable historical and real-time data access, analysis and dissemination for processing transactions across the extended enterprise.

Infrastructure Management

   Infrastructure is the cornerstone of any business. Every resource - from traditional IT to wireless and other pervasive computing devices - must be managed in a cohesive, integrated fashion to deliver uninterrupted availability and support. Building upon the strength of its core competency, the Company offers a complete set of industry-proven, highly scalable infrastructure solutions. These solutions range from the comprehensive end-to-end management capabilities of Unicenter to solutions that meet specific needs such as security and storage.

The Company's Six Focus Areas

   The six focus areas within the Company's strategic categories are: Enterprise Management, Security, Storage, Portal and Business Intelligence, Application Life Cycle Development and Data Management and Application Development.

Enterprise Management: Unicenter®

   The Company's Unicenter family of solutions provides true cross-platform enterprise management solutions that address the major challenges facing today's IT professionals including network and systems management, automated operations, IT resource management, database management, web infrastructure management and application management.

   Unicenter has become the industry standard for enterprise management software. The Company's Unicenter family enables IT professionals to manage dynamic, complex and heterogeneous infrastructures from a centralized perspective. Furthermore, Unicenter helps organizations understand and assess their IT investment by linking the availability and performance of all aspects of the infrastructure, including databases, web servers, applications and more, with business policies and objectives. Finally, Unicenter leverages a unique, modular yet integrated architecture that enables customers to solve their IT challenges at their own pace and grows as the customer's needs evolve. This design, together with innovative visualization, predictive and automation technologies, delivers powerful management and scalability to companies of all sizes.

   In the past 12 months, the Company has released a number of solutions including Unicenter® Wireless Network Management, Unicenter® Management for WebSphere, Unicenter® Management for WebLogic, Unicenter® Mobile Device Management and Unicenter® Service Level Management. This is part of the Company's ongoing commitment to extend the power of Unicenter to new platforms, new devices and emerging infrastructure elements.

   The Company also offers a complete line of enterprise management solutions for the mainframe environment. The Company's leading management solutions include Job Management: (Unicenter® CA-7® and Unicenter® CA-11™, Unicenter® CA-Scheduler®, Unicenter® CA-Jobtrac®); Output Management: (Unicenter® CA-View®, Unicenter® CA-Deliver™, Unicenter® CA-Dispatch™, Unicenter® CA-Spool™); Automation: (Unicenter® CA-OPS/MVS®, Unicenter® CA-MIM™); and Performance Management and Accounting: (Unicenter® NeuMICS®, Unicenter® CA-JARS®, Unicenter® CA-SYSVIEW®/E). These products provide highly scalable, fault-tolerant and fully integrated management solutions for the mainframe environment.

Security: eTrust™

   Securing today's business environment has become more complex as the enterprise now includes Internet-driven global networks and eCommerce operations. The Internet has opened the door to millions of end users, exposing websites, valuable corporate information, mission-critical business applications and consumers' private information to more risk than ever before. Key challenges for enterprises today are managing multiple security technologies needed to protect against these new threats. The Company's enterprise solutions address these issues, providing a critical element to any customer's business initiative: end-to-end security infrastructure.

   Through its eTrust brand, the Company delivers solutions to manage the security of any computing environment. The eTrust security family of products protects environments from malicious attacks, on platforms ranging from mainframe to web and business applications. eTrust solutions provide comprehensive end-to-end security through antivirus, content inspection, intrusion detection/vulnerability assessment, log consolidation user provisioning, secure user access and access control technologies, among others. Solutions included are eTrust™ Access Control, eTrust™ Admin, eTrust™ Antivirus, eTrust™ Audit, eTrust™ Policy Compliance, eTrust™ Single Sign-On, eTrust™ PKI, eTrust™ CA-ACF2® Security and eTrust™ CA-Top Secret® Security. The Company's security solutions offer immediate value to its customers by delivering an enterprise-wide view of security, which can automate the process of applying business-driven security policies across heterogeneous systems. As a result, the Company believes its customers have better risk management and a lower total cost of ownership from security solutions that work together and extend to other Company solutions as well as third-party products.

   The Company recently announced a new enterprise security solution called eTrust™ 20/20. eTrust 20/20 will deliver a new line of defense against potential attacks, theft, corporate espionage and policy violations. This patent pending technology will provide visual insight into both physical and IT security events, thus allowing security managers to pinpoint even the most subtle security indicators in large, complex work environments. eTrust 20/20 will visually highlight abnormal events and trends and give security managers a more comprehensive tool for analyzing and reviewing meaningful information from large amounts of data collected from both physical and IT security systems.

Storage: BrightStor

   The Company's BrightStor platform-neutral storage management solutions integrate today's disparate offerings from across the industry and provide the solid infrastructure for end-to-end storage management, operations and Best Practices. As an integrated family of products, BrightStor helps customers protect and manage data, from an application perspective, across all major platforms and storage architectures. The Company offers BrightStor solutions such as BrightStor™ Portal, BrightStor™ Storage Resource Manager and BrightStor™ ARCserve® Backup.

   BrightStor Portal provides a single point of management, integrating storage functions across the enterprise. It is the first in an emerging class of next generation storage management capabilities known as Enterprise Storage Automation. The result is a flexible, scalable platform that simplifies management of storage resources across heterogeneous protocols and multi-vendor hardware.

   The Company also offers BrightStor Storage Resource Manager (BrightStor SRM), which provides centralized management of storage resources. This cross-platform solution analyzes, manages, reports, schedules and automates networked storage resources across distributed and centralized environments in the enterprise.

   The Company also provides a full line of mainframe storage management products that are leaders in the areas of automated tape management: (BrightStor™ CA-1® and the BrightStor™ CA-Dynam® family); DASD management: (BrightStor™ CA-Disk™, BrightStor™ CA-ASM2®, BrightStor™ CA-Allocate™); and storage resource management: (BrightStor™ CA-Vantage™, BrightStor™ CA-ASTEX®).

Portal and Business Intelligence: CleverPath

   Helping customers collaborate, deliver high customer service and make intelligent decisions requires the ability to determine relevant information based on the vast amounts of available data. The Company's CleverPath family includes unified Portal and Business Intelligence solutions that deliver portal, knowledge management, predictive analysis and visualization capabilities. The CleverPath™ Portal presents information in a personalized environment, integrating and delivering information in a format suited to individual preferences. Predictive analysis adds intelligence to help customers identify new opportunities. Visualization capabilities can differentiate a customer from its competition by presenting information in novel and attractive ways. It enables customers to understand vast amounts of data in a single glance, using images, sound and animation.

   In the past 12 months, the Company has delivered new releases of CleverPath™ Predictive Analysis Server, CleverPath™ Aion® Business Rules Expert, three new releases of CleverPath™ Portal and an initial release of a new product, CleverPath™ Enterprise Content Manager (CleverPath ECM). In addition to delivering support for a broad range of new and emerging standards, these new releases also integrate with web services. This allows solutions to be deployed to virtually any wireless or mobile device, included in hundreds of downloadable portlets that ensure integration with today's most popular applications and address the growing need to store, manage, control, and access digital assets across the enterprise.

Application Life Cycle Management: AllFusion

   The Company offers AllFusion, a family of comprehensive solutions for end-to-end application life cycle management that enables customers to control the costs of developing, maintaining and managing business applications across the enterprise. Three integrated suites address the needs of modern application development. These suites are the: AllFusionÔ Modeling Suite, AllFusionÔ Change Management Suite and AllFusionÔ Process Management Suite.

   AllFusion Modeling Suite simplifies and accelerates the complex aspects of analyzing, designing and implementing applications and business processes and includes the data modeling solution AllFusion™ ERwin® Data Modeler (formerly known as ERwin®). AllFusion Change Management Suite provides a single, integrated point of control for streamlining and coordinating software change processes throughout the IT environment and throughout the entire application life cycle. It includes a comprehensive solution for change and configuration management of distributed environments, AllFusion™ Harvest Change Manager (formerly known as CCC®/Harvest), as well as mainframe-based development control AllFusion™ Endevor® Change Manager (formerly known as Endevor®). AllFusion Process Management Suite delivers an integrated, complete business process and project management solution and includes AllFusion Process Library (formerly known as Process Continuum: Process Library) which serves as the enterprise repository of hundreds of industry Best Practices.

   The Company's life cycle management solutions enable companies to model, develop, deploy, test and manage change for applications enterprise-wide. They are designed to help customers increase staff productivity and shorten development cycle times while ensuring that application designs accurately fulfill business requirements.

Data Management and Application Development: Advantage and Jasmine®

   eBusiness models depend on reliable and flexible business processes that must be integrated both within and across organizational boundaries through the use of enterprise application integration (EAI) and business-to-business integration (B2BI) technologies. The applications driving these business processes require dependable, reliable and accurate data. With the Advantage family of solutions, the Company offers application development, enterprise reporting and industrial-strength databases as well as the services necessary to rapidly integrate applications, databases and business partner systems, and transport and messaging services via XML (eXtensible Markup Language), which allows applications to communicate and share data over the Internet, regardless of operating system, device or programming language. The Company's application development, deployment and integration tools are integrated and open-standards-based, covering platforms from mainframes to wireless devices.

   The Company's Advantage family of application development solutions offer a comprehensive range of design, creation and delivery options to meet customers' business needs. These solutions support an extensive range of environments, from high-end enterprise servers such as mainframes and UNIX to midrange computing environments such as Windows 2000, Netfinity and AS/400 and offer the latest wireless, Java and Enterprise JavaBean ("EJB") development environments. The Advantage family of solutions include the following cross-platform technologies: database management systems, application development tools, application integration and data transformation tools.

   Also included in this focus area is Jasmine, the Company's brand of object-oriented solutions. Jasmine provides an object database for efficient storage and management of complex content such as XML documents and multimedia, business application objects and the complex interrelationships between them.

CA Common Services™

   Within each focus area, the Company's solutions are integrated, platform-neutral, open-standards-compliant, scalable and extensible. Because they leverage CA Common Services, these solutions provide simplified, streamlined sharing of data and information across heterogeneous environments. They include integrated services for building and deploying robust, safe, manageable, scalable and reliable applications (such as messaging, compression, naming, cache management, publish/subscribe and transaction management) as well as shared management functions and technologies (for example, EnterpriseDiscovery™, calendar and event management). CA Common Services enable the Company's solutions to be deployed standalone, or to interoperate with one another, giving customers the freedom to choose the solution or combination of solutions they need today with assurances that they will work together. CA Common Services also extend to third-party solutions, allowing organizations to leverage existing investments. The Company's portal technology integrates with each of its other solutions, providing a common web-based user interface and advanced visualization. Organizations benefit from this commonality across the Company's solutions through simplified configuration, management and reduced training costs. The openness and extensibility via CA Common Services give customers the flexibility to leverage their existing technologies and adopt new ones as their businesses evolve.

Professional Services

   Historically, the Company's professional services organization has been responsible for providing a broad spectrum of services ranging from education and training to consulting, implementation and comprehensive outsourcing. During fiscal year 2001, the Company refocused its services operations specifically on engagements involving the Company's products. Therefore, the Company no longer offers services related to non-CA products and is phasing out non-CA product service engagements such as staff augmentations. Such non-CA product services typically have lower margins and do not support the Company's overall product initiatives. Focusing on CA product-related services improves the deployment speed of the Company's solutions, which the Company believes will lead to universal satisfaction and greater follow-on sales.

Sales and Marketing

   The Company distributes, markets and supports its products on a worldwide basis through its own employees and a network of independent value-added resellers ("VARs"), distributors and dealers. The Company has approximately 5,700 sales and sales support personnel, including the pre-sales and the customer relations organization, engaged in promoting the licensing of the Company's products.

   The Company's worldwide sales organization is aligned geographically. Each geographic territory offers the complete spectrum of CA solutions within the Company's 3 x 6 Strategy. A separate Strategic Accounts Group within each territory provides additional services to large customers, including facilities managers. Facilities managers deliver data processing services using the Company's products, to those companies that prefer to outsource their computing processing operations.

   The Company also operates through branches and subsidiaries located in 45 foreign countries. Each of these organizations has sales executives who market all or most of the Company's products in their respective territory. Approximately 38% of the Company's revenue in fiscal year 2002 was derived from operations outside the United States. In addition, the Company's products are marketed by independent distributors in those limited areas of the world where it does not have a direct presence. Revenue from independent distributors accounted for less than 1% of the Company's fiscal year 2002 revenue.

   Under certain circumstances, the Company will engage, on a non-exclusive basis, customers and other third parties as resellers of certain of the Company's products. The Company also actively encourages VARs to market the Company's products. VARs often bundle the Company's products with specialized consulting services to provide customers with a complete solution. Such VARs generally service a particular market or sector and provide enhanced user-specific solutions.

   During the past several years, the Company has formed a number of key strategic alliances with leading technology providers throughout Asia. By aligning with local technology providers in a particular geographic area, these joint ventures offer additional avenues through which the Company's technology and software solutions can be introduced to the IT community. Many of these joint ventures are in the early stages of operations.

   The Company's marketing groups produce all of the user documentation for the Company's products, as well as promotional brochures, advertising and other business solicitation materials. These groups perform all phases of creative development and production, including writing the requisite materials, editing, typesetting, photocompositions and printing. Pursuant to the Company's recently announced reorganization, each brand unit will have its own marketing team.

Licensing

   The Company does not sell or transfer title to its products to its customers. The products are licensed on a "right-to-use" basis pursuant to license agreements. Such licenses generally require that the customer use the product only for its internal purposes at its own computer installation. In addition, the Company offers license agreements to facility managers, which enable them to use the Company's software in conjunction with their outsourcing business.

   The Company also offers licenses for products and groups of products based on the size of an enterprise's computing power as measured in MIPS (millions of instructions per second). Under this option, the customer is free to reallocate hardware or modify user configurations without incremental costs. Similar licensing alternatives are available for the Company's client/server UNIX-based software products. The non-mainframe (distributed) Unicenter family of products is licensed on a tiered server basis. Distributed programs may also be licensed on a server basis or on a specified instance basis (such as the number of users). Products sold through third-party VARs, distributors and dealers are generally subject to distribution agreements and end-user "shrink-wrap" licenses.

   Under its standard form of license agreement, the Company warrants that its products will perform in accordance with specifications published in the product documentation.

   Prior to the introduction of the new Business Model, the Company offered several types of software licenses. Under those license forms, hereinafter referred to as the "old Business Model," the customer agreed to pay a fixed license fee for the use of the software and either an annual usage and maintenance fee or an annual optional maintenance fee for as long as the customer elected to continue to receive maintenance services. If maintenance was elected throughout the license term, the maintenance fees typically approximated 20% of the aggregate license and maintenance fees. Where applicable, payment of the maintenance fee entitled the customer to receive technical support for the product, as well as the right to receive all enhancements and improvements (excluding features subject to a separate charge) to the product developed by the Company during the period covered. A significant number of the Company's customers elected to license the Company's products under a variety of installment payment options. These options primarily incorporated license fees and optional maintenance fees into annual or monthly payments ranging from one to ten years.

   On October 25, 2000, the Company announced the new Business Model that allows customers to vary their software mix as their business needs change, providing customers with the freedom to use a variety of software products during the license period and providing unspecified future deliverables as a component of the contract. The terms of these new arrangements are structured such that product revenue is generally recognized ratably over the term of the license, which generally ranges from one to five years. Customers benefit from these new arrangements by finding more flexibility in licensing the Company's software products, gaining an improved, cost-effective way of doing business, mapping the growth of their technology to the growth of their business and allowing their costs to be more predictable. The Company believes the new Business Model provides a more simple, flexible and cost-effective way to do business by allowing customers to leverage their software budgets to meet their challenges while reducing the risks and costs associated with traditional software licensing.

   By recognizing license revenue on a ratable basis rather than on an up-front one-time basis, the new Business Model also is intended to improve the visibility and predictability of the Company's revenue streams. For this reason, the introduction of the new Business Model has impacted the Company's reported revenue. Under the new Business Model, deferred subscription revenue is recorded at the time of sale for the value of license revenue that has not been reported as revenue. This amount is amortized into revenue over the remaining term of the arrangement.

   A contract entered into in connection with the new Business Model will result in less immediate up-front revenue than under the old Business Model, although the total amount of revenue recognized over the life of the contract will be the same. Since this differs from the way the Company previously recognized revenue and since the Company's customers typically enter into multi-year contracts, the Company's reported revenue has declined from historical levels. As the Company continues to build deferred subscription revenue, a contractually committed source of future revenue, a more significant portion of the Company's revenue will be earned from contracts booked in earlier periods under the new Business Model.

   While the new Business Model causes the Company to change the way it recognizes revenue, it does not necessarily change the Company's overall expected cash generated from operations, since customers are expected to continue to pay fees over the contract period. In addition, costs continue to be recorded in the same fashion as under the Company's old Business Model.

   To assist investors in evaluating the Company's financial performance, in addition to reported results, the Company has provided pro forma revenue and operating earnings (excluding acquisition amortization and special items) for the current and prior year. These pro forma results assist in the comparison of the Company's performance this year versus the prior year. The Company constructed its pro forma financial statements by analyzing the historical revenue data from the Company and from recent acquisitions - Sterling and PLATINUM - and presenting the revenue and operating earnings performance (excluding acquisition amortization and special items) as if the Company had always operated under the new Business Model. This included the calculation of an average contract life for the Company's, as well as Sterling's and PLATINUM's, up-front license revenue and amortizing such revenue over the average contract life. Costs are consistently recorded from reported to pro forma results. These pro forma measures may not be comparable to similarly titled measures reported by other companies.

Competition and Risks

   Current and potential stockholders should consider carefully the risk factors described in Item 7. "Management's Discussion and Analysis of Financial Conditions and Results of Operations" below. Any of these factors, or others, many of which are beyond the Company's control, could negatively affect revenue, profitability or cash flow in the future.

Proprietary Rights

   The products of the Company are treated as trade secrets, which contain confidential information. The Company relies on its contractual agreements with customers as well as its own security systems and confidentiality procedures for protection. In addition to obtaining patent protection for new technology, the Company protects its products, their documentation and other written materials under copyright law. The Company also obtains trademark protection for its various product names. The Company periodically receives notices from third parties claiming infringement by the Company's products of third-party proprietary rights. The Company expects that its software will be subject to such claims more frequently as the number of products and competitors in the Company's industry grows and the functionality of products overlap. Such claims could result in litigation, which could be costly and/or result in licensing arrangements on unfavorable terms to the Company, including the payment of royalties to third parties. The Company's business could be adversely affected by such litigation and licensing arrangements and by any inability on its part to develop substitute technology.

Customers

   No individual customer accounted for a material portion of the Company's revenue during any of the past three fiscal years. Since the majority of the Company's software is used with relatively expensive computer hardware, most of its revenue is derived from companies that have the resources to make substantial commitments to data processing and computer installations. The majority of the world's major companies use one or more of the Company's software products, including more than 95% of the Fortune 500. The Company's software products are generally used in a broad range of industries, businesses and applications. The Company's customers include manufacturers, financial services providers, banks, insurance companies, educational institutions, hospitals and government agencies.

Product Development

   To date, the Company has been able to adapt its products to the rapid changes in the computer industry and, as described more fully herein, the Company believes that it will be able to do so in the future. Computer software vendors must also continually ensure that their products are compatible with the newest generations of computer hardware equipment and meet the needs of customers in the ever-changing marketplace. Accordingly, the Company has the policy of continually enhancing, improving, adapting and adding new features to its products, as well as developing additional products. The Company expects that it will continue to be able to enhance its products to be compatible with the latest hardware offerings. This depends in part on the continued cooperation of hardware equipment manufacturers who provide technical interface information to the Company. There is no assurance this information will continue to be provided voluntarily.

   The Company offers facilities (referred to as "eSupport") for many of its software products whereby problem diagnosis, program fixes and access to the Company's customer support databases and other information sources are provided online between the customer's installation and the support facilities of the Company. These services have contributed to the Company's ability to provide maintenance more efficiently.

   Product development is primarily performed at the Company's facilities in San Diego, California; Maitland, Florida; Lisle, Illinois; Framingham, Massachusetts; Mount Laurel, New Jersey; Princeton, New Jersey; Islandia, New York; Cincinnati, Ohio; Pittsburgh, Pennsylvania; Plano, Texas and Herndon, Virginia. The Company also performs product development in Sydney, Australia; Vienna, Austria; Brussels, Belgium; Vancouver, Canada; Ditton Park, England; Paris, France; Darmstadt, Germany; Tel Aviv, Israel; and Milan, Italy. For fiscal years ended March 31, 2002, 2001 and 2000, product development and enhancements charged to operations were $678 million, $695 million and $568 million, respectively. In fiscal years 2002, 2001 and 2000, the Company capitalized $53 million, $49 million and $36 million, respectively, of internally developed software costs. Pursuant to the Company's recently announced reorganization, each of the Company's brand units will have its own product development group.

   Certain products of the Company were acquired from other companies and individuals. The Company continues to seek synergistic companies, products and partnerships. The purchase price of acquired products (such as purchased software) is capitalized and amortized over the useful life of such products over a period not exceeding seven years.

Employees

   As of March 31, 2002, the Company had approximately 16,600 employees. Of this total, approximately 2,700 were located at its headquarters facility in Islandia, New York, approximately 7,000 were located at other offices in the United States, and approximately 6,900 were located at its offices in foreign countries. Of the total employees, approximately 4,700 were engaged in product development efforts, 2,300 were part of the professional services organization and 5,700 were engaged in sales and support functions including the pre-sales and the customer relations organization. The Company believes its employee relations are excellent.

(d) Financial Information About Geographic Areas

   See Note 4 of the Notes to Consolidated Financial Statements for financial data pertaining to the Company's geographic operations.

Item 2. Properties

   The principal properties of the Company are geographically distributed to meet sales and operating requirements. All of the properties of the Company are generally considered to be both suitable and adequate to meet current operating requirements.

   The Company leases approximately 140 office facilities throughout the United States. The Company has approximately 170 office facilities outside the United States. Expiration dates on material lease obligations extend to 2023.

   The Company owns an 850,000 square foot Corporate Headquarters in Islandia, New York, as well as various office facilities in the United States ranging from 1,000 to 250,000 square feet. The Company owns two office facilities in Germany totaling approximately 120,000 square feet, one office facility in Italy with approximately 140,000 square feet and a 250,000 square foot European Headquarters in the United Kingdom.

   The Company owns various computer, telecommunications and electronic equipment. It also leases mainframe and distributed computers at the Company's facilities in Islandia, New York and Lisle, Illinois. This equipment is used for the Company's internal product development, for technical support efforts and for administrative purposes. The Company considers its computer and other equipment to be adequate for its needs. See Note 7 of the Notes to Consolidated Financial Statements for information concerning lease obligations.

Item 3. Legal Proceedings

   The Company, Charles B. Wang, Sanjay Kumar and Russell M. Artzt are defendants in a number of shareholder class action lawsuits, the first of which was filed July 23, 1998, alleging that a class consisting of all persons who purchased the Company's stock during the period January 20, 1998 until July 22, 1998 were harmed by misleading statements, representations and omissions regarding the Company's future financial performance. These cases, which seek monetary damages in an unspecified amount, have been consolidated into a single action (the "Shareholder Action") in the United States District Court for the Eastern District of New York ("NY Federal Court"). The NY Federal Court denied the defendants' motion to dismiss the Shareholder Action, and the parties currently are engaged in discovery. Although the ultimate outcome and liability, if any, cannot be determined, management, after consultation and review with counsel, believes that the facts do not support the plaintiffs' claims in the Shareholder Action and that the Company and its officers and directors have meritorious defenses. In the opinion of management, resolution of this litigation is not expected to have a material adverse effect on the financial position of the Company. In the event of an unfavorable resolution of this matter, however, the Company's earnings and cash flows in one or more periods could be materially adversely affected.

   In addition, three derivative actions, the first of which was filed on July 30, 1998, alleging misleading statements and omissions similar to those alleged in the Shareholder Action were brought in the NY Federal Court on behalf of the Company against a majority of the Directors who were serving on the Company's board at that time. Another derivative action on behalf of the Company, alleging that the Company issued 14.25 million more shares than were authorized under the 1995 Key Employee Stock Ownership Plan (the "1995 Stock Plan"), was filed in the NY Federal Court. These derivative actions were consolidated into a single action (the "Derivative Action") in the NY Federal Court. Lastly, a derivative action on behalf of the Company was filed in the Chancery Court in Delaware (the "Delaware Action") on September 15, 1998 alleging that 9.5 million more shares were issued to the three 1995 Stock Plan participants than were authorized under the 1995 Stock Plan. The Derivative Action and the Delaware Action have been settled and both actions have been dismissed. Under the terms of the settlement the 1995 Stock Plan participants returned 4.5 million shares of Computer Associates stock to the Company. In the first quarter of fiscal year 2001, the Company recorded a $184 million gain in conjunction with the settlement.

   On September 28, 2001, the United States Department of Justice filed a lawsuit alleging that the Company and PLATINUM had violated Federal antitrust laws, including alleged violation of the waiting period under the Hart-Scott-Rodino Act, in connection with the Company's acquisition of PLATINUM in May 1999. On April 23, 2002, the Company reached a settlement with the Department of Justice pursuant to which the Company will not admit any wrongdoing and will pay the government $638,000. The settlement is expected to become final after a public comment period of 60 days from the filing of the settlement order.

   Since February 2002, the Company has been cooperating with a joint inquiry by the United States Attorney's Office for the Eastern District of New York and the staff of the Northeast Regional Office of the Securities and Exchange Commission concerning certain of the Company's accounting practices. The investigation appears generally to be focusing on issues relating to the Company's historical revenue recognition policies and practices. The Company has produced documents and information in response to a request for the voluntary production of documents, and understands that third parties have received subpoenas from the SEC for documents issued pursuant to a formal order of investigation. Such an order gives the SEC staff authority to issue subpoenas and take testimony, though the Company understands that the issuance of such an order does not reflect any finding or determination that any violation of law has occurred. The Company intends to continue to cooperate fully with the inquiry. At this point, the Company cannot predict the scope or outcome of the inquiry, which may include the institution of administrative, civil injunctive or criminal proceedings, the imposition of fines and penalties, or other remedies and sanctions. The Company also cannot predict what impact, if any, the inquiry may have on the Company's results of operations or financial condition.

   In February and March 2002, a number of shareholder lawsuits were filed in the U.S. District Court for the Eastern District of New York against the Company and Messrs. Wang, Kumar and Ira H. Zar, the Company's Chief Financial Officer. The lawsuits allege, among other things, that the Company made misleading statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. Each of the named individual plaintiffs seeks to represent a class consisting of purchasers of the Company's common stock and call options and sellers of put options for the period May 28, 1999 through February 25, 2002. Class action status has not yet been certified in this litigation. In April 2002, a derivative suit against all the Directors of the Company except Mr. Jay W. Lorsch and Mr. Walter P. Schuetze was filed in the Chancery Court in Delaware alleging breach of their fiduciary duties resulting in damages to the Company of an unspecified amount. This derivative suit is based on essentially the same allegations as those contained in the February and March 2002 shareholder lawsuits. The Company believes that the facts do not support the claims in these lawsuits and the Company and its officers and directors have meritorious defenses and intend to contest the lawsuits vigorously. In the opinion of management, resolution of this litigation is not expected to have a material adverse effect on the financial position of the Company. In the event of an unfavorable resolution of this matter, however, the Company's earnings and cash flows in one or more periods could be materially adversely affected.

   The Company, various subsidiaries and certain current and former officers have been named as defendants in other various claims and lawsuits arising in the normal course of business. The Company believes that it has meritorious defenses in connection with such claims and lawsuits and intends to vigorously contest each of them. In the opinion of the Company's management, the results of these other claims and lawsuits, either individually or in the aggregate, are not expected to have a material effect on the Company's results of operations, financial position or cash flows.

Item 4. Submission of Matters to Vote of Security Holders

   None.

Executive Officers of the Registrant

   The name, age, present position and business experience of all executive officers of the Company as of May 14, 2002 are listed below:

Name

Age

Position

Charles B. Wang(1)
Sanjay Kumar
(1)
Russell M. Artzt
(1)
Gary Quinn
Stephen Richards
Ira H. Zar
Michael A. McElroy
Steven M. Woghin
Mary Stravinskas

 57
 40
 55
 41
 37
 40
 57
 55
 41

Chairman of the Board of Directors
President, Chief Executive Officer and Director
Executive Vice President and Director
Executive Vice President-Sales Support
Executive Vice President and General Manager-Sales
Executive Vice President-Finance and Chief Financial Officer
Senior Vice President and Secretary
Senior Vice President and General Counsel
Vice President and Treasurer


(1) Member of the Executive Committee.

   Mr. Wang has been Chairman of the Board since April 1980 and a Director since June 1976. Mr. Wang previously served as Chief Executive Officer from June 1976 to August 2000.

   Mr. Kumar joined the Company with the acquisition of UCCEL in August 1987. He was named Chief Executive Officer in August 2000, and has been President and a Director since January 1994. Mr. Kumar has previously served as Chief Operating Officer from January 1994 to August 2000; as Executive Vice President - Operations from January 1993 to December 1993; and Senior Vice President - Planning from April 1989 to December 1992.

   Mr. Artzt has been with the Company since June 1976. He has been an Executive Vice President since April 1987 and a Director of the Company since November 1980.

   Mr. Quinn has been an Executive Vice President - Sales Support since April 2000. He was an Executive Vice President - Global Information and Administrative Services since April 1998, having previously been a Senior Vice President - Global Information Services since April 1996. He previously served in various management positions within the marketing and technical organizations. He joined the Company in December 1985.

   Mr. Richards has been an Executive Vice President since February 2000. He was Senior Vice President - Sales since April 1998, having previously been the Senior Vice President - Pacific Region since 1995. He joined the Company in May 1988.

   Mr. Zar has been Chief Financial Officer since June 1998. He was named Executive Vice President in April 1999, having previously been a Senior Vice President - Finance since April 1994 and Treasurer from April 1994 to October 1997. Mr. Zar joined the Company in June 1982.

   Mr. McElroy was elected Secretary of the Company effective January 1997. He was named Senior Vice President in 1999, having previously been a Vice President - Legal since 1989. He joined the Company in February 1988 and served as Secretary from April 1988 through April 1991.

  Mr. Woghin has been General Counsel since February 1995. He was named Senior Vice President at the same time, having previously been a Vice President - Legal since 1993. He joined the Company in March 1992.

   Ms. Stravinskas was elected Treasurer effective May 2001. She was named Vice President in 1999, having previously been an Assistant Vice President and a manager of various functions within the finance organization. She joined the Company in February 1986.

   The officers are appointed annually and serve at the discretion of the Board of Directors.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

   The Company's Common Stock is listed on the New York Stock Exchange. The following table sets forth, for the quarters indicated, the quarterly high and low closing prices on the New York Stock Exchange.

 

Fiscal Year 2002

Fiscal Year 2001

 

High

Low

High

Low

Fourth Quarter
Third Quarter
Second Quarter
First Quarter

$38.34
$36.56
$36.00
$37.19

$15.98
$24.67
$22.70
$25.41

$37.50
$33.31
$51.13
$62.88

$18.69
$18.69
$23.88
$44.50

   On March 28, 2002, the last trading day of the month, the closing price for the Company's Common Stock on the New York Stock Exchange was $21.89. The Company currently has approximately 9,000 record stockholders.

   The Company has paid cash dividends in July and January of each year since July 1990 and intends to continue that policy. The Company paid a semi-annual dividend of $.04 per share in the fiscal years ended March 31, 2002 and 2001.

   In March 2002, the Company issued $660 million of 5% Convertible Senior Notes due 2007 (the "Notes"). The Notes were issued to Banc of America Securities LLC and Salomon Smith Barney Inc., along with a syndicate of initial purchasers pursuant to a private placement under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and subsequently resold to Qualified Institutional Buyers in reliance on Rule 144A and Regulation S of the Securities Act. The initial purchasers received a discount of 2.5% and the net proceeds to the Company were $644 million before deducting expenses payable by the Company of less than $1 million.

   The Notes are senior unsecured indebtedness and rank equally with all existing and future senior unsecured indebtedness. The holders of the Notes may convert all or some of their Notes to common stock at any time on or prior to March 14, 2007 at a conversion price of $24.34 per share. The initial conversion rate is 41.0846 shares per $1,000 principal amount of the Notes and is subject to adjustment under certain circumstances. The Company may redeem the Notes at any time after March 21, 2005 at prices declining to par, and holders of the Notes have the rights to require the Company to repurchase their Notes at par upon the occurrence of certain fundamental changes.

   The Company intends to file a registration statement with respect to the Notes and the common stock issuable upon conversion of the Notes.

Item 6. Selected Financial Data

   The information set forth below should be read in conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Result of Operations" and the financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

 

Year Ended March 31,

STATEMENT OF OPERATIONS DATA

2002(1)

2001(2)

2000(3)(4)

1999(5)

1998(6)

(in millions, except per share amounts)

         

Revenue(7)
Net (loss) income
- Basic (loss) earnings per share(8)
- Diluted (loss) earnings per share(8)
Dividends declared per common share(8)

$

$

2,964
(1,102
(1.91
(1.91
..080


)
)
)

$

$

4,190
(591
(1.02
(1.02
..080


)
)
)

$

$

6,094
696
1.29
1.25
..080





$

$

4,649
626
1.15
1.11
..080





$

$

4,186
1,169
2.14
2.06
..073





 

 

March 31,

BALANCE SHEET AND OTHER DATA

2002

2001

2000

1999

1998

(in millions)

         

Cash provided by operating activities
Working capital(7)
Total assets(7)
Long-term debt (less current maturities)
Stockholders' equity

$

1,251
740
12,226
3,334
4,617


$

1,383
357
14,436
3,629
5,780




$

1,566
988
17,493
4,527
7,037





$

1,267
768
8,070
2,032
2,729





$

1,040
379
6,706
1,027
2,481





 


(1)

Includes an after-tax charge of $49 million related to an impairment of assets sold in April 2002.

(2)

Includes an after-tax gain of $115 million related to the 1995 Stock Plan and an after-tax charge of $19 million related to the bankruptcy filing of Inacom Corporation.

(3)

Includes after-tax in-process research and development ("IPR&D") charges of $645 million related to the acquisition of PLATINUM in May 1999 and $150 million related to the acquisition of Sterling in March 2000. See Note 2 of the Notes to Consolidated Financial Statements for additional information.

(4)

Includes an after-tax charge of $32 million related to CHS Electronics, Inc.

(5)

Includes an after-tax charge of $675 million related to the 1995 Stock Plan.

(6)

Includes an after-tax charge of $21 million related to the Company's unsuccessful tender offer for Computer Sciences Corporation.

(7)

Adjusted to reflect prior period reclassifications. See Note 1 of the Consolidated Financial Statements for additional information.

(8)

Adjusted to reflect a three-for-two stock split effective November 5, 1997.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

   This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contains certain forward-looking statements and information relating to the Company that are based on the beliefs and assumptions made by the Company's management as well as information currently available to management. When used in this document, the words "anticipate," "believe," "estimate," "expect" and similar expressions, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements except as may be required by law.

Critical Accounting Policies and Business Practices

   Note 1 to the Consolidated Financial Statements contains a summary of the significant accounting policies that are used by the Company. Many of these accounting policies require the use of estimates. Critical accounting estimates, which are both important to the portrayal of the Company's financial condition and which require complex, subjective judgments, are as follows:

   Basis of Revenue Recognition

   In October 2000, the Company announced a shift to its new Business Model, offering customers the flexibility and freedom to adapt to rapidly changing enterprise requirements while reducing the risks and costs associated with traditional software licensing models. Under the new Business Model, customers can determine the length and dollar value of their software licenses. The new Business Model provides customers with the flexibility to subscribe to software under month-to-month licenses or choose cost certainty by committing to a longer-term arrangement. The new Business Model also permits customers to vary their software mix as their business and technology needs change, including the right to receive unspecified future software within designated product lines. The Company believes the new Business Model improves the visibility and predictability of the Company's revenue streams by recognizing license revenue on a ratable basis rather than on an up-front one-time basis as the Company did prior to the quarter ended December 31, 2000.

   The terms of these new arrangements are structured such that product revenue is generally recognized ratably over the term of the license on a monthly basis which has impacted the Company's reported revenue on a Generally Accepted Accounting Principles ("GAAP") basis. The portion of the license arrangement that is not recognized as revenue creates deferred subscription revenue which will be recognized as revenue over the remaining term of the arrangement.

   Prior to the introduction of the new Business Model, maintenance revenue was bundled for a portion of the term of the license arrangement. Under these arrangements, the maintenance, which was based on optional annual renewal rates stated in the arrangement, initially was deferred and subsequently amortized into revenue over the initial contractual term of the arrangement. Maintenance renewals have been recognized ratably over the term of the renewal arrangement. For arrangements executed under the new Business Model, maintenance is bundled for the entire term of the license arrangement. Under these arrangements, maintenance revenue is recognized ratably as subscription revenue over the term of the license arrangement, along with the license fee, commencing upon delivery of the currently available software products.

   Financing fees result from the initial discounting to present value of product sales with extended payment terms under the Company's old Business Model and the subsequent increase of receivables to the amount due and payable by customers. Financing fees will continue to decrease as they are amortized over the arrangement term.

   Accounts Receivable

   As detailed in the table included in Note 5 to the Consolidated Financial Statements, at March 31, 2002, net accounts receivable, after accounting for unearned revenue and the allowance for doubtful accounts, is $3.391 billion.

   The Company maintains an allowance for doubtful accounts relating to the portion of the accounts receivable that has been recognized as revenue, which the Company does not expect to collect. The Company performs a quarterly analysis to determine the appropriate allowance for doubtful accounts. This analysis includes various analytical procedures and a review of factors, including specific individual balances selected from a cross-section of the accounts that comprise total accounts receivable, the Company's history of collections of long-term contracts, as well as the overall economic environment. The Company's ability to collect its accounts receivable is dependent upon a number of factors including the performance of its products, customer satisfaction with ongoing services, financial condition of customers and general economic conditions. Changes to these factors will influence the amount of the required allowance.

   The Company expects the allowance for doubtful accounts to continue to decline as net installment accounts receivable under the old Business Model are billed and collected over the remaining life.

   Deferred Tax Assets

   The Company has recognized for financial statement purposes a portion of the tax benefits connected with losses related to operations. This recognition assumes that the Company will be able to generate sufficient future taxable income so that the carryforward of these losses will be realized. The factors that the Company considers in assessing the likelihood of realization include the forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. Deferred tax assets are primarily made up of acquisition liabilities, such as duplicate facility, employee severance and other costs, and foreign net operating losses ("NOLs"). The NOLs generally expire between 2003 and 2013. A valuation allowance was established in the year ended March 31, 2002 for certain foreign deferred tax assets the Company believes may not be realized. Adjustments to the valuation allowance may be made in the future if it is determined that the amount of NOLs realized is greater or less than the amount recorded.

   Valuation of Intangibles

   Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired by the Company in purchase business combinations. The Company has historically amortized goodwill using the straight-line method based on an estimated useful life of 10 to 20 years. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather be tested at least annually for impairment. The Company adopted SFAS 142 effective April 1, 2002. Upon adoption, the Company stopped the amortization of goodwill with an estimated net carrying value of approximately $4.483 billion at March 31, 2002. The Company is having an independent valuation analysis completed and does not anticipate any material transitional impairment; however, future impairment reviews may result in periodic write-downs as a result of changes in the valuation analysis. The valuation is based upon the Company's forecast of operating results for the entity that has recorded goodwill, as well as estimates of fair value of the entity and its tangible and intangible assets.

   The carrying values of purchased software products and other intangible assets are reviewed on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment, which includes an assessment of the net realizable value of capitalized software costs as of the balance sheet date. If an impairment is determined to exist, any related impairment loss is calculated based on net realizable value for capitalized software and fair value for all other intangibles.

Results of Operations

   The Company distributes and markets its software solutions directly to the end user as well as to distribution partners, resellers or VARs. The Company derives revenues from the following sources: license fees - the licensing of the Company's solutions on a right-to-use basis; maintenance fees - the providing of post-contract customer support and enhancements; and service fees - the providing of professional services such as implementation, consulting and education services. The timing and amount of fees recognized as revenue during a period are determined by the nature of the contractual provisions, such as the term of the arrangement, included in the arrangements with customers. In fiscal year 2002, the average contract life approximated three-and-a-half years, with a Company goal of further reducing it to three years.

   Prior to December 2000, the Company's software license arrangements included contractual provisions that resulted in the recognition of license fee revenue up-front, upon delivery of the attributable software products, assuming the three other prerequisite criteria to recognize revenue were met pursuant to the provisions of AICPA Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition," as amended by SOP No. 98-4 and SOP No. 98-9 - the arrangement fee was fixed or determinable, collectibility of the fee was probable and persuasive evidence of an arrangement existed. Beginning in December 2000, the Company's software license arrangements have included contractual provisions that, among other things, allow the customer to receive unspecified future software products within designated product lines. Under these arrangements, the Company begins to recognize revenue ratably over the term of the license arrangement after meeting the four revenue recognition criteria as noted above. As was the case prior to December 2000, maintenance is recognized ratably over the contract term and professional service fees are generally recognized as the services are performed. The new Business Model improves the visibility of the Company's revenue streams since license fees are recognized ratably, rather than on an up-front one-time basis. To enhance comparability, during the transition to the new Business Model, the Company has supplemented the MD&A with pro forma financial information for the current and prior fiscal year.

Fiscal Year 2002

   Total revenue for the fiscal year ended March 31, 2002 decreased 29%, or $1.226 billion, over fiscal year 2001. Excluding an approximately $90 million decline attributable to unfavorable changes in foreign exchange rate movements with the U.S. dollar, revenue decreased $1.136 billion to $3.054 billion. The decrease was primarily due to the Company's transition to the new Business Model during the third quarter of fiscal year 2001, which resulted in a decrease in up-front license fees compared to the prior year period, partially offset by new subscription revenue. In addition, apprehension toward capital spending by the Company's existing and potential customers due to weaker conditions in the overall economy and the technology industry also impacted fiscal year 2002 revenue. The Company does not expect an improvement in capital spending by customers until there is an improvement in economic and industry conditions. During fiscal year 2001, approximately $1.429 billion was recognized as revenue up-front at contract signing under the Company's old Business Model and was included in the "Software fees and other" line item on the accompanying Consolidated Statements of Operations in fiscal year 2001. The total revenue decrease is also attributable to a decline in professional services revenue of $222 million. Although the transition to the new Business Model and weaker economic conditions contributed to the revenue decrease, quantification of the impact these components had on such decrease is not readily determinable.

   The Company's new Business Model will improve the visibility of the Company's revenue streams since license fees will be recognized ratably, rather than on an up-front one-time basis. To enhance comparability at the outset of the transition to the new Business Model, the Company has supplemented the MD&A with pro forma financial information for the current and prior fiscal year.

   For the fiscal year ended March 31, 2002, subscription revenue totaled $827 million, an increase of $768 million over the prior fiscal year. These fees represent the ratable revenue recognized on contracts executed under the new Business Model. The increase is a result of the execution of these types of contracts for all of fiscal year 2002, whereas these contracts were only executed in the third and fourth quarters of fiscal year 2001.

   Software fees and other decreased $1.449 billion, or 77%, from the comparable prior year period due to the transition to license arrangements under the new Business Model, in which revenue is recognized ratably and is included as "Subscription revenue" on the accompanying Consolidated Statements of Operations, compared with recognizing revenue up-front at contract signing as was the case through the beginning of the third quarter of fiscal year 2001. The remaining items that comprise software fees and other are primarily revenue associated with sales to distributors, resellers and VARs, which are generally recognized when the reseller, distributor or VAR sells the software products to its customers.

   In fiscal year 2002, maintenance revenue decreased 12%, or $129 million, from the prior year. The decrease is primarily attributable to agreements executed under the new Business Model which include maintenance revenue that is bundled with license revenue and, together, the maintenance and license revenue are recognized ratably over the term of the arrangement and included as a component of subscription revenue. Maintenance revenue will continue to decrease as deferred maintenance revenue under the Company's old Business Model is amortized over the contract term, partially offset by new maintenance revenue earned from customers who elect to continue to receive optional maintenance at the expiration of the original contract term of their agreements.

   For the fiscal year ended March 31, 2002, financing fees decreased 30%, or $194 million, from the prior year. Financing fees result from the initial discounting to present value of product sales with extended payment terms under the Company's old Business Model and the subsequent increase of receivables to the amount due and payable by customers. The decrease was due to the discontinuance of the offering of contracts which were recorded under the old Business Model. Financing fees will continue to decrease as they are amortized over the contract life.

   In fiscal year 2002, professional services revenue decreased 42%, or $222 million, from the prior year, primarily as a result of the Company's shift in focus to professional services engagements that are centered around the Company's products. The decrease is also attributable to the Company's divestiture in October 2000 of Sterling's Federal Systems Group ("FSG"), a provider of professional services to governmental agencies, which contributed approximately $94 million to professional services revenue in fiscal year 2001.

   Revenue in the United States represented 62% of overall revenue for fiscal year 2002, as compared to 65% for fiscal year 2001. Consistent with and for the same reasons as the overall decrease in revenue, international revenue decreased $343 million, or 23%, in fiscal year 2002 as compared with fiscal year 2001.

   Price changes did not have a material impact in fiscal year 2002 or in fiscal year 2001.

   Cost of professional services consists primarily of personnel related costs to provide professional services and training to customers. Cost of professional services decreased $180 million, or 39%, due primarily to a reduction in professional services revenue and related personnel from fiscal year 2001 to fiscal year 2002, including the divesture of FSG, which contributed approximately $84 million of such expenses in the prior year.

   In fiscal year 2002, selling, general and administrative ("SG&A") expenses decreased 16%, or $330 million, from the prior year to $1.790 billion. The decrease was largely attributable to the Company's emphasis on overall cost control measures, including personnel related costs such as reduced travel expenses in connection with a reduction in the Company's headcount of approximately 3,000 employees over the prior fiscal year period. Excluding a charge related to an impairment of assets sold in April 2002 of approximately $59 million in fiscal year 2002 and a charge associated with the bankruptcy of Inacom Corporation of approximately $31 million in fiscal year 2001, SG&A decreased 17%, or $358 million.

   Product development and enhancement expenses consists primarily of personnel costs, which decreased $17 million, or 2%, for fiscal year 2002 compared with the prior fiscal year. The decrease was a result of general cost containment primarily related to personnel costs. The Company continued its focus on product development and enhancements, with an emphasis on adapting and enhancing products within the Company's six focus areas, particularly for the distributed processing and IBM's z/OS environments, as well as a broadening of the Company's enterprise product offerings.

   Commissions and royalty expense decreased $33 million, or 11%, over the prior fiscal year. Commissions and royalty expense as a percentage of revenue increased due to the lower revenue achievement associated with the Company's transition to the new Business Model without an associated change in the overall sales compensation. The decrease in commissions and royalty expense was principally the result of a decline in contract bookings associated with the weaker economic environment for information technology spending.

   Depreciation and amortization of goodwill and other intangibles expense in fiscal year 2002 decreased $9 million over the prior year. Amortization of capitalized software costs in fiscal year 2002 decreased $5 million over the prior year. The decrease of depreciation and amortization of goodwill and capitalized software costs was a result of scheduled reductions in the amortization of intangible assets associated with past acquisitions. SFAS 142 will have the effect of substantially reducing the Company's amortization of goodwill and intangibles commencing April 1, 2002.

   Net interest expense decreased $117 million compared with the prior year, consisting of a $58 million reduction due to a decrease in the average variable interest rate and a $59 million reduction due to a decrease in average debt outstanding.

   The pre-tax loss of $1.385 billion for fiscal year 2002 exceeds the fiscal year 2001 loss by $719 million. Excluding the $59 million asset impairment charge, the pre-tax loss would have been $1.326 billion, compared with pre-tax loss of $819 million in fiscal year 2001, excluding a special gain of $184 million related to the settlement of the 1995 Stock Plan litigation and a special charge of $31 million related to the bankruptcy filing of Inacom Corporation. Net loss for the year ended March 31, 2002 was $1.102 billion, compared to a net loss of $591 million for fiscal year 2001. Fiscal 2002 net loss, excluding the after-tax aforementioned impairment charge, was $1.053 billion, an increased loss of $366 million over the prior year's net loss, exclusive of the 2001 aforementioned special items. The Company's consolidated effective tax rate, excluding acquisition amortization, was 28.4% and 37.5% for the fiscal years ended March 31, 2002 and 2001, respectively.

Fiscal Year 2001

   Total revenue for the fiscal year ended March 31, 2001 decreased 31%, or $1.904 billion, over fiscal year 2000. Excluding an approximately $140 million decline attributable to unfavorable changes in foreign exchange rate movements with the U.S. dollar, revenue decreased $1.764 billion to $4.330 billion. Total revenue was unfavorably impacted in the second half of the fiscal year due to the introduction of the new Business Model whereby license fee revenue for such arrangements is now recognized ratably over the contract term. Additionally, the Company experienced weakness in the first half of the fiscal year as a result of customers deferring purchases ahead of an IBM hardware cycle. Although weaker economic conditions and the transition to the new Business Model contributed to the revenue decrease, quantification of the impact these components had on such decrease is not readily determinable.

   For the fiscal year ended March 31, 2001, subscription revenue totaled $59 million. These fees represent the ratable revenue recognized on contracts executed under the new Business Model. The remainder of the license and maintenance fees payable on such license arrangements will amortize into revenue over the respective license arrangement's term.

   Software fees and other decreased $2.298 billion, or 55%, from the comparable prior year period due to the transition to license arrangements under the new Business Model. For the fiscal year ended March 31, 2001, the Company recorded $1.429 billion under the old Business Model. The remaining items that comprise software fees and other is primarily revenue associated with sales to distributors, resellers and VARs in which revenue is generally recognized when the reseller, distributor or VAR sells the software products to its customers.

   In fiscal year 2001, maintenance revenue increased 24%, or $210 million, to $1.087 billion from the prior year primarily as a result of acquired companies' products, partially offset by a decrease associated with revenue recorded since the introduction of the new Business Model. Maintenance will continue to decrease as deferred maintenance under the old Business Model is amortized over the contract term.

   For the fiscal year ended March 31, 2001, financing fees increased 21%, or $109 million, to $638 million from the prior year, as a result of an increase in installment-based licenses and the associated non-current receivables prior to the introduction of the new Business Model. Under the old Business Model, financing fees result from the initial discounting to present value of product sales with extended payment terms and the subsequent increase to receivables to the amount due and payable by customers. This accretion of financing fees on the unpaid receivables due in future years represent financing fees.

   In fiscal year 2001, professional services increased 3%, or $16 million, to $525 million from the prior year, as a result of the acquisition of Sterling in March 2000, partially offset by the Company's refocusing of its service operations on engagements involving the Company's products. Such refocusing has unfavorably impacted professional services revenue. Reflecting the strategy to focus the professional services organization on the deployment of CA solutions, the Company divested FSG in the third quarter of fiscal year 2001.

   Revenue in the United States represented 65% of overall revenue for fiscal year 2001, as compared to 66% for fiscal year 2000. Consistent with the overall decrease in revenue, international revenue decreased $594 million, or 29%, in fiscal year 2001 as compared with fiscal year 2000.

   Price changes did not have a material impact in fiscal year 2001 or in fiscal year 2000.

   Cost of professional services, which consists primarily of personnel-related costs to provide professional services and training to customers, increased $17 million, or 4%, which is similar to the increase in professional services revenue from fiscal year 2000 to fiscal year 2001.

   In fiscal year 2001, SG&A, excluding the charge associated with the bankruptcy of Inacom Corporation of approximately $31 million, increased 48% from the prior year to $2.089 billion, exclusive of the charge of approximately $50 million in fiscal year 2000 associated with the write-off of the Company's investment in CHS Electronics, Inc. ("CHS"). The increase was largely attributable to the Company's higher fixed expense structure, principally the result of added personnel and related costs from the acquisition of Sterling, as well as increased spending on marketing associated with a new comprehensive advertising campaign and an increase in provision expense for accounts receivable as a result of the difficult economic climate.

   Product development and enhancement expenses increased $127 million, or 22%, for fiscal year 2001 compared with the prior year. There was continued emphasis on adapting and enhancing products for the distributed processing environment as well as the broadening of the Company's enterprise product offerings, and additional expenses related to development efforts of products obtained through the acquisition of Sterling.

   Commissions and royalty expense increased $8 million, or 3%, over the prior year. Commissions and royalty expense as a percentage of revenue increased due to the lower revenue achievement associated with the Company's transition to the new Business Model without an associated change in the sales compensation structure which rewards sales personnel on the total arrangement.

   Depreciation and amortization of goodwill and other intangibles expense in fiscal year 2001 increased $295 million over the prior year. Amortization of capitalized software costs in fiscal year 2001 increased $221 million over the prior year. The increase in depreciation and both amortization of goodwill and capitalized software costs was primarily due to the additional amortization of the cost of purchased intangibles associated with Sterling, marginally offset by the scheduled reductions in the amortization of costs associated with past acquisitions.

   Net interest expense increased $5 million compared with the prior year. The increase consisted of a $12 million increase due to an increase in the average variable interest rate and a $7 million decrease due to a decrease in average debt outstanding.

   The pre-tax loss of $666 million for fiscal year 2001 represents a decrease of $2.256 billion, over fiscal year 2000. Excluding a special gain of $184 million related to the settlement of the 1995 Stock Plan litigation and a special charge of $31 million related to the bankruptcy filing of Inacom Corporation, the pre-tax loss would have been $819 million, compared with pre-tax income of $2.437 billion in fiscal year 2000, excluding special charges of $645 million and $150 million for in-process research and development ("IPR&D") relating to the acquisitions of PLATINUM and Sterling, respectively, and approximately $50 million related to the CHS write-off. Net loss for the year ended March 31, 2001 was $591 million, a decrease of $1.287 billion over fiscal year 2000. Fiscal 2001 net loss, excluding the after-tax aforementioned special items, was $687 million, a decrease of $2.210 billion over the prior year's net income, exclusive of the aforementioned special charges. The Company's consolidated effective tax rate, excluding acquisition amortization and IPR&D charges, was 37.5% for both fiscal years 2001 and 2000.

Selected Quarterly Information

(in millions, except per share amounts)

2002 Quarterly Results

June 30

Sept. 30

Dec. 31

Mar. 31(1)

Total

Revenue(3)
Percent of annual revenue
Net loss
- Basic loss per share
- Diluted loss per share

$

$

712
24
(342
(0.59
(0.59


%
)
)
)

$

$

733
25
(291
(0.50
(0.50


%
)
)
)

$

$

747
25
(231
(0.40
(0.40


%
)
)
)

$

$

772
26
(238
(0.41
(0.41


%
)
)
)

$

$

2,964
100
(1,102
(1.91
(1.91


%
)
)
)

 

2001 Quarterly Results

June 30(2)

Sept. 30

Dec. 31

Mar. 31

Total

Revenue(3)
Percent of annual revenue
Net income (loss)
- Basic earnings (loss) per share
- Diluted earnings (loss) per share

$

$

1,134
27
23
0.04
0.04


%


$

$

1,544
37
138
0.24
0.23


%

$

$

782
19
(342
(0.59
(0.59


%
)
)
)

$

$

730
17
(410
(0.71
(0.71


%
)
)
)

$

$

4,190
100
(591
(1.02
(1.02


%
)
)
)

 


(1)

Includes an after-tax charge of $49 million related to an impairment of assets sold in April 2002.

(2)

Includes an after-tax charge of $19 million related to the bankruptcy of Inacom Corp. and an after-tax gain of $115 million related to the 1995 Stock Plan.

(3)

Adjusted to reflect prior period reclassifications. See Note 1 of the Consolidated Financial Statements for additional information.

 

Pro Forma Results of Operations

   To provide comparable financial results, management's discussion and analysis is supplemented with separate pro forma financial information. This pro forma information is presented in order to give effect to the purchase of PLATINUM and Sterling under the assumption that the Company, PLATINUM and Sterling operated under the new Business Model since their inception. Pro forma operating results are calculated by adjusting prior period revenue recorded under the old Business Model to revenue recognized on a ratable basis under the new Business Model, exclusive of acquisition amortization and special items. Reconciliations of GAAP results to pro forma operating results are provided below. While these results may not be indicative of operations had these acquisitions actually occurred on that date and had the Company historically been operating under the new Business Model, the Company believes they provide a basis for comparison at the outset of the transition to the new Business Model. Professional services revenue and total expenses are identical under both the new and old Business Models; therefore, management's discussion and analysis of these captions has not been repeated under the pro forma results of operations. The following pro forma measures may not be comparable to similarly titled measures reported by other companies.

 

Fiscal Year Ended March 31,

 

                        2002                        

                        2001                        

 

(in millions, except per share amounts)

   
     

Pro Forma

   

Pro Forma

 

GAAP

 

Operating

GAAP

 

Operating

 

Results

Adjustments

Results

Results

Adjustments

Results

             

Revenue(8)

$ 2,964 

$2,837(1)     

$5,801   

$4,190 

$1,368(2)   

$5,558    

Total expenses(8)

4,349 

(1,015)(3)    

3,334   

4,856 

(820)(4)   

4,036    

             

Pretax (loss) income

(1,385) 

3,852(5)      

2,467   

(666)

2,188(5)     

1,522    

Income tax (benefit) provision

(283) 

1,208(6)      

925   

(75)

646(6)     

571    

             

Net loss

$(1,102)

N/A   

$ (591)

N/A    

Net operating income

N/A    

$1,542   

N/A 

$   951     

             

Diluted LPS

$  (1.91)

N/A   

$(1.02)

N/A     

Shares used

577   

N/A   

582 

N/A     

             

Diluted operating EPS

N/A    

$  2.61  

N/A 

$  1.61     

Shares used

577    

14(7)      

591  

582 

10(7)     

592     


(1)

Represents amortization of revenue recognized at contract signing from direct product sales in prior fiscal years for CA ($2,513), Sterling ($161) and PLATINUM ($163) as if revenue had been ratably recognized since their inception.

(2)

Represents amortization of revenue recognized at contract signing from direct product sales in prior fiscal years for CA ($2,317), Sterling ($228) and PLATINUM ($252) as if revenue had been ratably recognized since their inception, offset by revenue recognized up-front ($1,429) under the old Business Model.

(3)

Represents the elimination of acquisition amortization ($956) and a charge associated with the impairment of assets for sale ($59).

(4)

Represents the elimination of acquisition amortization ($973), a gain associated with the 1995 Stock Plan ($184) and a charge related to the Inacom bankruptcy ($31).

(5)

Represents the effect on pre-tax loss resulting from the adjustments to revenue and expenses reflected in footnotes (1), (2), (3) and (4).

(6)

Represents the tax effect of adjustments. The assumed effective tax rate approximated 37.5%.

(7)

Represents the inclusion of common stock equivalents since they are no longer antidilutive.

(8)

Prior period adjusted to conform with current period presentation. See Note 1 of the Consolidated Financial Statements for additional information.

   Total pro forma revenue for the fiscal year ended March 31, 2002 was $5.801 billion, an increase of 4%, or $243 million, over the prior year pro forma revenue of $5.558 billion. The increase was attributable to the ratable recognition of revenue on contracts transacted during the prior fiscal year, partially offset by a reduction in professional services revenue ($222 million), which was primarily the result of the divestiture of FSG in the third quarter of fiscal year 2001, which generated $94 million of revenue in that fiscal year and the Company's decision to reduce professional services associated with non-CA products. North America and international pro forma revenue represented 64% and 36%, respectively, of overall pro forma revenue in both fiscal years 2002 and 2001. The international pro forma revenue was unfavorably impacted by the effect of exchange rates on the U.S. dollar versus foreign currencies.

   On a pro forma basis, pre-tax income excluding acquisition amortization and special charges was $2.467 billion for fiscal year 2002, an increase of 62%, or $945 million, over prior year's pre-tax income of $1.522 billion, exclusive of acquisition amortization and special items. Pro forma net income, excluding acquisition amortization and special items, was $1.542 billion for the fiscal year ended March 31, 2002, an increase of $591 million, or 62%, over fiscal year 2001. The increase was largely attributable to the Company's emphasis on overall cost control measures related to a reduction in the Company's headcount of approximately 3,000 over the prior fiscal year. The Company's consolidated annual effective tax rate, excluding acquisition amortization and special items, was assumed to be 37.5% for both fiscal years 2002 and 2001.

In-Process Research and Development

   In the fourth quarter of fiscal year 2000, the Company acquired Sterling in a stock-for-stock exchange valued at approximately $4.1 billion. In the first quarter of fiscal year 2000, the Company acquired PLATINUM for approximately $4.3 billion in cash and assumed liabilities. Acquired in-process research and development ("IPR&D") charges relate to acquisitions of software companies accounted for under the purchase method, in which a portion of the purchase price is allocated to acquired in-process technology and is expensed immediately since the technological feasibility of the research and development projects has not yet been achieved and is believed to have no alternative future use. Independent valuations of Sterling and PLATINUM, using the "Income Approach," were performed and used as an aid in determining the fair value of the identifiable intangible assets and in allocating the purchase price among the acquired assets, including the portion of the purchase price attributed to IPR&D, which was $150 million and $645 million for Sterling and PLATINUM, respectively. This approach focuses on the income-producing capability of the asset, which was determined through review of data provided by both the acquired companies and independent sources and through analysis of relevant market sizes, growth factors and expected trends in technology. The steps followed in applying this approach included estimating the costs to develop the purchased in-process technology into commercially viable products, estimating the resulting net cash flows from such projects and discounting the net cash flows back to their present value using a rate of return commensurate with the relative risk levels.

   The ongoing development projects at Sterling at the time of the purchase were composed primarily of application development and information management, business intelligence, network management and storage management tools and solutions. The acquired projects included add-on features, tools and next-generation versions of COOL, VISION™, EUREKA™, SAMS™ and SOLVE® product families. At the time of acquisition, it was estimated that, on average, 68% of the development effort had been completed and the remaining development effort would take approximately 14 months to complete, with a cost of approximately $9 million. Approximately $2 million and $7 million were incurred during the years ended March 31, 2002 and 2001, respectively, on the Sterling related projects and no additional amounts are expected to be incurred relative to these projects. Products from each of the aforementioned projects are currently commercially available under the Sterling product family or the Company's rebranded product names.

   The ongoing development projects at PLATINUM at the time of the purchase were composed primarily of application development, database and enterprise management tools and data warehousing solutions. The acquired projects included add-on features, tools and next generation versions of DB2 Solutions, ProVision™, Security, Advantage application development, end-to-end data warehousing, and Internet infrastructure product families. At the time of acquisition, it was estimated that, on average, 68% of the development effort had been completed and the remaining development effort would take approximately 12 months to complete, with a cost of approximately $41 million. Approximately $2 million, $19 million and $16 million were incurred during the years ended March 31, 2002, 2001 and 2000, respectively, on the PLATINUM related projects and no additional amounts are expected to be incurred relative to these projects. Products from each of the aforementioned projects are currently commercially available under the PLATINUM product family or the Company's rebranded product names.

   In order for the Company to succeed in the highly competitive and rapidly changing marketplace in which it operates, it has been the Company's philosophy to continue to develop, as well as integrate, acquired projects into its solutions. The Company is committed to both the Sterling and PLATINUM product lines and continues to invest in the development, enhancement and integration of the acquired projects. In addition, the Company does not specifically track revenue generated from completed IPR&D projects subsequent to the closing and integration of acquisitions.

   If these projects do not continue to be successfully developed, supported and marketed, the revenue and profitability of the Company may be adversely affected in future periods. Additionally, the value of other intangible assets acquired may become impaired. Results will also be subject to uncertain market events and risks that are beyond the Company's control, such as trends in technology, government regulations, market size and growth and product introduction by competitors. Management believes that the assumptions used in the purchased IPR&D valuation reasonably estimate the future benefits. There can be no assurances that in future periods actual results will not deviate from current estimates.

Liquidity and Capital Resources

   Cash, cash equivalents and marketable securities totaled $1.180 billion at March 31, 2002, an increase of $330 million from the March 31, 2001 balance of $850 million. The Company made net debt repayments of over $580 million during fiscal year 2002, using cash on hand and cash from operations to repay over $1.240 billion in debt, offset by $660 million Convertible Senior Notes issued in March 2002. The Company intends to use the proceeds from the Convertible Senior Notes issuance to further repay debt in fiscal year 2003. Additionally, the Company repurchased approximately $95 million in treasury stock in fiscal year 2002. Cash generated from operations for fiscal year 2002 was $1.251 billion, a decrease of $132 million from the prior year's cash from operations of $1.383 billion. Cash from operations was unfavorably impacted this fiscal year compared with the prior fiscal year by a reduction in customer payments at contract signing of the entire multi-year arrangement.

   The Company's bank credit facilities consist of a $1 billion four-year revolving credit facility and a $2 billion four-year term loan. As of March 31, 2002, $600 million remained outstanding under the four-year term loan and $600 million was drawn under the $1 billion four-year revolver. The drawings under the revolver were used to repay $600 million of the term loan during fiscal year 2002. The interest rates on such debt are determined based on a ratings grid, which applies a margin to the prevailing London InterBank Offered Rate ("LIBOR"). In April 2002, the Company repaid $250 million of the four-year revolving credit facility that was due in the first quarter of fiscal year of 2004.

   During the year, the Company repaid a 75 million British Pound Sterling denominated 364-day facility. In addition, the Company has a $1 billion Commercial Paper ("CP") program. The four-year revolver supports the CP program as a backstop facility. As of March 31, 2002, $82 million was outstanding under the CP program.

   The Company also utilizes other financial markets in order to maintain its broad sources of liquidity. In fiscal year 1999, $1.750 billion of unsecured Senior Notes were issued in a transaction pursuant to Rule 144A of the Securities Act of 1933. Amounts borrowed, rates and maturities for each issue are $575 million at 6.25% due April 15, 2003, $825 million at 6.375% due April 15, 2005 and $350 million at 6.5% due April 15, 2008. As of March 31, 2002, $128 million was outstanding under the Company's 6.77% Senior Notes. These notes call for annual repayment of $64 million each April until final maturity in April 2003.

   In fiscal year 2002, $660 million of unsecured 5% Convertible Senior Notes, due March 15, 2007, were issued in a transaction pursuant to Rule 144A. The Notes are senior unsecured indebtedness and rank equally with all existing senior unsecured indebtedness. The holders of the Notes may convert all or some of their Notes at any time prior to or on March 14, 2007, unless previously redeemed or repurchased, at a conversion price of $24.34 per share. The initial conversion rate is 41.0846 shares per $1,000 principal amount of the Notes and is subject to adjustment under certain circumstances. The Notes may not be redeemed by the Company during the first three years that they are outstanding and may be called thereafter until maturity at the Company's option at declining premiums to par. The Company intends to file a registration statement with respect to the Notes and the common stock issuable upon conversion of the Notes. Concurrently with the issuance of the Notes, the Company entered into a call spread repurchase option transaction ("Call Spread"). The option purchase price of the Call Spread was $95 million. The entire purchase price of $95 million has been charged to Stockholders' Equity. Under the terms of the Call Spread, the Company has the option to purchase outstanding shares equivalent to the number of shares that may be issued if all Notes are converted into shares (27.1159 million shares), thereby mitigating dilution to shareholders. The Call Spread can be exercised at the three-year anniversary of the issuance of the Notes, at an exercise price of $24.83 per share. To limit the cost of the Call Spread, an upper limit of $36.60 per share has been set such that if the price of the common stock is above that limit at the time of exercise, the number of shares eligible to be purchased will be proportionately reduced based on the amount the common share price exceeds $36.60 at time of exercise. The Call Spread is intended to give the Company the option at the three-year anniversary to eliminate dilution as a result of the Notes being converted to common shares up to the $36.60 price per common share and significantly mitigate dilution if the share price exceeds $36.60 at that time. The Call Spread was provided by two leading banking institutions.

   Unsecured and uncommitted multi-currency lines of credit are available to meet any short-term working capital needs for subsidiaries operating outside the United States. These lines total $51 million, of which $15 million was drawn as of March 31, 2002.

   Debt ratings for the Company's senior unsecured notes and its bank credit facilities are BBB+ and Baa2 from Standard & Poor's and Moody's Investors Service, respectively. The Company's CP program is rated A-2 from Standard & Poor's and P-2 from Moody's.

   Peak borrowings under all debt facilities during fiscal year 2002 totaled approximately $4.445 billion. The weighted-average interest rate for all debt facilities during fiscal year 2002 was 5.95%.

   As of March 31, 2002, the cumulative number of shares purchased under the Company's various open market Common Stock repurchase programs was 170 million, including approximately 3 million shares purchased in fiscal year 2002. The remaining number of shares authorized for repurchase is approximately 30 million.

   Capital resource requirements as of March 31, 2002 consisted of lease obligations for office space, computer equipment, mortgage or loan obligations and amounts due as a result of product and company acquisitions. The Company has commitments to invest $17 million in connection with joint venture agreements.

   It is expected that existing cash, cash equivalents, marketable securities, the availability of borrowings under credit lines and expected cash provided from operations will be sufficient to meet ongoing cash requirements. The Company expects to renew its bank credit lines prior to their expiration, during the quarter ended June 30, 2003. The Company expects its long-standing history of providing extended payment terms to customers to continue under the new Business Model.

Contractual Obligations and Commitments

   As of March 31, 2002, the Company's contractual obligations and commitments were as follows:

   Outstanding debt, inclusive of interest to be paid on such debt, grouped by year of maturity, is as follows: 2003 - $696 million; 2004 - $1,612 million; 2005 - $108 million; 2006 - $882 million; 2007 - $716 million and thereafter - $351 million.

   In addition, future minimum lease payments under operating leases are: 2003 - $140 million; 2004 - $101 million; 2005 - $85 million; 2006 - $64 million; 2007 - $56 million; and thereafter - $198 million.

   The Company also has commitments to invest $17 million in connection with joint venture agreements.

New Accounting Pronouncements

   In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." SFAS 141 addresses the accounting for acquisitions of businesses and is effective for acquisitions occurring on or after July 1, 2001. This statement is not expected to have an impact on the Company.

   In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. This statement is effective for fiscal years beginning after December 15, 2001. Under the non-amortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead will be reviewed for impairment, written down and charged to results of operations only in periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The Company is having an independent valuation analysis completed and does not anticipate any material transitional impairment; however, future impairment reviews may result in periodic write-downs. SFAS 142 will have the effect of substantially reducing the Company's amortization of goodwill and intangibles commencing April 1, 2002. The Company amortized $429 million, $470 million and $221 million of goodwill for the fiscal years ended March 31, 2002, 2001 and 2000, respectively.

   In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS 143 requires, among other things, that entities record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. This statement is not expected to have an impact on the Company.

   In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144") which supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 requires, among other things, that long-lived assets be measured at the lower of carrying amount or fair value, less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company is currently assessing the impact of adoption of SFAS 144.

   In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS 145, among other things, rescinds SFAS 4, which required all gains and losses from the extinguishment of debt to be classified as an extraordinary item and amends SFAS 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This statement is not expected to have an impact on the Company.

   The Emerging Issues Task Force ("EITF") of the FASB issued EITF 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products." This EITF is effective for annual and interim financial statements beginning after December 15, 2001. EITF 00-25, as further defined by EITF 01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)," requires, among other things, that payments made to resellers by the Company for cooperative advertising, buydowns and similar arrangements should be classified as reductions to net sales. Such payments, primarily consisting of rebates, incentives and other cooperative advertising type costs, totaled $13 million for the fiscal year ended March 31, 2002. The Company has historically reported such payments as a component of SG&A. To enable comparisons between fiscal 2002 results and the results of prior years, the Company has reclassified these payments in the prior years from SG&A to software fees and other. The impact of the reclassification reduces both software fees and other and SG&A by $16 million and $18 million in fiscal years 2001 and 2000, respectively. The reclassifications do not affect the Company's (loss) profit from operations, net (loss) income or basic and diluted (loss) earnings per share.

   The Emerging Issues Task Force issued EITF D-103, "Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred." This EITF is effective for financial reporting periods beginning after December 15, 2001. EITF D-103 requires that reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in the statement of operations. Such reimbursements totaled $8 million for the fiscal year ended March 31, 2002. The Company has historically reported such reimbursements as a component of SG&A. To enable comparisons between fiscal 2002 results and the results of prior years, the Company has reclassified these reimbursements in the prior years from SG&A to professional services revenue. The impact of the reclassification increases both professional services revenue and SG&A by $8 million and $9 million in fiscal years 2001 and 2000, respectively. The reclassifications do not affect the Company's (loss) profit from operations, net (loss) income or basic and diluted (loss) earnings per share.

Risk Factors

   Current and potential stockholders should consider carefully the risk factors described below. Any of these factors, or others, many of which are beyond the Company's control, could negatively affect the Company's revenue, profitability or cash flow in the future.

Operating results and revenue are subject to fluctuations caused by many factors.

   Quarterly and annual results of operations are affected by a number of factors, including those listed below, which in turn could adversely affect the Company's revenue, profitability or cash flow in the future. These factors include:

-

Demand for products and services;

-

Length of sales cycle;

-

Customer implementation of the Company's products;

-

Magnitude of price and product competition;

-

Introduction of new hardware;

-

General economic conditions in countries in which customers do a substantial amount of business;

-

Customer budgets for hardware and software;

-

Ability to develop and introduce new or enhanced versions of the Company's products;

-

Changes in foreign currency exchange rates;

-

Ability to control costs;

-

The size of licensing transactions;

-

Ability to retain qualified personnel; and

-

Reaction of customers to the new Business Model.

Any of the foregoing factors may cause the Company's operating expenses to be disproportionately high or cause its revenue and operating results to fluctuate. As a consequence, the Company's business, financial condition and operating results could be adversely affected.

The computer software business is highly competitive.

   The market in which the Company competes is marked by rapid and substantial technological change, the steady emergence of new companies and products, evolving industry standards and changing customer needs. To remain competitive, the Company must develop new products and continue to enhance existing products. The Company may be unsuccessful in its ability to develop new releases or new products that meet the needs of its customers in light of competitive alternatives available in the market. In addition, the introduction of new products or versions of existing products may not meet with customer acceptance or may be delayed. The Company's inability to bring new products and enhancements to existing products to the market in a timely manner or the failure for these products to achieve market acceptance could have a material adverse effect on its business, financial condition and operating results.

The software business is marked by easy entry and large, entrenched businesses.

   Many companies with whom the Company competes, including IBM, Sun, HP and other large computer manufacturers, have substantial resources, a larger installed base of customers in any particular market niche, as well as the ability to develop and market software programs similar to and competitive with the products offered by the Company. Competitive products are also offered by numerous independent software companies that specialize in specific aspects of the highly fragmented software industry. Some, like Microsoft, Oracle Corporation and SAP AG, are the leading developers and vendors in their specialized markets. In addition, new companies enter the market on a frequent and regular basis, offering products that compete with those offered by the Company. Increased competition also results from consolidation of existing companies within the industry. Additionally, many customers historically have developed their own solutions that compete with those offered by the Company. Competition from any of these sources can result in price reductions, or displacement of the Company's products, which could have a material adverse effect on the Company's business, financial condition and operating results.

The Company's products must remain compatible with ever-changing operating environments.

   IBM, HP, Sun and Microsoft are by far the largest suppliers of systems software and, in most cases, are the manufacturers of the computer hardware systems used by most of the Company's customers. Historically, these operating system developers have modified or introduced new operating systems, systems software and computer hardware. Such new products could in the future incorporate features which perform functions currently performed by the Company's products or could require substantial modification of the Company's products to maintain compatibility with these companies' hardware or software. Although the Company has to date been able to adapt its products and its business to changes introduced by hardware manufacturers and system software developers, there can be no assurance that it will be able to do so in the future. Failure to adapt the Company's products in a timely manner to such changes or customer decisions to forego the use of the Company's products in favor of those with comparable functionality contained either in the hardware or operating system could have a material adverse effect on its business, financial condition and operating results.

Future product development is dependent upon access to third-party operating systems.

   In the past, licensees using proprietary operating systems were furnished with "source code," which makes the operating system generally understandable to programmers, and "object code," which directly controls the hardware and other technical documentation. Since the availability of source code facilitated the development of systems and applications software, which must interface with the operating systems, independent software vendors such as the Company were able to develop and market compatible software. IBM and other hardware vendors have a policy of restricting the use or availability of the source code for some of their operating systems. To date, this policy has not had a material effect on the Company. Some companies, however, may adopt more restrictive policies in the future or impose unfavorable terms and conditions for such access. These restrictions may, in the future, result in higher research and development costs for the Company in connection with the enhancement and modification of the Company's existing products and the development of new products. Although the Company does not expect that such restrictions will have this adverse effect, there can be no assurances that such restrictions or other restrictions will not have a material adverse effect on the Company's business, financial condition and operating results.

Third-party microcode could impact product development.

   The Company anticipates ongoing use of microcode or firmware provided by hardware manufacturers. Microcode and firmware are essentially software programs in hardware form and are therefore less flexible than other types of software. The Company believes that such continued use will not have a significant impact on the Company's operations and that its products will remain compatible with any changes to such code. However, there can be no assurance that future technological developments involving such microcode will not have an adverse impact on the Company's business, financial condition and operating results.

Customer decisions are influenced by general economic conditions.

   The Company's products are designed to improve the productivity and efficiency of its customers' information processing resources. In a recessionary environment, the Company's products are often a reasonable economic alternative for customers faced with the prospect of incurring expenditures to increase their existing information processing resources. However, a general slowdown in the world economy or a particular region could cause customers to delay or forego decisions to license new products or upgrades to their existing environments and this could adversely affect the Company's business, financial condition and operating results.

Failure to protect the Company's intellectual property rights would weaken its competitive position.

   Future success of the Company is dependent upon its proprietary technology. The Company protects its proprietary information through the use of patent, copyright, trademark, trade secret laws, confidentiality procedures and contractual provisions. Notwithstanding the Company's efforts to protect its proprietary rights, policing unauthorized use or copying of its proprietary information is difficult. Unauthorized use or copying occurs from time to time and litigation to enforce intellectual property rights could result in significant costs and diversion of resources. Moreover, the laws of some foreign jurisdictions do not afford the same degree of protection to the Company's proprietary rights as do the laws of the United States. For example, "shrink-wrap" or "click-on" licenses may be unenforceable in whole or in part in some jurisdictions in which the Company operates. In addition, patents the Company has obtained may be circumvented, challenged, invalidated or designed around by other companies. The Company's inability to adequately protect its intellectual property for these or other reasons could adversely affect its business, financial condition and operating results.

The markets for some or all the Company's key product areas may not continue to grow.

   The Company has identified six product focus areas: Enterprise Management, Security, Storage, Portal and Business Intelligence, Application Life Cycle Management and Data Management and Application Development. Some or all of these areas may not continue to grow, may not grow at their current rates, may decline in growth or customers may decline or forego use of products in some or all of these focal areas. This is particularly true in newly emerging areas, such as Portal and Business Intelligence. A decline in these focus areas could result in decreased demand for the Company's products, which would adversely impact its business, financial condition and operating results.

Certain software is licensed from third parties.

   Some of the Company's products contain software licensed from third parties. Some of these licenses may not be available to the Company in the future on terms that are acceptable or allow its products to remain competitive. The loss of these licenses or the ability to maintain any of them on commercially acceptable terms could delay development of future products or enhancement of existing products. This could adversely affect the Company's business, financial condition and operating results.

Customers are still adapting to the Company's new Business Model.

   The Company's new Business Model affords customers greater flexibility in licensing transactions. For example, under the new Business Model, the Company licenses software on a month-to-month or other short-term basis in order to allow customers the opportunity to try the Company's software solutions without committing to a multi-year license obligation. Transactions such as these increase the risk that customers will not fully implement the Company's software and will not enter into a long-term relationship with the Company. This could adversely affect the Company's business, financial condition and operating results. This effect could be diminished if customers elect cost certainty by committing to longer contract periods.

Third parties could claim that the Company's products infringe their intellectual property rights.

   From time to time the Company receives notices from third parties claiming infringement of various forms of their intellectual property. Investigation of these claims, whether with or without merit, can be expensive and could affect development, marketing or shipment of the Company's products. As the number of software patents issued increases, it is likely that additional claims, with or without merit, will be asserted. Defending against such claims is time-consuming and could result in significant litigation expense or settlement with unfavorable terms that could adversely affect the Company's business, financial condition and operating results.

Changes to compensation of the Company's sales organization.

   The Company revised its compensation plan for the sales organization effective April 1, 2001. The new compensation plan is in alignment with the new Business Model objectives of providing customer flexibility and satisfaction. The compensation plan may encourage behavior not anticipated or intended as it is implemented, which could adversely affect the Company's business, financial condition and operating results.

The success of the Company's international operations is subject to many factors.

   International revenue has historically represented approximately one-third of the Company's total worldwide revenue. Continued success in selling the Company's products outside of the United States depends on a variety of factors, including the following:

-

Reorganizations of the sales force;

-

Fluctuations in foreign exchange currency rates;

-

Staffing key managerial positions;

-

General economic conditions in foreign countries;

-

Political instability; and

-

Trade restrictions such as tariffs, duties or other controls affecting foreign operations.

Increase in tariffs, the imposition of trade restrictions or other factors may adversely affect the Company's business, financial condition and operating results.

Fluctuations in foreign currencies could result in transaction losses.

   Most of the revenue and expenses of the Company's foreign subsidiaries are denominated in local currencies. Due to the substantial volatility of currency exchange rates, it is not possible to predict the effect of exchange rate fluctuations on the Company's future operating results. Given the relatively long sales cycle that is typical for many of the Company's products, foreign currency fluctuations could result in substantial changes in the foreign currency impact on these transactions. Additionally, deterioration of the exchange rate of foreign currencies against the U.S. dollar can affect the Company's ability to increase its revenue within those markets, all of which may adversely impact the Company's business, financial condition and operating results.

The Company could be subject to fines, penalties or other sanctions as a result of a joint inquiry by the SEC and U.S. Attorney's Office.

   Since February 2002, the Company has been cooperating with a joint inquiry by the staff of the Northeast Regional Office of the Securities and Exchange Commission and the United States Attorney's Office for the Eastern District of New York concerning certain of the Company's accounting practices. See "Item 3. Legal Proceedings." Although the Company is unable at this point to predict the scope or outcome of this inquiry, it is possible that it could result in the institution of administrative, civil injunctive or criminal proceedings, the imposition of fines and penalties, and/ or other remedies and sanctions. The conduct of these proceedings could negatively impact the Company's stock price. In addition, the Company expects to continue to incur expenses associated with responding to these agencies, regardless of the outcome and this may divert the efforts and attention of the Company's management team from normal business operations.

The Company may become dependent upon large transactions.

   The Company has historically been dependent upon large dollar enterprise transactions with individual customers. As a result of the flexibility afforded by the new Business Model, the Company anticipates that there will be fewer of these transactions in the future. There can be no assurances, however, that the Company will not be reliant on large dollar enterprise transactions in the future and the failure to close such transactions could adversely affect the Company's business, financial conditions and operating results.

A large portion of business is consummated at the end of each quarter.

   Historically, a significant percentage of the Company's quarterly transactions are finalized in the last few days of the quarter, which may impact financial performance. One of the intended benefits the Company anticipates from the new Business Model will be a more predictable revenue stream throughout the quarter. Even as customers continue to transition to the new Business Model, it is still likely that a large number of transactions will be consummated in the last few days of the quarter, with the risk that some of these may not become final. Failure to finalize transactions in the last few days of the quarter could adversely affect the Company's business, financial condition and operating results.

Growth depends upon successful integration of acquisitions.

   The Company's growth strategy is based upon internal development of technology, selective acquisitions and integration of such acquisitions into ongoing operations. Implementation of this growth strategy may result in strains on the Company's management team, internal systems and financial resources. Difficulties encountered in successfully integrating acquired companies and products may adversely affect the Company's business, financial condition and operating results.

The Company has a significant amount of debt.

   As of March 31, 2002, the Company had approximately $3.8 billion of debt outstanding consisting of bank credit lines, unsecured fixed-rate senior note obligations, convertible senior notes, commercial paper and unsecured multi-currency credit facilities. The Company expects that existing cash, cash equivalents, marketable securities, expected cash provided from operations and the anticipated renewal of bank credit facilities will be sufficient to meet ongoing cash requirements. Failure to generate sufficient cash as the debt becomes due or to renew credit lines prior to their expiration may adversely affect the Company's business, financial condition and operating results.

The Company's credit ratings have been downgraded and could be downgraded further.

   In March 2002, Moody's Investors Service downgraded the Company's senior unsecured long-term debt rating and shifted its rating outlook on the Company from stable to negative. In addition, in February 2002 Standard & Poor's revised its rating outlook on the Company from stable to negative. The Company cannot assure investors that Moody's, Standard & Poor's or any other rating agency will not further downgrade the Company's credit ratings in the future. If the Company's credit ratings are downgraded, it could be required to, among other things, pay additional interest under its credit agreements or other debt. Any such downgrades could also affect the ability of the Company to obtain additional financing in the future and will affect the terms of any such financing.

The Company's stock price may continue to be volatile.

   The Company's stock price is subject to significant fluctuations in response to variations in quarterly operating results, the gain or loss of significant contracts, changes in earnings estimates by analysts, announcements of technological innovations or new products by the Company or the Company's competitors, changes in domestic and international economic and business conditions, general conditions in the software and computer industries and other events or factors. In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price of many companies in industries similar or related to the Company's and that have been unrelated to the operating performance of these companies. These market fluctuations have in the past adversely affected and may continue to adversely affect the market price of the Company's common stock.

Acts of terrorism or war may adversely affect the Company's business.

   Acts of terrorism, acts of war and other unforeseen events, may cause damage or disruption to the Company's properties, business, employees, suppliers, distributors, resellers and customers, which could have an adverse effect on the Company's business, financial condition and operating results. Such events may also result in an economic slowdown in the United States or elsewhere, which could adversely affect the Company's business, financial condition and operating results.

Item 7(a). Quantitative and Qualitative Disclosures About Market Risk

   Interest Rate Risk

   The Company's exposure to market rate risk for changes in interest rates relates primarily to the Company's investment portfolio, debt payable and installment accounts receivable. The Company has a prescribed methodology whereby it invests its excess cash in debt instruments of government agencies and high quality corporate issuers (Standard & Poor's single "A" rating and higher). To mitigate risk, many of the securities have a maturity date within one year, and holdings of any one issuer excluding the U.S. Government do not exceed 10% of the portfolio. Periodically, the portfolio is reviewed and adjusted if the credit rating of a security held has deteriorated. The Company does not utilize derivative financial instruments.

   The Company maintains a blend of both fixed and floating rate debt instruments. As of March 31, 2002, the Company's outstanding debt approximated $3.8 billion, with approximately $2.5 billion in fixed rate obligations. If market rates were to decline, the Company could be required to make payments on the fixed rate debt that would exceed those based on current market rates. Each 25 basis point decrease in interest rates would have an associated annual opportunity cost of approximately $6 million. Each 25 basis point increase or decrease in interest rates would have an approximately $3 million annual effect on variable rate debt interest based on the balances of such debt as of March 31, 2002.

   The Company offers financing arrangements with installment payment terms in connection with its software solution sales. The aggregate contract value under the old Business Model includes an imputed interest element, which can vary with the interest rate environment. Each 25 basis point increase in interest rates would have an associated annual opportunity cost of approximately $9 million.

   Foreign Currency Exchange Risk

   The Company conducts business on a worldwide basis through branches and subsidiaries in 45 countries. The Company is therefore exposed to movement in currency exchange rates. As part of its risk management strategy and consistent with prior years, the Company did not enter into any foreign exchange derivative transactions. In addition, the Company manages its level of exposure by denominating international sales and payments of related expense in the local currency of its subsidiaries. A 1% decline in all foreign currencies against the U.S. dollar would have an insignificant effect on the Company's net (loss) income.

   Equity Price Risk

   The Company has minimal investments in marketable equity securities of publicly-traded companies. As of March 31, 2002, these investments were considered available-for-sale with any unrealized gains or losses deferred as a component of stockholders' equity. It is not customary for the Company to make investments in equity securities as part of its investment strategy.

Item 8. Financial Statements and Supplementary Data

   The Financial Statements of the Company are listed in the Index to Financial Statements filed as part of this Form 10-K and are incorporated herein by reference.

   The Supplementary Data specified by Item 302 of Regulation S-K as it relates to selected quarterly data is included in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." Information on the effects of changing prices is not required.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

   Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant

   Reference is made to the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant's fiscal year for information concerning directors, which information is incorporated herein by reference, and to Part I of this Annual Report on Form 10-K for information concerning executive officers under the caption "Executive Officers of the Registrant."

Item 11. Executive Compensation

   Reference is made to the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant's fiscal year for information concerning executive compensation, which information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

   Reference is made to the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant's fiscal year for information concerning security ownership of each person known by the Company to own beneficially more than 5% of the Company's outstanding shares of Common Stock, of each director of the Company and all executive officers and directors as a group and equity compensation plan information, which information is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

   Reference is made to the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant's fiscal year for information concerning certain relationships and related transactions, which information is incorporated herein by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)

(1) The Registrant's financial statements together with a separate table of contents are annexed hereto.

 

(2) Financial Statement Schedules are listed in the separate table of contents annexed hereto.

 

(3) Exhibits.

Regulation S-K Exhibit Number

     
       

3.1

Restated Certificate of Incorporation.

 

Previously filed as an Exhibit to the Company's Form 10-Q for the fiscal quarter ended December 31, 1998 and incorporated herein by reference.

       

3.2

By-Laws.

 

Previously filed as an Exhibit to the Company's Form 10-Q for the fiscal quarter ended December 31, 1998 and incorporated herein by reference.

       

4.1

Certificate of Designation of Series One Junior Participating Preferred Stock, Class A of the Company.

 

Previously filed as Exhibit 3 to the Company's Current Report on Form 8-K dated June 18, 1991 and incorporated herein by reference.

       

4.2

Rights Agreement dated as of June 18, 1991 between the Company and Man-ufacturers Hanover Trust Company.

 

Previously filed as Exhibit 4 to the Company's Current Report on Form 8-K dated June 18, 1991 and incorporated herein by reference.

       

4.3

Amendment No. 1 dated May 17, 1995 to Rights Agreement dated as of June 18, 1991.

 

Previously filed as Exhibit C to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and incorporated herein by reference.

       

4.4

Amendment No. 2 dated May 23, 2001 to Rights Agreement dated as of June 18, 1991.

 

Previously filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2001 and incorporated herein by reference.

       

4.5

Amendment No. 3 dated November 9, 2001 to Rights Agreement dated as of June 18, 1991.

 

Previously filed as Exhibit 99.1 to the Company's Form 8-K dated November 9, 2001 and incorporated herein by reference.

       

4.6

Indenture with respect to the Com-pany's $1.75 billion Senior Notes, dated April 24, 1998 between the Company and The Chase Manhattan Bank, as Trustee.

 

Previously filed as Exhibit 4(f) to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and incorporated herein by reference.

       

4.7

Indenture with respect to the Company's 5% Convertible Senior Notes due 2007, dated March 18, 2002, between the Company and State Street Bank and Trust Company, as Trustee.

 

Filed herewith.

       

4.8

Registration Rights Agreement dated March 18, 2002 among the Company and the Initial Purchasers of the 5% Convertible Senior Notes.

 

Filed herewith.

       

4.9

Purchase Agreement dated March 13, 2002 among the Initial Purchasers of the Convertible Senior Notes and the Company.

 

Filed herewith.

       

10.1*

1987 Non-Statutory Stock Option Plan.

 

Previously filed as Appendix C to the Company's definitive Proxy Statement dated July 1, 1987 and incorporated herein by reference.

       

10.2*

Amendment No. 1 to the 1987 Non-Statutory Stock Option Plan dated October 20, 1993.

 

Previously filed as Exhibit C to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 and incorporated herein by reference.

       

10.3*

1991 Stock Incentive Plan, as amended.

 

Previously filed as Exhibit 1 to the Company's Form 10-Q for the fiscal quarter ended September 30, 1997 and incorporated herein by reference.

       

10.4*

1993 Stock Option Plan for Non-Employee Directors.

 

Previously filed as Annex 1 to the Company's definitive Proxy Statement dated July 7, 1993 and incorporated herein by reference.

       

10.5*

Amendment No. 1 to the 1993 Stock Option Plan for Non-Employee Direc-tors dated October 20, 1993.

 

Previously filed as Exhibit E to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 and incorporated herein by reference.

       

10.6*

1994 Annual Incentive Compensation Plan, as amended.

 

Previously filed as Exhibit A to the Company's definitive Proxy Statement dated July 7, 1995 and incorporated herein by reference.

       

10.7*

1995 Key Employee Stock Ownership Plan.

 

Previously filed as Exhibit B to the Company's definitive Proxy Statement dated July 7, 1995 and incorporated herein by reference.

       

10.8

Credit Agreement dated as of May 26, 1999 among the Company, the Banks, which are parties thereto and Credit Suisse First Boston, as agent, with respect to $3 billion Term and Revolv-ing Loan.

 

Previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated May 28, 1999 and incorporated herein by reference.

       

10.9

First Amendment to the Amended and Restated Credit Agreement dated May 26, 1999.

 

Previously filed as Exhibit 99.2 to the Company's Form 10-Q for the fiscal quarter ended December 31, 2000 and incorporated herein by reference.

       

10.10*

1996 Deferred Stock Plan for Non-Employee Directors.

 

Previously filed as Exhibit D to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference.

       

10.11*

Amendment No. 1 to the 1996 Deferred Stock Plan for Non-Employee Directors.

 

Previously filed on Exhibit A to the Company's Proxy Statement dated July 6, 1998 and incorporated herein by reference.

       

10.12*

1998 Incentive Award Plan.

 

Previously filed on Exhibit B to the Company's Proxy Statement dated July 6, 1998 and incorporated herein by reference.

       

10.13*

Year 2000 Employee Stock Purchase Plan.

 

Previously filed on Exhibit A to the Company's Proxy Statement dated July 12, 1999 and incorporated herein by reference.

       

10.14

Note Purchase Agreement dated as of April 1, 1996.

 

Previously filed as Exhibit D to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference.

       

10.15

Amendment No. 1 to Note Purchase Agreement dated as of April 1, 1996.

 

Previously filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2001 and incorporated herein by reference.

       

10.16*

2001 Stock Option Plan.

 

Previously filed as Exhibit B to the Company's Proxy Statement dated July 18, 2001 and incorporated herein by reference.

       

21

Subsidiaries of the Registrant.

 

Filed herewith.

       

23

Consent of KPMG LLP.

 

Filed herewith.



* Management contract or compensatory plan or arrangement.

(b)

Reports on Form 8-K.

 

The Registrant filed a Report on Form 8-K dated January 22, 2002 to report an event under Items 5 and 7.

 

The Registrant filed a Report on Form 8-K dated February 4, 2002 to report an event under Items 5 and 7.

 

The Registrant filed a Report on Form 8-K dated February 6, 2002 to report an event under Items 5 and 7.

 

The Registrant filed a Report on Form 8-K dated February 8, 2002 to report an event under Items 5 and 7.

 

The Registrant filed a Report on Form 8-K dated February 22, 2002 to report an event under Items 5 and 7.

 

The Registrant filed a Report on Form 8-K dated February 25, 2002 to report an event under Items 5 and 7.

 

The Registrant filed a Report on Form 8-K dated March 4, 2002 to report an event under Items 5 and 7.

 

The Registrant filed a Report on Form 8-K dated March 20, 2002 to report an event under Items 5 and 7.

 

The Registrant filed a Report on Form 8-K dated March 28, 2002 to report an event under Items 5 and 7.

(c)

Exhibits: See Index to Exhibits.

(d)

Financial Statement Schedules: The response to this portion of Item 14 is submitted as a separate section of this report.

SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

COMPUTER ASSOCIATES INTERNATIONAL, INC.

     
     
 

By                    /s/ SANJAY KUMAR                  

   

Sanjay Kumar

   

President and Chief

   

Executive Officer

     
 

By                    /s/ IRA H. ZAR                  

   

Ira H. Zar

   

Executive Vice President - Finance

   

Principal Financial and Accounting Officer

Dated: May 14, 2002

   

   Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:

 

          Name   

 

   Title   

 
         

          /s/ CHARLES B. WANG          

 

Chairman and Director

 
 

Charles B. Wang

     
         

          /s/ SANJAY KUMAR              

 

President, Chief Executive Officer

 
 

Sanjay Kumar

 

and Director

 
         

          /s/ RUSSELL M. ARTZT          

 

Director

 
 

Russell M. Artzt

     
         

          /s/ ALFONSE M. D'AMATO      

 

Director

 
 

Alfonse M. D'Amato

     
         

          /s/ WILLEM F.P. de VOGEL     

 

Director

 
 

Willem F.P. de Vogel

     
         

          /s/ RICHARD A. GRASSO       

 

Director

 
 

Richard A. Grasso

     
         

          /s/ SHIRLEY STRUM KENNY   

 

Director

 
 

Shirley Strum Kenny

     
       

          /s/ JAY W. LORSCH             

 

Director

 
 

Jay W. Lorsch

     
         

          /s/ ROEL PIEPER                

 

Director

 
 

Roel Pieper

     
         

          /s/ LEWIS S. RANIERI          

 

Director

 
 

Lewis S. Ranieri

     
       

          /s/ WALTER P. SCHUETZE          

 

Director

 
 

Walter P. Schuetze

     
         

Dated: May 14, 2002

     

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
ISLANDIA, NEW YORK

 

ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d)

LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES

 

YEAR ENDED MARCH 31, 2002



 

Page

   

   The following consolidated financial statements of Computer Associates International, Inc. and subsidiaries are included in Item 8:

 
   

Report of Independent Auditors

Consolidated Statements of Operations - Years Ended March 31, 2002, 2001 and 2000

Consolidated Balance Sheets - March 31, 2002 and 2001

Consolidated Statements of Stockholders' Equity - Years Ended March 31, 2002,
2001 and 2000

Consolidated Statements of Cash Flows - Years Ended March 31, 2002, 2001 and 2000

Notes to the Consolidated Financial Statements

34

35

36


38

39

40

   

   The following consolidated financial statement schedule of Computer Associates International, Inc. and subsidiaries is included in Item 14(d):

 
   

Schedule II - Valuation and Qualifying Accounts

58

   All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

 

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Computer Associates International, Inc.

   We have audited the accompanying consolidated balance sheets of Computer Associates International, Inc. and subsidiaries as of March 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three year period ended March 31, 2002. Our audits also included the financial statement schedule as of and for the years ended March 31, 2002, 2001 and 2000 listed in the Index at Item 14(a). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

   We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Computer Associates International, Inc. and subsidiaries at March 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the years in the three year period ended March 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

 

KPMG LLP

New York, New York

May 10, 2002

 

 

 

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

   
 

Year Ended March 31,

 

2002

  2001

2000

 

(in millions, except per share amounts)

Revenue:

                 

Subscription revenue
Software fees and other
Maintenance
Financing fees
Professional services
TOTAL REVENUE

$

827
432
958
444
   303
2,964

 

$

59
1,881
1,087
638
   525
4,190

 

$

-
4,179
877
529
   509
6,094

 
                   

Operating Expenses:

                 

Amortization of capitalized software costs
Cost of professional services
Selling, general and administrative
Product development and enhancements
Commissions and royalties
Depreciation and amortization of goodwill and other
intangibles
Purchased research and development
1995 Stock Plan
TOTAL OPERATING EXPENSES

(Loss) income before other expenses

Interest expense, net

(Loss) income before income taxes
Income taxes
NET (LOSS) INCOME


















$

487
283
1,790
678
275

609
-
       -
4,122

(1,158

  227

(1,385
  (283
(1,102












)



)
)
)


















$

492
463
2,120
695
308

618
-
 (184
4,512

(322

   344

(666
   (75
  (591









)


)



)
)
)


















$

271
446
1,462
568
300

323
795
       -
4,165

1,929

   339

1,590
   894
   696



                   

BASIC (LOSS) EARNINGS PER SHARE

$

(1.91

)

$

 (1.02

)

$

  1.29

 

Basic weighted-average shares
   used in computation

 


577

   


582

   


539

 
                   

DILUTED (LOSS) EARNINGS PER SHARE

$

(1.91

)

$

(1.02

)

$

  1.25

 

Diluted weighted-average shares
   used in computation

 


577


*

 


582


*

 


557

 
                   

* Common share equivalents are not included since their effect would be antidilutive.

 
                   

See Notes to the Consolidated Financial Statements.

                 

 

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

     
 

March 31,

ASSETS

2002

       2001

 

(dollars in millions)

CURRENT ASSETS

       

Cash and cash equivalents
Marketable securities
Trade and installment accounts receivable, net
Deferred income taxes
Other current assets

TOTAL CURRENT ASSETS

$

1,093
87
1,825
-
      56

3,061

$

763
87
1,788
106
      65

2,809

INSTALLMENT ACCOUNTS RECEIVABLE, due after one year, net

 

1,566

 

2,883

PROPERTY AND EQUIPMENT

       

Land and buildings
Equipment, furniture and improvements

Accumulated depreciation and amortization

TOTAL PROPERTY AND EQUIPMENT, net

 

531
    857
1,388
    670

718

 

524
     839
1,363
     569

794


       

PURCHASED SOFTWARE PRODUCTS, net of accumulated

       

  amortization of $2,648 and $2,193, respectively

 

1,836

 

2,328


       

GOODWILL AND OTHER INTANGIBLE ASSETS, net of

       

  accumulated amortization of $1,524 and $1,023, respectively


 

4,835

 

5,400

OTHER ASSETS


 

     210

 

     222

TOTAL ASSETS

$

12,226

$

14,436

         

See Notes to the Consolidated Financial Statements.

       

 

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

     
 

March 31,

LIABILITIES AND STOCKHOLDERS' EQUITY

2002

    2001

 

(dollars in millions)

CURRENT LIABILITIES

           

Loans payable and current portion of long-term debt
Accounts payable
Salaries, wages and commissions
Accrued expenses and other current liabilities
Deferred subscription revenue (collected) - current
Taxes payable, other than income taxes payable
Federal, state and foreign income taxes payable
Deferred income taxes

TOTAL CURRENT LIABILITIES

$

508
208
236
474
577
116
195
      7

2,321

 

$

816
272
196
613
166
132
257
        -

2,452

 
             

LONG-TERM DEBT, net of current portion

 

3,334

   

3,629

 
             

DEFERRED INCOME TAXES

 

1,267

   

1,900

 

DEFERRED SUBSCRIPTION REVENUE

           

  (COLLECTED) - NON-CURRENT

 

208

   

127

 
             

DEFERRED MAINTENANCE REVENUE

 

456

   

538

 
             

OTHER NON-CURRENT LIABILITIES

 

23

   

10

 
             

STOCKHOLDERS' EQUITY

           

Preferred stock, no par value, 10,000,000 shares authorized,

           

  no shares issued
Common stock, $.10 par value, 1,100,000,000 shares authorized

 

-

   

-

 

  630,920,576 shares issued
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost - 53,739,842 shares for 2002 and

 

63
3,878
2,335
(361




)

 

63
3,936
3,483
(388




)

  55,223,485 shares for 2001

 

 (1,298

)

 

 (1,314

)

  TOTAL STOCKHOLDERS' EQUITY

 

 4,617

   

 5,780

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

12,226

 

$

14,436

 
             

See Notes to the Consolidated Financial Statements.

           

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

     

       

Accumulated

   
   

Additional  

 

Other

 

Total

 

Common

Paid-In  

Retained

Comprehensive

Treasury

Stockholders'

 

Stock

Capital  

Earnings

Loss

Stock

Equity

 

(in millions, except dividends declared per share)

Balance at March 31, 1999

Net income
Translation adjustment

$63

$1,141 

$3,468 

696 

$(180)

$(1,763)

$2,729 

696 

 

   in 2000
Reclassification adjustment

     

(91)

 

(91)

 

   included in net income
Comprehensive income
Dividends declared

     

(9)

 

      (9)
596 

 

   ($.080 per share)
Exercise of common stock

 


(43)

   

(43)

 

   options and other
Business acquisitions
401(k) discretionary contribution
Balance at March 31, 2000

Net loss
Translation adjustment



      
63


2,742 
       10 
3,902 



          
4,121 

(591)



        
(280)

117 
867 
    10 
(769)

126 
3,609 
     20 
7,037 

(591)

 

   in 2001
Unrealized gains on equity

     

(109)

 

(109)

 

   securities, net of tax
Comprehensive loss
Dividends declared

     

 

      1 
(699)

 

   ($.080 per share)
Exercise of common stock

   

(47)

   

(47)

 

   options, ESPP and other
1995 Stock Plan
401(k) discretionary contribution
Purchases of treasury stock
Balance at March 31, 2001

Net loss
Translation adjustment




      
63

17 

17 
            
3,936 




          
3,483 

(1,102)




        
(388)

80 
(184)

     (449)
(1,314)

97 
(184)
25 
     (449)
5,780 

(1,102)

 

   in 2002
Unrealized loss on equity

     

31 

 

31 

 

   securities, net of tax
Comprehensive loss
Dividends declared

     

(4)

 

     (4)
(1,075)

 

   ($.080 per share)
Purchase of a call spread option

 


(95)

(46)

   

(46)
(95)

 

Exercise of common stock

             

   options, ESPP
401(k) discretionary contribution
Purchases of treasury stock
Balance at March 31, 2002



      
$63

33 

           
$3,878 



            
$2,335 



          
$(361)

91 
20 
       (95)
$(1,298)

124 
24 
      (95)
$4,617 

 
           

See notes to the Consolidated Financial Statements.

       

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Year Ended March 31,

 

2002

2001

   2000

 

(in millions)

OPERATING ACTIVITIES:

                 

Net (loss) income
 Adjustments to reconcile net (loss) income to net cash

$

(1,102

)

$

(591

)

$

696

 

   provided by operating activities:

                 

 Depreciation and amortization
 Provision for deferred income taxes
 Charge for purchased research and development
 Compensation expense (gain) related to stock and pension plans
 Decrease (increase) in noncurrent installment accounts
receivable, net
 Increase in deferred subscription revenue (collected) - non-current
 (Decrease) increase in deferred maintenance revenue
 Foreign currency transaction loss - before taxes
 Impairment charge
 Gain on sale of property and equipment
 Changes in other operating assets and liabilities,

 

1,096
(544
-
24

1,316
81
(81
6
59
-


)





)

 

1,110
(350
-
(146

828
127
(3
14
-
-


)

)



)

 

594
412
795
30

(1,039
-
113
5
50
(5






)




)

  net of effect of acquisitions:

                 

   (Increase) decrease in trade and installment receivables, net
- current
   Increase in deferred subscription revenue (collected) - current
   Other changes in operating assets and liabilities
  NET CASH PROVIDED BY OPERATING ACTIVITIES

 


(45
415
    26
1,251


)

 


253
166
   (25
1,383




)

 


83
-
  (168
1,566




)

                   

INVESTING ACTIVITIES:

                 

Acquisitions, primarily purchased software, marketing

                 

 rights and intangibles, net of cash acquired
Settlements of purchase accounting liabilities
Purchases of property and equipment
Proceeds from sale of property and equipment
Disposition of businesses
Purchases of marketable securities
Sales of marketable securities
Increase in capitalized development costs and other
  NET CASH USED IN INVESTING ACTIVITIES

 

(2
(59
(25
-
-
(38
36
    (53
(141

)
)
)


)

)
)

 

(174
(367
(89
5
158
(48
40
    (49
(524

)
)
)


)

)
)

 

(3,049
(429
(198
12
-
(95
189
   (36
(3,606

)
)
)


)

)
)

                   

FINANCING ACTIVITIES:

                 

Dividends paid
Purchases of treasury stock
Proceeds from borrowings
Repayments of borrowings
Purchase of a call spread option
Exercise of common stock options and other
  NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

 

(46
(95
3,387
(3,967
(95
     40
(776

)
)

)
)

)

 

(47
(449
1,049
(1,981
-
      50
(1,378

)
)

)


)

 

(43
-
3,672
(776
-
    96
2,949

)


)

                   

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

                 

BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

334

   

(519

)

 

909

 
                   

Effect of exchange rate changes on cash

 

      (4

)

 

     (25

)

 

     (1

)

                   

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

330

   

(544

)

 

908

 
                   

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR

 

   763

   

1,307

   

   399

 
                   

CASH AND CASH EQUIVALENTS - END OF YEAR

$

1,093

 

$

    763

 

$

 1,307

 
                   

See Notes to the Consolidated Financial Statements.

                 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Significant Accounting Policies

   Description of Business: Computer Associates International, Inc. and subsidiaries (the "Company") designs, develops, markets, licenses and supports a wide range of integrated enterprise computer software solutions.

   Principles of Consolidation: The Consolidated Financial Statements include the accounts of the Company and its majority owned and controlled subsidiaries. Investments in affiliates owned 50% or less are accounted for by the equity method with liabilities of approximately $5 million. Intercompany balances and transactions have been eliminated in consolidation.

   Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, these estimates may ultimately differ from actual results.

   Translation of Foreign Currencies: Foreign currency assets and liabilities of the Company's international subsidiaries are translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average exchange rates prevailing throughout the year. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as part of the foreign currency translation adjustment in Stockholders' Equity. Gains and losses from foreign currency transactions are included in the "Selling, general and administrative" ("SG&A") line item on the Consolidated Statements of Operations in the period in which they occur. Net (loss) income includes exchange transaction losses of approximately $4 million, $9 million and $3 million in the fiscal years ended March 31, 2002, 2001 and 2000, respectively.

   Basis of Revenue Recognition: The Company derives revenue from licensing software products and providing post-contract customer support (hereafter referred to as "maintenance") and professional services, such as consulting and education services. The Company licenses its software products to end users primarily through the Company's direct sales force.

   The Company licenses to customers the right to use its software products pursuant to software license agreements (hereafter referred to as a "license arrangement"). The license arrangement generally restricts the customer's right to use the Company's enterprise software products as specified in the license arrangement. The license arrangements' original terms generally range from one to ten years for license arrangements prior to December 2000 and one to five years for license arrangements beginning in December 2000. In addition, customers can subscribe to software arrangements under month-to-month licenses beginning in December 2000. The timing and amount of license revenue recognized during an accounting period is determined by the nature of the contractual provisions included in the license arrangement with customers.

   Beginning in December 2000, the Company began executing software license arrangements that include flexible contractual provisions that, among other things, allow customers to receive unspecified future software products within designated product lines. Under these arrangements (referred to as the "new Business Model"), the Company is required to recognize revenue attributable to the software products ratably over the term of the license arrangement commencing upon delivery of the currently available software products.

   The Company recognizes revenue pursuant to the requirements of the American Institute of Certified Public Accountants ("AICPA") Statement of Position No. 97-2 "Software Revenue Recognition" ("SOP 97-2"), issued in October 1997, as amended by AICPA Statement of Position No. 98-4 and No. 98-9. SOP 97-2 was effective for the Company April 1, 1998. Amendment 98-4 deferred for one year to April 1, 1999, the effective date of certain SOP 97-2 provisions pertaining to multiple-element arrangements. SOP 98-9 amended SOP 97-2 and requires recognition of revenue under the "residual method" when certain criteria are met and was effective for the Company April 1, 1999. These statements set forth GAAP for recognizing revenue on software transactions and establish four criteria necessary in order to recognize revenue - persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. Under the residual method, revenue is recognized in a multiple element arrangement when company-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. At the outset of the arrangement with the customer, the Company defers revenue for the fair value of its undelivered elements (e.g., maintenance, consulting, education services) and recognizes revenue for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement when the criteria in SOP 97-2 have been met. For

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 1 - Significant Accounting Policies (Continued)

license arrangements prior to December 2000 (referred to as the "old Business Model"), once the four criteria in SOP 97-2 were met, revenue was recognized up-front for such delivered elements. Under the new Business Model, once the four criteria are met, revenue attributable to license and maintenance fees is recognized ratably over the arrangement term as the terms of such arrangements provide for flexible contractual provisions, such as "unspecified future deliverables."

   Subscription Revenue: Subscription revenue represents the ratable recognition of revenue by the Company attributable to license arrangements under the new Business Model.

   Deferred subscription revenue, in general, represents the aggregate portion of all undiscounted contractual and committed license and maintenance fees pursuant to all new Business Model arrangements that has not yet been recognized as revenue on a ratable basis over the life of the license arrangement.

   Beginning in fiscal year 2002, the Company has disaggregated the total deferred subscription revenue into two components, the amount of cash collected in excess of the amount recognized as revenue and the amount that has not yet been collected that has not been recognized as revenue. Each appear within the Company's Consolidated Balance Sheets as "Deferred subscription revenue (collected)," and as "Deferred subscription revenue," a component of installment accounts receivable, respectively. The components of installment accounts receivables are detailed in Note 5. Each of these components is further classified as either current or non-current. Balances applicable to fiscal year 2001 have been reclassified for comparability purposes.

   Software Fees and Other: Prior to December 2000, the Company executed software license arrangements that included contractual provisions that resulted in the recognition of revenue attributable to the software products upon delivery of the software products, provided that the arrangement fee was fixed or determinable, collectibility of the fee was probable and persuasive evidence of an arrangement existed.

   The Company has a standard business practice of entering into long term installment contracts with customers. The Company has a history of enforcing the contract terms and successfully collecting under such arrangements, and therefore considers such fees fixed or determinable.

  The Company also enters into license arrangements with distribution partners whereby revenue is recognized upon sell-through to the end user by the distribution partner.

   Maintenance: For arrangements executed under the old Business Model, maintenance was bundled for a portion of the term of the license arrangement. Under these arrangements, the fair value of the maintenance, which was based on optional annual renewal rates stated in the arrangement, initially was deferred and subsequently amortized into revenue over the initial contractual term of the arrangement. Maintenance renewals have been recognized ratably over the term of the renewal arrangement. The Company has recently experienced maintenance renewal rates on such contracts of approximately 80%.

   The "Deferred maintenance revenue" line item on the Company's Consolidated Balance Sheets principally represents payments received in advance of services rendered as of the balance sheet dates.

   For arrangements executed under the new Business Model, maintenance is bundled for the entire term of the license arrangement. Under these arrangements, maintenance revenue is included in subscription revenue and is recognized ratably over the term of the license arrangement, along with the license fee, commencing upon delivery of the currently available software products.

   Financing Fees: Accounts receivable resulting from old Business Model product sales with extended payment terms are discounted to present value at prevailing market rates. In subsequent periods, the receivable is increased to the amount due and payable by the customer through the accretion of financing revenue on the unpaid receivables due in future years.

   Professional Services: Professional services revenue is derived from the Company's consulting services and educational programs. The fair value of the professional services, which is based on fees charged to customers when the related services are sold separately or under time and materials contracts, initially is deferred and subsequently recognized as revenue when the services are performed. For professional services rendered pursuant to a fixed-price contract, revenue is recognized on the percentage-of-completion method.

   Marketable Securities: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 1 - Significant Accounting Policies (Continued)

   The Company has determined that all of its investment securities are to be classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in Stockholders' Equity under the caption "Accumulated Other Comprehensive Loss." The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in SG&A expenses. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

   Fair Value of Financial Instruments: The fair value of the Company's cash and cash equivalents, accounts payable and accrued expense amounts approximate their carrying value. See Notes 3, 5 and 6 for the fair value related to the Company's investments, accounts receivable and debt payable, respectively.

   Statement of Cash Flows: Interest payments for the fiscal years ended March 31, 2002, 2001 and 2000 were $239 million, $344 million and $319 million, respectively. Income taxes paid for these fiscal years were $277 million, $317 million and $368 million, respectively.

   Concentration of Credit Risk: Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of marketable securities and accounts receivable. The Company's marketable securities consist primarily of high quality securities with limited exposure to any single instrument. The Company's accounts receivable balances have limited exposure to concentration of credit risk due to the diverse customer base and geographic areas covered by operations.

   Property and Equipment: Land, buildings, equipment, furniture and improvements are stated at cost. Depreciation and amortization are provided over the estimated useful lives of the assets by the straight-line method. Building and improvements are generally estimated to have 30 to 40 year lives and the remaining property and equipment are estimated to have 5 to 7 year lives.

   Accounting for Stock-Based Compensation: The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees" and related interpretations. Pro forma net (loss) income and net (loss) income per share disclosures required by SFAS 123 "Accounting for Stock-Based Compensation," are included in Note 9.

   Goodwill: Goodwill represents the excess of the aggregate purchase price over the fair value of the tangible and identifiable assets and in-process research and development acquired by the Company in a purchase business combination. The Company amortizes goodwill over its estimated useful life, which ranges from 10 to 20 years, depending on the nature of the business acquired. The Company recorded amortization of goodwill for the fiscal years ended March 31, 2002, 2001 and 2000 of $429 million, $470 million and $221 million, respectively. Unamortized goodwill at March 31, 2002 and 2001 was $4,483 million and $4,976 million, respectively. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. This statement is effective for fiscal years beginning after December 15, 2001. Under the non-amortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead will be reviewed for impairment and written down and charged to results of operations only in periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The Company is having an independent valuation analysis completed and does not anticipate any material transitional impairment; however, future impairment reviews may result in future periodic write-downs. SFAS 142 will have the effect of eliminating the Company's amortization of goodwill commencing April 1, 2002.

   Capitalized Software Costs: Capitalized software costs include the fair value of rights to market software products acquired in purchase business combinations ("Purchased Software Products"). In allocating the purchase price to the assets acquired in a purchase business combination, the Company allocates a portion of the purchase price equal to the fair value at the acquisition date of the rights to market the software products of the acquired company. The Company recorded amortization of Purchased Software Products for the fiscal years ended March 31, 2002, 2001 and 2000 of $455 million, $467 million and $250 million, respectively, which were included in the "Amortization of capitalized software costs" line item on the accompanying Consolidated Statements of Operations.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 1 - Significant Accounting Policies (Continued)

   In accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," internally-generated software development costs associated with new products and significant enhancements to existing software products are expensed as incurred until technological feasibility has been established. Internally-generated software development costs of $53 million, $49 million and $36 million were capitalized during fiscal years 2002, 2001 and 2000, respectively. The Company recorded amortization of $32 million, $25 million and $21 million for the fiscal years ended March 31, 2002, 2001 and 2000, respectively, which was included in the "Amortization of capitalized software costs" line item on the accompanying Consolidated Statements of Operations. Unamortized internally-generated software development costs included in the Other Assets line item on the accompanying Consolidated Balance Sheets as of March 31, 2002 and 2001 were $130 million and $111 million, respectively.

   Annual amortization of capitalized software costs is the greater of the amount computed using (i) the ratio that current gross revenue for a product bears to the total of current and anticipated future revenue for that product or (ii) the straight-line method over the remaining estimated economic life of the product. The Company amortized capitalized software costs using the straight-line method in fiscal years 2002, 2001 and 2000, as anticipated future revenue is projected to increase for several years considering the Company is continuously integrating current enterprise software technology into new solutions.

   The carrying values of goodwill, purchase software products, other intangible assets and other long-lived assets, including investments, are reviewed on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment, which includes an assessment of the net realizable value of capitalized software costs as of the balance sheet date. If an impairment is determined to exist, any related impairment loss is calculated based on net realizable value for capitalized software and fair value for all other intangibles.

   Net (Loss) Earnings Per Share: Basic (loss) earnings per share and diluted (loss) earnings per share are computed by dividing net (loss) income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the sum of the weighted-average number of common shares outstanding for the period plus the assumed exercise of all dilutive securities, such as stock options and convertible securities.

 

Year Ended March 31,

 

2002

2001

2000

 

(in millions, except per share amounts)

Net (loss) income(1)

Diluted (Loss) Earnings Per Share

$(1,102)

$ (591)

$ 696

 

Weighted-average shares outstanding and

       

   common share equivalents(1)

Diluted (Loss) Earnings Per Share

   577 

$  (1.91)

  582 

$(1.02)

 557

$1.25

 

Diluted Share Computation

       

Weighted-average common shares outstanding
Weighted-average convertible Senior Note shares
outstanding
(2)
Weighted-average stock options outstanding, net

577 


    - 

582


    - 

539


   18

 

Weighted-average shares outstanding and

       

   common share equivalents(3)

  577

  582

  557

 

(1)

If the twelve-month period ended March 31, 2002 had resulted in net income, interest expense related to the convertible senior notes would have been added back to the net income in order to calculate diluted earnings per share. The related interest expense, net of tax, for the year ended March 31, 2002 totaled less than $1 million.

(2)

Beginning in fiscal year 2003, the common share equivalents related to convertible debt outstanding would amount to 27 million to the extent that they are not antidilutive.

(3)

For fiscal years 2002 and 2001, common share equivalents (convertible senior note shares and stock options) are not included since their effect would be antidilutive. If the twelve-month periods ended March 31, 2002 and 2001 had resulted in net income, the weighted-average shares outstanding and common share equivalents would have been 591 and 592 million, respectively.

 

Note 1 - Significant Accounting Policies (Continued)

   Comprehensive Loss: Comprehensive loss includes foreign currency translation adjustments and unrealized gains or losses on the Company's available-for-sale securities and reclassification adjustments for gains included in net (loss) income. As of March 31, 2002 and 2001, the accumulated comprehensive loss included a foreign currency translation loss of $358 million and $389 million, respectively, and an unrealized (loss) gain on equity securities of $(3) million and $1 million, respectively. The components of comprehensive loss, net of applicable tax, for the fiscal years ended March 31, 2002, 2001 and 2000, are included within the Consolidated Statements of Stockholders' Equity.

   Reclassifications: Certain prior years' balances have been reclassified to conform with the current year's presentation.

   The Emerging Issues Task Force ("EITF") of the FASB issued EITF 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products." This EITF is effective for annual and interim financial statements beginning after December 15, 2001. EITF 00-25, as further defined by EITF 01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)," requires, among other things, that payments made to resellers by the Company for cooperative advertising, buydowns and similar arrangements should be classified as reductions to net sales. Such payments, primarily consisting of rebates, incentives and other cooperative advertising type costs, totaled $13 million for the fiscal year ended March 31, 2002. The Company has historically reported such payments as a component of SG&A. To enable comparisons between fiscal 2002 results and the results of prior years, the Company has reclassified these payments in the prior years from SG&A to the "Software fees and other" line item. The impact of the reclassification reduces both software fees and other and SG&A by $16 million and $18 million in fiscal years 2001 and 2000, respectively. The reclassifications do not affect the Company's (loss) profit from operations, net (loss) income or basic and diluted (loss) earnings per share.

   The Emerging Issues Task Force issued EITF D-103, "Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred." This EITF is effective for financial reporting periods beginning after December 15, 2001. EITF D-103 requires that reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in the statement of operations. Such reimbursements totaled $8 million for the fiscal year ended March 31, 2002. The Company has historically reported such reimbursements as a component of SG&A. To enable comparisons between fiscal 2002 results and the results of prior years, the Company has reclassified these reimbursements in the prior years from SG&A to the "Professional services" revenue line item. The impact of the reclassification increases both professional services revenue and SG&A by $8 million and $9 million in fiscal years 2001 and 2000, respectively. The reclassifications do not affect the Company's (loss) profit from operations, net (loss) income or basic and diluted (loss) earnings per share.

   The Company has historically included the cost of professional services as components of the SG&A and "Commissions and royalties" line items on the Consolidated Statements of Operations. Beginning in fiscal year 2002, such costs have been included in the "Cost of professional services" line item. To enable comparisons between fiscal 2002 results and the results of prior years, the Company has reclassified these costs in the prior years from SG&A and commissions and royalties to cost of professional services. The impact of the reclassification reduces SG&A and increases cost of professional services by $437 million and $418 million in fiscal years 2001 and 2000, respectively, and reduces commissions and royalties and increases cost of professional services by $26 million and $28 million in fiscal years 2001 and 2000, respectively. The reclassifications do not affect the Company's (loss) profit from operations, net (loss) income or basic and diluted (loss) earnings per share.

   The Company has historically included the amortization of purchased software and internally developed capitalized software as a component of the "Depreciation and amortization" line item on the Consolidated Statements of Operations. Beginning in fiscal year 2002, such costs have been included in the "Amortization of capitalized software costs" line item. To enable comparisons between fiscal 2002 results and the results of prior years, the Company has reclassified these costs in the prior years from depreciation and amortization to amortization of capitalized software costs. In addition, the title of the line item "Depreciation and amortization" has been changed to "Depreciation and amortization of goodwill and other intangibles" to more fully describe the components of that line item. The impact of the reclassification reduces depreciation and amortization of goodwill and other intangibles and increases amortization of capitalized software costs by $492 million and $271 million in fiscal years 2001 and 2000, respectively. The reclassifications do not affect the Company's (loss) profit from operations, net (loss) income or basic and diluted (loss) earnings per share.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 1 - Significant Accounting Policies (Continued)

   Payments received in advance of the recognition of the related revenue for product license fees recorded under the new Business Model are shown as "Deferred subscription revenue (collected)" on the accompanying Consolidated Balance Sheets. See the "Subscription revenue" caption of Note 1 for additional information concerning this reclassification. At March 31, 2001, this amount was reflected in "Trade and installment accounts receivable, net" and "Installment accounts receivable."

Note 2 - Acquisitions

   On March 31, 2000, the Company acquired Sterling Software, Inc. ("Sterling") and merged one of its wholly owned subsidiaries into Sterling, at which time Sterling became a wholly owned subsidiary of the Company. The shareholders of Sterling received 0.5634 shares of the Company's common stock for each share of Sterling common stock. The Company issued approximately 46.8 million shares of common stock with an approximate fair value of $3.3 billion. Sterling was a developer and provider of systems management, business intelligence, and application development software products and services, as well as a supplier of specialized information technology services for sectors of the federal government.

   On May 28, 1999, the Company acquired the common stock and the options to acquire the common stock of PLATINUM technology International, inc. ("PLATINUM") in a cash transaction of approximately $3.6 billion, which was paid from drawings under the Company's $4.5 billion credit agreements. PLATINUM was engaged in providing software products in the areas of database management, eBusiness, application infrastructure management, decision support, data warehousing and knowledge management, as well as Year 2000 reengineering and other consulting services.

   The purchase price for the Sterling and PLATINUM acquisitions have been allocated to assets acquired and liabilities assumed based on their fair value at the dates of acquisitions, as adjusted within the allocation period, as follows:


Sterling

PLATINUM

 

(in millions)

Cash and cash equivalents
Deferred income taxes, net
Other assets, net
In-process research and development
Purchased software products
Goodwill and other intangibles(1)
Purchase Price

$





$

476 
(377)
109 
150 
1,532 
2,177 
4,067 

$





$

57 
(62)
141 
645 
972 
2,502 
4,255 


(1)

Includes an allocation for the assembled workforce, customer relationships, and trademarks/trade names

 

of $142 million and $337 million for Sterling and PLATINUM, respectively.

   An independent analysis using future product cash flow forecasts and percentage of product development completion assumptions was utilized to value the in-process research and development amounts which had not reached technological feasibility and had no alternative future use. Accordingly, $645 million and $150 million were expensed as non-recurring charges in fiscal year 2000 related to the PLATINUM and Sterling acquisitions, respectively.

   The following table reflects unaudited pro forma combined results of the operations of the Company, Sterling and PLATINUM, as adjusted within the allocation period, on the basis that the acquisitions had taken place at the beginning of fiscal year 2000 under the old Business Model:

 

Year Ended March 31,

 

2000

 

(in millions, except per share amounts)

Revenue
Net income
Basic earnings per share
Shares used in computation
Diluted earnings per share
Shares used in computation

$

$

$

7,073
362
..62
586
..60
604


 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 2 - Acquisitions (Continued)

   The following table reflects unaudited pro forma combined results of the operations of the Company, Sterling and PLATINUM, as adjusted within the allocation period, on the basis that the acquisitions had taken place at the beginning of fiscal year 2000 under the old Business Model. All special charges, net of taxes, including the purchased research and development charge for PLATINUM and Sterling in fiscal year 2000 of $645 million and $150 million, respectively, the non-cash charge of $32 million related to CHS Electronics, Inc. ("CHS") recorded in fiscal year 2000, and all special charges recorded by PLATINUM and Sterling in fiscal year 2000 have been excluded:

 

Year Ended March 31,

 

2000

 

(in millions, except per share amounts)

Revenue
Net income
Basic earnings per share
Shares used in computation
Diluted earnings per share
Shares used in computation

$

$

$

7,073
1,344
2.29
586
2.23
604


   In management's opinion, the pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of fiscal year 2000 and had been under the old Business Model or of future operations of the combined entities under the ownership and operation of the Company.

   On October 31, 2000, the Company completed the sale of Sterling's Federal Systems Group ("FSG"), a provider of government consulting services, for approximately $150 million in cash. Since the Company did not note the occurrence of any events or trends that would have impacted the fair value of FSG since the purchase of Sterling, the Company viewed the selling price of FSG as an indicator of its fair value and adjusted the allocation of Sterling's purchase price. As a result, no gain or loss was recorded on the sale.

   During fiscal years 2002, 2001 and 2000, the Company acquired other consulting businesses and product technologies in addition to the ones described above, which, individually or collectively, were not material to the consolidated financial statements taken as a whole. The excess of cost over net assets acquired is being amortized on a straight-line basis over the expected period to be benefited. The Consolidated Statements of Operations reflect the results of operations of the companies since the effective dates of the acquisitions.

   Liabilities related to acquisitions consist of the following:

 

Sterling

PLATINUM

Other

 

Duplicate

 

Duplicate 

 

Duplicate

 
 

Facilities &

Employee

Facilities & 

Employee 

Facilities &

Employee

 

Other Costs

Costs

Other Costs 

Costs 

Other Costs

Costs  

 

(in millions)

Balance at March 31, 1999:
New charges
Settlements
Adjustments

Balance at March 31, 2000:
Settlements
Adjustments

Balance at March 31, 2001:
Settlements
Adjustments

Balance at March 31, 2002:

$




$



$



$

-
169
-
-
      
169
(30
(39
      
100
(22
-
      
  78







)
)


)

$




$



$



$

-
304
-
-
       
304
(302
25
       
27
(5
(16
       
     6







)



)
)

$




$



$



$

-
268
(88
-
      
180
(53
(28
      
99
(25
(23
      
  51



)



)
)


)
)

$




$



$



$

-
183
(115
-
      
68
(19
(4
      
45
(15
(3
      
  27



)



)
)


)
)

$




$



$



$

108
-
(8
(73
      
27
(4
-
      
23
(5
(12
      
    6



)
)


)



)
)

$




$



$



$

26
12
(18
-
      
20
(7
-
      
13
(5
(7
      
    1



)



)



)
)

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 2 - Acquisitions (Continued)

   The employee costs relate to involuntary termination benefits and the duplicate facilities and other costs relate to operating leases, which are actively being renegotiated and expire at various times through 2010, negotiated buyouts of the operating lease commitments and other contractually related liabilities. The fiscal year 2001 Sterling and PLATINUM adjustments represent changes in the exit plan from its formulation until its finalization less than one year from the completion of the respective acquisition. The remaining acquisition adjustments, which resulted in a reduction to the corresponding liability and related goodwill, represent reductions due to the settlement of obligations at amounts less than those originally estimated. The remaining liability balances are included in the "Accrued expenses and other liabilities" line item on the accompanying Consolidated Balance Sheets.

Note 3 - Marketable Securities

   The following is a summary of marketable securities classified as available-for-sale:

 

    Year Ended March 31,

 

2002

2001   

Debt/Equity Securities:

(in millions)

Cost
Gross unrealized gains
Gross unrealized losses
Estimated fair value

$91 

   (5)
$87 

$86
1
    -
$87

 

   There were no realized gains or losses for the fiscal years ended March 31, 2002 or 2001. For the fiscal year ended March 31, 2000, the Company recorded an approximate $50 million loss due to an other than temporary decline in the fair value of an investment in CHS Electronics, Inc., which was included within SG&A.

   The estimated fair value of debt and equity securities is based upon published closing prices of those securities at March 31, 2002. For debt securities, amortized cost is classified by contractual maturity. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

 

March 31, 2002

 


Cost

Estimated
Fair Value

Debt securities recorded at market, maturing:

  (in millions)

 

   Within one year or less
   Between one and three years
   Between three and five years
   Beyond five years
      Debt securities recorded at market
Equity securities recorded at market
      Total marketable securities

$22
35
22
    1
80
  11

$91

$22  
36  
22  
    1  
81  
    6
  
$87  

 

Note 4 - Segment and Geographic Information

   The Company's chief operating decision-maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenue, by geographic region, for purposes of assessing financial performance and making operating decisions. Accordingly, the Company considers itself to be operating in a single industry segment. The Company is principally engaged in the design, development, marketing, licensing and support of integrated enterprise computer software solutions operating on a diverse range of hardware platforms and operating systems. The Company does not manage its business by solution or focus area and therefore does not maintain its revenue on such a basis.

   The following table presents information about the Company by geographic area for the fiscal years ended March 31, 2002, 2001 and 2000:

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 4 - Segment and Geographic Information (Continued)

 

 United States

Europe(a)

Other(a)    

Eliminations

Total 

 
 

(in millions)   

 

March 31, 2002

                       

Revenue:

                       

  To unaffiliated
customers
  Between geographic
areas
(b)
Total Revenue


$


1,847

    247
2,094


$


667

      -
667


$


450

   -
450


$


 -

(247)
(247)



$


2,964

       -
2,964

 
                         

Property and
equipment, net
Identifiable assets
Total liabilities

 


541
11,193
6,784

 


151
671
501

 


26
487
449

 


-
(125)
(125)

   


718
12,226
7,609

 
                         

March 31, 2001

                       

Revenue:

                       

  To unaffiliated
customers
  Between geographic
areas
(b)
Total Revenue


$


2,730

    311
3,041


$


832

      -
832


$


628

    -
628


$


 -

(311)
(311)

 


$


4,190

       -
4,190

 
                         

Property and
equipment, net
Identifiable assets
Total liabilities


602
13,823
7,905


160
592
738


32
463
455


-
(442)
(442)


794
14,436
8,656

                         

March 31, 2000

                       

Revenue:

                       

  To unaffiliated
customers
  Between geographic
areas
(b)
Total Revenue


$


4,040

    452
4,492


$


1,232

      -
1,232


$


822

    -
822


$


 -

(452)
(452)

 


$


6,094

       -
6,094

 
                         

Property and
equipment, net
Identifiable assets
Total liabilities


609
16,006
9,381


183
1,091
882


37
985
782


-
(589)
(589)


829
17,493
10,456


(a)

The Company operates through branches and wholly owned subsidiaries in Canada and 44 foreign countries located in the Middle East, Africa, Europe (22), South America (7), and Asia/Pacific (13). Revenue is allocated to a geographic area based on the location of the sale.

(b)

Represents royalties from foreign subsidiaries determined as a percentage of certain amounts invoiced to customers.

   No single customer accounted for 10% or more of total revenue for the fiscal years ended March 31, 2002, 2001 or 2000.

Note 5 - Trade and Installment Accounts Receivable

   The Company uses installment contracts as a standard business practice and has a history of successfully collecting under the original payment terms without making concessions on payments, software products, maintenance or professional services. Net trade and installment accounts receivable is composed of the total amounts due from customers pursuant to arrangement fee commitments to pay awaiting the passage of time, less unamortized discounts based on imputed interest for the time value of money for contracts under the old Business Model, unearned revenue attributable to maintenance, deferred subscription revenue, unearned professional services contracted for in the license arrangement and allowances for doubtful accounts. Deferred subscription revenue represents the deferred license and maintenance fees from license arrangements under the new Business Model, which will amortize into revenue over the respective license arrangement term. Trade and installment accounts receivable consist of the following:

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 5 - Trade and Installment Accounts Receivable (Continued)

 

March 31,

 

2002

2001

 

(in millions)

Billed accounts receivable
Unbilled amounts due within the next twelve months - new Business Model
Unbilled amounts due within the next twelve months - old Business Model
Less: Allowance for doubtful accounts
Net amounts expected to be collected
Less: Unearned revenue - current
Net trade and installment accounts receivable - current

$





$

1,011
790
1,535
  (353
2,983
(1,158
 1,825




)

)

$





$

1,443
268
1,773
  (389
3,095
(1,307
 1,788




)

)

Unbilled amounts due beyond the next twelve months - new Business Model
Unbilled amounts due beyond the next twelve months - old Business Model
Less: Allowance for doubtful accounts
Net amounts expected to be collected
Less: Unearned revenue - non-current
Net installment accounts receivable - non-current

$




$

1,565
2,730
    (60
4,235
(2,669
 1,566



)

)

$




$

1,047
4,527
    (60
5,514
(2,631
 2,883



)

)

   At March 31, 2002 and 2001, unearned revenue - current consists of unamortized discounts of $288 million and $435 million, respectively, unearned maintenance of $290 million and $462 million, respectively, deferred subscription revenue of $522 million and $314 million, respectively, and unearned professional services of $58 million and $96 million, respectively.

   At March 31, 2002 and 2001, unearned revenue - non-current consists of unamortized discounts of $417 million and $727 million, respectively, unearned maintenance of $333 million and $636 million, respectively, and deferred subscription revenue of $1,919 million and $1,268 million, respectively.

   Unbilled amounts under the new Business Model are generally collectible over one to five years. As of March 31, 2002, on a cumulative basis, approximately 34%, 69%, 86%, 93% and 96% of amounts due from customers recorded under the new Business Model come due within fiscal years ended 2003 through 2007, respectively.

   Unbilled amounts under the old Business Model are generally collectible over three to six years. As of March 31, 2002, on a cumulative basis, approximately 36%, 59%, 74%, 83% and 88% of amounts due from customers recorded under the old Business Model come due within fiscal years ended 2003 through 2007, respectively.

  The provision for doubtful accounts for the fiscal years ended March 31, 2002, 2001 and 2000 was $233 million, $235 million and $77 million, respectively, and is included in SG&A.

   The Company expects the allowance for doubtful accounts to continue to decline as net installment accounts receivable under the old Business Model are billed and collected over the remaining life.

   The Company's estimate of the fair value of net installment accounts receivable under the old Business Model approximate carrying value since it is net of discounts, unearned contractual obligations and an allowance for doubtful accounts. The fair value of the unbilled amounts under the new Business Model (unbilled amounts due, less deferred subscription revenue) may have a fair value greater than that reflected in the balance sheet. Currently, amounts due from customers under the new Business Model are offset by unearned revenue related to these contracts, leaving no or minimal carrying value on the balance sheet for such amounts. The fair value may actually exceed this carrying value but cannot be practicably assessed since there is no existing market for a pool of customer receivables with such contractual commitments similar to that of the Company's. The actual fair value may not be known until these amounts are sold, securitized or collected. Although these customer contracts commit the customer to payment under a fixed schedule, the agreements are considered executory in nature due to the ongoing commitment to provide "unspecified future deliverables" as part of the contract terms.

   In prior fiscal years, the Company sold individual accounts receivable under the old Business Model to an external third party subject to certain recourse provisions. These amounts approximated $218 million at March 31, 2002.

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 6 - Debt

   As of March 31, 2002, the Company's committed bank credit facilities consisted of a $1 billion four-year revolver and a $2 billion four-year term loan. The facilities provide for interest based upon the prevailing London InterBank Offered Rate ("LIBOR") subject to a margin determined by a bank facility ratings grid. As of March 31, 2002, $600 million remained outstanding under the term loan at an effective interest rate of approximately 5.13% and $600 million remained outstanding under the four-year revolving credit facility at an effective interest rate of approximately 2.83%. These interest rates represent LIBOR plus an applicable margin on tranches ranging from one month to one year. In April 2002, the Company repaid $250 million of the four-year revolving credit facility that was due in the first quarter of fiscal year 2004. During fiscal year 2002, the Company elected not to renew its $1.3 billion 364-day facility when it expired in May 2001. In addition, the Company repaid a 75 million British Pound Sterling denominated 364-day facility.

   The Company is also required to maintain certain financial ratios. Covenant calculations are based upon maintaining a ratio of cash generated from operations to interest expense, as well as maintaining a ratio of cash generated from operations to total debt, all of which is defined within the credit agreement. The Company is in compliance with such covenants.

   In March 2002, the Company issued $660 million of 5% Convertible Senior Notes due 2007 (the "Notes"). The Notes were issued to the initial purchasers pursuant to a private placement under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and subsequently resold to Qualified Institutional Buyers in reliance on Rule 144A and Regulation S of the Securities Act. The initial purchasers received a discount of 2.5% and the net proceeds to the Company were $644 million before deducting expenses payable by the Company of less than $1 million.

   The Notes are senior unsecured indebtedness and rank equally with all existing senior unsecured indebtedness. The holders of the Notes may convert all or some of their Notes at any time prior to or on March 14, 2007, unless previously redeemed or repurchased, at a conversion price of $24.34 per share. The initial conversion rate is 41.0846 shares per $1,000 principal amount of the Notes and is subject to adjustment under certain circumstances. The Notes may not be redeemed by the Company during the first three years that they are outstanding and may be called thereafter until maturity at the Company's option at declining premiums to par. The Company intends to file a registration statement with respect to the Notes and the common stock issuable upon conversion of the Notes. Concurrently with the issuance of the Notes, the Company entered into a call spread repurchase option transaction ("Call Spread"). The option purchase price of the Call Spread was $95 million. The entire purchase price of $95 million has been charged to Stockholders' Equity. Under the terms of the Call Spread, the Company has the option to purchase outstanding shares equivalent to the number of shares that may be issued if all Notes are converted into shares (27.1159 million shares), thereby mitigating dilution to shareholders. The Call Spread can be exercised at the three-year anniversary of the issuance of the Notes, at an exercise price of $24.83 per share. To limit the cost of the Call Spread, an upper limit of $36.60 per share has been set such that if the price of the common stock is above that limit at the time of exercise, the number of shares eligible to be purchased will be proportionately reduced based on the amount the common share price exceeds $36.60 at time of exercise. The Call Spread is intended to give the Company the option at the three year anniversary to eliminate dilution as a result of the Notes being converted to common shares up to the $36.60 price per common share and significantly mitigate dilution if the share price exceeds $36.60 at that time. The Call Spread was provided by two leading banking institutions.

   As of March 31, 2002 and 2001, the Company has the following unsecured, fixed-rate interest senior note obligations outstanding:

 

March 31,

 

2002

2001

 

(in millions)

6.770% Senior Notes due April 2003
6.250% Senior Notes due April 2003
6.375% Senior Notes due April 2005
5.000% Convertible Senior Notes due March 2007
6.500% Senior Notes due April 2008

$128
$575
$825
$660
$350

$192
$575
$825
-
$350

 

   Debt ratings for the Company's senior unsecured notes and bank credit facilities are Baa2 and BBB+ from Moody's Investors Service and Standard & Poor's, respectively.

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 6 - Debt (Continued)

   The Company is an issuer of Commercial Paper ("CP"). The above-mentioned revolver supports the CP program as a backstop facility. The program, rated A-2 by Standard & Poor's and P-2 by Moody's Investors Service, provides for maximum issuance of up to $1 billion in CP with maturities not to exceed 270 days. The Company had $82 million and $340 million of CP outstanding at March 31, 2002 and 2001, respectively, which bore interest at rates approximating 2.37% and 5.90%, respectively.

   Unsecured and uncommitted multi-currency credit facilities of $51 million are available to meet any short-term working capital requirements and can be drawn upon, up to a predefined limit, by most subsidiaries. Under these multi-currency facilities, approximately $15 million and $14 million was drawn at March 31, 2002 and 2001, respectively.

   As of March 31, 2002 and 2001, the Company had various other debt obligations outstanding, which approximated $7 million and $20 million, respectively.

   The Company conducts an ongoing review of its capital structure and debt obligations as part of its risk management strategy. As of March 31, 2002, the fair value of the Company's debt was approximately $83 million less than its carrying value.

   The maturities of outstanding debt for the next five fiscal years are as follows: 2003 - $508 million; 2004 - $1,497 million; 2005 - $0; 2006 - $826 million; and 2007 - $660 million.

   Interest expense for the fiscal years ended March 31, 2002, 2001 and 2000 was $249 million, $370 million and $352 million, respectively.

Note 7 - Commitments and Contingencies

   The Company leases real estate and certain data processing and other equipment with lease terms expiring through 2023. The leases are operating leases and generally provide for renewal options and additional rentals based on escalations in operating expenses and real estate taxes. The Company has no material capital leases.

   Rental expense under operating leases for the fiscal years ended March 31, 2002, 2001 and 2000, was $220 million, $238 million and $205 million, respectively. Future minimum lease payments are: 2003 - $140 million; 2004 - $101 million; 2005 - $85 million; 2006 - $64 million; 2007 - $56 million; and thereafter - $198 million.

   The Company has commitments to invest $17 million in connection with joint venture agreements.

   In prior fiscal years, the Company sold individual accounts receivable under the old Business Model to an external third party subject to certain recourse provisions. These amounts approximated $218 million at March 31, 2002.

   The Company, Charles B. Wang, Sanjay Kumar and Russell M. Artzt are defendants in a number of shareholder class action lawsuits, the first of which was filed July 23, 1998, alleging that a class consisting of all persons who purchased the Company's stock during the period January 20, 1998 until July 22, 1998 were harmed by misleading statements, representations and omissions regarding the Company's future financial performance. These cases, which seek monetary damages in an unspecified amount, have been consolidated into a single action (the "Shareholder Action") in the United States District Court for the Eastern District of New York ("NY Federal Court"). The NY Federal Court denied the defendants' motion to dismiss the Shareholder Action, and the parties currently are engaged in discovery. Although the ultimate outcome and liability, if any, cannot be determined, management, after consultation and review with counsel, believes that the facts do not support the plaintiffs' claims in the Shareholder Action and that the Company and its officers and directors have meritorious defenses. In the opinion of management, resolution of this litigation is not expected to have a material adverse effect on the financial position of the Company. In the event of an unfavorable resolution of this matter, however, the Company's earnings and cash flows in one or more periods could be materially adversely affected.

   In addition, three derivative actions, the first of which was filed on July 30, 1998, alleging misleading statements and omissions similar to those alleged in the Shareholder Action were brought in the NY Federal Court on behalf of the Company against a majority of the Directors who were serving on the Company's board at that time. Another derivative action on behalf of the Company, alleging that the Company issued 14.25 million more shares than were authorized under the 1995 Key Employee Stock Ownership Plan (the "1995 Stock Plan"), was filed in the NY Federal Court. These derivative actions were consolidated into a single

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 7 - Commitments and Contingencies (Continued)

action (the "Derivative Action") in the NY Federal Court. Lastly, a derivative action on behalf of the Company was filed in the Chancery Court in Delaware (the "Delaware Action") on September 15, 1998 alleging that 9.5 million more shares were issued to the three 1995 Stock Plan participants than were authorized under the 1995 Stock Plan. The Derivative Action and the Delaware Action have been settled and both actions have been dismissed. Under the terms of the settlement the 1995 Stock Plan participants returned 4.5 million shares of Computer Associates stock to the Company. In the first quarter of fiscal year 2001, the Company recorded a $184 million gain in conjunction with the settlement.

   On September 28, 2001, the United States Department of Justice filed a lawsuit alleging that the Company and PLATINUM had violated Federal antitrust laws, including alleged violation of the waiting period under the Hart-Scott-Rodino Act, in connection with the Company's acquisition of PLATINUM in May 1999. On April 23, 2002, the Company reached a settlement with the Department of Justice pursuant to which the Company will not admit any wrongdoing and will pay the government $638,000. The settlement is expected to become final after a public comment period of 60 days from the filing of the settlement order.

   Since February 2002, the Company has been cooperating with a joint inquiry by the United States Attorney's Office for the Eastern District of New York and the staff of the Northeast Regional Office of the Securities and Exchange Commission concerning certain of the Company's accounting practices. The investigation appears generally to be focusing on issues relating to the Company's historical revenue recognition policies and practices. The Company has produced documents and information in response to a request for the voluntary production of documents, and understands that third parties have received subpoenas from the SEC for documents issued pursuant to a formal order of investigation. Such an order gives the SEC staff authority to issue subpoenas and take testimony, though the Company understands that the issuance of such an order does not reflect any finding or determination that any violation of law has occurred. The Company intends to continue to cooperate fully with the inquiry. At this point, the Company cannot predict the scope or outcome of the inquiry, which may include the institution of administrative, civil injunctive or criminal proceedings, the imposition of fines and penalties, or other remedies and sanctions. The Company also cannot predict what impact, if any, the inquiry may have on the Company's results of operations or financial condition.

   In February and March 2002, a number of shareholder lawsuits were filed in the U.S. District Court for the Eastern District of New York against the Company and Messrs. Wang, Kumar and Ira H. Zar, the Company's Chief Financial Officer. The lawsuits allege, among other things, that the Company made misleading statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. Each of the named individual plaintiffs seeks to represent a class consisting of purchasers of the Company's common stock and call options and sellers of put options for the period May 28, 1999 through February 25, 2002. Class action status has not yet been certified in this litigation. In April 2002, a derivative suit against all the Directors of the Company except Mr. Jay W. Lorsch and Mr. Walter P. Schuetze was filed in the Chancery Court in Delaware alleging breach of their fiduciary duties resulting in damages to the Company of an unspecified amount. This derivative suit is based on essentially the same allegations as those contained in the February and March 2002 shareholder lawsuits. The Company believes that the facts do not support the claims in these lawsuits and the Company and its officers and directors have meritorious defenses and intend to contest the lawsuits vigorously. In the opinion of management, resolution of this litigation is not expected to have a material adverse effect on the financial position of the Company. In the event of an unfavorable resolution of this matter, however, the Company's earnings and cash flows in one or more periods could be materially adversely affected.

   The Company, various subsidiaries and certain current and former officers have been named as defendants in other various claims and lawsuits arising in the normal course of business. The Company believes that it has meritorious defenses in connection with such claims and lawsuits and intends to vigorously contest each of them. In the opinion of the Company's management, the results of these other claims and lawsuits, either individually or in the aggregate, are not expected to have a material effect on the Company's results of operations, financial position or cash flows.

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 8 - Income Taxes

   The amounts of (loss) income before (benefit) provision for income taxes attributable to domestic and foreign operations are as follows:

 

Year Ended March 31,

 

2002

2001

 2000

 

(in millions)

Domestic
Foreign

$

$

(1,166
  (219
(1,385

)
)
)

$

$

(344
(322
(666

)
)
)

$

$

1,452
   138
1,590

 

The (benefit) provision for income taxes consists of the following:

 

Year Ended March 31,

 

2002

2001

2000

 

(in millions)

Current:

                 

  Federal
  State
  Foreign

$

186
 19
  56
261

 

$

204
 20
  51
275

 

$

401
25
  56
482

 
                   

Deferred:

                 

  Federal
  State
  Foreign

$

(401
(41
(102
(544

)
)
)
)

$

(169
(14
(167
(350

)
)
)
)

$

381
26
    5
412



                   

Total:

                 

  Federal
  State
  Foreign

$


$

(215
(22
(46
(283

)
)
)
)

$


$

35
6
(116
  (75



)
)

$


$

782
51
  61
894

 

   The (benefit) provision for income taxes is reconciled to the tax (benefit) provision computed at the federal statutory rate as follows:

 

Year Ended March 31,

 

2002

2001

2000

 

(in millions)

Tax (benefit) expense at U.S. federal statutory rate
Increase in tax expense resulting from:

$

(485

)

$

(233

)

$

556

 

   Purchased research and development
   Non-deductible amortization of excess cost over

 

-

   

-

   

278

 

     net assets acquired
   Effect of international operations, including foreign

 

186

   

177

   

83

 

     sales corporation
   State taxes, net of federal tax benefit
   Valuation allowance
   Other, net





$

(4
(12
21
  11
(283

)
)


)





$

(25
4
-
    2
 (75

)



)





$

(72
33
-
  16
894

)

   Deferred income taxes reflect the impact of temporary difference between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The tax effects of the temporary differences are as follows:

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 8 - Income Taxes (Continued)

 

March 31,

 

2002

2001

 

(in millions)

Deferred tax assets

Valuation allowance

Total deferred tax assets

Deferred tax liabilities:

$



$

141 

    (21)

   120 

$



$

173

       -

   173

  Modified accrual basis accounting
  Purchased software
Total deferred tax liabilities

$

$

842 
   552 
1,394 

$

$

1,260
   707
1,967

Net deferred tax liability

$

1,274 

$

1,794

   Deferred tax assets primarily relate to acquisition liabilities, such as duplicate facility, employee severance and other costs, and foreign net operating losses ("NOLs"). Foreign NOLs totaled approximately $185 million and $75 million as of March 31, 2002 and 2001, respectively. These NOLs generally expire between 2003 and 2013. A valuation allowance on the net deferred tax assets of $120 million was not established in the year ended March 31, 2002 for certain NOLs since management believes it is more likely than not that such NOLs will be realized.

   No provision has been made for federal income taxes on unremitted earnings of the Company's foreign subsidiaries (approximately $242 million of earnings as of March 31, 2002), since the Company plans to permanently reinvest all such earnings.

Note 9 - Stock Plans

   The Company had a 1981 Incentive Stock Option Plan (the "1981 Plan") pursuant to which options to purchase up to 27 million shares of Common Stock of the Company were available for grant to employees (including officers of the Company). The 1981 Plan expired on October 23, 1991. Therefore, from and after that date no new options could be granted under the 1981 Plan. Pursuant to the 1981 Plan, the exercise price could not be less than the Fair Market Value ("FMV") of each share at the date of grant. Options granted thereunder could be exercised in annual increments commencing one year after the date of grant and became fully exercisable after five years. All options expired ten years from date of grant unless otherwise terminated. As of March 31, 2002, there were no options outstanding under the 1981 Plan.

   The Company has a 1987 Non-Statutory Stock Option Plan (the "1987 Plan") pursuant to which options to purchase up to 17 million shares of Common Stock of the Company could be granted to select officers and key employees of the Company. Pursuant to the 1987 Plan, the exercise price shall not be less than the FMV of each share at the date of grant. The option period shall not exceed 12 years. Options granted thereunder may be exercised in annual increments commencing one year after the date of grant and become fully exercisable after five years. The 1987 Plan expired on March 24, 2002. Therefore, from and after that date no new options can be granted under the 1987 Plan. All of the 3.0 million options which are outstanding under the 1987 Plan are exercisable as of March 31, 2002. These options are exercisable at $2.22 - $4.26 per share.

   The Company's 1991 Stock Incentive Plan (the "1991 Plan") provides that stock appreciation rights and/or options, both qualified and non-statutory, to purchase up to 67.5 million shares of Common Stock of the Company may be granted to employees (including officers of the Company). Options granted thereunder may be exercised in annual increments commencing one year after the date of grant and become fully exercisable after five years. All options expire ten years from date of grant unless otherwise terminated. Shares terminated that were unexercised are available for reissuance. As of March 31, 2002, no stock appreciation rights have been granted under this plan and 70.9 million options have been granted, including options issued that were previously terminated due to employee forfeitures. As of March 31, 2002, 20.0 million of the 36.7 million options which were outstanding under the 1991 Plan were exercisable. These options are exercisable at $4.26 - $74.69 per share.

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 9 - Stock Plans (Continued)

   The 1993 Stock Option Plan for Non-Employee Directors (the "1993 Plan") provides for non-statutory options to purchase up to a total of 337,500 shares of Common Stock of the Company to be available for grant to each member of the Board of Directors who is not otherwise an employee of the Company. Pursuant to the 1993 Plan, the exercise price shall be the FMV of the shares covered by the option at the date of grant. The option period shall not exceed ten years, and each option may be exercised in whole or in part on the first anniversary date of its grant. As of March 31, 2002, 222,750 options have been granted under this plan. As of March 31, 2002, all of the 128,250 options which are outstanding under the 1993 Plan are exercisable. These options are exercisable at $7.59 - $51.44 per share.

   The 2001 Stock Option Plan (the "2001 Plan") was effective as of July 1, 2001. The 2001 Plan provides that non-statutory and incentive stock options to purchase up to 7.5 million shares of Common Stock of the Company may be granted to select employees and consultants. All options expire ten years from the date of grant unless otherwise terminated. As of March 31, 2002, 4.5 million options have been granted. These options are exercisable in annual increments commencing one year after the date of grant and become fully exercisable after three years. As of March 31, 2002, 4.5 million options are outstanding, none of which are exercisable.

   In connection with the acquisitions in fiscal year 2000, options outstanding under the acquired companies' stock option plans were converted into options to purchase 7.2 million shares of Common Stock of the Company. As of March 31, 2002, 2.5 million of the 2.7 million options outstanding are exercisable at $3.27 - $70.12 per share. Options granted under these acquired companies' plans become exercisable over periods ranging from one to five years and expire ten years from the date of grant.

   The following table summarizes the activity under these plans (shares in millions):

 

                 2002                 

                 2001                 

                2000               

 
   

Weighted-
Average
Exercise

 

Weighted-
Average
Exercise

 

Weighted-
Average
Exercise

 
 

Shares

Price

Shares

Price

Shares

Price

 

Beginning of year
Granted
Acquisition
Exercised
Terminated
End of year

Options exercisable

48.5 
4.5 
-  
(3.2)
 (2.9)
46.9 

$28.71
21.90
-  
12.40
32.88
28.83

47.6 
11.1 
-  
(4.5)
 (5.7)
48.5 

$28.39
27.01
-  
9.93
37.28
28.71

41.0 
7.1 
7.2 
(6.9)
  (.8)
47.6 

$21.67
51.87
31.07
14.53
30.54
28.39

 

 at end of year

25.5 

$24.77

23.4 

$20.72

22.9

$15.68

 

   The following table summarizes information about these plans as of March 31, 2002 (shares in millions):

 

Options Outstanding

Options Exercisable

   

Weighted-

     
   

Average

Weighted-

   

Range of

 

Remaining

Average

 

Weighted-

Exercise

 

Contractual

Exercise

 

Average

Prices

Shares

Life

Price

Shares

Exercise Price

$ 2.22 -
10.01 -
20.01 -
30.01 -
40.01 -
50.01 -

$10.00
  20.00
  30.00
  40.00
  50.00
  74.69

7.1
4.5
18.4
7.1
3.6
 6.2
46.9

 

1.6 years
3.2 years
7.8 years
5.4 years
5.5 years
7.3 years

$  6.18
19.26
25.85
35.76
46.91
51.89

7.0
4.5
4.8
5.1
2.5
  1.6
25.5

$  6.18
19.27
26.93
35.47
46.98
52.08

 

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 9 - Stock Plans (Continued)

   The Company maintains the Year 2000 Employee Stock Purchase Plan (the "Purchase Plan") for all eligible employees. Under the terms of the Purchase Plan, employees may elect to withhold between 1% and 25% of their base pay through regular payroll deductions, subject to Internal Revenue Code limitations. Shares of the Company's common stock may be purchased at six-month intervals at 85% of the lower of the FMV on the first or the last day of each six-month period. During fiscal 2002, employees purchased 654,163 shares at an average price of $21.91 per share. As of March 31, 2002, 28.7 million shares were reserved for future issuance.

   If the Company had elected to recognize compensation expense based on fair value of stock plans as prescribed by SFAS No. 123, net (loss) income and net (loss) earnings per share would have been adjusted to the pro forma amounts in the table below:

 

Year Ended March 31,

 

2002

2001

2000

 

(in millions, except per share amounts)

Net (loss) income - as reported
Net (loss) income - pro forma
Basic (loss) earnings per share - as reported
Basic (loss) earnings per share - pro forma
Diluted (loss) earnings per share - as reported
Diluted (loss) earnings per share - pro forma

$

$

$

(1,102
(1,185
(1.91
(2.05
(1.91
(2.05

)
)
)
)
)
)

$

$

$

(591
(688
(1.02
(1.18
(1.02
(1.18

)
)
)
)
)
)

$

$

$

696
608
1.29
1.13
1.25
1.12

 

   The weighted-average fair value at date of grant for options granted in fiscal 2002, 2001 and 2000 was $13.48, $17.10 and $27.98, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used for option grants in fiscal 2002, 2001 and 2000, respectively: dividend yields of .37%, .30% and .15%; expected volatility factors of .65, .65 and .50; risk-free interest rates of 4.9%, 6.1% and 5.6%; and an expected life of six years. The compensation expense and pro forma net (loss) income may not be indicative of amounts to be included in future periods.

   The weighted-average fair value of Purchase Plan shares for offering periods commencing in fiscal 2002, 2001 and 2000 was $11.76, $10.20 and $20.87, respectively. The fair value is estimated on the first date of the offering period using the Black-Scholes option pricing model. The following weighted-average assumptions were used for Purchase Plan shares in fiscal 2002, 2001 and 2000, respectively; dividend yields of .22%, .32% and .11%; expected volatility factors of .65, .65 and .50; risk free interest rates of 2.7%, 5.8% and 6.0%; and an expected life of six months. The compensation expense and pro forma net (loss) income may not be indicative of amounts to be included in future periods.

   Under the 1998 Incentive Award Plan (the "1998 Plan"), a total of four million Phantom Shares, as defined in the 1998 Plan, are available for grant to certain of the Company's employees from time to time through March 31, 2008. As of March 31, 2002 approximately 1.1 million Phantom Shares have been awarded under the 1998 Plan. Each Phantom Share is equivalent to one share of the Company's common stock. Vesting, at 20% of the grant amount per annum, is contingent upon attainment of specific criteria, including an annual Target Closing Price ("Price") for the Company's common stock and the participant's continued employment.

   The Price is based on the average closing price of the Company's common stock on the New York Stock Exchange for the ten days up to and including March 31 of each fiscal year. The Price was met on March 31, 2000 and the Company began to recognize a non-cash charge over the employment period (approximately $3 million, $2 million and $2 million for the fiscal years ended March 31, 2002, 2001 and 2000, respectively). The price was not met on either March 31, 2002 or March 31, 2001 for the third and second tranche, respectively. If additional tranches vest, the annual non-cash charge will increase. Since the price of any future vested Phantom Shares is undetermined, any incremental expense is unknown. As of March 31, 2002, 638,960 Phantom Shares have not been forfeited and are outstanding under the 1998 Plan.

   All stock plans of the Company have been approved by the stockholders.

 

COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 10 - Profit Sharing Plan

   The Company maintains a defined contribution plan, the Computer Associates Savings Harvest Plan (the "CASH Plan"), for the benefit of employees of the Company. The CASH Plan is intended to be a qualified plan under Section 401(a) of the Internal Revenue Code of 1986 (the "Code") and contains a qualified cash or deferred arrangement as described under Section 401(k) of the Code. Pursuant to the CASH Plan, eligible participants may elect to contribute a percentage of their base compensation. The matching contributions to the CASH Plan totaled approximately $12 million, $11 million and $10 million for the fiscal years ended March 31, 2002, 2001 and 2000, respectively. In addition, the Company may make discretionary contributions to the CASH Plan. The discretionary contributions to the CASH Plan totaled approximately $24 million, $24 million and $25 million for the fiscal years ended March 31, 2002, 2001 and 2000, respectively.

Note 11 - Rights Plan

   Each outstanding share of the Company's Common Stock carries a stock purchase right issued under the Company's Rights Agreement, dated June 18, 1991, as amended May 17, 1995, May 23, 2001 and November 9, 2001 (the "Rights Agreement"). Under certain circumstances, each right may be exercised to purchase one one-thousandth of a share of Series One Junior Participating Preferred Stock, Class A, for $150. Under certain circumstances, following (i) the acquisition of 20% or more of the Company's outstanding Common Stock by an Acquiring Person (as defined in the Rights Agreement), (ii) the commencement of a tender offer or exchange offer which would result in a person or group owning 20% or more of the Company's outstanding common stock, or (iii) the determination by the Company's Board of Directors and a majority of the Disinterested Directors (as defined in the Rights Agreement) that a 15% stockholder is an Adverse Person (as defined in the Rights Agreement), each right (other than rights held by an Acquiring Person or Adverse Person) may be exercised to purchase common stock of the Company or a successor company with a market value of twice the $150 exercise price. The rights, which are redeemable by the Company at one cent per right, expire in November 2006.

Note 12 - Subsequent Event

   In April 2002, the Company completed the sale to SSA Global Technologies, Inc. ("SSA") of certain assets of the Company, principally the supply-chain management, financial management and human resource management product lines under the name interBiz. These interBiz operations generated approximately $82 million of revenue for the fiscal year ended March 31, 2002. In addition, at March 31, 2002, approximately $88 million of deferred subscription revenue has accumulated since the introduction of the Company's subscription model in October 2000. Approximately 725 employees were transferred to SSA as part of this transaction. Under the provisions of SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company recorded a non-cash impairment charge to operations related to the above assets of $59 million in March 2002, which was included in SG&A on the accompanying Consolidated Statements of Operations.

 

 

 

SCHEDULE II

COMPUTER ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

   

Additions

       
 

Balance at

Charged to

Charged

 

Balance

 
 

beginning

Costs and

to other

 

at end

 

Description

of period

Expenses

accounts (a)

Deductions (b)

of period

 
 

(in millions)

 

Reserves and allowances
 deducted from assets to
 which they apply:

Allowance for doubtful accounts (c)

Year ended March 31, 2002

Year ended March 31, 2001

Year ended March 31, 2000

$

$

$

449

410

264

$

$

$

233

235

77

$

$

$

-

21

171

 

$

$

$

269

217

102

$

$

$

413

449

410

 

(a)

Reserves and adjustments thereto of acquired companies.

   

(b)

Write-offs of amounts against allowance provided.

   

(c)

The Company expects the allowance for doubtful accounts to continue to decline as net installment accounts receivable under the old Business Model are billed and collected over the remaining life.

 

 

Exhibit A

Subsidiaries of the Registrant

Name of Subsidiary

ACCPAC International, Inc.
C.A. Computer Associates GmbH
C.A. Computer Associates India Private Limited
C.A. Computer Associates Israel Ltd.
C.A. Computer Associates S.A.
C.A. Foreign Spain S.L.
C.A. Foreign, Inc.
C.A. Islandia Realty, Inc.
CA Management, Inc.
CA Real Estate, Inc.
CA Research, Inc.
Computer Associates Services, Inc.
Computer Associates AG
Computer Associates Canada Company
Computer Associates Caribbean, Inc.
Computer Associates CIS Ltd.
Computer Associates de Argentina S.A.
Computer Associates do Brasil Ltda.
Computer Associates de Chile Ltd.
Computer Associates de Colombia S.A.
Computer Associates de Mexico, S.A. de C.V.
Computer Associates de Venezuela, C.A.
Computer Associates Del Peru S.A.
Computer Associates Finland OY
Computer Associates Hellas Sole Partner LLC
Computer Associates, Inc.
Computer Associates International (China) Ltd.
Computer Associates International G.m.b.H.
Computer Associates CZ, s.r.o.
Computer Associates International Limited
Computer Associates Japan Ltd.
Computer Associates Korea Ltd.
Computer Associates Bilgisayar Yazilim Pazarlama Ltd. Sti.
Computer Associates (M) Sdn. Bhd.
Computer Associates Middle East WLL
Computer Associates Maroc
Computer Associates Norway A/S
Computer Associates (N.Z.) Ltd.
Computer Associates Plc
Computer Associates B.V.
Computer Associates Pte. Ltd.
Computer Associates Pty. Ltd.
Computer Associates Real Estate BV
Computer Associates S.A.
Computer Associates S.A.
Computer Associates Scandinavia A/S
Computer Associates Africa (Pty.) Ltd.
Computer Associates S.p.A.
Computer Associates Sp. z o.o.
Computer Associates Sweden AB
Computer Associates Taiwan Ltd.
Computer Associates (Thailand) Co. Ltd.
Computer Associates Think, Inc.
iCan-SP, Inc.
Philippine Computer Associates International, Inc.
PT Computer Associates
Sterling Software, Inc.

Jurisdiction of Incorporation

Delaware
Germany
India
Israel
Spain
Spain
Delaware
New York
Delaware
Delaware
Delaware
Delaware
Switzerland
Canada
Puerto Rico
Russia
Argentina
Brazil
Chile
Colombia
Mexico
Venezuela
Peru
Finland
Greece
Delaware
China
Austria
The Czech Republic
Hong Kong
Japan
Korea
Turkey
Malaysia
Bahrain
Morocco
Norway
New Zealand
United Kingdom
The Netherlands
Singapore
Australia
The Netherlands
Belgium
France
Denmark
South Africa
Italy
Poland
Sweden
Taiwan
Thailand
Delaware
Delaware
Philippines
Indonesia
Delaware

COMPUTER ASSOCIATES INTERNATIONAL, INC.

as Issuer

AND

STATE STREET BANK AND TRUST COMPANY

as Trustee

____________________

Indenture

Dated as of March 18, 2002

___________________

5% Convertible Senior Notes due 2007

 

TABLE OF CONTENTS

Page

ARTICLE 1

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 1.01. Definitions

1

SECTION 1.02. Compliance Certificates and Opinions

9

SECTION 1.03. Form of Documents Delivered to Trustee

9

SECTION 1.04. Acts of Holders; Record Dates

10

SECTION 1.05. Notices, Etc., to Trustee and Company

11

SECTION 1.06. Notice to Holders; Waiver

11

SECTION 1.07. Conflict with Trust Indenture Act

11

SECTION 1.08. Effect of Headings and Table of Contents

11

SECTION 1.09. Successors and Assigns

12

SECTION 1.10. Separability Clause

12

SECTION 1.11. Benefits of Indenture

12

SECTION 1.12. Governing Law

12

SECTION 1.13. Legal Holiday

12

ARTICLE 2

SECURITY FORMS

SECTION 2.01. Forms Generally

12

SECTION 2.02. Form of Face of Security

13

SECTION 2.03. Form of Reverse of Security

16

ASSIGNMENT FORM

SECTION 2.04. Form of Trustee's Certificate of Authentication

26

SECTION 2.05. Legend on Restricted Securities

26

ARTICLE 3

THE SECURITIES

SECTION 3.01. Title and Terms

26

SECTION 3.02. Denominations

27

SECTION 3.03. Execution, Authentication, Delivery and Dating

27

SECTION 3.04. Temporary Securities

27

SECTION 3.05. Registration; Registration of Transfer and Exchange; Restrictions on Transfer

28

SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities

30

SECTION 3.07. Persons Deemed Owners

30

SECTION 3.08. Book-entry Provisions for Global Securities

31

SECTION 3.09. Cancellation

32

SECTION 3.10. Special Transfer Provisions

32

SECTION 3.11. Cusip Numbers

34

ARTICLE 4

SATISFACTION AND DISCHARGE

SECTION 4.01. Satisfaction and Discharge of Indenture

34

SECTION 4.02. Application of Trust Money

35

ARTICLE 5

REMEDIES

SECTION 5.01. Events of Default

35

SECTION 5.02. Acceleration of Maturity; Rescission and Annulment

37

SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee

38

SECTION 5.04. Trustee May File Proofs of Claim

38

SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities

39

SECTION 5.06. Application of Money Collected

39

SECTION 5.07. Limitation on Suits

39

SECTION 5.08. Unconditional Right of Holders to Receive Payment

40

SECTION 5.09. Restoration of Rights and Remedies

40

SECTION 5.10. Rights and Remedies Cumulative

40

SECTION 5.11. Delay or Omission Not Waiver

41

SECTION 5.12. Control by Holders

41

SECTION 5.13. Waiver of Past Defaults

41

SECTION 5.14. Undertaking for Costs

42

SECTION 5.15. Waiver of Stay or Extension Laws

42

ARTICLE 6

THE TRUSTEE

SECTION 6.01. Certain Duties and Responsibilities

42

SECTION 6.02. Notice of Defaults

42

SECTION 6.03. Certain Rights of Trustee

43

SECTION 6.04. Not Responsible for Recitals

44

SECTION 6.05. May Hold Securities

44

SECTION 6.06. Money Held in Trust

44

SECTION 6.07. Compensation and Reimbursement

44

SECTION 6.08. Disqualification; Conflicting Interests

45

SECTION 6.09. Corporate Trustee Required; Eligibility

45

SECTION 6.10. Resignation and Removal; Appointment of Successor

46

SECTION 6.11. Acceptance of Appointment by Successor

47

SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business

47

SECTION 6.13. Preferential Collection of Claims Against

47

ARTICLE 7

HOLDERS' LISTS AND REPORTS BY TRUSTEE

SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders

48

SECTION 7.02. Preservation of Information; Communications to Holders

48

SECTION 7.03. Reports by Trustee

48

SECTION 7.04. Reports by Company

49

ARTICLE 8

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms

49

SECTION 8.02. Successor Substituted

50

ARTICLE 9

SUPPLEMENTAL INDENTURES

SECTION 9.01. Supplemental Indentures Without Consent of Holders

50

SECTION 9.02. Supplemental Indentures with Consent of Holders

51

SECTION 9.03. Execution of Supplemental Indentures

52

SECTION 9.04. Effect of Supplemental Indentures

52

SECTION 9.05. Conformity with Trust Indenture Act

53

SECTION 9.06. Reference in Securities to Supplemental Indentures

53

ARTICLE 10

COVENANTS

SECTION 10.01. Payments

53

SECTION 10.02. Maintenance of Office or Agency

53

SECTION 10.03. Money for Security Payments to Be Held in Trust

54

SECTION 10.04. Statement by Officers as to Default

55

SECTION 10.05. Existence

55

SECTION 10.06. Reports and Delivery of Certain Information

55

SECTION 10.07. Resale of Certain Securities

56

SECTION 10.08. Book-Entry System

56

SECTION 10.09. [Reserved.]

56

SECTION 10.10. Additional Amounts under the Registration Rights Agreement

56

ARTICLE 11

REDEMPTION AND PURCHASES

SECTION 11.01. Right to Redeem; Notices to Trustee

56

SECTION 11.02. Selection of Securities to Be Redeemed

57

SECTION 11.03. Notice of Redemption

57

SECTION 11.04. Effect of Notice of Redemption

58

SECTION 11.05. Deposit of Redemption Price

58

SECTION 11.06. Securities Redeemed in Part

58

SECTION 11.07. Conversion Arrangement on Call for Redemption

58

SECTION 11.08. [Reserved.]

59

SECTION 11.09. Repurchase of Securities at Option of the Holder upon Fundamental Change

59

SECTION 11.10. Effect of Fundamental Change Repurchase Notice

62

SECTION 11.11. Deposit of Fundamental Change Repurchase Price

63

SECTION 11.12. Securities Repurchased in Part

64

SECTION 11.13. Covenant to Comply With Securities Laws Upon Repurchase of Securities

64

SECTION 11.14. Repayment to the Company

64

ARTICLE 12

INTEREST PAYMENTS ON THE SECURITIES

SECTION 12.01. Interest Rate

64

   

SECTION 12.02. Payment of Interest; Interest Rights Preserved

65

ARTICLE 13

CONVERSION

SECTION 13.01. Right to Convert

66

SECTION 13.02. Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends

67

SECTION 13.03. Cash Payments in Lieu of Fractional Shares

68

SECTION 13.04. Conversion Price

68

SECTION 13.05. Adjustment of Conversion Price

69

SECTION 13.06. Effect of Reclassification, Consolidation, Merger or Sale

76

SECTION 13.07. Taxes on Shares Issued

77

SECTION 13.08. Reservation of Shares; Shares to be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock

77

SECTION 13.09. Responsibility of Trustee

78

SECTION 13.10. Notice to Holders Prior to Certain Actions

78

INDENTURE, dated as of March 18, 2002, between COMPUTER ASSOCIATES INTERNATIONAL, INC., a corporation duly organized and existing under the laws of the State of Delaware, as Issuer (herein called the "Company"), having its principal office at One Computer Associates Plaza, Islandia, New York 11749, and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as Trustee (herein called the "Trustee").

RECITALS OF THE COMPANY

The Company has duly authorized the creation of an issue of 5% Convertible Senior Notes due 2007 (each a "Security" and collectively, the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture.

All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with the terms of the Securities and the Indenture, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchases of the Securities by the Holders thereof, it is mutually agreed, for the benefit of the Company and the equal and proportionate benefit of all Holders of the Securities, as follows:

ARTICLE 1

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 1.01. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

        1. the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
        2. all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
        3. all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; and
        4. the words "herein," "hereof' and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

"Act," when used with respect to any Holder, has the meaning specified in Section 1.04.

"Additional Amounts" shall have the meaning given to such term in the Registration Rights Agreement.

"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

"Agent Members" has the meaning specified in Section 3.08.

"Board of Directors" means, with respect to any Person, either the board of directors of such Person or any duly authorized committee of that board.

"Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.

"Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York or Boston, Massachusetts, are authorized or obligated by law, or executive order or governmental decree to be closed.

"Capital Stock" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, including, without limitation, with respect to partnerships, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership.

"Change in Control" has the meaning specified in Section 11.09.

"Closing Price" has the meaning specified in Section 13.05.

"Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.

"Common Stock" means the shares of Common Stock, par value $.10 per share, of the Company as it exists on the date of this Indenture or any other shares of Capital Stock of the Company into which the Common Stock shall be reclassified or changed.

"Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person.

"Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or any Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.

"Continuing Director" means, at any date, a member of the Company's Board of Directors (i) who was a member of such board on January 1, 2002 or (ii) who was nominated or elected by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Company's Board of Directors was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or such lesser number comprising a majority of a nominating committee comprised of independent directors if authority for such nominations or elections has been delegated to a nominating committee whose authority and composition have been approved by at least a majority of the directors who were Continuing Directors at the time such committee was formed. (Under this definition, if the Board of Directors of the Company as of the date of this Indenture were to approve a new director or directors and then resign, no Change in Control would occur even though the current Board of Directors would thereafter cease to be in office).

"Conversion Agent" means the Trustee or such other office or agency designated by the Company where Securities may be presented for conversion.

"Conversion Notice" has the meaning specified in Section 13.02.

"Conversion Price" has the meaning specified in the Securities.

"Corporate Trust Office" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date of this Indenture, located at 2 Avenue de Lafayette - 6th Floor, Boston, Massachusetts 02111-1724, Attention: Corporate Trust Administration.

"corporation" means a corporation, association, company, joint-stock company or business trust.

"Current Market Price" has the meaning specified in Section 13.05.

"Default" means any event that is or with the passage of time or the giving of notice or both would become an Event of Default.

"Defaulted Interest" has the meaning specified in Section 12.02.

"Depositary" means The Depository Trust Company until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean such successor Depositary.

"Distributed Securities" has the meaning specified in Section 13.05.

"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

"Event of Default" has the meaning specified in Section 5.01.

"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.

"Expiration Time" has the meaning specified in Section 13.05.

"fair market value" has the meaning specified in Section 13.05.

"Fundamental Change" has the meaning specified in Section 11.09.

"Fundamental Change Company Notice" has the meaning specified in Section 11.09.

"Fundamental Change Repurchase Date" has the meaning specified in Section 11.09.

"Fundamental Change Repurchase Notice" has the meaning specified in Section 11.09.

"Fundamental Change Repurchase Price" has the meaning specified in the Securities.

"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, in each case, as in effect in the United States on the date hereof.

"Global Security" means a Security in global form registered in the Security Register in the name of a Depositary or a nominee thereof.

"Holder" or "Securityholder" means a Person in whose name a Security is registered in the Security Register.

"Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively.

"Initial Purchasers" means Banc of America Securities LLC, Salomon Smith Barney Inc., ABN AMRO Rothschild LLC, Mizuho International plc, Robertson Stephens, Inc., RBC Dain Rauscher Inc. and Tokyo-Mitsubishi International plc.

"Interest Payment Date" means each March 15 and September 15 of each year, commencing September 15, 2002.

"Investment Company Act" means the Investment Company Act of 1940 and any statute successor thereto, in each case as amended from time to time.

"Issue Date" means the date the Securities are originally issued as set forth on the face of the Security under this Indenture.

"Maturity", when used with respect to any Security, means the date on which the principal or Fundamental Change Repurchase Price of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity, on a Redemption Date or Fundamental Change Repurchase Date, or by declaration of acceleration or otherwise.

"nonelecting share" has the meaning specified in Section 13.06.

"Non-U.S. Person" means a Person who is not a U.S. person, as defined in Regulation S.

"Notice of Default" has the meaning specified in Section 5.01.

"Officers' Certificate" means a certificate signed by the Chairman of the Board, the President, the Chief Financial Officer or any Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 10.04 shall be the principal executive, financial or accounting officer of the Company.

"Opinion of Counsel" means a written opinion of counsel, who may be external or in-house counsel for the Company, and who shall be reasonably acceptable to the Trustee.

"Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:

        1. Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;
        2. Securities, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that if such Securities are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given to the Holders as herein provided, or provision satisfactory to a Responsible Officer of the Trustee shall have been made for giving such notice; and
        3. Securities which have been paid or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a protected purchaser in whose hands such Securities are valid obligations of the Company;

provided, however, that, in determining whether the Holders of the requisite Principal Amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.

"Paying Agent" means any Person authorized by the Company to pay the principal of, interest and Additional Amounts on or Redemption Price or Fundamental Change Repurchase Price of any Securities on behalf of the Company. The Trustee shall initially be the Paying Agent.

"Person" means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof.

"Physical Securities" means permanent certificated Securities in registered form issued in denomination of $1,000 Principal Amount and integral multiples thereof.

"Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.

"Principal Amount" of a Security means the Principal Amount as set forth on the face of the Security.

"Purchase Agreement" means the Purchase Agreement, dated March 13, 2002, entered into by the Company and the Initial Purchasers in connection with the sale of the Securities.

"Purchased Shares" has the meaning specified in Section 13.05.

"Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A.

"Record Date" has the meaning specified in Section 13.05.

"Redemption Date" shall mean the date specified for redemption of the Securities in accordance with the terms of the Securities and Article 11 hereof.

"Redemption Price" has the meaning specified in the Securities.

"Registration Rights Agreement" means the Registration Rights Agreement, dated as of March 18, 2002, between the Company and the Initial Purchasers, for the benefit of themselves and the Holders, as the same may be amended or modified from time to time in accordance with the terms thereof.

"Regular Record Date" for the interest payable on any Interest Payment Date means March 1 or September 1 (whether or not a Business Day) next preceding such Interest Payment Date.

"Regulation S" means Regulation S under the Securities Act.

"Resale Registration Statement" means a registration statement under the Securities Act registering the Securities for resale pursuant to the terms of the Registration Rights Agreement.

"Responsible Officer" means any officer of the Trustee within the Corporate Trust Office of the Trustee with direct responsibility for the administration of this Indenture and also, with respect to a particular matter, any other officer of the Trustee to whom such matter is referred because of such officer's knowledge and familiarity with the particular subject.

"Restricted Global Security" means a Global Security representing Restricted Securities.

"Restricted Security" or "Restricted Securities" has the meaning specified in Section 2.05.

"Rule 144" means Rule 144 under the Securities Act (including any successor rule thereto), as the same may be amended from time to time.

"Rule 144A" means Rule 144A under the Securities Act (including any successor rule thereto), as the same may be amended from time to time.

"Rule 144A Information" has the meaning specified in Section 2.03.

"Securities Act" means the U.S. Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.

"Security" or "Securities" has the meaning specified in the first paragraph of the Recitals of the Company.

"Security Register" and "Security Registrar" have the respective meanings specified in Section 3.05.

"significant subsidiary" has the meaning given to that term in Rule 1-02 of Regulation S-X under the Exchange Act, except that references to income from continuing operations are changed to revenues.

"Special Record Date" has the meaning specified in Section 12.02.

"Stated Maturity," when used with respect to any Security, means the date specified in such Security as the fixed date on which an amount equal to the principal amount of such Security together with accrued and unpaid interest, if any, is due and payable.

"Step-up Date" has the meaning specified the Securities.

"Stock Transfer Agent" means Mellon Investor Services LLP or such other Person designated by the Company as the transfer agent for the Common Stock.

"Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

"Surviving Entity" has the meaning specified in Section 8.01.

"Trading Day" has the meaning specified in Section 13.05.

"Trigger Event" has the meaning specified in Section 13.05.

"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.

"Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee.

"Unrestricted Global Security" means a Global Security representing Securities which are not Restricted Securities.

"Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president".

"Voting Stock" has the meaning specified in Section 11.09.

SECTION 1.02. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture.

      1. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:
      2. a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
      3. a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
      4. a statement that, in the opinion of each such individual, such individual has made such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; and
      5. a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
      6. SECTION 1.03. Form of Documents Delivered to Trustee. . In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

        Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

        Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

        SECTION 1.04. Acts of Holders; Record Dates.

      7. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
      8. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee reasonably deems sufficient.
      9. The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 7.01) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action.
      10. The ownership of Securities shall be proved by the Security Register.
      11. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.
      12. SECTION 1.05. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with:

        1. the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office; or
        2. the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company, Attention: General Counsel.

        SECTION 1.06. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at such Holder's address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

        In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.

        SECTION 1.07. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be.

        SECTION 1.08. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

        SECTION 1.09. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.

        SECTION 1.10. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

        SECTION 1.12. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their respective successors hereunder and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture.

        SECTION 1.13. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York.

        SECTION 1.14. Legal Holiday. In any case where any Interest Payment Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or at the Stated Maturity, provided that no interest shall accrue with respect to such payment for the period from and after such Interest Payment Date or Stated Maturity, as the case may be.

        article 2

        SECURITY FORMS

        SECTION 2.01. Forms Generally. The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or Depositary therefor, the Internal Revenue Code of 1986, as amended, and regulations thereunder, or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof.

        The Securities shall be initially issued in the form of permanent Global Securities in registered form in substantially the form set forth in this Article. The aggregate Principal Amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, as hereinafter provided.

        SECTION 1.02. Form of Face of Security. [INCLUDE IF SECURITY IS A RESTRICTED SECURITY - THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A OR REGULATION S THEREUNDER.

        THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF AVAILABLE) OR OTHER APPLICABLE EXEMPTION OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

        THIS SECURITY AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS SECURITY TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS SECURITY SHALL BE DEEMED BY THE ACCEPTANCE OF THIS SECURITY TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.

        THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE BENEFITS OF, A REGISTRATION RIGHTS AGREEMENT, DATED AS OF MARCH 18, 2002, ENTERED INTO BY THE COMPANY FOR THE BENEFIT OF CERTAIN HOLDERS OF SECURITIES FROM TIME TO TIME.]

        [INCLUDE IF SECURITY IS A GLOBAL SECURITY - THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

        UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), A NEW YORK CORPORATION, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

        COMPUTER ASSOCIATES INTERNATIONAL, INC.

        5% Convertible Senior Notes due 2007

        No.

        CUSIP NO. [ ]

        $[ ]

        Computer Associates International, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware (herein called the "Company"), which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received hereby promises to pay to Cede & Co., or registered assigns, the principal sum of [ ] United States Dollars ($ ) [INCLUDE IF SECURITY IS A GLOBAL SECURITY - (which amount may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, in accordance with the rules and procedures of the Depositary)] on March 15, 2007 (the "Stated Maturity") and to pay interest on said principal sum semi-annually on March 15 and September 15 of each year, commencing September 15, 2002 at the initial rate of 5% per annum to holders of record on the immediately preceding March 1 and September 1, respectively. Interest on this Security shall accrue from the most recent date to which interest has been paid, or if no interest has been paid, from March 18, 2002, until the Principal Amount is paid or duly made available for payment. Except as otherwise provided in the Indenture, the interest payable on this Security pursuant to the Indenture on any March 15 or September 15 will be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date, which shall be the March 1 or September 1 (whether or not a Business Day) next preceding such March 15 or September 15, respectively; provided that, any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Payment of the principal of and interest accrued on this Security shall be made by check mailed to the address of the Holder of this Security specified in the register of Securities, or, at the option of the Holder of this Security, at the Corporate Trust Office, in such lawful money of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts; provided, however, that, with respect to any Holder of Securities with an aggregate principal amount in excess of $5,000,000, at the request of such Holder in writing to the Company, interest on such Holder's Securities shall be paid by wire transfer in immediately available funds in accordance with the written wire transfer instruction supplied by such Holder from time to time to the Trustee and Paying Agent (if different from the Trustee) at least two days prior to the applicable Regular Record Date; provided that any payment to the Depositary or its nominee shall be paid by wire transfer in immediately available funds in accordance with the wire transfer instruction supplied by the Depositary or its nominee from time to time to the Trustee and Paying Agent (if different from Trustee) at least two days prior to the applicable Regular Record Date.

        Reference is made to the further provisions of this Security set forth on the reverse hereof, including, without limitation, provisions giving the Company the right to repurchase this Security commencing March 21, 2005 and the Holder of this Security the right to convert this Security into Common Stock of the Company and the right to require the Company to repurchase this Security upon certain events, in each case, on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place.

        This Security shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State.

        This Security shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture.

        IN WITNESS WHEREOF, the Company has caused this instrument to be  duly executed.

        COMPUTER ASSOCIATES INTERNATIONAL, INC.

         

        By: _________________________

        Authorized Signatory

        Attest:

        By: _________________________
        Authorized Signatory

        SECTION 1.03. Form of Reverse of Security. This Security is one of a duly authorized issue of Securities of the Company, designated as its 5% Convertible Senior Notes due 2007 (herein called the "Securities"), all issued or to be issued under and pursuant to an Indenture dated as of March 18, 2002 (herein called the "Indenture"), between the Company and State Street Bank and Trust Company (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Securities.

        The indebtedness evidenced by the Securities is unsecured and unsubordinated indebtedness of the Company and ranks equally with the Company's other unsecured and unsubordinated indebtedness.

        Redemption at the Option of the Company. No sinking fund is provided for the Securities. The Securities are redeemable as a whole, or from time to time in part, at any time on or after March 21, 2005 at the option of the Company at the following redemption prices (each, a "Redemption Price"), expressed as a percentage of Principal Amount for Securities redeemed during the periods set forth below:

        Period

        Redemption Price

        Beginning on March 21, 2005 through March 20, 2006

        102%

        Beginning on March 21, 2006

        101%

           

        in each case together with accrued and unpaid interest and Additional Amounts, if any, to, but excluding, the Redemption Date.

        Purchase By the Company at the Option of the Holder. At the option of the Holder and subject to the terms and conditions of the Indenture, the Company shall become obligated to repurchase the Securities if a Fundamental Change occurs at any time prior to March 15, 2007 at 100% of the Principal Amount plus accrued and unpaid interest and Additional Amounts, if any, to, but excluding, the Fundamental Change Repurchase Date (the "Fundamental Change Repurchase Price"), which Fundamental Change Repurchase Price shall be paid in cash.

        Holders have the right to withdraw any Fundamental Change Repurchase Notice by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Indenture.

        If cash sufficient to pay the Fundamental Change Repurchase Price of all Securities or portions thereof to be purchased on a Fundamental Change Repurchase Date is deposited with the Paying Agent on the Business Day following the Fundamental Change Repurchase Date, interest will cease to accrue on such Securities (or portions thereof) immediately after such Fundamental Change Repurchase Date, and the Holder thereof shall have no other rights as such (other than the right to receive the Fundamental Change Repurchase Price upon surrender of such Security).

        Conversion. Subject to the provisions of the Indenture, the Holder hereof has the right, at its option, at any time following the date of issuance of the Securities and prior to the close of business on the Business Day next preceding March 15, 2007 (except that with respect to any Security or portion of a Security which shall be called for redemption, prior to the close of business five days prior to the Redemption Date) (unless the Company shall default in payment of the Redemption Price), to convert the Principal Amount hereof or any portion of such principal which is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the Principal Amount of this Security or portion thereof to be converted by the conversion price of $24.34 (the "Conversion Price") as adjusted from time to time as provided in the Indenture, upon surrender of this Security, together with a Conversion Notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in Boston, Massachusetts, which is initially the Corporate Trust Office, and, unless the shares issuable on conversion are to be issued in the same name as this Security, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the Holder or by his duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided, however, that, if this Security shall be surrendered for conversion during the period from the close of business on any Regular Record Date for the payment of interest through the close of business on the Business Day next preceding the following Interest Payment Date, and has not been called for redemption on a Redemption Date that occurs during such period, such Security (or portion thereof being converted) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such Interest Payment Date on the Principal Amount being converted; provided, however, that no such payment shall be required if there shall exist at the time of conversion a default in the payment of interest or Additional Amounts on the Securities. No fractional shares will be issued upon any conversion, but an adjustment and payment in cash will be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Securities for conversion. Securities in respect of which a Holder is exercising its right to require repurchase on a Fundamental Change Repurchase Date may be converted only if such Holder withdraws its election to exercise such right in accordance with the terms of the Indenture. Any Securities called for redemption, unless surrendered for conversion by the Holders thereof on or before the close of business five days prior to the date fixed for redemption, may be deemed to be redeemed from such Holders for an amount equal to the applicable Redemption Price, by one or more investment banks or other purchasers who may agree with the Company (i) to purchase such Securities from the Holders thereof and convert them into shares of the Common Stock and (ii) to make payment for such Securities as aforesaid to the Trustee in trust for the Holders.

        [INCLUDE IF SECURITY IS A GLOBAL SECURITY - In the event of a deposit or withdrawal of an interest in this Security, including an exchange, transfer, repurchase or conversion of this Security in part only, the Trustee, as custodian of the Depositary, shall make an adjustment on its records to reflect such deposit or withdrawal in accordance with the rules and procedures of the Depositary.]

        [INCLUDE IF SECURITY IS A RESTRICTED SECURITY Subject to certain limitations in the Indenture, at any time when the Company is not subject to Section 13 or 15(d) of the United States Securities Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted Security, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder of Restricted Securities, or to a prospective purchaser of any such security designated by any such Holder, to the extent required to permit compliance by any such Holder with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto).]

        If an Event of Default shall occur and be continuing, the Principal Amount plus interest accrued and Additional Amounts, if any, through such date on all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture.

        The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate Principal Amount of the Outstanding Securities. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate Principal Amount of the Outstanding Securities, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

        As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, the Holders of not less than 25% in aggregate Principal Amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity satisfactory to it, and the Trustee shall not have received from the Holders of a majority in Principal Amount of Outstanding Securities a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of said principal hereof or interest hereon on or after the respective due dates expressed herein or for the enforcement of any conversion right.

        No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the Principal Amount or Fundamental Change Repurchase Price of, and interest and Additional Amounts, if any, on, this Security at the times, place and rate, and in the coin or currency, herein prescribed.

        As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in Boston, Massachusetts, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate Principal Amount, will be issued to the designated transferee or transferees.

        The Securities are issuable only in registered form in denominations of $1,000 and any integral multiple of $1,000 above that amount, as provided in the Indenture and subject to certain limitations therein set forth. Securities are exchangeable for a like aggregate Principal Amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same.

        No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

        Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

        This Security shall be governed by and construed in accordance with the laws of the State of New York.

        All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

        ASSIGNMENT FORM

        If you want to assign this Security, fill in the form below and have your signature guaranteed:

        I or we assign and transfer this Security to:

         
         

        (Print or type name, address and zip code and social security or tax ID number of assignee)

        and irrevocably appoint _____________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him.

        Date: __________________ Signed: ____________________

        (Sign exactly as your name appears on the other side of this Security)

        Signature Guarantee:

        Note: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

        In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) March 18, 2004, the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that this Security is being transferred:

        [Check One]

        (1)

         

        to the Company or a subsidiary thereof; or

        (2)

         

        pursuant to and in compliance with Rule 144A under the Securities Act; or

        (3)

         

        outside the United States to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act; or

        (4)

         

        pursuant to the exemption from registration provided by Rule 144 under the Securities Act, or

        (5)

         

        pursuant to another available exemption from the registration requirements of the Securities Act.

        Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any Person other than the registered Holder thereof, provided that if box (3), (4) or (5) is checked, the Company may require, prior to registering any such transfer of the Securities, in its sole discretion, such legal opinions, certifications (including an investment letter in the case of box (3)) and other information as the Company may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

        If none of the foregoing boxes is checked, the Trustee or Security Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 3.10 of the Indenture shall have been satisfied.

        Date: Signed:

        (Sign exactly as your name appears on the other side of this Security)

        Signature Guarantee:

        Note: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

        TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED

        The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A.

        Date: Signed:

        NOTICE: To be executed by an executive officer.

        CONVERSION NOTICE

        If you want to convert this Security into Common Stock of the Company, check the box: ڤ

        To convert only part of this Security, state the Principal Amount to be converted (which must be $1,000 or an integral multiple of $1,000):

        $_________________________________

        If you want the stock certificate made out in another person's name, fill in the form below:

        (Insert other person's social security or tax ID no.)

         
         

        (Print or type other person's name, address and zip code)

        Date: __________________ Signed: ____________________

        (Sign exactly as your name appears on the other side of this Security)

        Signature Guarantee:

        Note: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

        [TO BE ATTACHED TO GLOBAL SECURITIES]

        SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY

        The following increases or decreases in this Global

        Security have been made:

        Date of Exchange

        Amount of decrease in Principal Amount of this Global Security

        Amount of increase in Principal Amount of this Global Security

        Principal Amount of this Global Security following such decrease or increase

        Signature of
        Authorized
        officer of
        Trustee
        or Securities
        Custodian

                 
                 
                 
                 

        SECTION 2.04. Form of Trustee's Certificate of Authentication. This is one of the Securities referred to in the within-mentioned Indenture.

        Dated: __________ STATE STREET BANK AND TRUST
        COMPANY, as Trustee

         

        By

        Authorized Signatory

        SECTION 2.05. Legend on Restricted Securities. During the period beginning on March 18, 2002 and ending on the date two years from such date, any Security including any Security issued in exchange therefor or in lieu thereof, shall be deemed a "Restricted Security" and shall be subject to the restrictions on transfer provided in the legends set forth on the face of the form of Security in Section 2.02; provided, however, that the term "Restricted Security" shall not include any Securities as to which restrictions have been terminated in accordance with Section 3.05. All Securities shall bear the applicable legends set forth on the face of the form of Security in Section 2.02. Except as provided in Section 3.05 and Section 3.10, the Trustee shall not issue any unlegended Security until it has received an Officers' Certificate from the Company directing it to do so.

        ARTICLE 3

        THE SECURITIES

        SECTION 3.01 Title and Terms. The aggregate Principal Amount of Securities which may be authenticated and delivered under this Indenture is limited to $600,000,000 (subject to increase by up to $60,000,000 in the event the Initial Purchasers exercise the option granted to them in the Purchase Agreement), except for Securities authenticated and delivered upon registration or transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 3.04, 3.05, 3.06, 9.06, 11.06, 11.12 or 13.02.

        The Securities shall be known and designated as the "5% Convertible Senior Notes due 2007" of the Company. The Principal Amount shall be payable on March 15, 2007.

        The Principal Amount and accrued interest and Additional Amounts, if any, on the Securities shall be payable at the office or agency of the Company in Boston, Massachusetts maintained for such purpose and at any other office or agency maintained by the Company for such purpose; provided, however, that at the option of the Company payments may be made by wire transfer or by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.

        The Securities shall not have the benefit of a sinking fund.

        The Securities shall not be superior in right of payment to, and shall rank pari passu with, all other existing and future senior unsecured and unsubordinated indebtedness of the Company.

        SECTION 3.02. Denominations. The Securities shall be issuable only in registered form without coupons and in denominations of $1,000 and any integral multiple of $1,000 above that amount.

        SECTION 3.03. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President, its Chief Financial Officer or one of its Vice Presidents, attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile.

        Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.

        At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities. The Company Order shall specify the amount of Securities to be authenticated, and shall further specify the amount of such Securities to be issued as a Global Security or as Physical Securities. The Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise.

        Each Security shall be dated the date of its authentication.

        No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder.

        SECTION 3.04. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.

        If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 10.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like Principal Amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities.

        SECTION 3.05. Registration; Registration of Transfer and Exchange; Restrictions on Transfer.

      13. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.02 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" (the "Security Registrar") for the purpose of registering Securities and transfers of Securities as herein provided.
      14. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.02 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate Principal Amount and tenor, each such Security bearing such restrictive legends as may be required by this Indenture (including Sections 2.02, 2.05 and 3.10).

        At the option of the Holder and subject to the other provisions of this Section 3.05 and to Section 3.10, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate Principal Amount and tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.

        All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.

        Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. As a condition to the registration of transfer of any Restricted Securities, the Company or the Trustee may require evidence satisfactory to them as to the compliance with the restrictions set forth in the legend on such securities.

        Except as provided in the following sentence and in Section 3.10, all Securities originally issued hereunder and all Securities issued upon registration of transfer or exchange or replacement thereof shall be Restricted Securities and shall bear the legend required by Sections 2.02 and 2.05, unless the Company shall have delivered to the Trustee (and the Security Registrar, if other than the Trustee) a Company Order stating that the Security is not a Restricted Security and may be issued without such legend thereon. Securities which are issued upon registration of transfer of, or in exchange for, Securities which are not Restricted Securities shall not be Restricted Securities and shall not bear such legend.

        No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04 or 9.06 not involving any transfer.

        The Company shall not be required to exchange or register a transfer of any Security (i) during the 15-day period immediately preceding the mailing of any notice of redemption of any Security, (ii) after any notice of redemption has been given to Holders of Securities, except, where such notice provides that such Security is to be redeemed only in part, the Company shall be required to exchange or register a transfer of the portion thereof not to be redeemed, (iii) that has been surrendered for conversion or (iv) as to which a Fundamental Change Repurchase Notice has been delivered and not withdrawn, except, where such Fundamental Change Repurchase Notice provides that such Security is to be purchased only in part, the Company shall be required to exchange or register a transfer of the portion thereof not to be purchased.

      15. Beneficial ownership of every Restricted Security shall be subject to the restrictions on transfer provided in the legends required to be set forth on the face of each Restricted Security pursuant to Sections 2.02 and 2.05, unless such restrictions on transfer shall be terminated in accordance with this Section 3.05(b) or Section 3.10. The Holder of each Restricted Security, by such Holder's acceptance thereof, agrees to be bound by such restrictions on transfer.
      16. The restrictions imposed by this Section 3.05 and Sections 2.02, 2.05 and 3.10 upon the transferability of any particular Restricted Security shall cease and terminate upon delivery by the Company to the Trustee of an Officers' Certificate stating that such Restricted Security has been sold pursuant to an effective Resale Registration Statement under the Securities Act or transferred in compliance with Rule 144 under the Securities Act (or any successor provision thereto). Any Restricted Security as to which the Company has delivered to the Trustee an Officers' Certificate that such restrictions on transfer shall have expired in accordance with their terms or shall have terminated may, upon surrender of such Restricted Security for exchange to the Security Registrar in accordance with the provisions of this Section 3.05, be exchanged for a new Security, of like tenor and aggregate Principal Amount, which shall not bear the restrictive legends required by Sections 2.02 and 2.05. The Company shall inform the Trustee in writing of the effective date of any Resale Registration Statement registering the Securities under the Securities Act. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the aforementioned Resale Registration Statement.

        As used in the preceding two paragraphs of this Section 3.05, the term "transfer" encompasses any sale, pledge, transfer or other disposition of any Restricted Security.

      17. Neither the Trustee nor any of its agents shall (i) have any duty to monitor compliance with or with respect to any federal or state or other securities or tax laws or (ii) have any duty to obtain documentation on any transfers or exchanges other than as specifically required hereunder.
      18. SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and Principal Amount and bearing a number not contemporaneously outstanding.

        If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and Principal Amount and bearing a number not contemporaneously outstanding.

        In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable or has been called for redemption in full, the Company in its discretion may, instead of issuing a new Security, pay such Security.

        Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.

        Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.

        The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

        SECTION 3.07 Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal on such Security (and interest, if the Securities have been converted into semi-annual coupon notes) and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.

        SECTION 3.08. Book-entry Provisions for Global Securities.

      19. The Global Securities initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for the Depositary and (iii) bear legends as set forth on the face of the form of Security in Section 2.02.
      20. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of any Holder.

      21. Transfers of the Global Securities shall be limited to transfers in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in a Global Security may be transferred or exchanged, in whole or in part, for Physical Securities in accordance with the rules and procedures of the Depositary and the provisions of Section 3.10. In addition, Physical Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in the Global Securities if (A) such Depositary has notified the Company (or the Company becomes aware) that the Depositary (i) is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act when the Depositary is required to be so registered to act as such Depositary and, in both such cases, no successor Depositary shall have been appointed within 90 days of such notification or of the Company becoming aware of such event or (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security and the Outstanding Securities shall have become due and payable pursuant to Section 5.02 and the Trustee requests that Physical Securities be issued; provided that Holders of Physical Securities offered and sold in reliance on Rule 144A shall have the right, subject to applicable law, to request that such Securities be exchanged for interests in the applicable Global Security.
      22. In connection with any transfer or exchange of a portion of the beneficial interest in the Global Security to beneficial owners pursuant to paragraph (b), the Security Registrar shall (if one or more Physical Securities are to be issued) reflect on its books and records the date and a decrease in the Principal Amount of the Global Security in an amount equal to the Principal Amount of the beneficial interest in the Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Securities of like tenor and amount.
      23. In connection with the transfer of the entire Global Security to beneficial owners pursuant to paragraph (b), the Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the Global Security, an equal aggregate Principal Amount of Physical Securities of authorized denominations and the same tenor.
      24. Any Physical Security constituting a Restricted Security delivered in exchange for an interest in the Global Security pursuant to paragraph (c) or (d) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 3.10, bear the legend regarding transfer restrictions applicable to the Physical Securities set forth on the face of the form of Security in Section 2.02.
      25. The Holder of the Global Securities may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities.
      26. SECTION 3.09. Cancellation. The Company at any time may deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold. The Trustee shall cancel and dispose of all Securities surrendered for registration of transfer, exchange, payment, purchase, repurchase, redemption, conversion (pursuant to Article 13 hereof) or cancellation in accordance with its customary practices. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are delivered to the Trustee for cancellation. The Company may not issue new Securities to replace Securities it has paid in full or delivered to the Trustee for cancellation.

        SECTION 3.10. Special Transfer Provisions.

      27. Transfers to Non-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of a Security constituting a Restricted Security to any Non-U.S. Person to which Securities in the form of Global Securities cannot be issued:
          1. the Security Registrar shall register the transfer of any Security constituting a Restricted Security, whether or not such Security bears the legend required by Sections 2.02 and 2.05, if (x) the requested transfer is after March 18, 2004 or (y) the proposed transferor has delivered to the Security Registrar a certificate substantially in the form of Exhibit A hereto, together with such other certifications, legal opinions or other information as the Company may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act; and
          2. if the proposed transferor is an Agent Member holding a beneficial interest in the Global Security, upon receipt by the Security Registrar of (x) the certificate, if any, required by paragraph (i) above and instructions given in accordance with the Depositary's and the Security Registrar's procedures,

        whereupon (1) the Security Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Physical Securities) a decrease in the Principal Amount of the Global Security in an amount equal to the Principal Amount of the beneficial interest in the Global Security to be transferred, and (b) the Company shall execute and the Trustee shall authenticate and deliver one or more Physical Securities of like tenor and amount.

      28. Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Security constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
          1. the Security Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and
          2. if the proposed transferee is an Agent Member, and the Securities to be transferred consist of Physical Securities which after transfer are to be evidenced by an interest in the Global Security, upon receipt by the Security Registrar of instructions given in accordance with the Depositary's and the Security Registrar's procedures, the Security Registrar shall reflect on its books and records the date and an increase in the Principal Amount of the Global Security in an amount equal to the Principal Amount of the Physical Securities to be transferred, and the Trustee shall cancel the Physical Securities so transferred.
      29. Private Placement Legend. Upon the registration of transfer, exchange or replacement of Securities not bearing the legends required by Sections 2.02 and 2.05, the Security Registrar shall deliver Securities that do not bear such legends. Upon the registration of transfer, exchange or replacement of Securities bearing the legends required by Sections 2.02 and 2.05, the Security Registrar shall deliver only Securities that bear such legends unless (i) the circumstance contemplated by paragraph (a)(i)(x) of this Section 3.10 exists or (ii) there is delivered to the Security Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act.
      30. General. By its acceptance of any Security bearing the legends required by Sections 2.02 and 2.05, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in such legends and agrees that it will transfer such Security only as provided in this Indenture.
      31. The Security Registrar shall retain, in accordance with its customary procedures, copies of all letters, notices and other written communications received pursuant to this Section 3.10. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Security Registrar.

        SECTION 3.11. Cusip Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers.

        ARTICLE 4

        SATISFACTION AND DISCHARGE

        SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when

      32. either
          1. all Securities theretofore authenticated and delivered (other than (A) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (B) Securities for whose payment money has theretofore been deposited with the Trustee in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided in Section 10.03) have been delivered to the Trustee for cancellation; or
          2. all such Securities not theretofore delivered to the Trustee for cancellation have become due and payable and the Company has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness evidenced by such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest to the date of such deposit;
      33. the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
      34. the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.
      35. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.07 and, if money shall have been deposited with the Trustee pursuant to subclause (ii) of Clause (a) of this Section, the obligations of the Trustee under Section 4.02 and the last paragraph of Section 10.03 shall survive.

        SECTION 4.02. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and interest and Additional Amounts, if any, for whose payment such money has been deposited with the Trustee.

        ARTICLE 5

        REMEDIES

        SECTION 5.01. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

              1. default in the payment of the Principal Amount, Redemption Price or Fundamental Change Repurchase Price on any Security when it becomes due and payable; or
              2. default in the payment of interest upon any Security, when such interest becomes due and payable, and continuance of such default for a period of 30 days; or
              3. default in the performance of any covenant, agreement or condition of the Company in this Indenture or the Securities (other than a default specified in (a) or (b) above), and continuance of such default for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate Principal Amount of the Outstanding Securities a written notice specifying such default and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or
              4. failure by the Company to give the Fundamental Change Company Notice; or
              5. the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company or any of its significant subsidiaries of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law or (iii) appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days;
              6. the commencement by the Company or any of its significant subsidiaries of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action;
              7. the failure by the Company or any of its significant subsidiaries make any payment at maturity, including any applicable grace period, with respect to any indebtedness of, or guaranteed or assumed by, the Company or its significant subsidiaries, in a principal amount then outstanding in excess of $25 million in the aggregate for all such indebtedness and the continuance of such failure for a period of 30 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by Holders of at least 25% in aggregate Principal Amount of the Outstanding Securities, a written notice specifying such default and requiring the Company to cause such default to be cured or waived and stating that such notice is a "Notice of Default" hereunder; or
              8. the default on the part of the Company or any of its significant subsidiaries with respect to any indebtedness of, or guaranteed or assumed by, the Company or its significant subsidiaries, in a principal amount then outstanding in excess of $25 million in the aggregate for all such indebtedness, and such indebtedness shall not have been discharged or such acceleration shall not have been rescinded or annulled for a period of 30 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by Holders of at least 25% in aggregate Principal Amount of the Outstanding Securities, a written notice specifying such default and requiring the Company to cause such default to be cured or waived or such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder.

        SECTION 5.02. Acceleration of Maturity; Rescission and Annulment.

      36. If an Event of Default (other than those specified in Sections 5.01(e) and 5.01(f)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate Principal Amount of the Outstanding Securities may declare the Principal Amount plus accrued and unpaid interest and Additional Amounts, if any, on all the Outstanding Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such Principal Amount plus accrued and unpaid interest and Additional Amounts, if any, shall become immediately due and payable.
      37. Notwithstanding the foregoing, in the case of an Event of Default specified in Sections 5.01(e) or 5.01(f), the Principal Amount plus accrued and unpaid interest and Additional Amounts, if any, on all Outstanding Securities will ipso facto become due and payable without any declaration or other Act on the part of the Trustee or any Holder.

      38. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate Principal Amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if
          1. the Company has paid or deposited with the Trustee a sum sufficient to pay
            1. all overdue interest on all Securities,
            2. the Principal Amount plus accrued and unpaid interest and Additional Amounts, if any, Redemption Price or Fundamental Change Repurchase Price, as applicable, on any Securities which have become due otherwise than by such declaration of acceleration, and
            3. all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07;
          2. all Events of Default, other than the non-payment of the Principal Amount plus accrued and unpaid interest and Additional Amounts, if any, on Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13; and
          3. the rescission of acceleration would not conflict with any judgment or decree.
          4. No such rescission shall affect any subsequent default or impair any right consequent thereon.

            SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if:

          5. default is made in the payment of any interest on any Security when such interest becomes due and payable, and such default continues for a period of 30 days, or
          6. default is made in the payment of the Principal Amount plus accrued and unpaid interest and Additional Amounts, if any, at the Maturity thereof or in the payment of the Redemption Price or the Fundamental Change Repurchase Price in respect of any Security,
          7. the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

            If an Event of Default with respect to the Securities occurs and is continuing, the Trustee shall, subject to applicable law, proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem appropriate, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

            SECTION 5.04. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 6.07.

            No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

            SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.

            SECTION 5.06. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money to Holders, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

            FIRST: To the payment of all amounts due the Trustee under Section 6.07; and

            SECOND: To the payment of the amounts then due and unpaid on the Securities for the Principal Amount, Redemption Price, Fundamental Change Repurchase Price or interest and Additional Amounts, if any, as the case may be, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities.

            SECTION 5.07. Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder (other than in the case of an Event of Default specified in Section 5.01(a) or 5.01(b)), unless:

          8. such Holder has previously given written notice to the Trustee of a continuing Event of Default;
          9. the Holders of not less than 25% in aggregate Principal Amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
          10. such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request;
          11. the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
          12. no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate Principal Amount of the Outstanding Securities;
          13. it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders.

            SECTION 5.08. Unconditional Right of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of the Principal Amount, Redemption Price, Fundamental Change Repurchase Price or interest and Additional Amounts, if any, in respect of the Securities held by such Holder, on or after the respective due dates expressed in the Securities or any Redemption Date or Fundamental Change Repurchase Date, as applicable, and to convert the Securities in accordance with Article 13, or to bring suit for the enforcement of any such payment on or after such respective dates or the right to convert, shall not be impaired or affected adversely without the consent of such Holder.

            SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

            SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

            SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

            SECTION 5.12. Control by Holders. The Holders of a majority in Principal Amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that:

          14. such direction shall not be in conflict with any rule of law or with this Indenture; and
          15. the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
          16. SECTION 5.13 Waiver of Past Defaults. The Holders of not less than a majority in Principal Amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past Default hereunder and its consequences, except a Default:

          17. Described in Section 5.01(a) or (b); or
          18. in respect of a covenant or provision hereof which under Article 9 cannot be modified or amended without the consent of the Holder of each Outstanding Security affected.
          19. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.

            SECTION 5.14. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, in either case in respect of the Securities, a court may require any party litigant in such suit to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorney's fees, against any party litigant in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in Principal Amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the Principal Amount or interest on any Security on or after Maturity of such Security, the Redemption Price or the Fundamental Change Purchase Price.

            SECTION 5.15. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay, or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

            ARTICLE 6

            THE TRUSTEE

            SECTION 6.01. Certain Duties and Responsibilities. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. In case an Event of Default with respect to the Securities has occurred (which has not been cured or waived), the Trustee shall exercise the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.

            SECTION 6.02. Notice of Defaults. The Trustee shall give the Holders notice of any Default hereunder within 90 days after the occurrence thereof; provided, that in the case of any Default in the payment of Principal Amount or interest on any of the Securities, Redemption Price or Fundamental Change Repurchase Price, the Trustee shall be protected in withholding such notice if and so long as a trust committee of directors or trustees and/or a Responsible Officer of the Trustee in good faith determines that the withholding of such notice is in the interest of the holders of Securities.

            SECTION 6.03. Certain Rights of Trustee. Subject to the provisions of Section 6.01:

                1. the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
                2. any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors of the Company may be sufficiently evidenced by a Board Resolution;
                3. whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;
                4. the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
                5. the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
                6. the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.
                7. the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
                8. the Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Securities unless either (i) a Responsible Officer shall have actual knowledge of such Default or Event of Default or (ii) written notice of such Default or Event of Default shall have been given to the Trustee by the Company or any other obligor on such Securities or by any Holder of such Securities;
                9. the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture;
                10. the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder; and
                11. the Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded.

            SECTION 6.04. Not Responsible for Recitals. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.

            SECTION 6.05. May Hold Securities. The Trustee, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent.

            SECTION 6.06. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company.

            SECTION 6.07. Compensation and Reimbursement. The Company agrees:

          20. to pay to the Trustee from time to time such compensation for all services rendered by it hereunder as the Company and the Trustee shall from time to time agree in writing (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
          21. except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and
          22. to indemnify the Trustee and any predecessor Trustee for, and to hold it harmless against, any loss, liability or expense including taxes (other than taxes based upon, measured by or determined by the income of the Trustee) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim (whether assessed by the Company, by any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder.

        The obligations of the Company under this Section 6.07 shall survive the resignation or removal of the Trustee and the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section 6.07, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on the Securities. Such lien shall survive the resignation or removal of the Trustee and the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after a Default or an Event of Default specified in Sections 5.01(e) or 5.01(f) hereof occurs, the expenses and the compensation for the services (including, the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under U.S. Code, Title 11 or any other similar foreign, federal or state law for the relief of debtors.

        SECTION 6.08. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture.

        SECTION 6.09. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

        SECTION 6.10. Resignation and Removal; Appointment of Successor.

      39. No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11.
      40. The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction at the expense of the Trustee for the appointment of a successor Trustee.
      41. The Trustee may be removed at any time by Act of the Holders of majority in Principal Amount of the Outstanding Securities, delivered to the Trustee and to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the notice of removal, the Trustee being removed may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities.
      42. If at any time:
          1. the Trustee shall fail to comply with Section 6.08 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or
          2. the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or
          3. the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or
          4. a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,

        then, in any such case, (A) the Company by a Company Order may remove the Trustee, or (B) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of such Holder and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

      43. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Company Order, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in Principal Amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee.
      44. The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 1.06. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office.
      45. SECTION 6.11. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts.

        No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.

        SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.

        SECTION 6.13. Preferential Collection of Claims Against. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor).

        ARTICLE 7

        HOLDERS' LISTS AND REPORTS BY TRUSTEE

        SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee:

          1. semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date; and
          2. at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished;

        excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar; provided, however, that no such list need be furnished so long as the Trustee is acting as Security Registrar.

        SECTION 7.02. Preservation of Information; Communications to Holders.

      46. The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished.
      47. The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act.
      48. Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act.
      49. SECTION 7.03. Reports by Trustee.

      50. The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. Reports so required to be transmitted at stated intervals of not more than 12 months shall be transmitted no later than July 15 in each calendar year, commencing in July 15, 2002. Each such report shall be dated as of a date not more than 60 days prior to the date of transmission.
      51. A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange or of any delisting thereof.
      52. SECTION 7.04. Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. In the event the Company is not subject to Section 13 or 15(d) of the Exchange Act, it shall file with the Trustee upon request the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). It is expressly understood that materials transmitted electronically by the Company to the Trustee shall be deemed filed with the Trustee for purposes of this Section 7.04.

        ARTICLE 8

        CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

        SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless:

          1. in case the Company shall consolidate with or merge with another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, either the Company shall be the continuing Person or the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, limited liability company, partnership or trust (the "Surviving Entity"), shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and the Surviving Entity shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form and substance reasonably satisfactory to the Trustee, the due and punctual payment of the principal of and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed;
          2. immediately after giving effect to a transaction described in (i), no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and
          3. the Company or the Surviving Entity has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article.
          4. SECTION 8.02. Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 8.01, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities.

            ARTICLE 9

            SUPPLEMENTAL INDENTURES

            SECTION 9.01. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:

          5. to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or
          6. to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or
          7. to add any additional Events of Default for the benefit of the Holders; or
          8. to cure any ambiguity or defect, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided that such action pursuant to this clause (iv) shall not adversely affect the interests of the Holders in any material respect; or
          9. to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Securities any property or assets; or
          10. to evidence the succession of another corporation to the Company, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Section 8.01; or
          11. to comply with any requirements of the Commission in connection with the qualification of this Indenture under the Trust Indenture Act; or
          12. make any change that does not adversely affect in any material respect the rights of any Holder.
          13. SECTION 9.02. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in Principal Amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,

          14. make any change in the Regular Record Dates or Interest Payment Dates or rate of interest or extend the time for payment of interest, if any, on any Security; or
          15. reduce the Principal Amount of or extend the Stated Maturity of any Security; or
          16. reduce the Redemption Price or Fundamental Change Repurchase Price of any Security; or
          17. make any Security payable in money or securities other than that stated in the Security; or
          18. make any change that adversely affects the right to convert any Security; or
          19. make any change that adversely affects the right to require the Company to purchase the Securities in accordance with the terms thereof and this Indenture; or
          20. impair the right to receive payment with respect to a Security or the right to institute suit for the enforcement of any payment or conversion, with respect to the Securities; or
          21. reduce the percentage in Principal Amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture; or
          22. modify any of the provisions of this Section or Section 5.13, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; or
          23. extend time for payment or otherwise waive a continuing default or Event of Default regarding any payment on the Securities.
          24. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

            SECTION 9.03. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, in addition to the documents required by Section 1.02, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. Subject to the preceding sentence, the Trustee shall sign such supplemental indenture if the same does not adversely affect the Trustee's own rights, duties or immunities under this Indenture or otherwise. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which adversely affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.

            SECTION 9.04. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

            SECTION 9.05. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act.

            SECTION 9.06. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article shall bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities.

            ARTICLE 10

            COVENANTS

            SECTION 10.01. Payments. The Company shall duly and punctually make all payments in respect of the Securities in accordance with the terms of the Securities and this Indenture.

            SECTION 10.02. Maintenance of Office or Agency. The Company shall maintain in Boston, Massachusetts, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served, which shall initially be the Corporate Trust Office of the Trustee. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.

            The Company may also from time to time designate one or more other offices or agencies (in or outside Boston, Massachusetts) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in Boston, Massachusetts, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

            SECTION 10.03. Money for Security Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of any payment in respect of any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to make the payment so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of its action or failure so to act.

            Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of any payment in respect of any Securities, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.

            The Company shall cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (i) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Securities) in the making of any payment in respect of the Securities, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent as such.

            The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.

            Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the making of payments in respect of any Security and remaining unclaimed for two years after such payment has become due shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining shall be repaid to the Company.

            SECTION 10.04. Statement by Officers as to Default. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge.

            The Company shall deliver to the Trustee, as soon as possible and in any event within five days after the Company becomes aware of the occurrence of any Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default, an Officers' Certificate setting forth the details of such Event of Default or default and the action which the Company proposes to take with respect thereto.

            SECTION 10.05. Existence. Subject to Article 8, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders.

            SECTION 10.06. Reports and Delivery of Certain Information. Whether or not required by the rules and regulations of the Commission, so long as any Securities are outstanding, the Company shall furnish to the Trustee (i) all quarterly and annual financial information that is substantially equivalent to that which would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all reports that are substantially equivalent to that which would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports; provided that in each case the delivery of materials to the Trustee by electronic means shall be deemed to be "furnished" to the Trustee for purposes of this Section 10.06. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). In addition, whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to investors who request it in writing. So long as any of the Securities remain Outstanding, the Company shall make available to any prospective purchaser of Securities or beneficial owner of Securities in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act, until the earlier of (a) such time as the Holders thereof have disposed of such Securities pursuant to an effective Resale Registration Statement or Rule 144 under the Securities Act and (b) March 18, 2004.

            SECTION 10.07. Resale of Certain Securities. During the period beginning on the Issue Date and ending on the date that is two years from the Issue Date, the Company shall not, and shall not permit any of its "affiliates" (as defined under Rule 144 under the Securities Act or any successor provision thereto) to, resell any Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them. The Trustee shall have no responsibility in respect of the Company's performance of its agreement in the preceding sentence.

            SECTION 10.08. Book-Entry System. If the Securities cease to trade in the Depositary's book-entry settlement system, the Company covenants and agrees that it shall use reasonable efforts to make such other book-entry arrangements that it determines are reasonable for the Securities.

            SECTION 10.09. [Reserved.]

            SECTION 10.10. Additional Amounts under the Registration Rights Agreement.  If at any time Additional Amounts become payable by the Company pursuant to the Registration Rights Agreement, the Company shall promptly deliver to the Trustee a certificate to that effect and stating (i) the amount of such Additional Amounts that are payable and (ii) the date on which such Additional Amounts are payable pursuant to the terms of the Registration Rights Agreement. Unless and until a Responsible Officer of the Trustee receives such a certificate, the Trustee may assume without inquiry that no Additional Amounts are payable. If the Company has paid Additional Amounts directly to the Persons entitled to such Additional Amounts, the Company shall deliver to the Trustee a certificate setting forth the particulars of such payment.

            ARTICLE 11

            REDEMPTION AND PURCHASES

            SECTION 11.01. Right to Redeem; Notices to Trustee. The Company, at its option, may redeem the Securities in accordance with the provisions of the Securities and the Indenture. If the Company elects to redeem Securities, it shall notify the Trustee in writing of the Redemption Date, the Principal Amount of Securities to be redeemed and the Redemption Price.

            The Company shall give the notice to the Trustee provided for in this Section 11.01 by a Company Order, at least 25 days before the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee). The Company shall be entitled to revoke any notice given under Section 11.01 hereof by providing written notice of such revocation to the Trustee in the form of a Company Order no later than one Business Day prior to the date upon which the Trustee must give notice of redemption in accordance with Section 11.04 hereof.

            SECTION 11.02. Selection of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by any other method the Trustee considers fair and appropriate (so long as such method is not prohibited by the rules of any stock exchange on which the Securities are then listed). The Trustee shall make the selection within 7 days from its receipt of the notice from the Company delivered pursuant to the second paragraph of Section 11.01 from Outstanding Securities not previously called for redemption.

            Securities and portions of them the Trustee selects shall be in Principal Amounts of $1,000 or integral multiples of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed.

            If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed may be treated by the Trustee as outstanding for the purpose of such selection.

            SECTION 11.03. Notice of Redemption. At least 15 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first-class mail, postage prepaid, to each Holder of Securities to be redeemed.

            The notice shall identify the Securities to be redeemed and shall state:

          25. the Redemption Date;
          26. the Redemption Price;
          27. the Conversion Price;
          28. the name and address of the Paying Agent and Conversion Agent;
          29. that Securities called for redemption may be converted at any time before the close of business five days prior to the Redemption Date;
          30. that Holders who want to convert Securities must satisfy the requirements set forth therein and in this Indenture;
          31. that Securities called for redemption must be surrendered to the Paying Agent for cancellation to collect the Redemption Price;
          32. if fewer than all the outstanding Securities are to be redeemed, the certificate number and Principal Amounts of the particular Securities to be redeemed;
          33. that, unless the Company defaults in making payment of such Redemption Price, interest on Securities called for redemption will cease to accrue on and after the Redemption Date; and
          34. the CUSIP number of the Securities.
          35. At the Company's written request delivered at least 15 days prior to the date such notice is to be given (unless a shorter time period shall be acceptable to the Trustee), the Trustee shall give the notice of redemption in the Company's name and at the Company's expense.

            SECTION 11.04. Effect of Notice of Redemption. Once notice of redemption is given and not revoked by the Company in accordance with Section 11.01 hereof, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price stated in the notice except for Securities which are converted in accordance with the terms of this Indenture. Upon surrender to the Paying Agent, such Securities shall be paid at the Redemption Price stated in the notice.

            SECTION 11.05. Deposit of Redemption Price. Prior to 10:00 a.m. (New York City Time) on a Redemption Date, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary or an Affiliate of either of them is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the Redemption Price of all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which on or prior thereto have been delivered by the Company to the Trustee for cancellation or have been converted. The Paying Agent shall as promptly as practicable return to the Company any money not required for that purpose because of conversion of Securities pursuant to Article 13. If such money is then held by the Company in trust and is not required for such purpose it shall be discharged from such trust.

            SECTION 11.06. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder a new Security in an authorized denomination equal in principal amount to the unredeemed portion of the Security surrendered.

            SECTION 11.07. Conversion Arrangement on Call for Redemption. In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities called for redemption by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to the Trustee in trust for the Securityholders, on or prior to 10:00 a.m. New York City time on the Redemption Date, an amount that, together with any amounts deposited with the Trustee by the Company for the redemption of such Securities, is not less than the Redemption Price of such Securities. Notwithstanding anything to the contrary contained in this Article 11, the obligation of the Company to pay the Redemption Price of such Securities shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, any Securities not duly surrendered for conversion by the Holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such Holders and (notwithstanding anything to the contrary contained in Article 13) surrendered by such purchasers for conversion, all as of immediately prior to the close of business five days prior to the Redemption Date, subject to payment of the above amount as aforesaid. The Trustee shall hold and pay to the Holders whose Securities are selected for redemption any such amount paid to it for purchase and conversion in the same manner as it would moneys deposited with it by the Company for the redemption of Securities. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Securities shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Securities between the Company and such purchasers, including the costs and expenses incurred by the Trustee in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture, except in the case of the Trustee's negligence or bad faith.

            SECTION 11.08. [Reserved.]

            SECTION 11.09. Repurchase of Securities at Option of the Holder upon Fundamental Change.General. If prior to March 15, 2007 there shall have occurred a Fundamental Change, Securities shall be purchased by the Company, at the Fundamental Change Repurchase Price on a date that is not less than 25 days nor more than 35 days after the date of the mailing of the Fundamental Change Company Notice under Section 11.09(c) (the "Fundamental Change Repurchase Date"), at the option of the Holder thereof, upon:

            (1) delivery to the Paying Agent by the Holder of a written notice of purchase (a "Fundamental Change Repurchase Notice"), substantially in the form of Exhibit B hereto, at any time from the opening of business on the date of the Fundamental Change Company Notice (as defined below) until the close of business on a date that is 5 Business Days prior to the Fundamental Change Repurchase Date stating:

            1. the certificate number of the Security which the Holder will deliver to be purchased;
            2. the portion of the Principal Amount of the Security which the Holder will deliver to be purchased, which portion must be in a Principal Amount of $1,000 or integral multiples thereof;
            3. that such Security shall be purchased as of the Fundamental Change Repurchase Date pursuant to the terms and conditions specified in the Securities and in this Indenture; and

(2) delivery of such Security to the Paying Agent for cancellation prior to, on or after the Fundamental Change Repurchase Date (together with all necessary endorsements) at the offices of the Paying Agent, such delivery being a condition to receipt by the Holder of the Fundamental Change Repurchase Price therefor; provided, however, that such Fundamental Change Repurchase Price shall be so paid pursuant to this Section 11.09 only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof in the related Fundamental Change Repurchase Notice.

The Company shall purchase from the Holder thereof, pursuant to this Section 11.09, a portion of a Security if the Principal Amount of such portion is $1,000 or an integral multiple of $1,000 if so requested by the Holder. Provisions of this Indenture that apply to the purchase of all of a Security also apply to the purchase of such portion of such Security.

Any purchase by the Company contemplated pursuant to the provisions of this Section 11.09 shall be consummated by the delivery of the consideration to be received by the Holder promptly following the later of the Fundamental Change Repurchase Date and the time of delivery of the Security.

Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Fundamental Change Repurchase Notice contemplated by this Section 11.09(a) shall have the right to withdraw such Fundamental Change Repurchase Notice at any time prior to the close of business on the Business Day prior to the Fundamental Change Repurchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 11.10.

The Paying Agent shall promptly notify the Company of the receipt by it of any Fundamental Change Repurchase Notice or written notice of withdrawal thereof.

A "Fundamental Change" shall be deemed to have occurred at such time as any of the following events shall occur:

    1. there is a Change in Control; or
    2. the common stock into which the Securities are convertible is neither listed for trading on a United States national securities exchange nor approved for trading on the Nasdaq National Market System or another established automated over-the-counter trading market in the United States.

A "Change in Control" shall be deemed to have occurred when (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of shares representing more than 50% of the combined voting power of the then outstanding securities entitled to vote generally in elections of directors of the Company (the "Voting Stock"); (ii) approval by stockholders of the Company of any plan or proposal for the liquidation, dissolution or winding up of the Company; (iii) the Company (A) consolidates with or merges into any other Person or any other Person merges into the Company, and in the case of any such transaction, the outstanding Common Stock of the Company is changed or exchanged into other assets or securities as a result, unless the stockholders of the Company immediately before such transaction own, directly or indirectly immediately following such transaction, more than 50% of the combined voting power of the outstanding voting securities of the corporation resulting from such transaction in substantially the same proportion as their ownership of the Voting Stock immediately before such transaction, or (B) conveys, transfers or leases all or substantially all of its assets to any Person; or (iv) any time Continuing Directors do not constitute a majority of the Board of Directors of the Company (or, if applicable, a successor Person to the Company); provided that a Change in Control shall not be deemed to have occurred if either (x) the Closing Price (as defined in Section 13.05(g)(1) hereof) of the Common Stock for any 5 Trading Days during the 10 Trading Days immediately preceding the Change in Control is at least equal to 105% of the Conversion Price in effect on the date on which the Change in Control occurs or (y) in the case of a merger or consolidation otherwise constituting a Change in Control, all of the consideration (excluding cash payments for fractional shares) in such merger or consolidation constituting the Change in Control consists of common stock traded on a United States national securities exchange or quoted on the Nasdaq National Market System (or which will be so traded or quoted when issued or exchanged in connection with such Change in Control) and as a result of such transaction or transactions the Securities become convertible solely into such common stock.

      1. Payment of Fundamental Change Repurchase Price. The Securities to be purchased pursuant to Section 11.09(a) shall be paid for in cash.
      2. Notice of Fundamental Change. Within 25 days after the occurrence of a Fundamental Change, the Company shall mail a written notice of Fundamental Change (the "Fundamental Change Company Notice") by first-class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The notice shall include a form of Fundamental Change Repurchase Notice to be completed by the Securityholder and shall state:
        1. the events causing a Fundamental Change and the date of such Fundamental Change;
        2. the date by which the Fundamental Change Repurchase Notice pursuant to this Section 11.09 must be given;
        3. the Fundamental Change Repurchase Date;
        4. the Fundamental Change Repurchase Price;
        5. the name and address of the Paying Agent and the Conversion Agent;
        6. the Conversion Price applicable on the Fundamental Change Company Notice Date;
        7. that Securities as to which a Fundamental Change Repurchase Notice has been given may be converted pursuant to Article 13 hereof only if the Fundamental Change Repurchase Notice has been withdrawn in accordance with the terms of this Indenture;
        8. that Securities must be surrendered to the Paying Agent for cancellation to collect payment;
        9. that the Fundamental Change Repurchase Price for any Security as to which a Fundamental Change Repurchase Notice has been duly given and not withdrawn will be paid promptly following the later of the Fundamental Change Repurchase Date and the time of surrender of such Security as described in (viii);
        10. the procedures the Holder must follow to exercise rights under this Section 11.09;
        11. the conversion rights of the Securities;
        12. the procedures for withdrawing a Fundamental Change Repurchase Notice;
        13. that, unless the Company defaults in making payment of such Fundamental Change Repurchase Price, interest on Securities covered by any Fundamental Change Repurchase Notice will cease to accrue on and after the Fundamental Change Repurchase Date; and
        14. the CUSIP number of the Securities.

        At the Company's request, the Trustee shall give such Fundamental Change Company Notice in the Company's name and at the Company's expense; provided, however, that, in all cases, the text of such Fundamental Change Company Notice shall be prepared by the Company.

      3. Procedure upon Purchase. The Company shall deposit cash, at the time and in the manner as provided in Section 11.11, sufficient to pay the aggregate Fundamental Change Repurchase Price of all Securities to be purchased pursuant to this Section 11.09.
      4. SECTION 11.10. Effect of Fundamental Change Repurchase Notice. Upon receipt by the Paying Agent of the Fundamental Change Repurchase Notice specified in Section 11.09(a), the Holder of the Security in respect of which such Fundamental Change Repurchase Notice was given shall (unless such Fundamental Change Repurchase Notice is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Fundamental Change Repurchase Price with respect to such Security. Such Fundamental Change Repurchase Price shall be paid to such Holder, subject to receipt of funds by the Paying Agent, promptly following the later of (x) the Fundamental Change Repurchase Date with respect to such Security (provided the conditions in Section 11.09(a) have been satisfied) and (y) the time of delivery of such Security to the Paying Agent by the Holder thereof in the manner required by Section 11.09(a). Securities in respect of which a Fundamental Change Repurchase Notice has been given by the Holder thereof may not be converted pursuant to Article 13 hereof on or after the date of the delivery of such Fundamental Change Repurchase Notice unless such Fundamental Change Repurchase Notice has first been validly withdrawn as specified in the following two paragraphs.

        A Fundamental Change Repurchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the procedures set forth in the Fundamental Change Company Notice at any time prior to the close of business on the Business Day prior to the Fundamental Change Repurchase Date, specifying:

        1. the certificate number of the Security in respect of which such notice of withdrawal is being submitted;
        2. the Principal Amount of the Security with respect to which such notice of withdrawal is being submitted; and
        3. the Principal Amount, if any, of such Security which remains subject to the original Fundamental Change Repurchase Notice and which has been or will be delivered for repurchase by the Company.

        There shall be no purchase of any Securities pursuant to Section 11.09 if there has occurred (prior to, on or after, as the case may be, the giving, by the Holders of such Securities, of the required Fundamental Change Repurchase Notice and is continuing an Event of Default (other than a default in the payment of the Fundamental Change Repurchase Price with respect to such Securities). The Paying Agent will promptly return to the respective Holders thereof any Securities (x) with respect to which a Fundamental Change Repurchase Notice has been withdrawn in compliance with this Indenture, or (y) held by it during the continuance of an Event of Default (other than a default in the payment of the Fundamental Change Repurchase Price with respect to such Securities) in which case, upon such return, the Fundamental Change Repurchase Notice with respect thereto shall be deemed to have been withdrawn.

        SECTION 11.11. Deposit of Fundamental Change Repurchase Price. Prior to 10:00 a.m. (local time in The City of New York) on the Business Day following the Fundamental Change Repurchase Date, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided herein) an amount of money (in immediately available funds if deposited on such Business Day) sufficient to pay the Fundamental Change Repurchase Price of all the Securities or portions thereof which are to be purchased as of the Fundamental Change Repurchase Date. The Company shall promptly notify the Trustee in writing of the amount of any deposits of cash made pursuant to this Section.

        SECTION 11.12. Securities Repurchased in Part. Any Security which is to be repurchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate Principal Amount equal to, and in exchange for, the portion of the Principal Amount of the Security so surrendered which is not purchased.

        SECTION 11.13. Covenant to Comply With Securities Laws Upon Repurchase of Securities. In connection with any offer to repurchase of Securities under Section 11.09 hereof (provided that such offer or repurchase constitutes an "issuer tender offer" for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or repurchase), the Company shall (i) comply with Rule 13e-4 and Rule 14e-1 under the Exchange Act, (ii) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, and (iii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Section 11.09 to be exercised in the time and in the manner specified in Section 11.09.

        SECTION 11.14 Repayment to the Company. The Trustee and the Paying Agent shall return to the Company any cash that remains unclaimed, together with interest or dividends, if any, thereon, held by them for the payment of the Fundamental Change Repurchase Price; provided, however, that to the extent that the aggregate amount of cash deposited by the Company pursuant to Section 11.11 exceeds the aggregate Fundamental Change Repurchase Price of the Securities or portions thereof which the Company is obligated to purchase as of the Fundamental Change Repurchase Date, then on the Business Day following the Fundamental Change Repurchase Date, the Trustee or the Paying Agent, as the case may be, shall return any such excess to the Company.

        ARTICLE 12

        INTEREST PAYMENTS ON THE SECURITIES

        SECTION 12.01. Interest Rate. Interest on the Securities shall accrue at an initial rate of 5% per annum and shall be payable on each Interest Payment Date to holders of record on the Regular Record Date immediately preceding such Interest Payment Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest on the Securities shall accrue from the most recent date to which interest has been paid, or if no interest has been paid, from March 18, 2002, until the Principal Amount is paid or duly made available for payment.

        SECTIN 12.02. Payment of Interest; Interest Rights Preserved.Interest on any Security that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose. Each installment of interest on any Security shall be made by check mailed to the address of the Holder specified in the register of Securities, or, at the option of the Holder, at the Corporate Trust Office, in such lawful money of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts; provided, however, that, with respect to any Holder of Securities with an aggregate principal amount in excess of $5,000,000, at the request of such Holder in writing to the Company, interest on such Holder's Securities shall be paid by wire transfer in immediately available funds in accordance with the written wire transfer instruction supplied by such Holder from time to time to the Trustee and Paying Agent (if different from the Trustee) at least two days prior to the applicable Regular Record Date. In the case of a permanent Global Security, interest payable on any Interest Payment Date will be paid to the Depositary, with respect to that portion of such permanent Global Security held for its account by Cede & Co. for the purpose of permitting such party to credit the interest received by it in respect of such permanent Global Security to the accounts of the beneficial owners thereof.

      5. Except as otherwise specified with respect to the Securities, any interest on any Security that is payable, but is not punctually paid or duly provided for, within 30 days following any Interest Payment Date (herein called "Defaulted Interest", which term shall include any accrued and unpaid interest that has accrued on such defaulted amount), shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, as its election in each case, as provided in clause (1) or (2) below:
    1. The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities are registered at the close of business on a date (the "Special Record Date") for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment (which shall not be less than 20 days after such notice is received by the Trustee), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as provided in this clause. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities at his address as it appears on the list of Securityholders maintained pursuant to this Indenture not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Securities are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2).
    2. The Company may make payment of any Defaulted Interest on the Securities in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.

Subject to the foregoing provisions, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.

ARTICLE 13

CONVERSION

SECTION 13.01. Right to Convert. Subject to and upon compliance with the provisions of this Indenture, each Holder shall have the right, at its option, at any time following the Issue Date of the Securities hereunder through the close of business on the Business Day immediately prior to the date of the Stated Maturity of the Securities (except that, with respect to any Securities or portion thereof which shall be called for redemption, such right shall terminate, except as provided in Section 13.02 or Section 11.07, at the close of business five days prior to the date fixed for redemption of such Securities or portion thereof unless the Company shall default in payment due upon redemption thereof) to convert the Principal Amount of any such Securities, or any portion of such Principal Amount which is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of Common Stock obtained by dividing the Principal Amount of the Securities or portion thereof surrendered for conversion by the Conversion Price in effect at such time, by surrender of the Securities so to be converted in whole or in part, together with any required funds, in the manner provided in Section 13.02. A Holder of Securities is not entitled to any rights of a Holder of Common Stock until such Holder has converted such Holder's Securities to Common Stock, and only to the extent such Securities are deemed to have been converted to Common Stock under this Article 13. A Security with respect to which a Holder has delivered a notice in accordance with Section 11.09 regarding such Holder's election to require the Company to repurchase such Holder's Securities on a Fundamental Change Repurchase Date may be converted in accordance with this Article 13 only if such Holder withdraws such notice by delivering a written notice of withdrawal to the Company prior to the close of business on the last Business Day prior to such Fundamental Change Repurchase Date.

SECTION 13.02. Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to exercise the conversion privilege with respect to any Securities in certificated form, the Holder of any such Securities to be converted in whole or in part shall surrender such Securities, duly endorsed, at the office of the Conversion Agent, accompanied by the funds, if any, required by the penultimate paragraph of this Section 13.02, and shall give written notice of conversion in the form provided on the Securities (or such other notice which is acceptable to the Company) (the "Conversion Notice") to the Conversion Agent that the Holder elects to convert such Securities or the portion thereof specified in said notice. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Section 13.07. All such Securities surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Securities, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the Holder or his duly authorized attorney.

In order to exercise the conversion privilege with respect to any interest in Securities in global form, the Holder must complete the appropriate instruction form for conversion pursuant to the Depositary's book-entry conversion program, furnish appropriate endorsements and transfer documents if required by the Company or the Trustee or Conversion Agent, and pay the funds, if any, required by this Section 13.02 and any transfer taxes if required pursuant to Section 13.07.

As promptly as practicable after satisfaction of the requirements for conversion set forth above (but in no event later than 3 Business Days after satisfaction of such requirements for conversion), subject to compliance with any restrictions on transfer if shares issuable on conversion are to be issued in a name other than that of the Holder (as if such transfer were a transfer of the Securities (or portion thereof) so converted), the Company shall issue and shall deliver to such Holder at the office of the Conversion Agent, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Securities or portion thereof in accordance with the provisions of this Article and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 13.03. In case any Securities of a denomination greater than $1,000 shall be surrendered for partial conversion, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of the Securities so surrendered, without charge to him, new Securities in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Securities.

Each conversion shall be deemed to have been effected as to any such Securities (or portion thereof) on the date on which the requirements set forth above in this Section 13.02 have been satisfied as to such Securities (or portion thereof), and the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the Holder of record of the shares represented thereby; provided, however, that in case of any such surrender on any date when the stock transfer books of the Company shall be closed, the person or persons in whose name the certificate or certificates for such shares are to be issued shall be deemed to have become the record Holder thereof for all purposes on the next day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Securities shall be surrendered.

All Securities or portions thereof surrendered for conversion during the period from the close of business on the Regular Record Date for any Interest Payment Date to the close of business on the Business Day next preceding the following Interest Payment Date shall (unless such Securities or portion thereof being converted shall have been called for redemption on a Redemption Date which occurs during the period from the close of business on such Regular Record Date to the close of business on the Business Day next preceding the following Interest Payment Date) be accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest otherwise payable on such Interest Payment Date on the Principal Amount being converted; provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Securities. Except as provided above in this Section 13.02, no payment or other adjustment shall be made for interest accrued on any Securities converted or for dividends on any shares issued upon the conversion of such Securities as provided in this Article.

Upon the conversion of an interest in Global Securities, the Trustee (or other Conversion Agent appointed by the Company) shall make a notation on such Global Securities as to the reduction in the Principal Amount represented thereby. The Company shall notify the Trustee in writing of any conversions of Securities effected through any Conversion Agent other than the Trustee.

SECTION 13.03. Cash Payments in Lieu of Fractional Shares. The Company will not issue fractional shares of Common Stock upon conversion of Securities. If multiple Securities shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate Principal Amount of the Securities (or specified portions thereof to the extent permitted hereby) so surrendered. If any fractional share of stock would be issuable upon the conversion of any Securities, the Company shall make an adjustment and payment therefor in cash at the current market value thereof to the Holder of Securities. The current market value of a fraction of a share of Common Stock shall be determined by multiplying the average of Closing Prices (as defined in Section 13.05(g)) of such Common Stock in the 5 Trading Days before the date of conversion by such fraction and rounding the product to the nearest whole cent.

SECTION 13.04. Conversion Price. The conversion price shall be as specified in the Security (herein called the "Conversion Price"), subject to adjustment as provided in this Article 13.

SECTION 13.05. Adjustment of Conversion Price. The Conversion Price shall be adjusted from time to time by the Company as follows:

      1. In case the Company shall hereafter pay a dividend or make a distribution to all Holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator of which shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. If any dividend or distribution of the type described in this Section 13.05(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared.
      2. In case the Company shall issue rights or warrants to all Holders of its outstanding shares of Common Stock entitling them (for a period expiring within 45 days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price per share (or having a conversion price per share) less than the Current Market Price (as defined below) on the date fixed for determination of stockholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price (or the aggregate conversion price of the convertible securities so offered, which shall be determined by multiplying the number of shares of Common Stock issuable upon conversion of such convertible securities by the conversion price per share of Common Stock pursuant to the terms of such convertible securities), and the denominator of which shall be the number of shares of Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the total number of additional shares of Common Stock offered for subscription or purchase or into which convertible securities so offered are convertible; provided, however, the Company may, at its option and in lieu of the foregoing adjustment, elect to distribute or reserve for distribution the pro rata portion of such rights or warrants so that each Holder of Securities shall receive, or shall have the right to receive upon conversion, as the case may be, the amount of such rights or warrants that such Holder of Securities would have received if such Holder of Securities had converted such Securities on the date fixed for determination of stockholders to receive such rights or warrants. Such adjustment shall be successively made whenever any such rights or warrants are issued, and shall become effective immediately after the opening of business on the day following the date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock (or securities convertible into Common Stock) are not delivered, after the expiration of such rights or warrants the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered (or the number of shares of Common Stock issuable upon conversion of convertible securities actually issued). In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the Holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants or to be received upon exercise of such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors.
      3. In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.
      4. In case the Company shall, by dividend or otherwise, distribute to all Holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 13.05(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 13.05(b), and excluding any dividend or distribution (x) paid exclusively in cash or (y) referred to in Section 13.05(a)) (any of the foregoing hereinafter in this Section 13.05(d) called the "Distributed Securities"), then, in each such case, the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect on the Record Date with respect to such distribution by a fraction, the numerator of which shall be the Current Market Price per share of the Common Stock on such Record Date less the fair market value (as determined by the Board of Directors, whose good faith determination shall be conclusive, and described in a resolution of the Board if Directors) on the Record Date of the portion of the Distributed Securities so distributed applicable to one share of Common Stock and the denominator of which shall be the Current Market Price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such Record Date. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 13.05(d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the Common Stock.
      5. Each share of Common Stock issued upon conversion of securities pursuant to this Article 13 shall be entitled to receive the appropriate number of common stock or preferred stock purchase rights, if any, as may be provided by the terms of any stockholder rights plan adopted by the Company (notwithstanding the occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of conversion). Any distribution of rights or warrants pursuant to a stockholder rights plan complying with the requirements set forth in the immediately preceding sentence of this paragraph shall not constitute a distribution of rights or warrants for the purposes of Section 13.05(b) or this Section 13.05(d).

        Rights or warrants distributed by the Company to all Holders of Common Stock entitling the Holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 13.05 (and no adjustment to the Conversion Price under this Section 13.05 will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Price shall be made under this Section 13.05(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Indenture, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the Holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Price under this Section 13.05 was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any Holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a Holder or Holders of Common Stock with respect to such rights or warrants (assuming such Holder had retained such rights or warrants), made to all applicable Holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any Holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued.

        For purposes of this Section 13.05(d) and Sections 13.05(a) and (b), any dividend or distribution to which this Section 13.05(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights or warrants (and any Conversion Price reduction required by this Section 13.05(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Sections 13.05(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution" and "the date fixed for such determination" within the meaning of Sections 13.05(a) and (b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 13.05(a).

      6. In case the Company shall, by dividend or otherwise, distribute to all Holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 13.06 applies or as part of a distribution referred to in Section 13.05(d)), in an aggregate amount that, combined together with (1) the aggregate amount of any other such distributions to all Holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 13.05(e) has been made, and (2) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose good faith determination shall be conclusive and described in a resolution of the Board of Directors) of consideration payable in respect of any tender offer by the Company or any of its subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to Section 13.05(f) has been made, exceeds 12.5% of the product of the Current Market Price on the Record Date with respect to such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such Record Date by a fraction (i) the numerator of which shall be equal to the Current Market Price on the Record Date less an amount equal to the quotient of (x) the excess of such combined amount over such 12.5% and (y) the number of shares of Common Stock outstanding on the Record Date and (ii) the denominator of which shall be equal to the Current Market Price on such date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Security holder shall have the right to receive upon conversion of a Security (or any portion thereof) the amount of cash such Holder would have received had such Holder converted such Security (or portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. Any cash distribution to all Holders of Common Stock as to which the Company makes the election permitted by Section 13.05(m) and as to which the Company has complied with the requirements of such Section shall be treated as not having been made for all purposes of this Section 13.05(e)).
      7. In case a tender offer made by the Company or any of its subsidiaries for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose good faith determination shall be conclusive and described in a resolution of the Board of Directors) that combined together with (1) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose good faith determination shall be conclusive and described in a resolution of the Board of Directors), as of the expiration of such tender offer, of consideration payable in respect of any other tender offers, by the Company or any of its subsidiaries for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this Section 13.05(f) has been made and (2) the aggregate amount of any distributions to all Holders of the Common Stock made exclusively in cash within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 13.05(e) has been made, exceeds 12.5% of the product of the Current Market Price as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to close of business on the date of the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction (if any) to become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender offer had not been made. If the application of this Section 13.05(f) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 13.05(f). Any cash distribution to all Holders of Common Stock as to which the Company has made the election permitted by Section 13.05(m) and as to which the Company has complied with the requirements of such Section shall be treated as not having been made for all purposes of this Section 13.05(f).
      8. For purposes of this Section 13.05, the following terms shall have the meaning indicated:
    1. "Closing Price" with respect to any securities on any day shall mean the closing sale price, regular way, on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the principal national securities exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors whose determination shall be conclusive.
    2. "Current Market Price" shall, for the purposes of any computation under Sections 13.05 (b), (d), (e) and (f) above relating to the current market price per share of Common Stock at a specified date, mean the average of the Closing Prices for the 10 consecutive Trading Days (as defined below) preceding the day before the record date (or, if earlier, the ex-dividend date) with respect to any distribution, issuance or other event requiring such computation.
    3. "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction.
    4. "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the Holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise).
    5. "Trading Day" shall mean (x) if the applicable security is quoted on the Nasdaq National Market System, a day on which trades may be made on thereon or (y) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or such other national security exchange is open for business or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.
      1. The Company may make such reductions in the Conversion Price, in addition to those required by Sections 13.05(a), (b), (c), (d), (e) or (f), as the Board of Directors considers to be advisable to avoid or diminish any income tax to Holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes.
      2. To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to Holders of record of the Securities a notice of the reduction at least 15 days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect.

      3. No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this Section 13.05(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 13 shall be made by the Company and shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. To the extent the Securities become convertible into cash, assets, property or securities (other than capital stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities. Interest will not accrue on the cash.
      4. Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Conversion Agent an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Unless and until a Responsible Officer of the Trustee shall have received such Officers' Certificate, the Trustee shall not be deemed to have knowledge of any adjustment of the Conversion Price and may assume without inquiry that the last Conversion Price of which it has knowledge is still in effect. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to each Holder of Securities at such Holder's last address appearing on the list of Security holders provided for in Section 3.05 of this Indenture, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment.
      5. In any case in which this Section 13.05 provides that an adjustment shall become effective immediately after a Record Date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holder of any Securities converted after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such Holder any amount in cash in lieu of any fraction pursuant to Section 13.03.
      6. For purposes of this Section 13.05, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company.
      7. In lieu of making any adjustment to the Conversion Price pursuant to Section 13.05(e) or 13.05(f), the Company may elect to reserve an amount of cash for distribution to the Holders of the Securities upon the conversion of the Securities so that any such Holder converting Securities will receive upon such conversion, in addition to the shares of Common Stock and other items to which such Holder is entitled, the full amount of cash which such Holder would have received if such Holder had, immediately prior to the Record Date for such distribution of cash or the Expiration Time of the tender offer, as the case may be, converted its Securities into Common Stock, together with any interest accrued with respect to such amount, in accordance with this Section 13.05(m). The Company may make such election by providing an Officers' Certificate to the Trustee to such effect on or prior to the payment date for any such distribution and depositing with the Trustee on or prior to such date an amount of cash equal to the aggregate amount the Holders of the Securities would have received if such Holders had, immediately prior to the Record Date for such distribution or the Expiration Time, as the case may be, converted all of the Securities into Common Stock. Any such funds so deposited by the Company with the Trustee shall be invested by the Trustee pursuant to written direction by the Company in marketable obligations issued or fully guaranteed by the United States government with a maturity not more than 3 months from the date of issuance. Upon conversion of Securities by a Holder, the Holder will be entitled to receive, in addition to the Common Stock issuable upon conversion, an amount of cash equal to the amount such Holder would have received if such Holder had, immediately prior to the Record Date for such distribution or the Expiration Time, as the case may be, converted its Security into Common Stock, along with such Holder's pro rata share of any accrued interest earned as a consequence of the investment of such funds. Promptly after making an election pursuant to this Section 13.05(m), the Company shall give or shall cause to be given notice to all Security holders of such election, which notice shall state the amount of cash per $1,000 principal amount of Securities such Holders shall be entitled to receive (excluding interest) upon conversion of the Securities as a consequence of the Company having made such election.
      8. SECTION 13.06. Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of shares of Common Stock issuable upon conversion of the Securities (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination, or any other change for which an adjustment is provided in Section 13.05(c)), (ii) any consolidation or merger or combination to which the Company is a party other than a merger in which the Company is the continuing corporation and which does not result in any reclassification of, or change (other than in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in outstanding shares of Common Stock, or (iii) any sale or conveyance of all or substantially all of the properties and assets of the Company to any other person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing person, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act of 1939 as in force at the date of execution of such supplemental indenture) providing that such Securities shall be convertible into the kind and amount of shares of stock, securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Securities (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Securities) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance, assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance (provided that, if the kind or amount of stock, securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("nonelecting share"), then for the purposes of this Section 13.06, the kind and amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 13. The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. If this Section 13.06 applies to any event or occurrence, Section 13.05 shall not apply.

        SECTION 13.07. Taxes on Shares Issued.  The issue of stock certificates on conversions of Securities shall be made without charge to the converting Holder for any documentary, transfer, stamp or any similar tax in respect of the issue thereof. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the Holder of any Securities converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

        SECTION 13.08. Reservation of Shares; Shares to be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock. The Company shall provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the conversion of the Securities from time to time as such Securities are presented for conversion.

        Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Securities, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price.

        The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities shall be newly issued shares or Treasury shares, shall be duly authorized, validly issued, fully paid and non-assessable and shall be free from preemptive rights and free from any lien or adverse claim.

        The Company shall use its reasonable efforts to list or cause to have quoted any shares of Common Stock to be issued upon conversion of Securities on each national securities exchange or over-the-counter or other domestic market on which the Common Stock is then listed or quoted.

        SECTION 13.09. Responsibility of Trustee. The Trustee and any other Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Securities to determine the Conversion Price or whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other Conversion Agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Securities; and the Trustee and any other Conversion Agent make no representations with respect thereto. Neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Securities for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article. Without limiting the generality of the foregoing, neither the Trustee nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 13.06 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Holders upon the conversion of their Securities after any event referred to in such Section 13.06 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 6.01, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto.

        SECTION 13.10. Notice to Holders Prior to Certain Actions.  In case,

              1. the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Price pursuant to Section 13.05; or
              2. the Company shall authorize the granting to the holders of all or substantially all of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or
              3. of any reclassification or reorganization of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company or any of its significant subsidiaries; or
              4. of the voluntary or involuntary dissolution, liquidation or winding up of the Company or any of its significant subsidiaries;

the Company shall cause to be filed with the Trustee and to be mailed to each Holder of Securities at such Holder's address appearing on the list of Securityholders provided for in Section 3.05 of this Indenture, as promptly as practicable but in any event at least 15 days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up.

This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written.

COMPUTER ASSOCIATES INTERNATIONAL,

INC.

 

 

By /s/ Ira Zar

Name: Ira Zar

Title: Executive Vice President and

Chief Financial Officer

 

STATE STREET BANK AND TRUST

COMPANY, as Trustee

 

 

By /s/ Donald E. Smith

Name: Donald E. Smith

Title: Vice President

EXHIBIT A

Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S

_______________, ____

State Street Bank and Trust Company

2 Avenue de Lafayette - 6th Floor

Boston, Massachusetts 02111-1724

Attention: Corporate Trust Administration

Re: Computer Associates International, Inc. (the "Company")
5% Convertible Senior Notes due 2007 (the "Notes")

Ladies and Gentlemen:

In connection with our proposed sale of $ aggregate Principal Amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that:

    1. the offer of the Notes was not made to a Person in the United States;
    2. either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any Person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any Person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States;
    3. no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(a) or Rule 904(a) of Regulation S, as applicable (or applicable successor rules);
    4. the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and the conditions of Rule 903(b) or 904(b) of Regulation S, as applicable (or applicable successor rules) have been satisfied; and
    5. We have advised the transferee of the transfer restrictions applicable to the Notes.

You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party, in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S.

Very truly yours,

[Name of Transferor]

By

Authorized Signature

EXHIBIT B

Form of Fundamental Change Repurchase Notice

_______________, ____

State Street Bank and Trust Company

2 Avenue de Lafayette - 6th Floor

Boston, Massachusetts 02111-1724

Attention: Corporate Trust Administration

Re: Computer Associates International, Inc. (the "Company")
5% Convertible Senior Notes due 2007

This is a Fundamental Change Repurchase Notice as defined in Section 11.09 of the Indenture dated as of March 18, 2002 (the "Indenture") between the Company and the State Street Bank and Trust Company, as Trustee. Terms used but not defined herein shall have the meanings ascribed to them in the Indenture.

Certificate No(s). of Securities: _____________________________

I intend to deliver the following aggregate Principal Amount of Securities for purchase by the Company pursuant to Section 11.09 of the Indenture (in multiples of $1,000):

$__________________________________

I hereby agree that the Securities will be purchased as of the Fundamental Change Repurchase Date pursuant to the terms and conditions thereof and of the Indenture.

Date: __________________ Signed: ____________________

(Sign exactly as your name appears on the other side of this Security)

Signature Guarantee:

Note: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:

Trust Indenture
Act Section

 

Indenture
Section

§ 310(a)(1)

6.09

(a)(2)

6.09

(a)(3)

Not Applicable

(a)(4)

Not Applicable

(b)

6.08

   

6.10

§ 311(a)

6.13

(b)

6.13

§ 312(a)

7.01

   

7.02(a)

(b)

7.02(b)

(c)

7.02(c)

§ 313(a)

7.03(a)

(b)

7.03(a)

(c)

7.03(a)

(d)

7.03(b)

§ 314(a)(1)

7.04

(b)

Not Applicable

(c)(1)

1.02

(c)(2)

1.02

(c)(3)

Not Applicable

(d)

Not Applicable

(e)

1.02

§ 315(a)

6.01

(b)

6.02

(c)

6.01

(d)

6.01

(e)

5.14

§ 316(a)(1)(A)

5.12

(a)(1)(B)

5.13

(a)(2)

Not Applicable

(b)

5.08

(c)

1.04(c)

§ 317(a)(1)

5.03

(a)(2)

5.04

(b)

10.03

§ 318(a)

1.07

Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture.

REGISTRATION RIGHTS AGREEMENT

Dated as of March 18, 2002

By and Among

COMPUTER ASSOCIATES INTERNATIONAL, INC.

as Issuer

and

BANC OF AMERICA SECURITIES LLC

SALOMON SMITH BARNEY INC.

ABN AMRO ROTHSCHILD LLC

MIZUHO INTERNATIONAL PLC

ROBERTSON STEPHENS, INC.

RBC DAIN RAUSCHER INC.

TOKYO-MITSUBISHI INTERNATIONAL PLC

as Initial Purchasers

5% Convertible Senior Notes due 2007

TABLE OF CONTENTS

Page

1.

Definitions

1

2.

Shelf Registration

4

3.

Additional Amounts

7

4.

Registration Procedures

8

5.

Registration Expenses

12

6.

Indemnification

13

7.

Rules 144 and 144A

16

8.

Miscellaneous

17

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the "Agreement") is dated as of March 18, 2002, by and among COMPUTER ASSOCIATES INTERNATIONAL, INC., a Delaware corporation (the "Company"), BANC OF AMERICA SECURITIES LLC, SALOMON SMITH BARNEY INC., ABN AMRO ROTHSCHILD LLC, MIZUHO INTERNATIONAL PLC, ROBERTSON STEPHENS, INC., RBC DAIN RAUSCHER INC. and TOKYO-MITSUBISHI INTERNATIONAL PLC (the "Initial Purchasers").

This Agreement is entered into in connection with the Purchase Agreement, dated March 13, 2002 (the "Purchase Agreement"), by and among the Company and the Initial Purchasers, which provides for the sale by the Company to the Initial Purchasers of $600,000,000 aggregate principal amount of the Company's 5% Convertible Senior Notes due 2007 (the "Firm Notes"), which are convertible into Common Stock of the Company, par value $.10 per share (the "Underlying Shares"), plus up to an additional $60,000,000 aggregate principal amount of the same that the Initial Purchasers may subsequently elect to purchase pursuant to the terms of the Purchase Agreement (the "Additional Notes" and, together with the Firm Notes, the "Convertible Notes"). The Convertible Notes are being issued pursuant to an indenture dated as of the date hereof (the "Indenture") between the Company and the State Street Bank and Trust Company, as Trustee.

In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and any subsequent holder or holders of the Convertible Notes or Underlying Shares. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Firm Notes under the Purchase Agreement.

The parties hereby agree as follows:

    1. Definitions.
    2. As used in this Agreement, the following terms shall have the following meanings:

      Additional Amounts Payment Date: See Section 3(c) hereof.

      Additional Amounts: See Section 3(a) hereof.

      Additional Notes: See the second introductory paragraph hereto.

      Agreement: See the first introductory paragraph hereto.

      Amendment Effectiveness Deadline Date: See Section 2(d) hereof.

      Amount of Registrable Securities: (a) With respect to Convertible Notes constituting Registrable Securities, the aggregate principal amount of all such Convertible Notes outstanding, (b) with respect to Underlying Shares constituting Registrable Securities, the aggregate number of such Underlying Shares outstanding multiplied by the Conversion Price (as defined in the Indenture) in effect at the time of computing the Amount of Registrable Securities or, if no such Convertible Notes are then outstanding, the last Conversion Price that was in effect under the Indenture when any such Convertible Notes were last outstanding, and (c) with respect to combinations thereof, the sum of (a) and (b) for the relevant Registrable Securities.

      Blue Sky Laws: State securities or "blue sky" laws.

      Business Day: Any day that is not a Saturday, Sunday or a day on which banking institutions in New York are authorized or required by law to be closed.

      Closing Date: March 18, 2002.

      Company: See the first introductory paragraph hereto.

      Convertible Notes: See the second introductory paragraph hereto.

      Depositary: The Depository Trust Company until a successor is appointed by the Company.

      Effectiveness Date: The 270th day after the Closing Date.

      Effectiveness Period: See Section 2(a) hereof.

      Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

      Filing Date: The 180th day after the Closing Date.

      Firm Notes: See the second introductory paragraph hereto.

      Holder: Any holder of Registrable Securities.

      Indemnified Holder: See Section 6 hereof.

      Indemnified Person: See Section 6 hereof.

      Indemnifying Person: See Section 6 hereof.

      Indenture: See the second introductory paragraph hereto.

      Initial Purchasers: See the first introductory paragraph hereto.

      Initial Shelf Registration: See Section 2(a) hereof.

      Initial Shelf Registration Statement: See Section 2(a) hereof.

      Inspectors: See Section 4(l) hereof.

      Losses: See Section 6 hereof.

      New Requirements: See Section 2(a) hereof.

      NASD: See Section 4(o) hereof.

      Notice and Questionnaire: A written notice delivered to the Company containing substantially the information called for by the Form of Selling Securityholder Notice and Questionnaire attached as Annex A to the Offering Circular of the Company dated March 13, 2002 relating to the Convertible Notes.

      Notice Holder: On any date, any Holder that has delivered a Notice and Questionnaire to the Company at least 5 Business Days prior to such date.

      Person: An individual, partnership, corporation, limited liability company, unincorporated association, trust or joint venture, or a governmental agency or political subdivision thereof.

      Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

      Purchase Agreement: See the second introductory paragraph hereto.

      Records: See Section 4(l) hereof.

      Registrable Securities: All Convertible Notes and all Underlying Shares upon original issuance thereof and at all times subsequent thereto until the earliest to occur of (i) a Registration Statement covering such Convertible Notes and Underlying Shares having been declared effective by the SEC and such Convertible Notes and Underlying Shares having been disposed of in accordance with such effective Registration Statement, (ii) such Convertible Notes and Underlying Shares having been sold in compliance with Rule 144, (iii) such Convertible Notes and any Underlying Shares ceasing to be outstanding and (iv) the date that is two years from the Closing Date. For purposes of this definition, Underlying Shares shall not include shares of Common Stock of the Company issued upon conversion of Convertible Notes that were previously disposed of in accordance with an effective Registration Statement or with Rule 144.

      Registration Default: See Section 3(a) hereof.

      Registration Statement: Any registration statement of the Company filed with the SEC pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

      Rule 144: Rule 144 promulgated under the Securities Act, as such rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act.

      Rule 144A: Rule 144A promulgated under the Securities Act, as such rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC.

      Rule 415: Rule 415 promulgated under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

      SEC: The Securities and Exchange Commission.

      Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.

      Shelf Registration: See Section 2(b) hereof.

      Shelf Registration Statement: See Section 2(b) hereof.

      Subsequent Shelf Registration: See Section 2(b) hereof.

      Suspension Period: See Section 3(b) hereof.

      TIA: The Trust Indenture Act of 1939, as amended, and the rules and regulations of the SEC promulgated thereunder.

      Trustee: The Trustee under the Indenture.

      Underlying Shares: See the second introductory paragraph hereto.

    3. Shelf Registration.
      1. Shelf Registration. The Company shall file with the SEC a Registration Statement (the "Initial Shelf Registration Statement") for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (the "Initial Shelf Registration") on or prior to the Filing Date. The Initial Shelf Registration shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company shall not permit any securities other than Registrable Securities to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below).
      2. The Company shall use its reasonable efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act as soon as practicable after such Initial Shelf Registration is filed and, in any event, on or prior to the Effectiveness Date and to keep such Initial Shelf Registration continuously effective under the Securities Act until the earlier of when (i) all the Registrable Securities are registered under the Shelf Registration (as defined below) and have been disposed of in the manner set forth and as contemplated therein, (ii) all the Registrable Securities have been resold pursuant to Rule 144 under the Securities Act, (iii) all the Registrable Securities cease to be outstanding and (iv) two years have passed from the Closing Date (such shortest period being called the "Effectiveness Period").

        No Holder of Registrable Securities may include any of its Registrable Securities in any Shelf Registration pursuant to this Agreement unless and until such Holder becomes a Notice Holder and, in the case that requirements under the Securities Act are changed after the date of this Agreement (all such requirements, the "New Requirements"), furnishes to the Company, upon request by the Company, any additional information pursuant to the New Requirements concerning such Holder required to be included in any Shelf Registration Statement or Prospectus included therein. Each Holder of Registrable Securities as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed so that the information previously furnished to the Company by such Holder is not materially misleading and does not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading in the light of the circumstances under which they were made. Subject to the foregoing, at the time the Initial Shelf Registration Statement is declared effective, each Holder that became a Notice Holder at the time of effectiveness shall be named as a selling securityholder in the Initial Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of Registrable Securities in accordance with applicable law. None of the Company's securityholders (other than Holders of Registrable Securities) shall have the right to include any of the Company's securities in the Shelf Registration Statement.

      3. Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Company shall use its reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 45 days of such cessation of effectiveness amend the Initial Shelf Registration or any Subsequent Shelf Registration, as the case may be, in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use its reasonable efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration and the term "Shelf Registration Statement" means any Registration Statement filed in connection with a Shelf Registration.
      4. Supplements and Amendments. The Company shall promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of the majority in Amount of Registrable Securities covered by such Registration Statement; provided, however, that the Company shall not be required to supplement or amend any Shelf Registration upon the request of a Holder if such requested supplement or amendment would, in the good faith judgment of the Company, violate the Securities Act, the Exchange Act or the rules and regulations promulgated thereunder.
      5. Holder Procedures. Each Holder of Registrable Securities wishing to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus agrees to deliver a Notice and Questionnaire to the Company at least 5 Business Days prior to any intended distribution of Registrable Securities under the Shelf Registration Statement. From and after the date the Initial Shelf Registration Statement is declared effective, the Company shall, as promptly as practicable after the date a Notice and Questionnaire is delivered, and in any event upon the later of (x) 5 Business Days after such date or (y) 5 Business Days after the expiration of any Suspension Period in effect when the Notice and Questionnaire is delivered or put into effect within 5 Business Days of such delivery date, (i) if required by applicable law, file with the SEC a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other document required under the Securities Act so that the Holder delivering such Notice and Questionnaire is named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its reasonable efforts to cause such post-effective amendment to be declared effective under the Securities Act as promptly as is practicable, but in any event by the date (the "Amendment Effectiveness Deadline Date") that is 45 days after the date such post-effective amendment is required by this clause to be filed; (ii) provide such Holder copies of any documents filed pursuant to Section 2(d)(i); and (iii) notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 2(d)(i); provided, that if such Notice and Questionnaire is delivered during a Suspension Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Suspension Period. Notwithstanding anything contained herein to the contrary, (i) the Company shall be under no obligation to name any Holder that is not a Notice Holder as a selling securityholder in any Registration Statement or related Prospectus and (ii) the Amendment Effectiveness Deadline Date shall be extended by up to 10 Business Days from the expiration of a Suspension Period (and the Company shall incur no obligation to pay Additional Amounts during such extension) if such Suspension Period shall be in effect on the Amendment Effectiveness Deadline Date; provided, that after the date that is 270 days of the date of effectiveness of the Initial Shelf Registration Statement, the Company shall not be obligated to file more than one post-effective amendment or supplement in any 30-day period for the purpose of naming Holders as selling securityholders who were not so named in the Initial Shelf Registration Statement at the time of effectiveness.
    4. Additional Amounts.
      1. The Company and the Initial Purchasers agree that the Holders of Registrable Securities will suffer damages if the Company fails to fulfill its obligations under Section 2 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay additional amounts on the Registrable Securities ("Additional Amounts") under the circumstances and to the extent set forth below (each of which shall be given independent effect; each a "Registration Default"):
        1. if the Initial Shelf Registration is not filed on or prior to the Filing Date, then commencing on the day after the Filing Date, Additional Amounts shall accrue on the Registrable Securities at a rate of 0.25% per annum on the Amount of Registrable Securities;
        2. if the Initial Shelf Registration is not declared effective by the SEC on or prior to the Effectiveness Date, then commencing on the day after the Effectiveness Date, Additional Amounts shall accrue on the Registrable Securities at a rate of 0.5% per annum on the Amount of Registrable Securities; and
        3. if a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period (other than as permitted under Section 3(b)), then commencing on the day after such cessation of effectiveness Additional Amounts shall accrue on the Registrable Securities at a rate of 0.5% per annum on the Amount of Registrable Securities;

        provided, however, that Additional Amounts on the Registrable Securities may not accrue under more than one of the foregoing clauses (i), (ii) or (iii) at any one time; provided, further, however, that (1) upon the filing of the Shelf Registration as required hereunder (in the case of clause (a)(i) of this Section 3), (2) upon the effectiveness of the Shelf Registration as required hereunder (in the case of clause (a)(ii) of this Section 3) or (3) upon the effectiveness of a Shelf Registration which had ceased to remain effective (in the case of clause (a)(iii) of this Section 3), Additional Amounts on the Registrable Securities as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. It is understood and agreed that, notwithstanding any provision to the contrary, so long as any Registrable Security is then covered by an effective Shelf Registration Statement, no Additional Amounts shall accrue on such Registrable Security. No Holder of Registrable Securities shall be entitled to Additional Amounts pursuant this Section 3 until such Holder is a Notice Holder and until such Holder shall have provided all information required to be provided by such Holder to the Company pursuant to Section 2(a) hereof.

      2. Notwithstanding paragraph (a) of this Section 3, the Company shall be permitted to suspend the effectiveness of a Shelf Registration for up to 30 consecutive days (a "Suspension Period") in any 90-day period without being required to pay Additional Amounts. The aggregate duration of any Suspension Periods shall not, without incurring any obligation to pay Additional Amounts, exceed 90 days in any 365-day period.
      3. So long as Convertible Notes remain outstanding, the Company shall notify the Trustee within three Business Days after each and every date on which an event occurs in respect of which Additional Amounts is required to be paid. Any amounts of Additional Amounts due pursuant to clause (a)(i), (a)(ii) or (a)(iii) of this Section 3 will be payable in cash semi-annually on each March 15 and September 15 (each an "Additional Amounts Payment Date"), commencing with the first such date occurring after any such Additional Amounts commences to accrue, to Holders to whom regular interest is payable on such Additional Amount Payment Date with respect to Convertible Notes that are Registrable Securities and to Persons that are registered Holders on March 1 or September 1 preceding such Additional Amount Payment Date with respect to Underlying Shares that are Registrable Securities. The amount of Additional Amounts for Registrable Securities will be determined by multiplying the rate of Additional Amounts by the Amount of Registrable Securities outstanding on the Additional Amount Payment Date following such Registration Default in the case of the first such payment of Additional Amounts with respect to a Registration Default and thereafter at the next succeeding Additional Amount Payment Date until the cure of such Registration Default.
    5. Registration Procedures.
    6. In connection with the filing of any Registration Statement pursuant to Section 2 hereof, the Company shall effect such registrations to permit the resale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Company hereunder the Company shall:

      1. Prepare and file with the SEC prior to the Filing Date, a Registration Statement or Registration Statements as prescribed by Section 2 hereof, and use its reasonable efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall, upon request of any Holder of Registrable Securities covered by such Registration Statement furnish to and afford such Holder and such Holder's counsel, if any, a reasonable opportunity to review copies of all such documents proposed to be filed (in each case, where possible, at least five Business Days prior to such filing, or such later date as is reasonable under the circumstances), and shall incorporate into such filings such comments and changes as may be reasonably requested by such persons. The provisions of this paragraph (a) shall not apply to the filing by the Company of annual, quarterly or current reports, or proxy statements or schedules under the Exchange Act. The Company shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if Holders of a majority in Amount of Registrable Securities covered by such Registration Statement or their counsel, shall reasonably object.
      2. Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period; cause the related Prospectus to be supplemented by any prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented. Except as provided in Section 3(b), the Company shall be deemed not to have used its reasonable efforts to keep a Registration Statement effective during the Effectiveness Period if it voluntarily takes any action that would result in selling Holders of the Registrable Securities covered thereby that are Notice Holders not being able to sell such Registrable Securities during that period unless such action is required by applicable law or unless the Company complies with this Agreement, including, without limitation, the provisions of Sections 2(b) and 4(l) hereof.
      3. Notify the applicable selling Holders of Registrable Securities and their counsel promptly (but in any event within three Business Days) and confirm such notice in writing, (i) when a Prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act, (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in a Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to a Registration Statement, Prospectus or documents so that, in the case of a Registration Statement, it will not 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, and that in the case of a Prospectus, it will not 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, in the light of the circumstances under which they were made, not misleading, and (iv) of the Company's determination that a post-effective amendment to a Registration Statement would be appropriate.
      4. Use its reasonable efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus and, if any such order is issued, to use its reasonable efforts to obtain the withdrawal of any such order at the earliest possible time.
      5. Furnish to each selling Holder of Registrable Securities, a single counsel to such Holders (chosen in accordance with Section 5(b)), at the sole expense of the Company, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits.
      6. Deliver to each selling Holder of Registrable Securities and a single counsel to such Holders (chosen in accordance with Section 5(b)), at the sole expense of the Company, as many copies of the Prospectus (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the second paragraph of Section 4(r) hereof, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.
      7. Prior to any public offering of Registrable Securities, to use its reasonable efforts to register or qualify, to the extent required by applicable law, and to cooperate with the selling Holders of Registrable Securities and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities or offer and sale under the Blue Sky Laws of such jurisdictions within the United States as any selling Holder reasonably request and to cause the Company's counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 4(g); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any jurisdiction where it is not then so subject.
      8. Cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing shares of Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with the Depository; and enable such shares of Registrable Securities to be in such denominations and registered in such names as the Holders may reasonably request.
      9. Use its reasonable efforts to cause the Registrable Securities covered by any Shelf Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be reasonably necessary to enable the seller or sellers thereof, to consummate the disposition of such Registrable Securities, except as may be required solely as a consequence of the nature of such selling Holder's business, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals.
      10. Upon the occurrence of any event contemplated by paragraph 4(c)(ii), 4(c)(iii) or 4(c)(iv) hereof, as promptly as practicable (and after any applicable Suspension Period) prepare and (subject to Section 4(a) hereof) file with the SEC, at the sole expense of the Company, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
      11. Prior to the effective date of the first Registration Statement relating to the Registrable Securities, (i) provide the Trustee with certificates for the Registrable Securities in a form eligible for deposit with the Depositary and (ii) provide required CUSIP numbers for the Registrable Securities.
      12. Upon such party's execution of a confidentiality agreement, reasonably acceptable to the Company, make available for inspection by any selling Holder of such Registrable Securities being sold, and any attorney, accountant or other agent retained by any such selling Holder, (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours at such time or times as shall be mutually convenient for the Company and the Inspectors as a group, all financial and other records, pertinent corporate documents and instruments of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement.
      13. Provide the Holders of the Registrable Securities to be included in such Registration Statement and a single counsel to such Holders (chosen in accordance with Section 5(b)), reasonable opportunity to participate in the preparation of such Registration Statement, each prospectus included therein or filed with the SEC, and each amendment or supplement thereto.
      14. Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods.
      15. Cooperate with each seller of Registrable Securities covered by any Registration Statement, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD").
      16. Cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Securities; and in connection therewith, cooperate with the Trustee and the Holders of the Registrable Securities to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner.
      17. Use its reasonable efforts to take all other steps necessary or advisable to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby.
      18. Use its best efforts to list, subject to notice of issuance, the Underlying Shares on the NYSE and to maintain the listing of such Underlying Shares on the NYSE for so long as the Convertible Notes or the Underlying Shares are outstanding.

      Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 4(c)(ii), 4(c)(iii) or 4(c)(iv) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(j) hereof, or until it is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto.

    7. Registration Expenses.
      1. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, including, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of compliance with Blue Sky Laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as provided in Section 4(g) hereof), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with the Depository and of printing prospectuses if the printing of prospectuses is reasonably requested by the Holders of the majority in Amount of Registrable Securities included in any Registration Statement, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and reasonable fees and disbursements of one special counsel for the sellers of Registrable Securities (subject to the provisions of Section 5(b) hereof), (v) fees and disbursements of the Company's independent certified public accountants, (vi) Securities Act liability insurance, if the Company desires such insurance, (vii) fees and expenses of all other Persons retained by the Company, (viii) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (ix) the expense of any annual audit of the Company's financial statements, (x) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, if applicable, and (xi) the expenses relating to printing, word processing and distributing all Registration Statements and any other documents necessary in order to comply with this Agreement.
      2. The Company shall reimburse the Holders of the Registrable Securities being registered in or Shelf Registration for the reasonable fees and disbursements of not more than one counsel chosen by the Holders of a majority in Amount of Registrable Securities to be included in such Registration Statement.
    8. Indemnification.
    9. The Company agrees to indemnify and hold harmless (i) each Initial Purchaser, (ii) each Holder, (iii) each Person, if any, who controls (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) any of the foregoing (any of the Persons referred to in this clause (iii) being hereinafter referred to as a "controlling person"), (iv) the respective officers, directors, partners, employees, representatives and agents of each Initial Purchaser, the Holders (including predecessor Holders) or any controlling person (any person referred to in clause (i), (ii), (iii) or (iv) may hereinafter be referred to as an "Indemnified Holder"), from and against any and all losses, claims, damages, liabilities, joint or several, and judgments (including, without limitation, reasonable legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) to which they become subject under the Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or any amendment or supplement thereto or any related preliminary prospectus, or arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and agrees to reimburse each such Indemnified Person, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, except insofar as such losses, claims, damages or liabilities arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in the Registration Statement or Prospectus, or any amendment thereof or supplement thereto or any related preliminary prospectus, in reliance upon and in conformity with information relating to any Holder furnished to the Company in writing by or on behalf of any such Holder expressly for use therein; provided, that the Company shall not be liable to any Indemnified Holder under the indemnity agreement in this Article 6 with respect to any preliminary prospectus to the extent that any such loss, claim, damage or liability of such Indemnified Holder results from the fact that such Indemnified Holder sold Registrable Securities to a Person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final Prospectus in any case where such delivery is required by the Securities Act if the Company had previously furnished copies thereof in sufficient quantities to such Indemnified Holder and the loss, claim, damage or liability of such Indemnified Holder results from an untrue statement or omission of a material fact contained in the preliminary prospectus that was (i) identified to such Indemnified Holder at or prior to the earlier of the filing with the SEC or the furnishing to such Indemnified Holder of the corrected Prospectus and (ii) corrected in the final Prospectus. The Company shall notify each Indemnified Holder promptly of the institution, threat or assertion of any claim, proceeding (including any governmental investigation) or litigation in connection with the matters addressed by this Agreement which involves the Company or such Indemnified Holder.

      Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers and each Person who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Holder, but only with reference to such losses, claims, damages or liabilities which are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to a Holder furnished to the Company in writing by such Holder expressly for use in any Registration Statement or Prospectus, or any amendment or supplement thereto or any related preliminary prospectus.

      If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person or Persons against whom such indemnity may be sought (each an "Indemnifying Person") in writing of the commencement thereof; but the failure so to notify the Indemnifying Person (i) will not relieve it from liability under the two immediately preceding paragraphs unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the Indemnifying Person of substantial rights and defenses; and (ii) will not, in any event, relieve the Indemnifying Person from any obligations to any Indemnified Person other than the indemnification obligation provided in the two preceding paragraphs. Such Indemnifying Person, upon request of the Indemnified Person, shall retain counsel satisfactory to the Indemnified Person to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 6 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the use of counsel chosen by the Indemnifying Person to represent the Indemnified Person would present such counsel with a conflict of interest; (ii) the actual or potential defendants in, or targets of, any such action include both the Indemnified Person and the Indemnifying Person and the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it and/or other Indemnified Person(s) which are different from or additional to those available to the Indemnifying Person; (iii) the Indemnifying Person shall not have employed counsel satisfactory to the Indemnified Person to represent the Indemnified Person within a reasonable time after notice of the institution of such action; or (iv) the Indemnifying Person shall authorize the Indemnified Person to employ separate counsel at the expense of the Indemnifying Person. It is understood that an Indemnifying Person shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Indemnified Holders shall be designated in writing by the Holders of the majority in Amount of Registrable Securities, and any such separate firm for the Company, its directors, respective officers and such control Persons of the Company shall be designated in writing by the Company. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action), unless such settlement, compromise or consent includes an unconditional release of each such Indemnified Person from all liability arising out of such claims, actions, suits or proceedings.

      If the indemnification provided for in the first and second paragraphs of this Section 6 is insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending the same) (collectively, "Losses") (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Person on the one hand, and the Indemnified Person on the other hand, pursuant to the Purchase Agreement or from the offering of the Registrable Securities pursuant to any Shelf Registration or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Indemnifying Person on the one hand, and the Indemnified Person on the other, in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand, and any Indemnified Holder on the other, shall be deemed to be in the same proportion as the total net proceeds from the initial offering and sale of Convertible Notes (before deducting expenses) received by the Company bear to the total net proceeds received by such Indemnified Holder from sales of Registrable Securities giving rise to such obligations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such Indemnified Holder and the parties' intent, relative knowledge, information and opportunity to correct or prevent such statement or omission.

      The Company and each of the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 6, in no event shall any Holder be required to contribute any amount in excess of the amount by which the net proceeds received by such Holder from the sale of the Registrable Securities pursuant to a Shelf Registration Statement exceeds the amount of damages which such Holder would have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 6, each person who controls an Initial Purchaser within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee and agent of an Initial Purchaser shall have the same rights to contribution as such Initial Purchaser, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act and each officer and director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions set forth in this paragraph.

      The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any Indemnified Person at law or in equity.

      The indemnity and contribution agreements contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Holder or any Person controlling any Holder or by or on behalf of the Company, its officers or directors or any other Person controlling any of the Company and (iii) acceptance of and payment for any of the Registrable Securities.

    10. Rules 144 and 144A.
    11. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, for so long as any Registrable Securities remain outstanding, if at any time the Company is not required to file such reports, it will, upon the request of any Holder or beneficial owner of Registrable Securities, make available such information necessary to permit sales pursuant to Rule 144A under the Securities Act. The Company further covenants that, for so long as any Registrable Securities remain outstanding, it will use its reasonable efforts to take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act.

    12. Miscellaneous.
      1. No Inconsistent Agreements. The Company has not, as of the date hereof, and the Company shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The Company has not entered and will not enter into any agreement with respect to any of its securities that will grant to any Person piggyback registration rights with respect to a Registration Statement, except to the extent that any existing right has heretofore been waived.
      2. Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the Company and the Holders of not less than the majority in Amount of Registrable Securities; provided, however, that Section 6 and this Section 8(b) may not be amended, modified or supplemented without the prior written consent of the Company and each Holder (including, in the case of an amendment, modification or supplement of Section 6, any Person who was a Holder of Registrable Securities disposed of pursuant to any Registration Statement). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities may be given by Holders of at least a majority in Amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement.
      3. Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile:
            1. if to a Holder of the Registrable Securities, at the most current address of such Holder set forth on the records of the registrar under the Indenture, in the case of Holders of Convertible Notes, and the stock ledger of the Company, in the case of Holders of Underlying Shares.
            2. if to the Initial Purchasers:
            3. Banc of America Securities LLC
              9 West 57th Street
              New York, NY 10019
              Facsimile No.: (212) 847-5124
              Attention: Eric Hambleton, Esq.

              and

              Salomon Smith Barney Inc.
              388 Greenwich Street, 3rd floor
              New York, NY 10013
              Facsimile No.: (212) 816-7912
              Attention: General Counsel

              with copies to:

              Simpson Thacher & Bartlett
              425 Lexington Avenue
              New York, NY 10025
              Facsimile No.: (212) 455-2502
              Attention: Risë B. Norman, Esq.

            4. if to the Company, at the addresses as follows:

        One Computer Associates Plaza
        Islandia, NY 11749
        Facsimile No.: (631) 342-4873
        Attention: Treasurer

        with copies to:

        Covington & Burling
        1330 Avenue of the Americas
        New York, NY 10019
        Facsimile No.: (212) 841-1010
        Attention: Bruce C. Bennett, Esq.

        All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; one Business Day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile.

      4. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, including the Holders; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and except to the extent such successor or assign holds Registrable Securities.
      5. Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
      6. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
      7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Each party hereto hereby submits to the non-exclusive jurisdiction of the federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
      8. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
      9. Securities Held by the Company or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage in Amount of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.
      10. Third Party Beneficiaries. Holders of Registrable Securities are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons.
      11. Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Initial Purchasers on the one hand, and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

COMPUTER ASSOCIATES
INTERNATIONAL, INC.

By: ___________________________________
Name:
Title:

BANC OF AMERICA SECURITIES LLC
SALOMON SMITH BARNEY INC.
ABN AMRO ROTHSCHILD LLC
MIZUHO INTERNATIONAL PLC
ROBERTSON STEPHENS, INC.
RBC DAIN RAUSCHER INC.
TOKYO-MITSUBISHI INTERNATIONAL PLC


By: Banc of America Securities llc

By: ___________________________________
Name:
Title:

By: SALOMON SMITH BARNEY INC.

By: __________________________________
Name:
Title:

$600,000,000

COMPUTER ASSOCIATES INTERNATIONAL, INC.

5% Convertible Senior Notes due 2007

PURCHASE AGREEMENT

March 13, 2002

Banc of America Securities LLC
Salomon Smith Barney Inc.
ABN AMRO Rothschild LLC
Mizuho International plc
Robertson Stephens, Inc.
RBC Dain Rauscher Inc.
Tokyo-Mitsubishi International plc


c/o Banc of America Securities LLC
9 West 57th Street
New York, New York 10019
and
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013

Ladies and Gentlemen:

    1. Introductory. Computer Associates International, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several initial purchasers named in Schedule I hereto (the "Purchasers") $600,000,000 principal amount of its 5% Convertible Senior Notes due 2007 (the "Firm Securities"). The Company also proposes to grant to the Purchasers an option to purchase up to $60,000,000 additional principal amount of such Notes (the "Option Securities" and, together with the Firm Securities, the "Offered Securities"). The Offered Securities will be convertible into shares of common stock of the Company, par value $.10 per share (the "Common Stock"). The Offered Securities are to be issued under an indenture, to be dated as of March 18, 2002 (the Indenture"), between the Company and State Street Bank and Trust Company, as Trustee. The Securities Act of 1933, as amended, is herein referred to as the "Securities Act". The Offered Securities and the Common Stock issuable upon conversion thereof will have the benefit of a Registration Rights Agreement (the "Registration Rights Agreement") between the Company and the Purchasers, pursuant to which the Company will agree to register the resale of the Offered Securities under the Securities Act subject to the terms and conditions specified therein. In addition, the Company will purchase from Bank of America, N.A., an affiliate of Banc of America Securities LLC ("BA"), call spread repurchase options pursuant to an Issuer Call Spread Transaction, to be dated as of March __, 2002, between the Company and BA (the "BA Issuer Call Spread Transaction"), and the Company will purchase from Citibank, N.A., an affiliate of Salomon Smith Barney Inc. ("Citibank"), call spread repurchase options pursuant to an Issuer Call Spread Transaction, to be dated as of March __, 2002, between the Company and Citibank (the "Citibank Issuer Call Spread Transaction", and together with BA Issuer Call Spread Transaction, the "Issuer Call Spread Transactions").
    2. The Company hereby agrees with the several Purchasers as follows:

    3. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the several Purchasers that:
      1. A preliminary offering circular and an offering circular relating to the Offered Securities to be offered by the Purchasers have been prepared by the Company. Such preliminary offering circular and offering circular as supplemented as of the date of this Agreement, and any other document approved by the Company for distribution to prospective purchasers in connection with the contemplated resale of the Offered Securities are hereinafter collectively referred to as the "Offering Document". On the date of this Agreement, the final Offering Document does not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Offering Document based upon written information furnished to the Company by any Purchaser through Banc of America Securities LLC and Salomon Smith Barney Inc. (the "Representatives") specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b). Except as disclosed in the Offering Document, on the date of this Agreement, the Company's Annual Report on Form 10-K most recently filed with the Securities and Exchange Commission (the "Commission") and all subsequent reports (collectively, the "Exchange Act Reports") which have been filed by the Company with the Commission or sent to shareholders pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), do not, in each case as of their respective dates, include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such documents, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder.
      2. The Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except to the extent that all such failures to be so qualified and to be in good standing would not, in the aggregate, have a material adverse effect upon the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect").
      3. Each Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X under the Securities Act) of the Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and each Significant Subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except to the extent that all such failures to be so qualified and to be in good standing would not, in the aggregate, have a Material Adverse Effect; all of the issued and outstanding capital stock of each Significant Subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of each Significant Subsidiary owned by the Company, directly or through subsidiaries, is owned free of liens, encumbrances and defects, other than any such liens, encumbrances and defects which would not have a Material Adverse Effect.
      4. All the outstanding shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued and are fully paid and nonassessable, and, except as otherwise set forth in the Offering Document, all outstanding shares of capital stock of the subsidiaries are owned by the Company either directly or through one or more wholly-owned subsidiaries free and clear of any perfected security interest or any other security interests, claims, liens or encumbrances.
      5. The Company's authorized equity capitalization is as set forth in the Offering Document, and the capital stock of the Company, conforms in all material respects to the description thereof contained in the Offering Document; the outstanding shares of Common Stock have been duly and validly authorized and are fully paid and non-assessable; the shares of Common Stock initially issuable upon conversion of the Offered Securities have been duly and validly authorized and, when issued upon conversion against payment of the conversion price and in accordance with the terms of the Indenture, will be validly issued, fully paid and nonassessable; the Board of Directors of the Company has duly and validly adopted resolutions reserving such shares of Common Stock for issuance upon conversion; the holders of the outstanding shares of capital stock of the Company are not entitled to any preemptive or other rights to subscribe for the Offered Securities or the shares of Common Stock issuable upon conversion thereof; and, except as set forth in the Offering Document, no options, warrants or other rights to purchase, agreements or other obligations to issue, or rights to convert any obligations into or exchange any securities for, shares of capital stock of or ownership interests in the Company are outstanding.
      6. The statements in the Offering Document under the headings "Certain United States Federal Income Tax Consequences", "Description of Our Capital Stock" and "Description of the Notes" fairly summarize the matters therein described.
      7. The Indenture has been duly authorized by the Company; the Offered Securities have been duly authorized by the Company; and when the Offered Securities are delivered and paid for pursuant to this Agreement on the Closing Date (as defined below), (i) the Indenture will have been duly executed and delivered by the Company, (ii) the Indenture will conform to the description thereof contained in the final Offering Document and (iii) the Indenture and such Offered Securities will constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles.
      8. The Registration Rights Agreement has been duly and validly authorized by the Company, and, upon its execution and delivery by the Company, and, assuming due authorization, execution and delivery by the Purchasers, will constitute the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles.
      9. Each of the Issuer Call Spread Transactions has been duly and validly authorized by the Company, and, upon its execution and delivery by the Company, and, assuming due authorization, execution and delivery by each of BA and Citibank, will constitute the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles.
      10. No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the performance by the Company of its obligations under this Agreement in connection with the issuance and sale of the Offered Securities by the Company to the Purchasers, except for (i) filings under state securities laws and (ii) the filing of a registration statement in accordance with the Registration Rights Agreement described in the Offering Document.
      11. The execution, delivery and performance of the Indenture, this Agreement, the Registration Rights Agreement and the Issuer Call Spread Transactions, and the issuance and sale of the Offered Securities hereunder and compliance with the terms and provisions hereof and thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, (i) any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any Significant Subsidiary of the Company or any of their properties, (ii) any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject or (iii) the charter or by-laws of the Company or any such subsidiary, except, in the case of clauses (i) and (ii) only, for any such breach, violation or default which would not have a Material Adverse Effect; and the Company has full corporate power and authority to authorize, issue and sell the Offered Securities.
      12. This Agreement has been duly authorized, executed and delivered by the Company.
      13. Except as disclosed in the Offering Document, the Company and its Significant Subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free of liens, encumbrances and defects and hold any leased real or personal property under valid and enforceable leases, except, in each case, those which would not have a Material Adverse Effect.
      14. The Company and its subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that would individually or in the aggregate have a Material Adverse Effect.
      15. No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent that would have a Material Adverse Effect.
      16. To the best knowledge of the Company, the Company and its Significant Subsidiaries own, possess or can acquire on terms that would not have a Material Adverse Effect, all material trademarks, trade names and other rights to inventions, know-how, patents, copyrights and confidential information (collectively, "intellectual property rights") currently employed by them in the business now operated by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that would reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect.
      17. Except as disclosed in the Offering Document, neither the Company nor any of its Significant Subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "environmental laws"), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation which could reasonably be expected to lead to such a claim.
      18. Except as disclosed in the Offering Document, there are no pending actions, suits or proceedings against or (to the best knowledge of the Company) affecting the Company, any of its Significant Subsidiaries or any of their respective properties that would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under the Indenture or this Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are, to the Company's knowledge, threatened.
      19. The financial statements included in the Offering Document present fairly in all material respects the financial position of the Company and its consolidated subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis.
      20. Except as disclosed in the Offering Document, since the date of the latest audited financial statements included in the Offering Document there has been no material adverse change, nor any development or event which could reasonably be expected to result in a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole; and, except as disclosed in or contemplated by the Offering Document, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock, other than dividends paid or made in the ordinary course of business of the Company which are consistent, in timing and amount, with past practice.
      21. The Company is not an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act of 1940, as amended (the "Investment Company Act"); and the Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Document, will not be an "investment company" as defined in the Investment Company Act.
      22. No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Offered Securities are listed on any national securities exchange registered under Section 6 of the Exchange Act or quoted in an automated inter-dealer quotation system.
      23. Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 4 hereof, the offer and sale of the Offered Securities by the Company to the Purchasers in the manner contemplated by this Agreement will be exempt from the registration requirements of the Securities Act; and it is not necessary for such offer and sale to qualify an indenture in respect of the Offered Securities under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
      24. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf (i) has, within the six-month period prior to the date hereof, offered or sold in the United States or to any U.S. person (as such terms are defined in Regulation S under the Securities Act) the Offered Securities or any security of the same class or series as the Offered Securities which offering or sale would be integrated with the sale of the Offered Securities in a manner that would require registration of the sale thereof to the Purchasers under the Securities Act or (ii) has offered or will offer or sell the Offered Securities (A) in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (B) with respect to any such securities sold in reliance on Rule 903 of Regulation S ("Regulation S") under the Securities Act, by means of any directed selling efforts within the meaning of Rule 902(b) of Regulation S. The Company, its affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S. The Company has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for this Agreement.
    4. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Purchasers, and the Purchasers agree, severally and not jointly, to purchase from the Company, at a purchase price of 97.5% of the principal amount thereof, plus accrued interest from March 18, 2002 to the Closing Date (as hereinafter defined), the principal amount of Firm Securities set forth opposite the name of each Purchaser in Schedule I hereto.
    5. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company hereby grants an option to the several Purchasers to purchase, severally and not jointly, the Option Securities at the same percentage of the principal amount thereof as the Purchasers paid for the Firm Securities, plus accrued interest, if any, from March 18, 2002 to the settlement date for the Option Securities (the "settlement date"). The option may be exercised in whole or in part at any time on or before the 30th day after the Closing Date upon written or telegraphic notice by the Representatives to the Company setting forth the principal amount of Option Securities as to which the Purchasers are exercising the option and the settlement date; provided, however, that the Purchasers may not exercise the option if exercising the option would cause the exemption under Rule 144A under the Securities Act ("Rule 144A") to become unavailable. Delivery of the Option Securities, and payment therefor, shall be made as provided in Section 3 hereof. The principal amount of Option Securities to be purchased by each Purchaser shall be the same percentage as such Purchaser is purchasing of the Firm Securities, subject to such adjustments as the Representatives shall deem advisable.

      Delivery of and payment for the Firm Securities and the Option Securities (if the option provided for in Section 3 hereof shall have been exercised on or before the third business day prior to the Closing Date) shall be made at 10:00 A.M., New York City time, on March 18, 2002, or, with respect to Option Securities only, at such time on such later date (not later than April 17, 2002) as the Representatives shall designate, in each case, which date and time may be postponed by agreement between the Representatives and the Company or as provided in Section 9 hereof (such date and time of delivery and payment for the Offered Securities being herein called the "Closing Date"). Delivery of the Offered Securities shall be made to the Representatives for the respective accounts of the several Purchasers against payment by the several Purchasers through the Representatives of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to the account specified by the Company. Delivery of the Offered Securities shall be made through the facilities of The Depository Trust Company unless the Representatives shall otherwise instruct.

      If the option provided for in Section 3 hereof is exercised after the third business day prior to the Closing Date, the Company will deliver the Option Securities (at the expense of the Company) to the Representatives on the date specified by the Representatives (which shall be within three business days after exercise of said option), for the respective accounts of the several Purchasers, against payment by the several Purchasers through the Representatives of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to the account specified by the Company. If settlement for the Option Securities occurs after the Closing Date, the Company will deliver to the Representatives on the settlement date, and the obligation of the Purchasers to purchase the Option Securities shall be conditioned upon receipt of, supplemental options, certificates and letters confirming as of such date the options, certificates and letters delivered on the Closing Date pursuant to Section 6 hereof.

    6. Representations by Purchasers; Resale by Purchasers.
        1. Each Purchaser severally represents and warrants to the Company that it is an "accredited investor" within the meaning of Regulation D under the Securities Act.
        2. Each Purchaser severally acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. Each Purchaser severally represents and agrees that it has offered and sold the Offered Securities, and will offer and sell the Offered Securities as part of its distribution at any time, only in accordance with Rule 903 or Rule 144A under the Securities Act. Accordingly, neither such Purchaser nor its affiliates, nor any persons acting on its or their behalf, have engaged or will engage in any directed selling efforts with respect to the Offered Securities, and such Purchaser, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S set forth in Exhibit A hereto. Each Purchaser severally agrees that, at or prior to confirmation of sale of the Offered Securities, other than a sale pursuant to Rule 144A, such Purchaser will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases the Offered Securities from it a confirmation or notice to substantially the following effect:
        3. "The Securities covered hereby have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons as part of their distribution at any time, except in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meanings given to them by Regulation S."

          Terms used in this subsection (b) have the meanings given to them by Regulation S.

        4. Each Purchaser severally agrees that it and each of its affiliates has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for any such arrangements with the other Purchasers or affiliates of the other Purchasers or with the prior written consent of the Company.
        5. Each Purchaser severally agrees that it and each of its affiliates will not offer, solicit offers or sell the Offered Securities in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Each Purchaser severally agrees, with respect to resales made in reliance on Rule 144A of any of the Offered Securities, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Offered Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A.
        6. Each Purchaser severally represents and agrees that (i) it is a person outside the United Kingdom or it is a person of a kind described in Article 19(5) or Article 49(2) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2001; (ii) it has not offered or sold and, prior to the expiry of a period of six months from the Closing Date, will not offer or sell any Offered Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (iii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the "FSMA")) received by it in connection with the issue or sale of any Offered Securities in circumstances in which section 21(1) of the FSMA does not apply to the Company; and (iv) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Offered Securities in, from or otherwise involving the United Kingdom.

      The Purchasers propose to offer the Offered Securities to investors initially at the offering price to investors set forth in the final Offering Document.

    7. Certain Agreements of the Company. The Company agrees with several Purchasers that:
      1. The Company will advise the Representatives promptly of any proposal to amend or supplement the Offering Document and will not effect such amendment or supplementation without each of the Representatives' consent (which shall not be unreasonably withheld or delayed). If, at any time prior to the completion of the initial resale of the Offered Securities by the Purchasers, any event occurs as a result of which the Offering Document as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Company promptly will notify the Representatives of such event and promptly will prepare, at its own expense, an amendment or supplement which will correct such statement or omission. Neither the Representatives' consent to, nor the Purchasers' delivery to offerees or investors of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6.
      2. The Company will furnish to the Representatives copies of any preliminary offering circular, the Offering Document and all amendments and supplements to such documents, in each case as soon as available and in such quantities as the Representatives request, and the Company will furnish to the Representatives as of the date hereof five copies of the final Offering Document signed by a duly authorized officer of the Company. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act and the outstanding Offered Securities or Common Stock issuable upon conversion thereof constitute "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Company will promptly furnish or cause to be furnished to the Representatives (and, upon request, to each of the other Purchasers) and, upon request of holders and prospective purchasers of such restricted securities, to such holders and purchasers, copies of the information required to be delivered to holders and prospective purchasers of such restricted securities pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of such restricted securities. The Company will pay the expenses of printing and distributing to the Purchasers all such documents.
      3. The Company will arrange for the qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions in the United States as the Representatives designate and will continue such qualifications in effect so long as required for the resale of the Offered Securities by the Purchasers, provided that the Company will not be required to qualify as a foreign corporation or to file a general consent to service of process in any such state.
      4. During the period of five years hereafter (to the extent that the Offered Securities are then outstanding), the Company will furnish to the Representatives and, upon request, to each of the other Purchasers, as soon as practicable after the end of each fiscal year, a copy of its annual report to shareholders for such year; and the Company will furnish to the Representatives and, upon request, to each of the other Purchasers, as soon as available, a copy of each periodic or current report and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or distributed by the Company to its shareholders.
      5. During the period of two years after the Closing Date, the Company will, upon request, furnish to the Representatives, each of the other Purchasers and any holder of Offered Securities or Common Stock issuable upon conversion thereof a copy of the restrictions on transfer applicable to the Offered Securities or Common Stock issuable upon conversion thereof.
      6. During the period of two years after the Closing Date, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Offered Securities or Common Stock issuable upon conversion thereof that have been reacquired by any of them.
      7. During the period of two years after the Closing Date, the Company will not be or become, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act.
      8. Any information provided by the Company to publishers of publicly available databases about the terms of the Offered Securities shall include a statement that the Offered Securities have not been registered under the Securities Act and are subject to restrictions under Rule 144A under the Securities Act and Regulation S.
      9. The Company will reserve and keep available at all times, free of preemptive rights, the full number of shares of Common Stock issuable upon conversion of the Offered Securities.
      10. The Company will not for a period of 90 days following the date and time that this Agreement is executed and delivered by the parties hereto (the "Execution Time"), without the prior written consent of each of the Representatives, offer, sell, contract to sell, pledge or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Company or any Affiliate (as such term is defined in Rule 501(b) of Regulation D) of the Company or any person in privity with the Company or any Affiliate of the Company), directly or indirectly, or file (or participate in the filing of) a registration statement with the Securities and Exchange Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act and the rules and regulations of the Commission promulgated thereunder with respect to, any shares of capital stock of the Company or any securities convertible or exercisable or exchangeable for such capital stock, or publicly announce an intention to effect any such transaction; provided, however, that (i) the Company may issue and sell Common Stock pursuant to any employee stock option plan, stock ownership or purchase plan or dividend reinvestment plan of the Company in effect at the Execution Time, (ii) the Company may issue Common Stock issuable upon the conversion of securities or the exercise of warrants outstanding at the Execution Time, (iii) the Company may file registration statements pursuant to the Registration Rights Agreement and may issue Common Stock upon conversion of the Offered Securities and (iv) the Company may purchase call spread repurchase options pursuant to the Issuer Call Spread Transactions.
      11. The Company will refuse, and will cause all applicable trustees and transfer agents to refuse, to register any transfer of Offered Securities or shares of Common Stock issuable upon conversion of Offered Securities if such transfer is not made in accordance with the provisions of Regulation S under the Securities Act, pursuant to an effective registration statement under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act; provided that the provisions of this paragraph shall not be applicable to any Offered Security or share of Common Stock which has been transferred pursuant to an effective registration statement or Rule 144 under the Securities Act and, as a result of which, or otherwise, is no longer subject to restrictions on transfer under the Securities Act.
      12. All of the Offered Securities and shares of Common Stock issuable upon conversion thereof will contain a legend to the effect that the transfer thereof is prohibited except in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the Securities Act or pursuant to an available exemption from registration under the Securities Act and that hedging transactions involving those Offered Securities or shares may not be conducted unless in compliance with the Securities Act; provided that such legend may be removed if such Offered Securities or shares have been transferred pursuant to an effective registration statement or Rule 144 under the Securities Act, and, as a result of which, or otherwise, is no longer subject to restrictions on transfer under the Securities Act.
      13. Between the date hereof and the Closing Date, the Company will not do or authorize any act or thing that would result in an adjustment of the conversion price.
      14. The Company will pay all expenses incidental to the performance of its obligations under this Agreement, the Indenture and the Registration Rights Agreement, including (i) the fees and expenses of the Trustee and its professional advisers; (ii) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of the Offered Securities, the preparation and printing of this Agreement, the Offered Securities, the Indenture, the Registration Rights Agreement, the Offering Document and amendments and supplements thereto, and any other document relating to the issuance, offer, sale and delivery of the Offered Securities; (iii) the cost of any advertising approved by the Company in connection with the issue of the Offered Securities; (iv) for any expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities for sale under the laws of such jurisdictions in the United States as the Representatives designate and the printing of memoranda relating thereto (v) for any fees charged by investment rating agencies for the rating of the Offered Securities, (vi) for expenses incurred in distributing preliminary offering circulars and the Offering Document (including any amendments and supplements thereto) to the Purchasers and (vii) for expenses incurred in connection with admitting the Offered Securities for trading in the PORTAL Market. The Company will also pay or reimburse the Purchasers (to the extent incurred by them) for all travel expenses of the Purchasers and the Company's officers and employees and any other expenses of the Purchasers and the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities from the Purchasers. Notwithstanding the foregoing, the Purchasers shall reimburse the Company for certain expenses incurred in connection with the offering and sale of the Offered Securities, to the extent separately agreed between the Company and the Purchasers.
      15. In connection with the offering, until the Representatives shall have notified the Company and the other Purchasers of the completion of the resale of the Offered Securities, neither the Company nor any of its affiliates has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Offered Securities or attempt to induce any person to purchase any Offered Securities; and neither it nor any of its affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Offered Securities.
      16. Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf will engage in any directed selling efforts with respect to the Securities, and each of them will comply with the offering restrictions requirement of Regulation S. Terms used in this paragraph have the meanings given to them by Regulation S.
    8. Conditions of the Obligations of the Purchasers. The obligations of the several Purchasers to purchase and pay for the Offered Securities will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent:
      1. The Purchasers shall have received a letter, dated the date of this Agreement, of KPMG LLP confirming that they are independent public accountants within the meaning of the Securities Act and the applicable published rules and regulations thereunder ("Rules and Regulations") and to the effect that:
          1. in their opinion the financial statements examined by them and included in the Exchange Act Reports comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations;
          2. they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on the unaudited financial statements included in the Exchange Act Reports;
          3. on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that:
            1. the unaudited financial statements included in the Exchange Act Reports do not comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles;
            2. at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of this Agreement, there was any change in the capital stock or any increase in short-term indebtedness or long-term debt of the Company and its consolidated subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated net assets, as compared with amounts shown on the latest balance sheet included in the Exchange Act Reports; or
            3. for the period from the closing date of the latest income statement included in the Exchange Act Reports to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year in consolidated net sales, net operating income or net income or in the ratio of earnings to fixed charges;

            except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which the Offering Document or Exchange Act Reports disclose have occurred or may occur or which are described in such letter; and

          4. they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Offering Document and the Exchange Act Reports (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter.
      2. Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) a change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls as would, in the judgment of the Representatives, be likely to prejudice materially the success of the proposed issue, sale or distribution of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market, or (ii) (A) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole which, in the judgment of a majority in interest of the Purchasers including the Representatives, is material and adverse and makes it impractical or inadvisable to proceed with completion of the offering or the sale of and payment for the Offered Securities as contemplated in the Offering Document; (B) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (C) any suspension or limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (D) any banking moratorium declared by U.S. federal or, New York authorities; (E) any material disruption or suspension of securities settlement or clearance services; or (F) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Purchasers including the Representatives, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the offering or sale of and payment for the Offered Securities as contemplated in the Offering Document.
      3. The Purchasers shall have received an opinion, dated the Closing Date, of Steven M. Woghin, Esq., Senior Vice President and General Counsel of the Company, that (subject to acceptable assumptions and qualifications):
          1. The Company and each of its Significant Subsidiaries has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction in which it is organized, with corporate power and authority to own its properties and conduct its business as described in the Offering Document and Exchange Act Reports; and the Company and each of its Significant Subsidiaries is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except to the extent that all failures to be so qualified or in good standing, in the aggregate, would not have a Material Adverse Effect;
          2. To such counsel's knowledge, neither the Company nor any of its subsidiaries (A) is in violation of its charter or by-laws, (B) is in default, and no event has occurred, which, with notice or lapse of time or both, would constitute a default, in the due performance or observance of any term, covenant or condition contained in any material agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject or (C) is in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject or has failed to obtain any license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business except, in the case of clauses (B) and (C), for those defaults, violations or failures which, either individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect;
          3. To the best of such counsel's knowledge and other than as set forth in the Offering Document, there are no pending actions, suits or proceedings against the Company, any of its Significant Subsidiaries or any of their respective properties that would reasonably be expected to have a Material Adverse Effect; and, to the best of such counsel's knowledge, no such proceedings are threatened by governmental authorities or threatened by others;
          4. Each of this Agreement, the Indenture, the Registration Rights Agreement and the Issuer Call Spread Transactions has been duly authorized, executed and delivered by the Company; the Offered Securities have been duly authorized, executed, issued and delivered and conform to the description thereof contained in the Offering Document; assuming that each of the Indenture, the Offered Securities, the Registration Rights Agreement and the Issuer Call Spread Transactions has been duly authorized, executed and delivered by each party thereto (other than the Company) and that, in the case of the Offered Securities, the Offered Securities have been duly authenticated and paid for by the Purchasers pursuant to this Agreement, each of the Indenture, the Offered Securities, the Registration Rights Agreement and the Issuer Call Spread Transactions constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general equity principles;
          5. All the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights;
          6. The execution, delivery and performance of the Indenture, this Agreement, the Registration Rights Agreement and the Issuer Call Spread Transactions and the issuance and sale of the Offered Securities by the Company to the Purchasers and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, (i) any material agreement or instrument to which the Company or any of its Significant Subsidiaries is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject or (ii) the charter or by-laws of the Company or any such subsidiary, and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement, except, in the case of clause (i) only, for any such breach, violation or default which would not have a Material Adverse Effect;
          7. The Company is not an "investment company" within the meaning of and subject to regulation under the Investment Company Act of 1940, as amended;
          8. The Company's authorized equity capitalization is as set forth in the Offering Document, and the capital stock of the Company conforms as to legal matters in all material respects to the description thereof contained in the Offering Document; the Board of Directors of the Company has duly and validly adopted a resolution, reserving such shares of Common Stock for issuance upon conversion; and the holders of the outstanding shares of capital stock of the Company are not entitled to any preemptive or other rights to subscribe for the Offered Securities or the shares of Common Stock issuable upon the conversion thereof; and
          9. Such counsel have no reason to believe that the Offering Document or any amendment or supplement thereto, or any Exchange Act Report, contained (as of its respective date and, in the case of the final Offering Document, as of the date hereof and as of the Closing Date) any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; the descriptions in the Offering Document and the Exchange Act Reports of legal and governmental proceedings and contracts and other documents are accurate in all material respects and fairly present in all material respects the information; it being understood that such counsel need express no opinion as to the financial statements or other financial data contained in the Offering Document and the Exchange Act Reports or the statements in the Offering Document under the heading "Certain United States Federal Income Tax Consequences".
      4. The Purchasers shall have received an opinion, dated the Closing Date, of Covington & Burling, special counsel to the Company, that (subject to acceptable assumptions and qualifications):
          1. Assuming that each of the Indenture, the Offered Securities, the Registration Rights Agreement and the Issuer Call Spread Transactions has been duly authorized, executed and delivered by each party thereto (other than the Company) and that, in the case of the Offered Securities, the Offered Securities have been authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Purchasers pursuant to this Agreement, each of the Indenture, the Offered Securities, the Registration Rights Agreement and the Issuer Call Spread Transactions constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general equity principles;
          2. No consent, approval, authorization or order of, or filing with, any United States federal, New York or, to the extent required under the General Corporation Law of the State of Delaware, Delaware governmental agency or body is required in connection with the issuance or sale of the Offered Securities by the Company to the Purchasers, except such as may be required under state securities laws;
          3. The execution, delivery and performance by the Company of the Indenture, this Agreement, the Registration Rights Agreement and the Issuer Call Spread Transactions and the issuance and sale by the Company of the Offered Securities and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, (A) any United States federal or New York statute or, to the best of such counsel's knowledge, rule or regulation, (B) the Delaware General Corporation Law or (C) the charter or by-laws of the Company;
          4. Each of this Agreement, the Indenture, the Registration Rights Agreement and the Issuer Call Spread Transactions has been duly authorized, executed and delivered by the Company; the Offered Securities have been duly authorized, executed, issued and delivered by the Company; the shares of Common Stock into which the Offered Securities are convertible have been duly authorized, and when issued upon conversion of the Offered Securities will be validly issued, fully paid and nonassessable and not subject to any statutory preemptive rights or, to the knowledge of such counsel, any other similar rights;
          5. Assuming (A) the accuracy of the representations and warranties of the Company in Sections 2(r) and (t) hereof, (B) the accuracy of the representations and warranties of the Purchasers in Section 4 hereof, (C) compliance in all material respects with the offering and transfer procedures and restrictions in this Agreement and the Offering Document, (D) the accuracy of the representations and warranties specified in the Offering Document as being made by each of the purchasers (the "Initial Resale Purchasers") to whom the Purchasers initially resell the Offered Securities and (E) the receipt by each Purchaser and Initial Resale Purchaser of a copy of the Offering Document prior to the sale of the Notes, it is not necessary in connection with (1) the offer, sale and delivery of the Offered Securities by the Company to the several Purchasers pursuant to this Agreement or (2) the initial resales of the Offered Securities by the several Purchasers to the Initial Resale Purchasers pursuant to Rule 144A in the manner contemplated by this Agreement and the Offering Document to register the Offered Securities or the Common Stock issuable upon conversion thereof under the Securities Act or to qualify an indenture in respect thereof under the Trust Indenture Act (it being understood that no opinion need be expressed by such counsel as to (x) any initial resale of the Offered Securities other than pursuant to Rule 144A or Regulation S or (y) any subsequent resale of the Offered Securities);
          6. The statements made in the Offering Document under the captions "Description of the Notes" and "Description of Our Capital Stock", insofar as they purport to constitute summaries of certain terms of documents referred to therein, constitute accurate summaries of the terms of such documents in all material respects;
          7. The statements in the Offering Document under the heading "Certain United States Federal Income Tax Consequences", to the extent that they constitute summaries of matters of United States federal law or regulation or of legal conclusions, have been reviewed by such counsel and fairly summarize the matters described therein in all material respects; and
          8. Such counsel have no reason to believe that the Offering Document or any amendment or supplement thereto, or any Exchange Act Report, contained (as of its respective date and, in the case of the final Offering Document, as of the date hereof and as of the Closing Date) any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; the descriptions in the Offering Document and the Exchange Act Reports of legal and governmental proceedings and contracts and other documents are accurate in all material respects and fairly present in all material respects the information; it being understood that such counsel need express no opinion as to the financial statements or other financial data contained in the Offering Document and the Exchange Act Reports.
      5. The Purchasers shall have received from Simpson Thacher & Bartlett, counsel for the Purchasers, such opinion or opinions, dated the Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities, the Offering Document, the exemption from registration for the offer and sale of the Offered Securities by the Company to the several Purchasers and the resales by the several Purchasers as contemplated hereby and other related matters as the Representatives may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters.
      6. The Purchasers shall have received a certificate, dated the Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company in this Agreement are true and correct, that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date, and that, at the Closing Date, since the date of this Agreement or subsequent to the date of the most recent financial statements in the Exchange Act Reports there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole except as set forth in or contemplated by the Offering Document or as described in such certificate.
      7. The Purchasers shall have received a letter, dated the Closing Date, of KPMG LLP which meets the requirements of subsection (a) of this Section, except that (A) the specified date referred to in such subsection will be a date not more than three business days prior to the Closing Date for the purposes of this subsection and (B) such letter may be in the form of a "bring-down" letter.
      8. The Purchasers shall have received a counterpart of the Registration Rights Agreement which shall have been executed and delivered by a duly authorized officer of the Company.
      9. The Indenture shall have been duly executed and delivered by the Company and the Trustee, and the Offered Securities shall have been duly executed and delivered by the Company and duly authenticated by the Trustee.
      10. At the date of this Agreement, the Representatives shall have received an executed lockup agreement in the form attached hereto as Exhibit B from each of the persons listed on Schedule II hereto.
      11. The Offered Securities shall have been designated as PORTAL-eligible securities in accordance with the rules and regulations of NASD, and the Offered Securities shall be eligible for clearance and settlement through the Depository Trust Company.
      12. Each of BA and Citibank shall have received a counterpart of the Issuer Call Spread Transactions which shall have been executed and delivered by the Company, and each of BA and Citibank shall have received the premiums due under the Issuer Call Spread Transactions.

      The Company will furnish the Purchasers with such conformed copies of such opinions, certificates, letters and documents as the Purchasers reasonably request. The Representatives may in their sole discretion waive on behalf of the Purchasers compliance with any conditions to the obligations of the Purchasers hereunder.

    9. Indemnification and Contribution.
        1. The Company will indemnify and hold harmless each Purchaser against any losses, claims, damages or liabilities, joint or several, to which such Purchaser may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related preliminary offering circular or the Exchange Act Reports, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse each Purchaser for any legal or other expenses reasonably incurred by such Purchaser (including, without limitation, the fees and expenses of a single counsel (in addition to any local counsel) to all Purchasers and any other indemnified persons in connection with any proceeding or related proceedings) in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Purchaser through the Representatives specifically for use therein, it being understood and agreed that the only such information consists of the information described as such in subsection (b) below; and provided, further, that with respect to any untrue statement or alleged untrue statement in or omission or alleged omission from any preliminary offering circular, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Purchaser that sold the Offered Securities concerned to the person asserting any such losses, claims, damages or liabilities, to the extent that such sale was an initial resale by such Purchaser and any such loss, claim, damage or liability of such Purchaser results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Offered Securities to such person, a copy of the Offering Document (exclusive of any material included therein but not attached thereto) if the Company had previously furnished copies thereof to such Purchaser.
        2. Each Purchaser will severally and not jointly indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related preliminary offering circular, or arise out of or are based upon the omission or the alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Purchaser through the Representatives specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Purchaser consists of: (i) the last paragraph at the bottom of the cover page concerning the terms of the offering by the Purchasers, (ii) the legend concerning stabilization appearing in the fourth paragraph on page 3 and (iii) and the information appearing in the eleventh paragraph under the caption "Plan of Distribution".
        3. Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above, except to the extent that the indemnifying party is prejudiced thereby. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (it being understood that, except with the consent of the indemnified party, the indemnifying party and the indemnified party shall have separate counsel), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party (which shall not be unreasonably withheld or delayed), effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. The indemnifying party shall not be liable for any settlement of any proceeding without its consent (which shall not be unreasonably withheld or delayed).
        4. If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Purchasers on the other from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Purchasers from the Company under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses (including, without limitation, the fees and expenses of a single counsel (in addition to any local counsel) to all Purchasers and any other indemnified persons in connection with any proceeding or related proceedings) reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities purchased by it were resold exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Purchasers' obligations in this subsection (d) to contribute are several in proportion to their respective purchase obligations and not joint.
        5. The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Purchasers under this Section shall be in addition to any liability which the respective Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act.
    10. Default of Purchasers. If any Purchaser or Purchasers default in their obligations to purchase Offered Securities hereunder and the aggregate principal amount of Offered Securities that such defaulting Purchaser or Purchasers agreed but failed to purchase does not exceed 10% of the total principal amount of Offered Securities, the Representatives may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Purchasers, but if no such arrangements are made by the Closing Date, the non-defaulting Purchasers shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Purchasers agreed but failed to purchase. If any Purchaser or Purchasers so default and the aggregate principal amount of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total principal amount of Offered Securities and arrangements satisfactory to the Representatives and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Purchaser or the Company, except as provided in Section 9. As used in this Agreement, the term "Purchaser" includes any person substituted for a Purchaser under this Section. Nothing herein will relieve a defaulting Purchaser from liability for its default.
    11. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Purchaser, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Purchasers is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company and the Purchasers pursuant to Section 7 shall remain in effect. If the purchase of the Offered Securities by the Purchasers is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in Section 6(b)(i) or in clause (C) (other than a suspension of trading of the securities of the Company), (D) or (E) of Section 6(b)(ii), the Company will reimburse the Purchasers for all out-of-pocket expenses (including the reasonable fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities.
    12. Notices. All communications hereunder will be in writing and, if sent to the Purchasers will be mailed, delivered or telegraphed and confirmed to the Purchasers, c/o Banc of America Securities LLC, 9 West 57th Street, 40th Floor, New York, New York 10019, Attention: Eric Hambleton and Salomon Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: General Counsel, or, if sent to the Company, will be mailed or delivered and confirmed to it at One Computer Associates Plaza, Islandia, New York 11749, Attention: Treasurer; provided, however, that any notice to a Purchaser pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Purchaser at the following addresses:
    13. Banc of America Securities LLC
      9 West 57th Street
      40th Floor
      New York, New York 10019
      Facsimile: 212-847-5124
      Attention: Eric Hambleton

      Salomon Smith Barney Inc.
      388 Greenwich Street
      New York, New York 10013
      Facsimile: 212-816-7912
      Attention: General Counsel

      ABN AMRO Rothschild LLC
      55 East 52nd Street
      New York, New York 10055
      Facsimile: 212-409-1233
      Attention: Legal Department

      Mizuho International plc
      Bracken House
      One Friday Street
      London EC4M 9JA
      England
      Facsimile: 44-20-7090-6997
      Attention: Brian Lanaghan

      Robertson Stephens
      555 California Street
      Suite 2600
      San Francisco, California 94104
      Facsimile: 415-693-3378
      Attention: Richard Hukari

      RBC Capital Markets
      60 South 6th Street
      P.O. Box 1160 (MS 90Y2)
      Minneapolis, Minnesota 55440-1160
      Facsimile : 612-371-2818
      Attention: Dan Westerhouse


      Tokyo-Mitsubishi International plc
      Legal Department
      6 Broadgate
      London EC2M 2AA
      England
      Facsimile: 44-20-7577-2872
      Attention: Steve Towells

    14. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder, except that holders of Offered Securities shall be entitled to enforce the agreements for their benefit contained in the second and third sentence of Section 5(b) hereof against the Company as if such holders were parties thereto.
    15. Representation of Purchasers. The Representatives will act for the several Purchasers in connection with this purchase, and any action under this Agreement taken by you jointly or by the Representatives will be binding upon all the Purchasers.
    16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.
    17. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

Each party hereto hereby submits to the non-exclusive jurisdiction of the federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

If the foregoing is in accordance with the Purchasers' understanding of our agreement, kindly sign and return to us one of the counterparts hereof, whereupon it will become a binding agreement between the Company and the several Purchasers in accordance with its terms.

Very truly yours,


Computer Associates International, Inc.




By /s/ Ira Zar
Name: Ira Zar
Title: Executive Vice President and

Chief Financial Officer

The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.

Banc of America Securities LLC
Salomon Smith Barney Inc.
ABN AMRO Rothschild LLC
Mizuho International plc
Robertson Stephens, Inc.
RBC Dain Rauscher Inc.
Tokyo-Mitsubishi International plc

By Banc of America Securities LLC

By /s/ Trevor Ganshaw
Name: Trevor Ganshaw
Title: Managing Director

 

By Salomon Smith Barney Inc.

By /s/ Douglas Blagdon
Name: Douglas Blagdon
Title: Managing Director

SCHEDULE I

Purchasers

Principal Amount of
Firm Securities to be Purchased

   

Banc of America Securities LLC $284,400,000

Salomon Smith Barney Inc. 284,400,000

ABN AMRO Rothschild LLC 7,800,000

Mizuho International plc 7,800,000

Robertson Stephens, Inc. 7,800,000

RBC Dain Rauscher Inc. 3,900,000

Tokyo-Mitsubishi International plc 3,900,000

Total $600,000,000

SCHEDULE II

List of persons subject to the lock-up agreements

Executive Officers and Directors

Name

Position

   

Charles B. Wang

Chairman of the Board of Directors

Sanjay Kumar

President, Chief Executive Officer and Director

Russell M. Artzt

Executive Vice President-Research and Development and Director

Willem F.P. de Vogel

Director

Roel Pieper

Director

The Honorable Alfonse M. D'Amato

Director

Shirley Strum Kenny

Director

Richard A. Grasso

Director

Lewis S. Ranieri

Director

Ira Zar

Executive Vice President-Finance and Chief Financial Officer

Stephen Richards

Executive Vice President and General Manager-Sales

Gary Quinn

Executive Vice President-Sales Support

Steven M. Woghin

Senior Vice President and General Counsel

Michael A. McElroy

Senior Vice President and Secretary

Mary Stravinskas

Vice President and Treasurer

EXHIBIT A

Selling Restrictions for Offers and
Sales outside the United States

(1) (a) The Offered Securities and the Common Stock issuable upon conversion thereof have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act or unless registered under the Securities Act. Each Purchaser, severally and not jointly, represents and agrees that, except as otherwise permitted by Section 4(a)(i) of the Agreement to which this is an exhibit, it has offered and sold the Offered Securities, and will offer and sell the Offered Securities, (i) as part of their distribution at any time; and (ii) otherwise until one year after the later of the commencement of the offering and the Closing Date, only in accordance with Rules 903 or 904 of Regulation S or pursuant to an effective registration statement under the Securities Act. Accordingly, each Purchaser represents and agrees that neither it, nor any of its Affiliates nor any person acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Offered Securities, and that it and they have complied and will comply with the offering restrictions requirement of Regulation S under the Securities Act. Each Purchaser, severally and not jointly, agrees that it will not engage, directly or indirectly, in hedging transactions with regard to the Offered Securities or the shares of Common Stock issuable upon conversion thereof prior to the expiration of one year after the later of the commencement of the offering and the Closing Date unless in compliance with the Securities Act. Each Purchaser, severally and not jointly, agrees that, at or prior to the confirmation of sale of Offered Securities (other than a sale of Offered Securities pursuant to Section 4(a)(i) of the Agreement to which this is an exhibit or pursuant to an effective registration statement under the Securities Act), it shall have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Offered Securities from it during the one-year distribution compliance period a confirmation or notice to substantially the following effect:

"The Securities covered hereby and the shares of Common Stock issuable upon conversion thereof have not been registered under the U.S. Securities Act of 1933 (the "Act") and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until on year after the later of the commencement of the offering and March 18, 2002, except in either case in accordance with Regulation S or Rule 144A under the Act or pursuant to an effective registration statement under the Act. Hedging transactions with regard to the Securities or the shares of Common Stock issuable upon conversion of the Securities may not be conducted, directly or indirectly, prior to the expiration of one year after the later of the commencement of the offering and March 18, 2002 unless in compliance with the Act. Terms used above have the meanings given to them by Regulation S."

(b) Each Purchaser also represents and agrees that it has not entered and will not enter into any contractual arrangement with any distributor with respect to the distribution of the Offered Securities, except with its Affiliates or with the prior written consent of the Company.

(c) Terms used in this section have the meanings given to them by Regulation S.

(2) Each Purchaser severally represents and agrees that (i) it is a person outside the United Kingdom or it is a person of a kind described in Article 19(5) or Article 49(2) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2001; (ii) it has not offered or sold and, prior to the expiry of a period of six months from the Closing Date, will not offer or sell any Offered Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (iii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the "FSMA")) received by it in connection with the issue or sale of any Offered Securities in circumstances in which section 21(1) of the FSMA does not apply to the Company; and (iv) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Offered Securities in, from or otherwise involving the United Kingdom.

EXHIBIT B

[Form of Lock-Up Agreement]

March 13, 2002

Banc of America Securities LLC
Salomon Smith Barney Inc.
as Representatives of the Initial
Purchasers (the "Initial Purchasers") to be
named in the Purchase Agreement referred to below
c/o Banc of America Securities LLC
9 West 57th Street
New York, New York 10019
and
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013

Re: Proposed Offering by Computer Associates International, Inc.

Dear Sirs:

The undersigned, an executive officer and/or director of Computer Associates International, Inc., a Delaware corporation (the "Company"), understands that Banc of America Securities LLC, Salomon Smith Barney Inc. and the other Initial Purchasers propose to enter into a Purchase Agreement (the "Purchase Agreement") with the Company providing for the offering of Convertible Senior Notes of the Company. In recognition of the benefit that such an offering will confer upon the undersigned as a stockholder and/or an officer and/or director of the Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with you and each other Initial Purchaser that the undersigned will not, and will cause any trust in respect of which the undersigned exercises sole investment authority not to, offer, sell, contract to sell, pledge or otherwise dispose of, or file (or participate in the filing of) a registration statement with the Securities and Exchange Commission (the "Commission") in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities and Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder with respect to, any shares of capital stock of the Company or any securities convertible or exercisable or exchangeable for such capital stock, or publicly announce an intention to effect any such transaction, for a period of 90 days after the date of the Purchase Agreement without the prior written consent of Banc of America Securities LLC and Salomon Smith Barney Inc.; provided, however, that (i) the undersigned may participate in the filing of any registration statement which the Company is permitted to file pursuant to the Purchase Agreement, (ii) this agreement shall not apply to securities of the Company acquired by the undersigned subsequent to the date hereof pursuant to open-market transactions, (iii) this agreement shall not apply to transactions in securities of the Company which have been pledged by the undersigned as security in transactions effective prior to the date hereof, or to secure lines of credit existing prior to the date hereof or replacing lines of credit existing prior to the date hereof, (iv) this agreement shall not apply to securities of the Company held by any "charitable trust" as such term is defined under Section 501(c)(3) of the Internal Revenue Code; and (v) this agreement shall not apply to any "cashless exercise" of options in securities of the Company or any "net exercise" of options in securities of the Company, provided, however, that no such transaction shall involve the sale of securities of the Company into the open market.

If for any reason the Purchase Agreement shall be terminated prior to the Closing Date (as defined in the Purchase Agreement) or if the Purchase Agreement is not executed on or prior to March 18, 2002, the agreement set forth above shall likewise be terminated.

This agreement shall be governed by and construed in accordance with the laws of the State of New York. References herein to "capital stock" of the Company include, without limitation, common stock of the Company.

Very truly yours,

 

Signature:

Print Name:

Consent of Independent Auditors

The Board of Directors and Stockholders
Computer Associates International, Inc.:

We consent to incorporation by reference in the registration statements (Nos. 333-32942, 333-31284, 333-83147, 333-80883, 333-79727, 333-62055, 333-19071, 333-04801, 33-64377, 33-53915, 33-53572, 33-34607, 33-18322, 33-20797, 2-92355, 2-87495 and 2-79751) on Form S-8 of Computer Associates International, Inc. of our report dated May 10, 2002, relating to the consolidated balance sheets of Computer Associates International, Inc. and subsidiaries as of March 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2002, and the related financial statement schedule, which report appears in the March 31, 2002, annual report on Form 10-K of Computer Associates International, Inc.

                                                                                                       /s/ KPMG LLP

New York, New York
May 14, 2002