AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 2002
REGISTRATION NO. 333-99565
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COMPUTER ASSOCIATES INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-2857434
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
ONE COMPUTER ASSOCIATES PLAZA
ISLANDIA, NEW YORK 11749
(631) 342-5224
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
STEVEN M. WOGHIN, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
ONE COMPUTER ASSOCIATES PLAZA
ISLANDIA, NEW YORK 11749
(631) 342-5224
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
WITH COPIES TO:
BRUCE C. BENNETT
COVINGTON & BURLING
1330 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 841-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION RELATING TO THESE SECURITIES IS EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING
AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 13, 2002
PROSPECTUS
[LOGO]
$660,000,000
COMPUTER ASSOCIATES INTERNATIONAL, INC.
5% CONVERTIBLE SENIOR NOTES DUE MARCH 15, 2007
AND SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THE SENIOR NOTES
------------------
This prospectus covers resales by selling security holders of our 5%
convertible senior notes due March 15, 2007 and shares of our common stock into
which the notes are convertible.
Our 5% convertible senior notes have the following provisions:
Interest Payments: March 15 and September 15 of each year
Conversion Rate: 41.0846 shares per $1,000 principal amount of notes (subject to
adjustment), equal to a conversion price of $24.34 per share
Repurchase Options: - by noteholders upon a Fundamental Change as described in
this prospectus
- by us on or after March 21, 2005 at the redemption prices
set forth in this prospectus
The notes are senior, unsecured obligations that rank equally with our
existing and future unsecured and unsubordinated indebtedness. See "Description
of Notes--Ranking."
Prior to this offering, the notes have been eligible for trading on the
PORTAL Market of the Nasdaq Stock Market. Notes sold by means of this prospectus
are not expected to remain eligible for trading on the PORTAL Market. We do not
intend to list the notes for trading on any national securities exchange or on
the Nasdaq Stock Market.
Our common stock trades on The New York Stock Exchange under the symbol
"CA." The last reported sales price on December 12, 2002 was $13.91 per share.
SEE "RISK FACTORS" ON PAGE 4 OF THIS PROSPECTUS TO READ ABOUT FACTORS YOU
SHOULD CONSIDER BEFORE PURCHASING THE NOTES OR OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2002.
TABLE OF CONTENTS
PAGE
--------
About This Prospectus....................................... 1
Summary..................................................... 2
Risk Factors................................................ 4
Where You Can Find More Information About Us and This
Offering.................................................. 6
Forward-Looking Statements.................................. 8
Use of Proceeds............................................. 8
Ratio of Earnings to Fixed Charges.......................... 8
Selling Holders............................................. 9
Plan of Distribution........................................ 17
Description of the Notes.................................... 19
Description of Our Capital Stock............................ 37
Certain United States Federal Income Tax Consequences....... 39
Legal Matters............................................... 46
Independent Accountants..................................... 46
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, or SEC, using a "shelf" registration or
continuous offering process. Under this shelf registration process, selling
holders may from time to time sell the securities described in this prospectus
in one or more offerings.
This prospectus provides you with a general description of the securities
that the selling holders may offer. A selling holder may be required to provide
you with a prospectus supplement containing specific information about the
selling holder and the terms of the securities being offered. That prospectus
supplement may include additional risk factors or other special considerations
applicable to those securities. A prospectus supplement may also add, update or
change information in this prospectus. If there is any inconsistency between the
information in this prospectus and any prospectus supplement, you should rely on
the information in that prospectus supplement. You should read both this
prospectus and any prospectus supplement together with the additional
information described under the heading "Where You Can Find More Information
About Us and this Offering."
Unless we have indicated otherwise, "Computer Associates
International, Inc.," "Computer Associates," "CA," "the Company," "we," "us" and
"our" refer to Computer Associates International, Inc. and its subsidiaries,
unless the context requires or this prospectus states otherwise. Unless we have
indicated otherwise, references hereafter in this prospectus to "$" or "dollar"
are to the lawful currency of the United States.
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN
ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR
SECURITIES. YOU SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS, INCLUDING THE RISK
FACTORS, THE FINANCIAL STATEMENTS AND THE DOCUMENTS INCORPORATED BY REFERENCE.
THE COMPANY
The Company is a leading eBusiness software company. The Company's solutions
address a wide range of eBusiness Process Management, eBusiness Information
Management and eBusiness Infrastructure Management in six focus areas:
Enterprise Management, Storage, Security, Application Life Cycle Management,
Data Management and Application Development, and Portal and Business
Intelligence. The Company's portfolio of software products and its professional
services organization dedicated to understanding the needs of its customers
reflect a commitment to meeting the technology requirements of eBusinesses in
every sector of the economy.
GENERAL
Built upon a common services infrastructure, the Company's array of
eBusiness Process Management, eBusiness Information Management and eBusiness
Infrastructure Management 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 with all major hardware platforms,
operating systems and application development environments. The operating
environments include, among others, z/OS (mainframe) from IBM, Windows
NT/2000/XP from Microsoft, UNIX, as provided by various hardware vendors such as
Sun Microsystems, Hewlett-Packard, IBM and Compaq, and Linux from companies such
as Red Hat, Caldera and SuSe.
The Company maintains a philosophy of internally developing products,
exemplified by its flagship product family Unicenter, which management believes
is the industry's de facto standard for enterprise systems management software
(as evidenced by the Company's position as market leader in IDC's Enterprise
System Management Software Market Forecast and Analysis, 2000-2004), coupled
with the acquisition of key technology, the integration of the two, and the
establishment of strategic alliances with key business partners. The Company's
service philosophy is similarly marked by a commitment to the development of an
internal service staff, the acquisition of third-party service organizations,
the integration of the two, and long-standing alliances with leading service
providers.
RECENT DEVELOPMENT
On November 18, 2002, the Company issued a press release announcing the
retirement of Charles B. Wang as Chairman and as a member of the Company's Board
of Directors, effective immediately. The press release also announced that the
Company's Board had elected President and Chief Executive Officer Sanjay Kumar
to succeed Mr. Wang as Chairman. The Board has also named Mr. Wang to the
honorary position of Chairman Emeritus.
OUR PRINCIPAL EXECUTIVE OFFICES
We are a corporation organized and existing under the laws of the State of
Delaware. Our principal executive office is located at One Computer Associates
Plaza, Islandia, New York 11749, and our telephone number is (631) 342-5224.
2
THE NOTES
Interest.................................. We will pay interest on the principal amount of the
notes on March 15 and September 15 of each year,
commencing on September 15, 2002.
Conversion................................ You may convert all or some of the notes at any time
prior to the close of business on the business day
immediately preceding March 15, 2007 at a conversion
price of $24.34 per share. The initial conversion price
is equivalent to a conversion rate of 41.0846 shares per
$1,000 principal amount of notes. The conversion price
is subject to adjustment. Upon conversion, you will not
receive any cash representing accrued interest. For more
information, see "Description of the Notes--Conversion
of Notes." Conversion in full of the notes will not
materially dilute existing shareholders. See
"Description of the Notes--Potential Dilution Upon
Conversion of the Notes."
Ranking................................... The notes are senior unsecured indebtedness and rank
equally with all of our existing and future senior
unsecured indebtedness. The notes are effectively
subordinated to all of our existing and future secured
indebtedness to the extent of the assets securing that
indebtedness and to any indebtedness of our subsidiaries
to the extent of the assets of those subsidiaries. As of
September 30, 2002, we had approximately $3.1 billion of
total consolidated indebtedness, including $660 million
outstanding under the notes and approximately
$2.5 billion of other senior indebtedness. As of
September 30, 2002, the aggregate principal amount of
our secured indebtedness was approximately
$6.4 million. For more information, see "Description of
the Notes--Ranking."
Global Notes; Book-Entry System........... We issued the notes in registered form without interest
coupons and in minimum denominations of $1,000. We have
deposited global notes with, or on behalf of, The
Depository Trust Company, which we refer to as DTC. DTC
and its participants maintain records that show
beneficial ownership in the notes, and those interests
can be transferred only through those records. See
"Description of Notes--Book-Entry System."
Optional Redemption at Our Option......... We may redeem some or all of the notes on or after
March 21, 2005 at the redemption prices set forth in
this prospectus plus accrued and unpaid interest to, but
excluding, the redemption date. For more information,
see "Description of the Notes--Optional Redemption by
the Company."
Repurchase of Notes at Your Option Upon a
Fundamental Change...................... If we undergo a Fundamental Change, as described in this
prospectus, you will have the option to require us to
repurchase for cash all or any portion of your notes not
previously called for redemption. We will pay a
repurchase price equal to 100% of the principal amount
of the notes to be repurchased plus accrued and unpaid
interest to, but excluding, the repurchase date. For
more information, see "Description of the Notes--
Repurchase at Option of the Holder Upon a Fundamental
Change."
Governing Law............................. The laws of the State of New York govern the indenture
and the notes.
3
RISK FACTORS
Investing in the notes involves risk. Please refer to the risk factors below
and those described in our Annual Report on Form 10-K for the year ended
March 31, 2002 and in our Quarterly Reports on Form 10-Q for the quarters ended
June 30, 2002 and September 30, 2002 which are incorporated by reference into
this prospectus. Any of those risk factors, or others, many of which are beyond
our control, could adversely affect our revenue, profitability and/or cash flow
in the future. In such case, our ability to make payments on the notes could be
impaired, the trading price of the notes and our common stock could decline, and
you could lose all or part of your investment. This prospectus also contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the risks faced by us
described below, elsewhere in this prospectus and in the documents incorporated
by reference in this prospectus. Our business, results of operations and
financial condition are subject to a number of risk factors, including the
following:
RISKS RELATING TO COMPUTER ASSOCIATES
Please see the risk factors described in our Annual Report on Form 10-K for
the year ended March 31, 2002 and in our Quarterly Reports on Form 10-Q for the
quarters ended June 30, 2002 and September 30, 2002 for a description of the
risks relating to Computer Associates.
RISKS RELATED TO THE NOTES
WE EXPECT THAT THE TRADING VALUE OF THE NOTES WILL BE SIGNIFICANTLY AFFECTED BY
THE PRICE OF OUR COMMON STOCK AND OTHER FACTORS.
The market price of the notes is expected to be significantly affected by
the market price of our common stock. This may result in greater volatility in
the trading value of the notes than would be expected for nonconvertible debt
securities we issue.
CHANGES IN OUR CREDIT RATING OR THE CAPITAL MARKETS COULD ADVERSELY AFFECT THE
PRICE OF THE NOTES.
The selling price or any premium offered for the notes will be based on a
number of factors, including:
- our ratings with major credit rating agencies;
- the prevailing interest rates being paid by other companies similar to us
for similar securities; and
- the overall condition of the financial markets.
The condition of the capital markets and prevailing interest rates have
fluctuated in the past and are likely to fluctuate in the future. Fluctuations
in these factors could have an adverse effect on the price of the notes.
In addition, credit rating agencies continually revise their ratings for the
companies that they follow, including us. On March 1, 2002, Moody's announced
that it downgraded our senior unsecured rating from Baa1 to Baa2. The credit
rating agencies also evaluate our industry as a whole and may change their
credit ratings for us based on their overall view of our industry. We cannot be
sure that credit rating agencies will maintain their ratings on the notes. A
negative change in our ratings could have an adverse effect on the price of the
notes.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE
FUNDAMENTAL CHANGE PURCHASE.
Upon the occurrence of a Fundamental Change involving our company, holders
of the notes may require us to purchase their notes. However, it is possible
that we would not have sufficient funds at that time to make the required
purchase of the notes. Any future credit agreements or other
4
agreements relating to other indebtedness to which we become a party may contain
restrictions and provisions prohibiting us from repurchasing any notes. In
addition, certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, may not
constitute a Fundamental Change under the indenture. See "Description of the
Notes--Repurchase at Option of Holders Upon a Fundamental Change."
OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE.
Our stock price is subject to significant fluctuations in response to, among
other things, variations in quarterly operating results, the gain or loss of
significant contracts, changes in earnings estimates by analysts or in rating
outlooks by ratings agencies, announcements of technological innovations or new
products by us or our competitors, changes in domestic and international
economic and business conditions, general conditions in the software and
computer industries and other events or factors. Moreover, 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 ours and
that have been unrelated to the operating performance of these companies. These
market fluctuations in the past have adversely affected and may continue to
adversely affect the market price of our common stock.
CALL SPREAD REPURCHASE OPTIONS AND OTHER TRANSACTIONS MAY AFFECT THE VALUE OF
THE NOTES.
We have entered into an arrangement with affiliates of Banc of America
Securities LLC and Salomon Smith Barney Inc. to limit the market risks
associated with our obligations under the notes by purchasing call spread
repurchase options from them. For a summary of these arrangements, see
"Description of the Notes--Call Spread Repurchase Options." In connection with
these hedging arrangements, Banc of America Securities LLC and Salomon Smith
Barney Inc. have taken positions in our common stock in secondary market
transactions and have entered into various derivative transactions after the
pricing of the notes. Banc of America Securities LLC and Salomon Smith
Barney Inc. are likely to modify their hedge positions from time to time prior
to conversion, redemption or maturity of the notes by purchasing and selling
shares of our common stock, other securities of the Company or other instruments
they may wish to use in connection with such hedging. We cannot assure you that
such activity will not affect the market price of our common stock.
Furthermore, as in the past, we intend to continue our practice of acquiring
our common stock to satisfy our obligations under various employee benefit plans
and for other corporate purposes. Therefore, we expect to acquire shares of our
common stock and enter into other transactions related to our common stock
during the term of the notes. Depending on, among other things, future market
conditions, the aggregate amount and the composition of such positions, the
aggregate amount of any such acquisitions are likely to vary over time.
The effect, if any, of any of these transactions and activities on the
market price of our common stock or the notes will depend in part upon market
conditions and cannot be ascertained at this time, but any of these activities
could materially and adversely affect the value of our common stock and the
value of the notes.
POTENTIAL CONFLICT OF INTEREST BETWEEN AN INITIAL PURCHASER AND ITS AFFILIATE AS
COUNTERPARTY TO THE CALL SPREAD REPURCHASE OPTIONS
Banc of America Securities LLC, one of the initial purchasers in the initial
distribution of the notes, is a selling holder hereunder. See "Selling Holders."
Its affiliate, Bank of America N.A., is one of the parties to the call spread
repurchase options entered into concurrently with the offering of the notes. See
"Description of Notes--Call Spread Repurchase Options." We understand that Bank
of America N.A., in its status as a party to the call spread repurchase options,
has purchased shares of our common stock in secondary market transactions and
will enter into various derivative transactions to hedge their exposure under
the call spread repurchase options. We further understand that Bank of
5
America N.A. is likely to modify its hedge positions throughout the duration of
the call spread repurchase options by purchasing and selling shares of our
common stock, other securities of ours or other instruments that they may wish
to use in connection with such hedging. See "Description of Notes--Call Spread
Repurchase Options--Hedging and Related Activities by the Option Sellers."
It is possible that the interests of Banc of America Securities LLC as
selling holder hereunder and Bank of America N.A. as party to the call spread
repurchase options could conflict. For example, Banc of America Securities LLC,
as selling holder, will likely seek to maximize the price it can obtain for its
notes upon resale. On the other hand, it is possible that in entering into or
terminating any hedging transactions with respect to the call spread repurchase
options, Bank of America N.A. may seek to obtain a lower price for the
securities or other instruments they wish to use, including the notes or our
common stock, to the extent Bank of America N.A. may choose to transact in these
securities as part of their hedging activities. However, we are not aware of the
transactions, if any, that Bank of America N.A. may enter into from time to time
to hedge its exposure with respect to the call spread repurchase options or to
modify existing hedges, nor do we have any ability to in any way affect whether,
and if so how, Bank of America N.A. may undertake to hedge their exposure to us
under the call spread repurchase options. We understand that Bank of America
N.A. will conduct its hedging activities in accordance with applicable law.
We understand that Banc of America Securities LLC and Bank of America N.A.
operate independently. We further understand that Banc of America Securities LLC
is proposing to sell its notes registered hereunder in the ordinary course of
business and not to assist Bank of America N.A. in hedging its obligations with
respect to the call spread repurchase options.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US AND THIS OFFERING
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act, to register the notes and common stock offered by this
prospectus. This prospectus does not contain all of the information included in
the registration statement and the exhibits and the schedules to the
registration statement. We strongly encourage you to read carefully the
registration statement and the exhibits and the schedules to the registration
statement.
Any statement made in this prospectus concerning the contents of any
contract, agreement or other document is only a summary of the actual contract,
agreement or other document. If we have filed any contract, agreement or other
document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the document or matter involved.
Each statement regarding a contract, agreement or other document is qualified in
its entirety by reference to the actual document.
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may obtain any document we file with the SEC at
the SEC's public reference rooms in Washington, D.C., Chicago, Illinois and New
York, New York. You may obtain information on the operation of the SEC's public
reference facilities by calling the SEC at 1-800-SEC-0330. You can request
copies of these documents, upon payment of a duplicating fee, by writing to the
SEC at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549-1004, or at its regional office at 233 Broadway, New York, NY 10279. Our
SEC filings are also accessible through the Internet at the SEC's website at
http://www.sec.gov.
The SEC permits us to "incorporate by reference" into this prospectus the
information contained in documents that we file with it, which means that we can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be a part of this
prospectus. Information in this prospectus supersedes information incorporated
by reference that we filed with the SEC prior to the date of this prospectus,
while information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the
6
documents listed below and any future filings we will make with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act until the
offering is completed:
(1) our Annual Report on Form 10-K for the year ended March 31, 2002;
(2) our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2002
and September 30, 2002;
(3) our Current Reports on Form 8-K filed November 18, 2002 and
December 13, 2002;
(4) our Form 8-A filed February 17, 1982, which in turn incorporates by
reference the description of Computer Associates Common Stock, par value
$.10 per share, in Computer Associates' registration statement on
Form S-1 (Registration No. 2-74618) filed under the Securities Act; and
(5) our Current Report on Form 8-K filed June 18, 1991 and the portion of
our Annual Report on Form 10-K for the fiscal year ended March 31, 1995
amending the rights agreement incorporated by reference in that
Form 8-K, which includes a description of our preferred stock purchase
rights associated with our common stock.
You may request a copy of these filings, at no cost to you, by writing or
telephoning us at: One Computer Associates Plaza, Islandia, New York 11749,
Attention: Investor Relations; telephone: (631) 342-5224. If you request a copy
of any or all of the documents incorporated by reference, we will send you the
copies you request. However, we will not send exhibits to the documents, unless
the exhibits are specifically incorporated by reference in the documents.
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED IN THIS PROSPECTUS OR
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OR SOLICITING A PURCHASE OF THESE SECURITIES IN ANY JURISDICTION
IN WHICH THE OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE THE OFFER OR SOLICITATION. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT IS ACCURATE AS OF
ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE DOCUMENT.
7
FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference certain
forward-looking statements and information relating us that are based on our
beliefs and assumptions as well as information currently available to
management. When used or incorporated by reference in this document, the words
"anticipate," "believe," "estimate," "expect" and similar expressions are
intended to identify forward-looking statements. These statements are included
or incorporated by reference in this prospectus, including in the sections
entitled "Summary," "The Company," and "Business". Such statements reflect our
current views with respect to future events and are subject to certain risks,
uncertainties and assumptions, some of which are included or incorporated by
reference in this prospectus under "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 as
anticipated, believed, estimated, or expected. We do not intend to update these
forward-looking statements after the registration statement of which this
prospectus forms a part becomes effective.
USE OF PROCEEDS
The selling holders will receive all of the net proceeds of the resale of
the notes and our common stock issuable upon conversion of the notes. We will
not receive any of the proceeds from the resale of any of these securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of
the Company for the periods indicated:
SIX MONTHS
FISCAL YEAR ENDED MARCH 31, ENDED
---------------------------------------------------- SEPTEMBER 30,
1998 1999 2000 2001 2002 2002
-------- -------- -------- -------- -------- --------------
Ratio of Earnings to Fixed Charges.......... 10.66x 6.08x 4.79x n/a n/a n/a
(IN MILLIONS)
Deficiency of Earnings to Fixed Charges..... n/a n/a n/a $663 $1,381 $178
For purposes of this computation, earnings are defined as pre-tax earnings
or loss from continuing operations of the Company plus fixed charges. Fixed
charges are the sum of (i) interest expensed, (ii) amortization of deferred
financing costs and debt discounts and (iii) the portion of operating lease
rental expense that is representative of the interest factor (deemed to be
one-third). The ratio of earnings to fixed charges of the Company was less than
1.00 for the years ended March 31, 2001 and 2002 and the six months ended
September 30, 2002; thus, earnings available for fixed charges were inadequate
to cover fixed charges for such periods. The deficiency in earnings to fixed
charges for the years ended March 31, 2001 and 2002 and the six months ended
September 30, 2002 was $663 million, $1,381 million and $178 million,
respectively. Earnings were impacted for the years ended March 31, 2001 and 2002
and the six months ended September 30, 2002 by a change to our business model in
October 2000, which resulted in deferred revenues (on subscription-based fee
contracts) of $1,875 million as at March 31, 2001, $3,226 million as at
March 31, 2002 and $3,287 million as at September 30, 2002. 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. The ratio of earnings to fixed
charges should be read in conjunction with the financial statements and other
financial data included or incorporated by reference in this prospectus.
8
SELLING HOLDERS
We originally issued the notes to Banc of America Securities LLC, Salomon
Smith Barney Inc., ABN AMRO Rothschild LLC, Mizuho International plc, Robertson
Stephens, Inc., RBC Capital Markets Inc. and Tokyo-Mitsubishi International plc
as initial purchasers in a transaction exempt from the registration requirements
of the Securities Act. The initial purchasers resold the notes in transactions
exempt from the registration requirements of the Securities Act to persons
reasonably believed by them to be qualified institutional buyers as defined in
Rule 144A under the Securities Act.
The selling holders, including their transferees, pledgees, donees or other
successors, may from time to time offer and sell pursuant to this prospectus any
or all of the notes and the common stock issuable upon conversion of the notes.
Any selling holder may also elect not to sell any notes or common stock issuable
upon conversion of the notes held by it. Only those notes and shares of common
stock issuable upon conversion of the notes listed below or in any supplement
hereto may be offered for resale by the selling holders pursuant to this
prospectus.
The following table sets forth recent information with respect to the
selling holders of the notes and the respective number of notes beneficially
owned by each selling holder that may be offered for each selling holder's
account pursuant to this prospectus. We prepared this table based on information
supplied to us by or on behalf of the selling holders. The selling holders may
offer and sell all, some or none of the notes and the common stock issuable upon
conversion of the notes listed below by using this prospectus. Because the
selling holders may offer all or only some portion of the notes or the common
stock listed in the table, no estimate can be given as to the amount of those
securities that will be held by the selling holders upon termination of any
sales. In addition, the selling holders identified in the table below may have
sold, transferred or disposed of all or a portion of their notes or shares of
common stock issuable upon conversion of the notes since the date on which they
provided the information regarding their ownership of those securities included
in this prospectus.
SHARES OF
AGGREGATE PRINCIPAL SHARES OF COMMON STOCK
AMOUNT OF NOTES SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY OWNED COMMON STOCK STOCK AFTER COMPLETION
SELLING HOLDERS AND OFFERED BENEFICIALLY OWNED OFFERED OF THE OFFERING
--------------- ------------------- ------------------ ---------- ------------------
Acacia Life Insurance Company... 430,000 17,666 17,666 0
ACIG Insurance Company.......... 520,000 21,363 21,363 0
Aid Association for Lutherans, 2,000,000 82,169 82,169 0
as successor to Lutheran
Brotherhood...................
AIG DKR Soundshore Opportunity 1,140,000 46,836 46,836 0
Holding Fund Ltd..............
AIG DKR Soundshore Strategic 860,000 35,332 35,332 0
Holding Fund Ltd..............
Allstate Life Insurance 1,000,000 76,084 41,084 *
Company.......................
Aloha Airlines Non-Pilots 25,000 1,027 1,027 0
Pension Trust.................
Aloha Pilots Retirement Trust... 15,000 616 616 0
Alta Partners Holdings, LDC..... 35,498,000 1,458,421 1,458,421 0
American Country Insurance 550,000 22,596 22,596 0
Company.......................
American Founders Life Insurance 370,000 15,201 15,201 0
Company.......................
American Pioneer Life Insurance 30,000 1,232 1,232 0
Company of New York...........
9
SHARES OF
AGGREGATE PRINCIPAL SHARES OF COMMON STOCK
AMOUNT OF NOTES SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY OWNED COMMON STOCK STOCK AFTER COMPLETION
SELLING HOLDERS AND OFFERED BENEFICIALLY OWNED OFFERED OF THE OFFERING
--------------- ------------------- ------------------ ---------- ------------------
American Progressive Life and 40,000 1,643 1,643 0
Health Insurance Co. of New
York..........................
American Public Entity Excess 80,000 3,286 3,286 0
Pool..........................
American Samoa Government....... 50,000 2,054 2,054 0
Amerisure Mutual Insurance 210,000 8,627 8,627 0
Company.......................
Ameritas Life Insurance 870,000 35,743 35,743 0
Company.......................
Arbitex Master Fund, L.P........ 6,900,000 283,483 283,483 0
Associated Electric & Gas 800,000 32,867 32,867 0
Insurance Services Limited....
Aventis Pension Master Trust.... 230,000 9,449 9,449 0
Baltimore Life Insurance 300,000 12,325 12,325 0
Company.......................
Banc of America Securities 9,184,000 377,320 377,320 0
LLC...........................
Bank Austria Cayman Islands, 6,500,000 267,049 267,049 0
LTD...........................
Barclays Global Investors 1,000,000 41,084 41,084 0
Ltd...........................
BCS Life Insurance Company...... 600,000 24,650 24,650 0
Bear Stearns International 5,000,000 205,423 205,423 0
Limited (BSIL)................
BN Convertible Securities Top 350,000 14,379 14,379 0
Fund..........................
Boilermakers Blacksmith Pension 1,375,000 56,491 56,491 0
Trust.........................
BP Amoco PLC Master Trust....... 1,217,000 49,999 49,999 0
Buckeye State Mutual Insurance 15,000 616 616 0
Company.......................
CALAMOS Convertible Fund-- 6,250,000 256,778 256,778 0
CALAMOS Investment Trust......
CALAMOS Convertible Portfolio 140,000 5,751 5,751 0
--CALAMOS Advisors Trust......
The California Wellness 370,000 15,201 15,201 0
Foundation....................
Canyon Capital Arbitrage Master 8,250,000 338,947 338,947 0
Fund, Ltd.....................
Canyon Value Realization Fund 11,275,000 463,228 463,228 0
(Cayman), Ltd.................
Canyon Value Realization Mac 18, 1,925,000 79,087 79,087 0
Ltd. (RMF)....................
Canyon Value Realization Fund, 6,050,000 248,561 248,561 0
L.P...........................
Catholic Family Life Insurance 400,000 16,433 16,433 0
Company.......................
Catholic Mutual Relief Society 700,000 28,759 28,759 0
of America....................
Catholic Mutual Relief Society 370,000 15,201 15,201 0
of America Retirement Plan and
Trust.........................
Catholic Relief Insurance 550,000 22,596 22,596 0
Company of America............
10
SHARES OF
AGGREGATE PRINCIPAL SHARES OF COMMON STOCK
AMOUNT OF NOTES SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY OWNED COMMON STOCK STOCK AFTER COMPLETION
SELLING HOLDERS AND OFFERED BENEFICIALLY OWNED OFFERED OF THE OFFERING
--------------- ------------------- ------------------ ---------- ------------------
Celina Mutual Insurance 25,000 1,027 1,027 0
Company.......................
Central States Health and Life 80,000 3,286 3,286 0
Company of Omaha..............
CFFX, LLC....................... 8,500,000 349,219 349,219 0
Chicago Mutual Insurance 60,000 2,465 2,465 0
Company.......................
Chrysler Insurance Company...... 2,800,000 115,036 115,036 0
City of Albany Pension Plan..... 110,000 4,519 4,519 0
City of Knoxville Pension 300,000 12,325 12,325 0
System........................
The Class I C Company........... 1,000,000 41,084 41,084 0
Clinton Multistrategy Master 9,250,000 380,032 380,032 0
Fund, Ltd.....................
Clinton Riverside Convertible 9,250,000 380,032 380,032 0
Portfolio Limited.............
Colonial Life Insurance Company 50,000 2,054 2,054 0
of Texas......................
Colonial Lloyds Insurance 5,000 205 205 0
Company.......................
Commonwealth Dealers--CDLIC..... 180,000 7,395 7,395 0
Concord Life Insurance Company.. 200,000 8,216 8,216 0
CSA Fraternal Life Insurance 130,000 5,340 5,340 0
Company.......................
Cumberland Insurance Company.... 220,000 9,038 9,038 0
Cumberland Mutual Fire Insurance 900,000 36,976 36,976 0
Company.......................
Daimler Chrysler Corp Emp#1 4,400,000 180,772 180,772 0
Pension Plan, DTD 4/1/89......
Dakota Truck Underwriters....... 15,000 616 616 0
Delta Airlines Master Trust..... 1,910,000 78,471 78,471 0
Delta Pilots Disability and 425,000 17,460 17,460 0
Survivorship Trust............
Deutsche Bank AG--London........ 4,500,000 184,880 184,880 0
Deutsche Bank Securities Inc.... 14,000,000 575,184 575,184 0
DKR Fixed Income Holding Fund 4,500,000 184,880 184,880 0
Ltd...........................
Dorinco Reinsurance Company..... 710,000 29,170 29,170 0
The Dow Chemical Company 2,500,000 102,711 102,711 0
Employees' Retirement Plan....
Drury University................ 35,000 1,437 1,437 0
Drury University................ 10,000 410 410 0
Eagle Pacific Insurance 230,000 9,449 9,449 0
Company.......................
Educators Mutual Life Insurance 210,000 8,627 8,627 0
Company.......................
Employee's Retirement of N.O. 550,000 22,596 22,596 0
Sewer/Water Board.............
The Estate of James Campbell.... 278,000 11,421 11,421 0
Farmers Home Mutual Insurance 440,000 18,077 18,077 0
Company.......................
Farmers Mutual Protective 110,000 4,519 4,519 0
Association of Texas..........
11
SHARES OF
AGGREGATE PRINCIPAL SHARES OF COMMON STOCK
AMOUNT OF NOTES SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY OWNED COMMON STOCK STOCK AFTER COMPLETION
SELLING HOLDERS AND OFFERED BENEFICIALLY OWNED OFFERED OF THE OFFERING
--------------- ------------------- ------------------ ---------- ------------------
Federated American Leaders Fund, 8,000,000 328,676 328,676 0
Inc...........................
Federated Insurance Series (on 1,200,000 49,301 49,301 0
behalf of its Federated
American Leaders Fund II).....
Federated Rural Electric 600,000 24,650 24,650 0
Insurance Exchange............
Fidelity Puritan Trust: Fidelity 20,470,000 841,001 841,001 0
Low-Priced Stock Fund.........
Field Holdings, Inc............. 60,000 2,465 2,465 0
Financial American Life 20,000 821 821 0
Insurance Company.............
First American Properties and 40,000 1,643 1,643 0
Casualty......................
First American Specialty........ 40,000 1,643 1,643 0
First Dakota Indemnity Company.. 15,000 616 616 0
First Mercury Insurance 450,000 18,488 18,488 0
Company.......................
First Mercury--Claredon 180,000 7,395 7,395 0
National......................
The Fondren Foundation.......... 75,000 3,081 3,081 0
Founders Insurance Company...... 20,000 821 821 0
Franklin and Marshall College... 240,000 9,860 9,860 0
Global Bermuda Limited 4,400,000 180,772 180,772 0
Partnership...................
Goldman Sachs and Company....... 31,580,000 1,297,451 1,297,451 0
Goldman Sachs & Co. Profit 90,000 3,697 3,697 0
Sharing Master Trust..........
Goodville Mutual Casualty 90,000 3,697 3,697 0
Company.......................
Grain Dealers Mutual 160,000 6,573 6,573 0
Insurance.....................
Granville Capital Corporation... 8,000,000 328,676 328,676 0
Greek Catholic Union of the 50,000 2,054 2,054 0
USA...........................
Guaranty Income Life Insurance 400,000 16,433 16,433 0
Company.......................
Guarantee Trust Life Insurance 1,100,000 45,193 45,193 0
Company.......................
Guggenheim Portfolio Co. XV, 500,000 20,542 20,542 0
LLC...........................
Gulf Investment Corporation..... 340,000 13,968 13,968 0
Hannover Life Reassurance 700,000 28,759 28,759 0
Company of America............
Hartford HLS Funds (on behalf of 50,000 2,054 2,054 0
its Hartford American Leaders
HLS Fund).....................
Hawaiian Airlines Employees 10,000 410 410 0
Pension Plan--IAM.............
Hawaiian Airlines Pension Plan 5,000 205 205 0
for Salaried Employees........
Hawaiian Airlines Pilots 25,000 1,027 1,027 0
Retirement Plan...............
HBK Master Fund L.P............. 39,450,000 1,620,787 1,620,787 0
12
SHARES OF
AGGREGATE PRINCIPAL SHARES OF COMMON STOCK
AMOUNT OF NOTES SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY OWNED COMMON STOCK STOCK AFTER COMPLETION
SELLING HOLDERS AND OFFERED BENEFICIALLY OWNED OFFERED OF THE OFFERING
--------------- ------------------- ------------------ ---------- ------------------
Highbridge International LLC.... 26,000,000 1,068,199 1,068,199 0
Hillblom Foundation............. 80,000 3,286 3,286 0
H.K. Porter Company, Inc........ 30,000 1,232 1,232 0
Holy Family Society............. 90,000 3,697 3,697 0
Hotel Union & Hotel Industry of 380,000 15,612 15,612 0
Hawaii Pension Plan...........
HSBC Trustee, Zola Managed 700,000 28,759 28,759 0
Trust.........................
Indiana Lumbermens Mutual 450,000 18,488 18,488 0
Insurance.....................
Innovest Finanzdienstleistungs 500,000 20,542 20,542 0
AG............................
Integrity Mutual Insurance 310,000 12,736 12,736 0
Company.......................
ISBA Mutual Insurance Company... 220,000 9,038 9,038 0
The James Campbell Corporation.. 230,000 9,449 9,449 0
Jefferies & Company Inc......... 8,000 328 328 0
JMG Capital Partners LP......... 9,500,000 390,303 390,303 0
JMG Triton Offshore Fund, 9,500,000 390,303 390,303 0
Ltd...........................
JP Morgan Securities Inc........ 33,500,000 1,376,334 1,376,334 0
Kanawha Insurance Company....... 1,000,000 41,084 41,084 0
KBC Financial Products USA 2,600,000 106,819 106,819 0
Inc...........................
KBC Financial Products (Cayman 13,800,000 566,967 566,967 0
Islands) Ltd..................
Kettering Medical Center Funded 70,000 2,875 2,875 0
Depreciation Account..........
Koch Industries Inc. Master 350,000 14,379 14,379 0
Pension Trust.................
Lakeshore International, LTD.... 20,100,000 825,800 825,800 0
Landmark Life Insurance 80,000 3,286 3,286 0
Company.......................
Lebanon Mutual Insurance 90,000 3,697 3,697 0
Company.......................
Lincoln Heritage Life Insurance 110,000 4,519 4,519 0
Company.......................
Lincoln Individual/Memorial Life 200,000 8,216 8,216 0
Insurance Company.............
Louisiana Workers' Compensation 320,000 13,147 13,147 0
Corporation...................
Lyxor Master Fund c/o Zola 1,400,000 57,518 57,518 0
Capital Management, LLC.......
Lyxor Master Fund (ref 2,600,000 106,819 106,819 0
Arbitex)......................
Macomb County Employees' 315,000 12,941 12,941 0
Retirement System.............
Marathon Global Convertible 30,000,000 1,232,538 1,232,538 0
Master Fund, Ltd..............
Marquette Indemnity and Life 80,000 3,286 3,286 0
Insurance Company.............
Medico Life Insurance Company... 800,000 32,867 32,867 0
MedMarc Insurance Company....... 600,000 24,650 24,650 0
Michigan Mutual Insurance 1,300,000 53,409 53,409 0
Company.......................
13
SHARES OF
AGGREGATE PRINCIPAL SHARES OF COMMON STOCK
AMOUNT OF NOTES SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY OWNED COMMON STOCK STOCK AFTER COMPLETION
SELLING HOLDERS AND OFFERED BENEFICIALLY OWNED OFFERED OF THE OFFERING
--------------- ------------------- ------------------ ---------- ------------------
Michigan Professional Insurance 100,000 4,108 4,108 0
Exchange......................
MidAmerica Life Insurance 70,000 2,875 2,875 0
Company.......................
Middle Cities Risk Management 160,000 6,573 6,573 0
Trust.........................
MidWest Family Mutual Insurance 130,000 5,340 5,340 0
Company.......................
MidWest Security Life........... 260,000 10,681 10,681 0
MILIC/Woodville Limited #1...... 15,000 616 616 0
MILIC/Woodville Limited #2...... 10,000 410 410 0
Mutual Protective Insurance 1,000,000 41,084 41,084 0
Company.......................
National Grange Mutual Insurance 900,000 36,976 36,976 0
Company.......................
National Mutual Insurance 50,000 2,054 2,054 0
Company.......................
New Era Life Insurance Company.. 270,000 11,092 11,092 0
Oak Casualty Insurance Company.. 40,000 1,643 1,643 0
Ohio National Fund, Inc. (on 30,000 1,232 1,232 0
behalf of its Blue Chip
Portfolio)....................
Oklahoma Attorneys Mutual 40,000 1,643 1,643 0
Insurance Company.............
Oppenheimer Convertible 4,000,000 164,338 164,338 0
Securities Fund...............
OZ Convertible Master Fund, 378,000 15,529 15,529 0
Ltd...........................
OZ MAC 13 Ltd................... 92,000 3,779 3,779 0
OZ Master Fund, Ltd............. 4,130,000 169,679 169,679 0
Pacific Eagle Insurance 130,000 5,340 5,340 0
Company.......................
Peeprock & Co................... 2,000,000 82,169 82,169 0
Phico Insurance Company......... 350,000 14,379 14,379 0
The Philanthropic Mutual Life 70,000 2,875 2,875 0
Insurance Company.............
The Philanthropic Pension....... 160,000 6,573 6,573 0
Physicians Life Insurance 600,000 24,650 24,650 0
Company.......................
Physicians Mutual Insurance 600,000 24,650 24,650 0
Company.......................
Pioneer Insurance Company....... 90,000 3,697 3,697 0
Port Authority of Allegheny 640,000 26,294 26,294 0
County Retirement and
Disability Allowance Plan for
the Employees Represented by
Local 85 of the Amalgamated
Transit Union.................
Premera Blue Cross.............. 2,200,000 90,386 90,386 0
Ramius Capital Group............ 750,000 30,813 30,813 0
Ramius LP....................... 133,000 5,464 5,464 0
RCG Baldwin LP.................. 267,000 10,969 10,969 0
RCG Halifax Master Fund, LTD.... 2,250,000 92,440 92,440 0
RCG Latitude Master Fund, LTD... 3,350,000 137,633 137,633 0
14
SHARES OF
AGGREGATE PRINCIPAL SHARES OF COMMON STOCK
AMOUNT OF NOTES SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY OWNED COMMON STOCK STOCK AFTER COMPLETION
SELLING HOLDERS AND OFFERED BENEFICIALLY OWNED OFFERED OF THE OFFERING
--------------- ------------------- ------------------ ---------- ------------------
RCG Multi Strategy, LP.......... 4,750,000 195,151 195,151 0
Republic Mutual Insurance 25,000 1,027 1,027 0
Company.......................
Retail Clerks Pension Trust 2,000,000 82,169 82,169 0
#2............................
Royal Bank of Canada............ 10,000,000 696,939 410,846 *
R2 Investments, LDC............. 15,000,000 616,269 616,269 0
S.A.C. Capital Associates, 1,500,000 61,626 61,626 0
LLC...........................
SCI Endowment Care Common Trust 40,000 1,643 1,643 0
Fund--First Union.............
SCI Endowment Care Common Trust 145,000 5,957 5,957 0
Fund--National Fiduciary
Services......................
SCI Endowment Care Common Trust 65,000 2,670 2,670 0
Fund--Suntrust................
Scor Life Re Convertible 380,000 15,612 15,612 0
Program.......................
Southdown Pension Plan.......... 130,000 5,340 5,340 0
Sphinx Convertible Arb Fund 263,000 10,805 10,805 0
SPC...........................
SPT............................. 1,530,000 62,859 62,859 0
Standard Mutual Insurance 250,000 10,271 10,271 0
Company.......................
State National Insurance 70,000 2,875 2,875 0
Company.......................
State of Florida Division of 4,135,000 169,884 169,884 0
Treasury......................
State of Florida, Office of the 1,300,000 53,409 53,409 0
Treasurer.....................
State of Oregon/SAIF 800,000 32,867 32,867 0
Corporation...................
State Street Bank Custodian for 2,010,000 82,580 82,580 0
GE Pension Trust..............
St. Albans Partners Ltd......... 5,000,000 205,423 205,423 0
SunAmerica Series Trust (on 720,000 29,580 29,580 0
behalf of its Federated Value
Portfolio)....................
Sunrise Partners Limited 2,500,000 102,711 102,711 0
Partnership...................
Texas Builders Insurance 120,000 4,930 4,930 0
Company.......................
Texas Hospital Insurance 25,000 1,027 1,027 0
Exchange......................
TQA Master Fund, Ltd............ 1,500,000 61,626 61,626 0
TQA Master Plus Fund, Ltd....... 2,500,000 102,711 102,711 0
TransGuard Insurance Company of 900,000 36,976 36,976 0
America, Inc..................
Tribeca Investments, LLC........ 10,000,000 410,846 410,846 0
Tuscarora Wayne Mutual Insurance 70,000 2,875 2,875 0
Company.......................
UBS O'Connor LLC f/b/o O'Connor 4,000,000 164,338 164,338 0
Global Convertible Arbitrage
Master LTD....................
UFJ Investments Asia Ltd........ 7,000,000 287,592 287,592 0
Union Carbide Retirement 1,300,000 53,409 53,409 0
Account.......................
Univar USA Inc. Retirement 300,000 12,325 12,325 0
Plan..........................
15
SHARES OF
AGGREGATE PRINCIPAL SHARES OF COMMON STOCK
AMOUNT OF NOTES SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY OWNED COMMON STOCK STOCK AFTER COMPLETION
SELLING HOLDERS AND OFFERED BENEFICIALLY OWNED OFFERED OF THE OFFERING
--------------- ------------------- ------------------ ---------- ------------------
United Food and Commercial 565,000 23,212 23,212 0
Workers Local 1262 and
Employers Pension Fund........
United National Insurance 700,000 28,759 28,759 0
Company.......................
Viacom Inc. Pension Plan Master 37,000 1,520 1,520 0
Trust.........................
Western Home Insurance Company.. 200,000 8,216 8,216 0
West Virginia Fire Insurance 20,000 821 821 0
Company.......................
Westward Life Insurance 170,000 6,984 6,984 0
Company.......................
Wisconsin Lawyers Mutual 210,000 8,627 8,627 0
Insurance Company.............
Wisconsin Mutual Insurance 150,000 6,162 6,162 0
Company.......................
World Insurance Company......... 500,000 20,542 20,542 0
WPG Convertible Arbitrage 3,000,000 123,253 123,253 0
Overseas Master Fund, L.P.....
Xavex Convertible Arbitrage 400,000 16,433 16,433 0
#5............................
Yield Strategies Fund I, L.P.... 3,000,000 123,253 123,253 0
Yield Strategies Fund II, 5,000,000 205,423 205,423 0
L.P...........................
Zazove Convertible Arbitrage 2,000,000 82,169 82,169 0
Fund LP.......................
Zazove Convertible Securities 1,300,000 53,409 53,409 0
Fund, Inc.....................
Zola Partners, L.P.............. 1,400,000 57,518 57,518 0
Zurich Institutional Benchmarks 2,000,000 82,169 82,169 0
Master Fund Ltd...............
------------------------
* Less than one percent of the issued and outstanding shares of our common
stock.
To our knowledge, other than their ownership of the securities described in
the above table, none of the selling holders has, or has had within the past
three years, any position, office or other material relationship with us or any
of our predecessors or affiliates, except that Salomon Smith Barney acted as the
initial purchaser of the notes and acts as an adviser to us from time to time
with respect to other matters.
To the extent that we become aware that natural persons other than those
listed in the above table exercise voting or investment powers over the Computer
Associates International common stock offered for resale by entities that do not
file periodic reports pursuant to the Securities Exchange Act of 1934, we will
file a post-effective amendment to the registration statement of which this
prospectus forms a part identifying such natural persons.
16
PLAN OF DISTRIBUTION
The notes and the common stock issuable upon conversion of the notes may be
offered and sold from time to time to purchasers directly by the selling
holders. Alternatively, the selling holders may from time to time offer those
securities to or through underwriters, broker-dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the selling holders or the purchasers of the securities for whom they act
as agents. The selling holders and any underwriters, broker-dealers or agents
that participate in the distribution of the securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of securities and any discounts, commissions, concessions or other
compensation received by any underwriter, broker-dealer or agent may be deemed
to be underwriting discounts and commissions under the Securities Act.
The securities may be sold from time to time in one or more transactions at
fixed prices, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale or at negotiated prices. The sale of the
securities may be effected in transactions, which may involve crosses or block
transactions:
- on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale;
- in the over-the-counter market;
- in transactions otherwise than on exchanges or in the over-the-counter
market;
- through the writing and exercise of options; or
- through the settlement of short sales.
At the time a particular offering of the securities is made, if required, a
prospectus supplement will be distributed, which will set forth the names of the
selling holders, the aggregate amount and type of securities being offered and
the terms of the offering, including the name or names of any underwriters,
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling holders and any discounts,
commissions or concessions allowed or reallowed to paid broker-dealers.
To comply with the securities laws of some jurisdictions, if applicable, the
securities will be offered or sold in some jurisdictions only through registered
or licensed brokers or dealers. In addition, in some jurisdictions the
securities may not be offered or sold unless they have been registered or
qualified for sale in those jurisdictions or any exemption from registration or
qualification is available and is complied with.
The selling holders and any other person participating in the distribution
of securities will be subject to applicable provisions of the Securities
Exchange Act and the rules and regulations under the Securities Exchange Act,
including, without limitation, Regulation M of the Securities Exchange Act,
which may limit the timing of purchases and sales of any of the offered
securities by the selling holders and any other person. Furthermore,
Regulation M may restrict the ability of any person engaged in the distribution
of the offered securities to engage in market-making activities with respect to
the particular offered securities being distributed. Compliance with the
Securities Exchange Act, as described in this paragraph, may affect the
marketability of the offered securities and the ability of any person or entity
to engage with respect to the offered securities.
Any selling holder which is a broker-dealer will be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act. The
following selling holders are underwriters within the meaning of the Securities
Act: Banc of America Securities, LLC, Deutshe Bank Securities Inc., Goldman,
Sachs & Co., JP Morgan Securities, Inc., Salomon Smith Barney, Inc. and Weiss,
Peck &
17
Greer, LLC. None of the selling holders who are affiliates of broker-dealers,
other than the initial purchasers, purchased the securities outside of the
ordinary course of business or, at the time of the purchase of the securities,
had any agreements, plans or understandings, directly or indirectly, with any
person to distribute the securities.
Pursuant to a registration rights agreement, we have borne all fees and
expenses incurred in connection with the registration of the notes and the
common stock issuable upon conversion of the notes, except that selling holders
will pay all broker's commissions and underwriting discounts and commissions, if
any, in connection with any sales effected pursuant to this prospectus. We will
indemnify the selling holders against some civil liabilities, including some
liabilities under the Securities Act or the Securities Exchange Act or
otherwise, or alternatively the selling holders will be entitled to contribution
in connection with those liabilities.
18
DESCRIPTION OF THE NOTES
We issued the notes under a document called the "indenture". The indenture
is a contract between us and State Street Bank and Trust Company, who is serving
as trustee. The law of the State of New York governs both the indenture and the
notes. In this section, references to "we", "our", "us" or "the Company" refer
solely to Computer Associates International, Inc. and not its subsidiaries.
GENERAL
The notes are our senior unsecured obligations and rank equally with all our
other senior unsecured indebtedness. However, the notes are structurally
subordinated to indebtedness of our subsidiaries and effectively subordinated to
our secured debt to the extent of the value of the assets securing such debt.
The notes are convertible into common stock as described under the caption
"--Conversion of Notes." Upon registration of the resale of the notes and the
common stock issuable upon conversion of the notes, the indenture will be
subject to and governed by the Trust Indenture Act of 1939, as amended.
We issued the notes at a price to investors of $1,000 per note. The notes
were issued only in denominations of $1,000 and multiples of $1,000. The notes
will mature on March 15, 2007 unless earlier converted, redeemed at our option
or repurchased by us at your option upon a Fundamental Change.
We are not subject to any financial covenants under the indenture. In
addition, we are not restricted under the indenture from paying dividends,
incurring debt or issuing or repurchasing our securities.
You are not afforded protection in the event of a highly leveraged
transaction, or a change in control of us under the indenture except to the
extent described below under the caption "--Repurchase at Option of the Holder
Upon a Fundamental Change."
The notes bear interest at the annual rate of 5%. Interest will be
calculated on the basis of a 360-day year of twelve 30-day months. We will pay
interest on March 15 and September 15 of each year, beginning September 15, 2002
to record holders at the close of business on the preceding March 1 and
September 1, as the case may be, except:
- interest payable upon redemption will be paid to the person to whom
principal is payable, unless the redemption date is an interest payment
date in which case interest shall be paid to the record holder; and
- as set forth in the next sentence.
In case you convert your note into common stock during the period after any
record date but prior to the next interest payment date, either:
- we will not be required to pay interest on the interest payment date if
the note has been called for redemption on a redemption date that occurs
during this period, but accrued and unpaid interest on such note will be
paid on the redemption date; or
- we will not be required to pay interest on the interest payment date if
the note is to be repurchased in connection with a Fundamental Change on a
repurchase date that occurs during this period, but accrued and unpaid
interest on such note will be paid on such repurchase date; or
- if otherwise, any note not called for redemption that is submitted for
conversion during this period must also be accompanied by an amount equal
to the interest due on the interest payment date on the converted
principal amount, unless at the time of the conversion there is a default
in the payment of interest on the notes. See "--Conversion of Notes."
19
We will maintain an office in Boston, Massachusetts, for the payment of
interest, which shall initially be an office or agency of the trustee.
We will pay interest by check mailed to your address as it appears in the
note register, provided that if you are a holder with an aggregate principal
amount in excess of $5.0 million, you will be paid, at your written election, by
wire transfer in immediately available funds.
However, payments to The Depository Trust Company, New York, New York, which
we refer to as DTC, or its nominee will be made by wire transfer of immediately
available funds to the account of DTC or its nominee.
Holders are not required to pay a service charge for registration or
transfer of their notes. We may, however, require holders to pay any tax or
other governmental charge in connection with the transfer. We are not required
to exchange or register the transfer of:
- any notes or portion selected for redemption;
- any notes or portion surrendered for conversion; or
- any notes or portion surrendered for repurchase but not withdrawn in
connection with a Fundamental Change.
CONVERSION OF NOTES
You may convert your note, in whole or in part, into shares of our common
stock at any time prior to the close of business on the business day immediately
preceding the maturity date, subject to prior redemption of the notes. If we
call the notes for redemption, you may convert the notes only until the close of
business five days prior to the redemption date unless we fail to pay the
redemption price. If you have submitted your notes to exercise your redemption
right for repurchase upon a Fundamental Change, you may convert notes only if
you withdraw your election. You may convert your notes in part so long as that
part is $1,000 principal amount or an integral multiple of $1,000. If any notes
not called for redemption are converted after a record date for any interest
payment date and prior to the next interest payment date, the notes must be
accompanied by an amount equal to the interest payable on the next interest
payment date on the converted principal amount unless a default exists at the
time of conversion.
The initial conversion price for the notes is $24.34 per share of common
stock, subject to adjustment as described below. We will not issue fractional
shares of common stock upon conversion of notes. Instead, we will pay cash based
on the average of the closing sales prices of our common stock for the five NYSE
trading days ending on the day prior to the conversion date for all fractional
shares of common stock. Unless you convert your notes on an interest payment
date and except as described below, you will not receive any accrued interest or
dividends upon conversion.
To convert your note (other than a note held in book entry form through DTC)
into common stock you must:
- complete and manually sign the conversion notice on the back of the note
or facsimile of the conversion notice and deliver this notice to the
conversion agent;
- surrender the note to the conversion agent;
- if required, furnish appropriate endorsements and transfer documents;
- if required, pay all transfer or similar taxes; and
- if required, pay funds equal to interest payable on the next interest
payment date.
20
Holders of notes held in book-entry form through DTC must follow DTC's
customary practices. The date you comply with these requirements is the
conversion date under the indenture. As promptly as practicable on or after the
conversion date, but no later than three business days after the conversion
date, we will issue and deliver to the conversion agent certificates for the
number of full shares of common stock issuable upon conversion, together with
any cash payment for fractional shares.
If you deliver a note for conversion, you will not be required to pay any
taxes or duties for the issue or delivery of common stock on conversion.
However, we will not pay any transfer tax or duty payable as result of the
issuance or delivery of the common stock in a name other than that of the holder
of the note. We will not issue or deliver common stock certificates unless we
have been paid the amount of any transfer tax or duty or we have been provided
satisfactory evidence that the transfer tax or duty has been paid.
We will adjust the conversion price if the following events occur:
(1) we issue common stock as a dividend or distribution on our common stock;
(2) we issue to all holders of common stock specified rights or warrants to
purchase our common stock at a price per share less than the then current
market price per share, unless we elect to distribute or reserve for
distribution these rights or warrants for distribution to the holders of
the notes upon the conversion of the notes, provided that the conversion
price will be readjusted to the extent that such rights or warrants are
not exercised prior to their expiration, provided, however, that if such
rights or warrants are exercisable only upon the occurrence of certain
triggering events then the conversion price will not be adjusted until
such triggering event occurs;
(3) we subdivide or combine our common stock;
(4) we distribute to all common stockholders capital stock, evidences of
indebtedness or assets, including securities but excluding: rights or
warrants listed in (2) above; dividends or distributions listed in
(1) above; and cash distributions listed in (5) below;
(5) we make a dividend or distribution consisting of cash to all holders of
common stock if the aggregate amount of these distributions combined
together with (A) all other all-cash distributions made within the
preceding 12 months in respect of which we made no adjustment plus
(B) any cash and the fair market value of other consideration payable in
any tender offers by us or any of our subsidiaries for common stock
within the preceding 12 months in respect for which we made no
adjustment, exceeds 12.5% of our market capitalization, being the product
of the then- current market price of the common stock multiplied by the
number of shares of our common stock then outstanding; or
(6) the purchase of our common stock pursuant to a tender offer made by us
or any of our subsidiaries involving an aggregate consideration that,
together with (A) any cash and the fair market value of any other
consideration payable in any other tender offer by us or any of our
subsidiaries for common stock expiring within the 12 months preceding the
expiration of the tender offer plus (B) the aggregate amount of any such
all-cash distributions referred to in (5) above to all holders of common
stock within the 12 months preceding the expiration of the tender offer,
in each case, for which we have made no adjustment, exceeds 12.5% of our
market capitalization on the expiration of such tender offer.
If our shareholders rights plan, described under "Description of Our Capital
Stock--Anti-Takeover Effects of Provisions of Rights Plan and Delaware Law" is
triggered, holders of the notes will be entitled to receive these rights
provided that the notes are converted into shares of common stock prior
21
to the distribution of the separate certificate representing those rights. There
shall not be any adjustment to the conversion rate as a result of:
- the issuance of the rights;
- the distribution of separate certificates representing the rights;
- the exercise or redemption of the rights in accordance with any rights
agreement; or
- the termination of invalidation of the rights.
If we reclassify our common stock, consolidate, merge or combine with
another person or sell or convey our property and assets as an entirety or
substantially as an entirety, each note then outstanding will, without the
consent of the holder of any note, become convertible only into the kind and
amount of securities, cash and other property receivable upon such
reclassification, consolidation, merger, combination, sale or conveyance by a
holder of the number of shares of common stock into which the note was
convertible immediately prior to the reclassification, consolidation, merger,
combination, sale or conveyance. This calculation will be made based on the
assumption that the holder of common stock failed to exercise any rights of
election that the holder may have to select a particular type of consideration.
The adjustment will not be made for a consolidation, merger or combination that
does not result in any reclassification, conversion, exchange or cancellation of
our common stock.
We may, from time to time, reduce the conversion price for a period of at
least 20 days if our Board of Directors has made a determination that this
reduction would be in our best interests. Any such determination by our Board of
Directors will be conclusive. We would give holders at least 15 days' notice of
any reduction in the conversion price. In addition, we may reduce the conversion
price if our Board of Directors deems it advisable to avoid or diminish any
income tax to holders of common stock resulting from any stock or rights
distribution or due to the non-occurrence of such a distribution. See "Certain
United States Federal Income Tax Consequences."
You may in some situations be deemed to have received a distribution subject
to United States federal income tax as a dividend in the event of any taxable
distribution to holders of common stock, in certain other situations requiring a
conversion price adjustment or due to the non-occurrence of an adjustment. See
"Certain United States Federal Income Tax Consequences."
We will not be required to make an adjustment in the conversion price unless
the adjustment would require a change of at least 1% in the conversion price.
However, we will carry forward any adjustments that are less than 1% of the
conversion price. Except as described above in this section, we will not adjust
the conversion price for any issuance of our common stock or convertible or
exchangeable securities or rights to purchase our common stock or convertible or
exchangeable securities.
OPTIONAL REDEMPTION BY THE COMPANY
We may not redeem the notes at our option prior to March 21, 2005.
Thereafter, we may redeem the notes at our option in whole or in part, upon not
less than 15, nor more than 60, days' notice by mail to holders of the notes.
The redemption prices (expressed as a percentage of principal amount) are as
follows for notes redeemed during the periods set forth below:
REDEMPTION
PERIOD PRICE
------ ----------
Beginning on March 21, 2005 through March 20, 2006.......... 102%
Beginning on March 21, 2006................................. 101%
22
in each case together with accrued interest to, but excluding, the redemption
date. Subject to the next sentence, we will pay accrued and unpaid interest to
the same holder that receives the redemption. However, if the redemption date is
an interest payment date, interest shall be paid to the record holder on the
relevant record date.
If less than all of the outstanding notes are to be redeemed, the trustee
shall select the notes to be redeemed in principal amounts of $1,000 or
multiples of $1,000 by lot, pro rata or by another method the trustee considers
fair and appropriate. If a portion of your notes is selected for partial
redemption and you convert a portion of your notes, the converted portion shall
be deemed to be of the portion selected for redemption.
No sinking fund is provided for the notes.
REPURCHASE AT OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE
If a Fundamental Change occurs prior to March 15, 2007, you will have the
right to require us to repurchase all or any portion of your notes that is equal
to $1,000 or a whole multiple of $1,000, on a repurchase date set by us that is
no earlier than 25 days and no later than 35 days after the date of our notice
of the Fundamental Change.
We shall repurchase the notes at a price equal to 100% of the principal
amount to be repurchased, plus accrued and unpaid interest to, but excluding,
the repurchase date. If the repurchase date is an interest payment date, we will
pay interest on the interest payment date to the record holder on the relevant
record date. Otherwise, we will pay accrued and unpaid interest to the same
holder that receives the principal amount to be repurchased.
We will mail to all record holders a notice of the Fundamental Change within
25 days after the occurrence of the Fundamental Change. The notice must describe
the Fundamental Change, your right to elect repurchase of the notes and the
repurchase date. We are also required to deliver to the trustee a copy of the
Fundamental Change notice. If you elect to exercise your repurchase right, you
must deliver to us or our designated agent at any time from the date of our
notice of Fundamental Change until the close of business on the date that is
five business days prior to the repurchase date, written notice of your exercise
of your repurchase right, together with any notes to be repurchased, duly
endorsed for transfer. Following the repurchase date we will pay promptly the
repurchase price for notes surrendered for redemption.
A Fundamental Change will be considered to have occurred if:
- our common stock or other common stock into which the notes are
convertible is neither listed for trading on a United States national
securities exchange nor approved for trading on the Nasdaq National Market
or another established automated over-the-counter trading market in the
United States; or
- one of the following "change in control" events occurs: any person or
group is a beneficial owner of more than 50% of the voting power of our
outstanding securities entitled to generally vote for directors; our
stockholders approve any plan or proposal for our liquidation, dissolution
or winding up; we consolidate with or merge into any other corporation or
any other corporation merges into us and, as a result, our outstanding
common stock is changed or exchanged for other assets or securities,
unless our stockholders immediately before the transaction own, directly
or indirectly, immediately following the transaction more than 50% of the
combined voting power of the corporation resulting from the transaction in
substantially the same proportion as their ownership of our voting stock
immediately before the transaction; we convey, transfer or lease all or
substantially all of our assets to any person; or continuing directors do
not constitute a majority of our Board of Directors at any time.
23
However, a change in control will not be deemed to have occurred if:
- the last sale price of our common stock for any five trading days during
the 10 NYSE trading days immediately before the change in control is equal
to at least 105% of the conversion price; or
- all of the consideration, excluding cash payments for fractional shares in
the transaction constituting the change in control, consists of common
stock traded on a United States national securities exchange or quoted on
the Nasdaq National Market, and as a result of the transaction the notes
become convertible solely into that common stock (subject to payment in
cash in lieu of fractional shares).
The term "continuing director" means at any date a member of our Board of
Directors:
- who was a member of our Board of Directors on January 1, 2002; or
- who was nominated or elected by at least a majority of the directors who
were continuing directors at the time of the nomination or election or
whose election to our Board of Directors was recommended by at least a
majority of the directors who were continuing directors at the time of the
nomination or election or by the nominating committee comprised of our
independent directors.
Under the above definition of continuing directors, if the current Board of
Directors resigns after approving new directors, no change in control would
occur, even though our current directors would then cease to be directors.
The interpretation of the phrase "all or substantially all" used in the
definition of change in control would likely depend on the facts and
circumstances existing at the time. As a result, there may be uncertainty as to
whether or not a sale or transfer of "all or substantially all" of our assets
has occurred.
We will comply with any applicable provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act in the event of a Fundamental Change.
These repurchase rights could discourage a potential acquiror of the
Company. However, this repurchase feature is not the result of management's
knowledge of any specific effort to obtain control of the Company by means of a
merger, tender offer or solicitation, or part of a plan by management to adopt a
series of anti-takeover provisions. The term "Fundamental Change" is limited to
certain specified transactions and may not include other events that might
adversely affect our financial condition. Our obligation to offer to repurchase
the notes upon a Fundamental Change would not necessarily afford you protection
in the event of a highly leveraged transaction, reorganization, merger or
similar transaction involving the Company.
We may be unable to repurchase the notes in the event of a Fundamental
Change. See "Risk Factors--Risks Related to the Notes--We may not have the
ability to raise the funds necessary to finance the Fundamental Change
purchase." If a Fundamental Change were to occur, we may not have enough funds
to pay the repurchase price for all tendered notes. In addition, a Fundamental
Change could result in an event of default under loan agreements we may enter
into in the future. Our loan agreements could also prohibit, in certain
situations, repurchases of the notes. Any future credit facilities or other
agreements relating to our indebtedness may contain similar provisions, or
expressly prohibit the repurchase of the notes.
24
RANKING
The notes are unsecured and are effectively subordinated to all of our
existing and future secured indebtedness to the extent of the value of the
assets securing that indebtedness and to the indebtedness of our subsidiaries to
the extent of the assets of those subsidiaries.
As of September 30, 2002, we had approximately $3.1 billion of total
consolidated indebtedness, including $660.0 million outstanding under the notes
and approximately $2.5 billion of other senior indebtedness. As of
September 30, 2002, the aggregate principal amount of our secured indebtedness
was approximately $6.4 million.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by the trustee in connection with its duties relating to the notes. The
trustee's claims for these payments will generally be senior to those of holders
of notes in respect of all funds collected or held by the trustee.
The notes are obligations exclusively of the Company. As a result, our cash
flow and our ability to service our indebtedness, including the notes, is
partially dependent upon the earnings of our subsidiaries. In addition, we are
partially dependent on the distribution of earnings, loans or other payments by
our subsidiaries to us. Our subsidiaries are separate and distinct legal
entities. Our subsidiaries have no obligation to pay any amounts due on the
notes or to provide us with funds for our payment obligations, whether by
dividends, distributions, loans or other payments. In addition, any payment of
dividends, distributions, loans or advances by our subsidiaries to us could be
subject to statutory or contractual restrictions. Payments to us by our
subsidiaries will also be contingent upon our subsidiaries' earnings and
business considerations. Our right to receive any assets of any subsidiary upon
its liquidation or reorganization, and, therefore, our right to participate in
those assets, will be effectively subordinated to the claims of that
subsidiary's creditors, including trade creditors. In addition, even if we were
a creditor of any of our subsidiaries, our right as a creditor would be
subordinate to any security interest in the assets of our subsidiaries and any
indebtedness of our subsidiaries senior to that held by us.
EVENTS OF DEFAULT
Each of the following constitutes an event of default under the indenture:
(1) default in paying interest on the notes when it becomes due and the
default continues for a period of 30 days or more;
(2) default in paying principal, or premium, if any, or the repurchase price
in connection with a Fundamental Change or upon an optional redemption on
the notes when due;
(3) default in the performance, or breach, of any covenant in the indenture
(other than defaults specified in clause (1) or (2) above) and the
default or breach continues for a period of 90 days or more after written
notice has been given to us by the trustee, or to us and the trustee by
the holders of at least 25% in aggregate principal amount of the
outstanding notes;
(4) failure to give notice to holders of an optional repurchase upon a
Fundamental Change;
(5) the occurrence of events of bankruptcy, insolvency or similar
proceedings with respect to us or any of our significant subsidiaries;
(6) we fail to make any payment at maturity on any indebtedness, including
any applicable grace periods, in an amount in excess of $25.0 million in
the aggregate for all such indebtedness and such amount has not been paid
or discharged within 30 days after notice is given in accordance with the
indenture; or
25
(7) a default by us on any indebtedness that results in the acceleration of
indebtedness in an amount in excess of $25.0 million in the aggregate for
all such indebtedness, without this indebtedness being discharged or the
acceleration being rescinded or annulled for 30 days after notice is
given in accordance with the indenture.
If an event of default, other than an event of default described in
clause (5) above with respect to us, occurs and is continuing, then the trustee
or the holders of at least 25% in principal amount of the outstanding notes may,
and the trustee at the request of the holders of not less than 25% in principal
amount of the outstanding notes will, by written notice require immediate
repayment of the entire principal amount of the outstanding notes, together with
all accrued and unpaid interest and premium, if any. If any event of default
described in clause (5) above with respect to us occurs, the principal amount of
all the notes will automatically become immediately due and payable.
After a declaration of acceleration described above, the holders of a
majority in principal amount of outstanding notes may, under conditions set
forth in the indenture, rescind this accelerated payment requirement if we have
deposited with the trustee a sum sufficient to pay all amounts due on the notes
and all amounts due to the trustee under the indenture and all existing Events
of Default, except for nonpayment of the principal and interest on the notes
that has become due solely as a result of the accelerated payment requirement,
have been cured or waived and if the rescission of acceleration would not
conflict with any judgment or decree. The holders of a majority in principal
amount of the outstanding notes also have the right to waive past defaults,
except a default in paying the principal, redemption price, repurchase price
upon a Fundamental Change or interest on any outstanding note, or in respect of
a covenant or a provision that cannot be modified or amended without the consent
of all holders of the notes.
Holders of at least 25% in principal amount of the outstanding notes may
seek to institute a proceeding only after they have made written request and
offered indemnity reasonably satisfactory to the trustee to institute a
proceeding and the trustee has failed to do so within 60 days after it received
this notice. In addition, within this 60-day period the trustee must not have
received directions inconsistent with this written request by holders of a
majority in principal amount of the outstanding notes. These limitations do not
apply, however, to a suit instituted by a holder of a note for the enforcement
of the payment of principal, redemption price, repurchase price upon a
Fundamental Change or interest on or after the due dates for payment.
During the existence of an event of default, the trustee is required to
exercise the rights and powers vested in it under the indenture and use the same
degree of care and skill in its exercise as a prudent person would under the
circumstances in the conduct of that person's own affairs. If an event of
default has occurred and is continuing, the trustee is not under any obligation
to exercise any of its rights or powers at the request or direction of any of
the holders unless the holders have offered to the trustee indemnity reasonably
satisfactory to the trustee. Subject to limited exceptions, the holders of a
majority in principal amount of the outstanding notes 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.
The trustee will, within 60 days after any default occurs, give notice of
the default to the holders of the notes, unless the default was already cured or
waived. However, unless there is a default in paying principal or interest when
due, the trustee can withhold giving notice to the holders if it determines in
good faith that the withholding of notice is in the interest of the holders.
We are required to furnish the trustee an annual statement as to compliance
with all conditions and covenants under the indenture.
26
SUPPLEMENTAL INDENTURES
The trustee and we may enter into a supplemental indenture without the
consent of any holder in certain circumstances, including:
- to cure ambiguities, defects or inconsistencies;
- to provide for the assumption of our obligations in the case of a merger
or consolidation of us;
- to make any change that would provide any additional rights or benefits to
the holders;
- to secure the notes;
- to comply with any requirements of the Securities and Exchange Commission
in connection with the qualification of the indenture under the Trust
Indenture Act of 1939; or
- to make any change that does not adversely affect the rights of any holder
in any material respect.
The trustee and we may enter into a supplemental indenture with the consent
of the holders of not less than a majority of the aggregate principal amount of
the outstanding notes. However, no modification or amendment may, without the
consent of the holder of each outstanding note affected:
- change the record or payment dates for interest payments or reduce the
rate of interest on any note;
- extend the stated maturity of any note;
- reduce the principal amount, redemption price or repurchase price in
connection with a Fundamental Change with respect to any note;
- make any note payable in money or securities other than that stated in the
note;
- make any change that adversely affects the right to require us to purchase
a note;
- impair or adversely affect the right to convert, or receive payment with
respect to, a note, or right to institute suit for the enforcement of any
payment with respect to, or conversion of, the notes;
- change the provisions in the indenture that relate to modifying or
amending the indenture; or
- extend time for payment or otherwise waive a payment default with respect
to the notes.
CONSOLIDATION, MERGER OR SALE OF ASSETS
We will not consolidate or combine with or merge with or into or, directly
or indirectly, sell, assign, convey, lease, transfer or otherwise dispose of all
or substantially all of our properties and assets to any person or persons in a
single transaction or series of transactions, unless:
- we shall be the continuing person or the resulting, surviving or
transferee person (the "surviving entity") is a corporation or limited
liability company organized and existing under the laws of the United
States or any State or the District of Columbia;
- the surviving entity will expressly assume all of our obligations under
the notes and the indenture, and will execute a supplemental indenture
which will be delivered to the trustee and will be in form and substance
reasonably satisfactory to the trustee;
- immediately after giving effect to the transaction, no default shall have
occurred and be continuing; and
27
- we or the surviving entity will have delivered to the trustee an opinion
of counsel stating that the transaction or series of transactions and the
supplemental indenture, if any, complies with the applicable provisions of
the indenture.
If any consolidation or merger or any sale, assignment, conveyance, lease,
transfer or other disposition of all or substantially all of our properties and
assets occurs in accordance with the indenture, the successor corporation will
succeed to, and be substituted for, and may exercise every right and power we
have under the indenture with the same effect as if such successor corporation
had been named as the Company. Except for any lease, we will be discharged from
all obligations and covenants under the indenture and the notes.
DISCHARGE
The indenture provides that we may terminate our obligations under the
indenture at any time by delivering all outstanding notes to the trustee for
cancellation if we have paid all sums payable by us under the indenture. At any
time after all of the notes have become due and payable we may terminate our
substantive obligations under the indenture, other than our obligations to pay
the principal of, and interest on, the notes, by depositing with the trustee
money or U.S. Government obligations sufficient to pay all remaining
indebtedness on the notes when due.
GOVERNING LAW
The laws of the State of New York will govern the indenture and the notes.
INFORMATION CONCERNING THE TRUSTEE
We have appointed the State Street Bank and Trust Company, as trustee under
the indenture, as paying agent, conversion agent, registrar and custodian with
regard to the notes. The trustee or its affiliates may from time to time in the
future provide banking and other services to us in the ordinary course of their
business.
BOOK-ENTRY SYSTEM
All book-entry certificates are represented by one or more fully registered
global certificates, without coupons. Each global certificate is deposited with,
or on behalf of, the depositary, a securities depositary, and is registered in
the name of the depositary or a nominee of the depositary. The depositary is
thus the only registered holder of the notes.
Notes that are issued as described below under "--Certificated Notes" will
be issued in definitive form. Upon the transfer of notes in definitive form,
such notes will, unless the global securities have previously been exchanged for
notes in definitive form, be exchanged for an interest in the global securities
representing the principal amount of notes being transferred.
Purchasers of notes may hold interests in the global certificates through
the depositary if they are participants in the depositary system. Purchasers may
also hold interests through a securities intermediary-banks, brokerage houses
and other institutions that maintain securities accounts for customers-that has
an account with the depositary. The depositary will maintain accounts showing
the security holdings of its participants, and these participants will in turn
maintain accounts showing the security holdings of their customers. Some of
these customers may themselves be securities intermediaries holding securities
for their customers. Thus, each beneficial owner of a book-entry certificate
will hold that certificate indirectly through a hierarchy of intermediaries,
with the depositary at the "top" and the beneficial owner's own securities
intermediary at the "bottom."
The notes of each beneficial owner of a book-entry certificate will be
evidenced solely by entries on the books of the beneficial owner's securities
intermediary. The actual purchaser of notes will
28
generally not be considered the owner under the indenture. The book-entry system
for holding securities eliminates the need for physical movement of certificates
and is the system through which most publicly traded securities is held in the
United States. However, the laws of some jurisdictions require some purchasers
of securities to take physical delivery of their securities in definitive form.
These laws may impair the ability of a beneficial owner to transfer book-entry
notes.
A beneficial owner of book-entry notes represented by a global certificate
may exchange the notes for definitive, certificated notes only if the conditions
for such an exchange, as described under "--Certificated Notes" are met.
In this prospectus, references to actions taken by a holder of notes will
mean actions taken by the depositary upon instructions from its participants,
and references to payments and notices of redemption to holders of notes will
mean payments and notices of redemption to the depositary as the registered
holder of the notes for distribution to participants in accordance with the
depositary's procedures.
In order to ensure that the depositary's nominee will timely exercise a
right conferred by the notes, the beneficial owner of that note must instruct
the broker or other direct or indirect participant through which it holds an
interest in that note to notify the depositary of its desire to exercise that
right. Different firms have different deadlines for accepting instructions from
their customers. Each beneficial owner should consult the broker or other direct
or indirect participant through which it holds an interest in the notes in order
to ascertain the deadline for ensuring that timely notice will be delivered to
the depositary.
The depositary is a limited purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under Section 17A of the Exchange Act. The rules
applicable to the depositary and its participants are on file with the SEC.
We will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the book-entry securities or for maintaining, supervising or
reviewing any records relating to beneficial ownership interests.
The depositary may discontinue providing its services as securities
depositary at any time by giving reasonable notice. Under those circumstances,
in the event that a successor securities depositary is not appointed, definitive
certificates are required to be printed and delivered.
The information in this section concerning the depositary and the
depositary's book-entry system has been obtained form sources that we believe to
be reliable, but we do not take responsibility for the accuracy of that
information.
CERTIFICATED NOTES
The notes represented by the global securities are exchangeable for
certificated notes in definitive form of like tenor as such notes if:
- the depositary notifies us that it is unwilling or unable to continue as
depositary for the global securities or if at any time the depositary
ceases to be a clearing agency registered under the Exchange Act and, in
either case, a successor depositary is not appointed by us within 90 days
after the date of such notice; or
- an event of default has occurred and is continuing with respect to the
global securities and the notes have become due and payable and the
trustee requests certificated notes.
Any notes that are exchangeable pursuant to the preceding sentence are
exchangeable for certificated notes issuable in authorized denominations and
registered in such names as the depositary
29
shall direct. Subject to the foregoing, the global securities are not
exchangeable, except for global securities of the same aggregate principal
amount to be registered in the name of the depositary or its nominee. In
addition, such certificates will bear the legend referred to under "Transfer
Restrictions" (unless we determine otherwise in accordance with applicable law)
subject, with respect to such notes, to the provisions of such legend.
REGISTRATION RIGHTS
We entered into a registration rights agreement with Banc of America
Securities LLC, Salomon Smith Barney Inc., ABN AMRO Rothschild LLC, Mizuho
International plc, Robertson Stephens, Inc., RBC Capital Markets Inc. and
Tokyo-Mitsubishi International plc. The following summary of the registration
rights provided in the registration rights agreement is not complete. You should
refer to the registration rights agreement for a full description of the
registration rights that apply to the notes and common stock into which the
notes are convertible.
We agreed, pursuant to the registration rights agreement to file a shelf
registration statement under the Securities Act of 1933 within 180 days after
the closing date, to register resales of the notes and the shares of common
stock into which the notes are convertible (referred to as registrable
securities). We will use our reasonable efforts to have such shelf registration
statement declared effective as soon as practicable after it is filed and, in
any event, within 270 days after the closing date, and to keep it effective
until the earliest of (1) the date when all registrable securities shall have
been sold pursuant to a registration statement under the Securities Act of 1933,
(2) the date on which all registrable securities are sold to the public pursuant
to Rule 144 under the Securities Act of 1933, (3) the date on which all
registrable securities cease to be outstanding and (4) the date which is two
years from the date of the registration rights agreement, such shortest time
period referred to as the effectiveness period. A holder of registrable
securities that sells registrable securities pursuant to the shelf registration
statement generally will be required to provide information about itself and the
specifics of the sale, named as a selling security holder in the related
prospectus and deliver a prospectus to purchasers, subject to relevant civil
liability provisions under the Securities Act of 1933 in connection with such
sales and bound by the provisions of the registration rights agreement which are
applicable to such holder, including certain indemnification obligations.
The registration statement of which this prospectus is a part was filed by
us in satisfaction of our obligation to do so pursuant to the registration
rights agreement.
If we fail to comply with the above provisions of the registration rights
agreement, liquidated damages will become payable in respect of the registrable
securities as follows:
(1) if the shelf registration statement is not filed within 180 days after
the closing date, then commencing on the day after such date, liquidated
damages shall accrue on the registrable securities at a rate of 0.25% per
annum on the amount of registrable securities (as defined below);
(2) if the shelf registration statement is not declared effective by the SEC
on or prior to the 270th day following the closing date, then commencing
on the day after such date, liquidated damages shall accrue on the
registrable securities at a rate of 0.5% per annum on the amount of
registrable securities; and
(3) if the shelf registration statement has been declared effective and the
shelf registration ceases to be effective at any time during the
effectiveness period (other than for a permitted suspension, as described
below), then liquidated damages shall accrue on the registrable
securities at a rate of 0.5% per annum on the amount of registrable
securities;
provided, however, that liquidated damages on the registrable securities may not
accrue under more than one of the foregoing clauses (1), (2) or (3) at any one
time; provided, further, however, that
30
(1) upon the filing of the shelf registration statement as required hereunder
(in the case of clause (1) above), (2) upon the effectiveness of the shelf
registration as required hereunder (in the case of clause (2) above), or
(3) upon the effectiveness of a shelf registration which had ceased to remain
effective (in the case of clause (3) above), liquidated damages 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
liquidated damages shall accrue on such registrable security.
The term "amount of registrable securities" means (a) with respect to the
notes, the aggregate principal amount of all such notes outstanding, (b) with
respect to the shares of common stock into which the notes are convertible, the
aggregate number of such shares of common stock outstanding multiplied by the
conversion price (as defined in the indenture relating to the notes) or, if no
notes are then outstanding, the last conversion price that was in effect under
such indenture when any such notes were last outstanding, and (c) with respect
to combinations thereof, the sum of (a) and (b) for the relevant registrable
securities.
Any amounts of liquidated damages due pursuant to clause (1), (2) or
(3) above will be payable in cash semi-annually on the same dates as the
interest payment dates for the notes.
We shall have the right to suspend the effectiveness of the shelf
registration statement for up to 30 consecutive days in any 90-day period, and
for up to a total of 90 days in any 365-day period, without being required to
pay liquidated damages.
POTENTIAL DILUTION UPON CONVERSION OF THE NOTES
Upon exercise in full of the conversion option of the notes, based upon the
conversion price as currently in effect, we would be required to deliver
27,115,858 shares of common stock to the converting noteholders (subject to
adjustment as described above under "--Conversion of Notes"). If we were to
issue new shares to satisfy this obligation, we would increase the total number
of shares currently outstanding by approximately 4.5%. In light of the large
number of our shares outstanding (573,258,431 shares at September 30, 2002), we
do not consider this to constitute a material increase in the number of shares
outstanding. As described below under "--Call Spread Repurchase Options," we
have the right to obtain some or all of the shares of common stock required to
satisfy this conversion obligation from the counterparties on the call spread
repurchase options. To the extent we exercise these rights, this would reduce
the number of shares we would be required to issue to satisfy our obligation to
converting holders of the notes.
The conversion price of the notes is $24.34 per share, subject to adjustment
as described above under "--Conversion of Notes." That price was significantly
in excess of the price of our common stock at the time of the issuance of the
notes ($18.30 on March 13, 2002) and continues to be significantly in excess of
the current price of our common stock (the last reported sales price of our
common stock on December 12, 2002 was $13.91 per share). Because the conversion
price has been significantly in excess of the market price of our common stock
since the issuance of the notes, the conversion feature of the notes is not
dilutive to our stockholders based upon current market prices. We cannot predict
whether the market price of our common stock will be less than or greater than
the conversion price at any point in the future, and thus cannot predict what,
if any, dilutive impact the exercise of the conversion right may have if holders
elect to convert their notes.
However, as described below under "--Call Spread Repurchase Options," if the
market value of our common stock is in excess of $24.83 per share at or around
the third anniversary of the issuance of the notes, we will be entitled to
receive from the counterparties on these options outstanding shares of our
common stock and/or cash that will prevent dilution as a result of the notes
being converted up to a market price of $36.60 per share. To the extent the
market price of our common stock exceeds $36.60
31
per share at such time, the call spread options will proportionally prevent
dilution as a result of the notes being converted up to that price.
CALL SPREAD REPURCHASE OPTIONS
GENERAL
Concurrently with the closing of the offering of the notes, we purchased
from Bank of America, N.A., an affiliate of Banc of America Securities LLC, and
from Citibank, N.A., an affiliate of Salomon Smith Barney Inc. (such affiliates
being referred to collectively as the "option sellers") call spread repurchase
options on our common stock (collectively, the "call spread options"). Each
option seller has entered into call spread options with us covering 13,557,929
shares of our common stock (subject to adjustment in the event of stock splits,
reverse stock splits or similar events); in the aggregate the call spread
options cover 27,115,858 shares of our common stock, which is the number of
shares that are issuable upon conversion of the notes in full. We paid the
option sellers an aggregate premium of $95,040,000 (split equally between the
option sellers) in consideration of their sale of the call spread options. Both
call spread options have identical terms, and are thus summarized on an
aggregate basis below. All share-related amounts with respect to the call spread
options that are referred to below are subject to adjustment in substantially
the same manner as described above under "--Conversion of Notes."
The call spread options are designed to mitigate against exposure to
potential dilution from conversion of the notes to the extent that the market
price of our stock at time of exercise is greater than or equal to a lower
strike price of $24.83 per share of common stock and is less than or equal to a
higher strike price of $36.60 per share. These strike prices are referred to as
the "lower strike price" and the "higher strike price," respectively. The call
spread options are designed to hedge this exposure up to the first redemption
date of the notes. As described in more detail below under "--Summary of Call
Spread Options Structure--Multiple Valuation Scenarios", it is possible that
some or all of the call spread options could expire valueless. To the extent
this occurs and the conversion price of the notes is in the money, it is
possible that noteholders could exercise conversion rights and some or all of
the call spread options will not be exercisable.
To the extent that the market value of our common stock at the time of
exercise is above the lower strike price, the call spread options entitle us to
receive from the option sellers, at our election, (i) outstanding shares of
common stock with which to satisfy our conversion obligation under the notes
("physical settlement") in return for an exercise price of $24.83 per option
exercised, (ii) cash in an amount equal to the difference between the lower
strike price and the then-current market price of our common stock up to the
higher strike price ("cash settlement"), or outstanding shares of our common
stock with a value equal to the cash value of the cash settlement option ("net
share settlement").
To the extent that the market price of our common stock exceeds the higher
strike price at time of exercise, the benefits available to us under the call
spread options will be proportionately reduced to the extent of such excess,
such that the call spread options prevent dilution from conversion of the notes
up to a market price of $36.60 per share. Examples of each of these options are
described below. For a more detailed discussion of the potential dilutive effect
of conversion of the notes upon holders of our common stock, see "--Potential
Dilution Upon Conversion of the Notes" above.
The call spread options are so-called "European" options, which means that
they are exercisable only on their specified expiration date. The call spread
options expire in equal tranches over a ten business day period starting just
prior to the three year anniversary of the issue date of the notes. If the
market price of our common stock on March 10, 2005 is less than $31.00 per
share, then the call spread options will expire in equal tranches over a five
business day period. These expiration dates are grouped around the date on which
we can first call the notes for redemption. See "--Optional Redemption by the
Company" above.
32
SUMMARY OF CALL SPREAD OPTIONS STRUCTURE
The following summary describes the operation of the call spread options in
three scenarios: (i) the closing price of our common stock is greater than or
equal to the lower strike price and is less than or equal to the higher strike
price; (ii) the closing price of our common stock is greater than the higher
strike price; and (iii) the closing price of our common stock is less than the
lower strike price. In each instance under scenarios (i) and (ii), we select the
settlement option at our discretion. All valuations of our common stock pursuant
to the call spread options will be based on the closing price of our common
stock at the end of the regular trading session on The New York Stock Exchange
on the specific expiration date for a tranche of the call spread options. Each
tranche expires separately from all other tranches, and thus different closing
prices may apply to different tranches. We may elect different settlement
options for different tranches of the call spread options. Each tranche is equal
to 10% of the number of shares of common stock issuable upon conversion of the
notes in full (or, if the shorter five-day expiration schedule described above
were to apply, 20% of such number).
MARKET PRICE IS GREATER THAN OR EQUAL TO THE LOWER STRIKE PRICE AND LESS THAN OR
EQUAL TO THE HIGHER STRIKE PRICE
If the market price of our common stock on an exercise date were greater
than or equal to the lower strike price and less than or equal to the upper
strike price, then the tranche of the call spread options expiring on that date
would be exercisable by us. The settlement options described above would produce
the following results. For illustrative purposes, we provide an example of each
settlement option assuming that the closing price of our common stock at each
expiration date is $30.00 per share and we chose the option in question on each
of those dates.
- PHYSICAL SETTLEMENT OPTION. If we were to elect the physical settlement
option with respect to any exercise date, upon payment of the exercise
price of $24.83 per option exercisable on such date, the option sellers
would deliver to us outstanding shares of common stock in an amount equal
to 10% of the number of shares deliverable upon conversion in full of the
notes (or, if the shorter five-day expiration schedule described above
were to apply, shares equal to 20% of such number).
At a closing price of $30.00 per share on each expiration date, we would be
entitled to receive from the option sellers an aggregate of 27,115,858
outstanding shares of our common stock (equal to the number of shares that
may be issued upon conversion of the notes in full) upon payment of an
aggregate exercise price of $673,286,754 (the product of the per-option
exercise price of $24.83, which equals the lower strike price, and the
number of shares to be delivered). Since our common stock would have an
aggregate value of $813,475,740 in this hypothetical, this payment would
represent a benefit to us of $140,188,985 (which is equal to the aggregate
difference between the lower strike price and the $30.00 per share market
price of the shares delivered pursuant to the call spread options), and
mitigates the economic dilution of conversion of the notes to that extent.
It also mitigates in full the dilutive impact upon the number of shares of
our common stock outstanding, as we would not be required to issue any new
shares to satisfy the conversion obligation.
- CASH SETTLEMENT OPTION. If we were to elect the cash settlement option
with respect to any exercise date, the option sellers would be obligated
to deliver to us cash in an amount equal to 10% of product of the number
of shares deliverable upon conversion in full of the notes and the
difference between the market price of our common stock at such time and
the lower strike price (or, if the shorter five-day expiration schedule
described above were to apply, equal to 20% of such number).
At a closing price of $30.00 per share on each expiration date, we would be
entitled to receive from the option sellers $140,188,985, which is equal
to the product of the number of shares
33
covered by the call spread option (27,115,858) and $5.17, which equals the
difference between the market price of $30.00 per share and the lower
strike price of $24.83.
- NET SHARE SETTLEMENT OPTION. If we were to elect the net share settlement
option with respect to any exercise date, the option sellers would be
obligated to deliver to us outstanding shares of common stock with a value
equal to the cash value of the differential described under "Cash
Settlement Option" above.
At a closing price of $30.00 per share on each expiration date, we would be
entitled to receive from the option sellers 4,672,966 outstanding shares
of our common stock, which is equal to the number of shares that can be
purchased for $140,188,985 (the net benefit deliverable to us under the
cash settlement option) at a current market price of $30.00 per share.
These examples demonstrate that each settlement option produces the same net
economic benefit to us.
MARKET PRICE IS GREATER THAN THE HIGHER STRIKE PRICE
If the market price of our common stock on an exercise date were greater
than the upper strike price, then the tranche of the call spread options
expiring on that date would be exercisable by us. The settlement options
described above would produce the following results in this scenario. For
illustrative purposes, we provide an example of each settlement option assuming
that the closing price of our common stock at each expiration date is $40.00 per
share and we chose the option in question on each of those dates.
- PHYSICAL SETTLEMENT OPTION. If we were to elect the physical settlement
option with respect to any exercise date, upon payment of the exercise
price of $24.83 per option exercisable on such date, the option sellers
would deliver to us outstanding shares of common stock in an amount equal
to 10% of the difference between (a) the number of shares deliverable upon
conversion in full of the notes and (b) the product of the number of
shares deliverable upon conversion in full of the notes and a fraction the
numerator of which is the market price less the higher strike price and
the denominator is the market price. Because the market price of our
common stock would be in excess of the higher strike price, the shorter
five-day expiration schedule described above would not apply.
At a closing price of $40.00 per share on each expiration date, we would be
entitled to receive from the option sellers an aggregate of 24,811,011
outstanding shares of our common stock upon payment of an aggregate
exercise price of $673,286,754. Since our common stock would have an
aggregate value of $992,440,402 in this hypothetical, this payment would
represent a benefit to us of $319,153,648 (which is equal to the
difference between the higher strike price and the lower strike price
multiplied by the number of shares delivered pursuant to the call spread
options), and mitigates the economic dilution of conversion of the notes
to that extent. It also mitigates in full the dilutive impact upon the
number of shares of our common stock outstanding, as we would not be
required to issue any new shares to satisfy the conversion obligation.
- CASH SETTLEMENT OPTION. If we were to elect the cash settlement option,
the option sellers would be obligated to deliver to us cash in an amount
equal to 10% of the product of the number of shares deliverable upon
conversion in full of the notes and the difference between the higher
strike price and the lower strike price. Because the market price of our
common stock would be in excess of the higher strike price, the shorter
five-day expiration schedule described above would not apply.
At a closing price of $40.00 per share on each expiration date, we would be
entitled to receive from the option sellers $319,153,648, which is equal
to the product of the number of shares
34
covered by the call spread option (27,115,858) and $11.77, which equals
the difference between the higher strike price of $36.60 and the lower
strike price of $24.83.
- NET SHARE SETTLEMENT OPTION. If we were to elect the net share settlement
option, the option sellers would be obligated to deliver to us outstanding
shares of common stock with a value equal to the cash value of the
differential described under "Cash Settlement Option" above.
At a closing price of $40.00 per share on each expiration date, we would be
entitled to receive from the option sellers 7,978,841 outstanding shares
of our common stock, which is equal to the number of shares that can be
purchased for $319,153,648 (the net benefit deliverable to us under the
cash settlement option) at a current market price of $40.00 per share.
These examples again demonstrate that each settlement option produces the
same net economic benefit to us. In addition, the net value to us under these
options ($319,153,648) will be the same under any market price in excess of
$36.60 per share.
MARKET PRICE IS LESS THAN THE LOWER STRIKE PRICE
If the market price of our common stock on an exercise date were less than
the lower strike price, then the tranche of the call spread option expiring on
that date would expire valueless and we would not receive any shares of common
stock or cash from the option sellers with respect to that tranche.
MULTIPLE VALUATION SCENARIOS
To the extent that market prices of our common stock on various exercise
dates move above or below the thresholds described above, the value of the call
spread options to us will vary accordingly. For example, assume that on six of
the ten expiration dates, the market price of our common stock is greater than
the higher strike price of $36.60, and on the other four expiration dates the
market price is less than or equal to the higher strike price but greater than
or equal to the lower strike price of $24.83. In this scenario, our entitlements
under the call spread options would be calculated based on the different
structures for these valuations described above. Alternatively, assume that in a
five day expiration structure, on four of those days the market value of our
common stock is less than or equal to the higher strike price but greater than
or equal to the lower strike price, and on the remaining day the market price is
lower than the lower strike price. In this scenario, we would be entitled to
receive value from the option sellers on those four expiration days as described
above, but the tranche in respect of the fifth day would expire valueless. If
all options expire valueless, we would have no entitlements under the call
spread options, but the market price of our common stock would be less than the
conversion price of the notes and thus we would not expect holders to exercise
their conversion rights.
CALL SPREAD OPTIONS ARE NOT COMPONENTS OF THE NOTES
The call spread options are contracts entered into by us with the option
sellers, and are not part of the terms of the notes. As a holder of the notes,
you will not have any rights with respect to the call spread options. In
addition, the examples given above are hypothetical only, and are not intended
to suggest whether we anticipate that the value of our common stock at any time
will be greater or less than the conversion price of the notes.
HEDGING AND RELATED ACTIVITIES BY THE OPTION SELLERS
In connection with the call spread options, we understand that the option
sellers purchased shares of our common stock in secondary market transactions
and will enter into various derivative transactions. We further understand that
the option sellers are likely to modify their hedge positions throughout
duration of the call spread options by purchasing and selling shares of our
common stock,
35
other securities of ours or other instruments that they may wish to use in
connection with such hedging. We are not aware of the specific purchases or
derivative transactions, if any, that the option sellers have entered into or
may enter into from time to time, and we have no ability to in any way affect
whether, and if so how, they may undertake to hedge their exposures to us under
the call spread options. We understand that the option sellers will conduct
their hedging activities in accordance with applicable laws.
In addition, we may from time to time buy or sell shares of our common stock
for our own account, for business reasons or in connection with hedging our
obligations under the notes.
Banc of America Securities LLC, one of the initial purchasers in the initial
distribution of the notes and one of the selling holders hereunder, is an
affiliate of Bank of America N.A., one of the option sellers. See "Selling
Holders." We understand that Banc of America Securities LLC is proposing to sell
such notes in the ordinary course of business, and not to assist Bank of America
N.A. in hedging its obligations with respect to the call spread options.
36
DESCRIPTION OF OUR CAPITAL STOCK
The following description of the terms of our capital stock is not meant to
be complete and is qualified entirely by reference to our Restated Certificate
of Incorporation, which is incorporated by reference in this prospectus. See
"Where to Find More Information."
AUTHORIZED CAPITAL STOCK
Under our certificate of incorporation, our authorized capital stock
consists of (i) 1.1 billion shares of common stock, par value $.10 per share,
and (ii) 10,000,000 shares of preferred stock, without par value, of which
500,000 shares have been designated Series One Junior Participating Preferred
Stock. At the close of business on September 30, 2002, approximately
573,258,431 shares of our common stock were issued and outstanding and no shares
of our preferred stock were issued and outstanding.
Our board of directors is authorized to provide for the issuance from time
to time of our preferred stock in series and, as to each series, to fix the
designation, the dividend rate and the preferences, if any, which dividends on
such series will have compared to those of any other class or series of our
capital stock, the voting rights, if any, the voluntary and involuntary
liquidation prices, the conversion or exchange privileges, if any, applicable to
such series and the redemption price or prices and the other terms of
redemption, if any, applicable to such series. Cumulative dividends, dividend
preferences and conversion, exchange and redemption provisions, to the extent
that some or all of these features may be present when shares of our preferred
stock are issued, could have an adverse effect on the availability of earnings
for distribution to the holders of our common stock or for other corporate
purposes.
COMMON STOCK
FULL PAYMENT AND NONASSESSABILITY
The outstanding shares of our common stock are, and the shares of Computer
Associates common stock issuable upon conversion of the notes will be duly
authorized, validly issued, fully paid and nonassessable.
VOTING RIGHTS
Each holder of our common stock is entitled to one vote for each share of
our common stock held of record on the applicable record date on all matters
submitted to a vote of stockholders.
DIVIDEND RIGHTS; RIGHTS UPON LIQUIDATION
The holders of our common stock are entitled to receive, from funds legally
available for the payment thereof, dividends when and as declared by resolution
of our board of directors, subject to any preferential dividend rights granted
to the holders of any of our outstanding preferred stock. In the event of
liquidation, each share of our common stock is entitled to share pro rata in any
distribution of our assets after payment or providing for the payment of
liabilities and the liquidation preference of any of our outstanding preferred
stock.
PREEMPTIVE RIGHTS
Holders of our common stock have no preemptive rights to purchase, subscribe
for or otherwise acquire any unissued or treasury shares or other securities.
37
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF RIGHTS PLAN AND DELAWARE LAW
RIGHTS PLAN
We have a rights agreement dated as of June 18, 1991 and amended on May 17,
1995, May 23, 2001 and November 9, 2001. Generally, the rights agreement is
triggered by (i) the acquisition by a third party of 20% or more of our total
outstanding common stock, (ii) the determination by the board of directors and a
majority of the disinterested directors that a 15% stockholder is an "Adverse
Person" (one who is seeking short-term financial gain or whose ownership block
is likely to have a material adverse effect on our business), (iii) any
reclassification of securities or recapitalization of our securities which has
the effect of increasing by 1% or more the proportionate share of our stock held
by an acquiring third party or an Adverse Person, or (iv) the occurrence of
self-dealing transactions by an acquiring third party or an Adverse Person.
Under certain circumstances, the board may redeem the rights issued under the
rights plan.
DELAWARE ANTI-TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law
("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (1) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder,
(2) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (3) on or subsequent to
such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines the term business combination to include: (1) any merger
or consolidation involving the corporation or any of its direct or indirect
majority-owned subsidiaries and the interested stockholder; (2) any sale,
transfer, pledge or other disposition of 10% or more of the assets of the
corporation or any of its direct or indirect majority-owned subsidiaries
involving the interested stockholder; (3) subject to certain exceptions, any
transaction that results in the issuance or transfer by the corporation of any
stock of the corporation or that subsidiary to the interested stockholder;
(4) any transaction involving the corporation or any of its direct or indirect
majority-owned subsidiaries that has the effect of increasing the proportionate
share of the stock of any class or series of the corporation or that subsidiary
beneficially owned by the interested stockholder; or (5) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation or
any of its direct or indirect majority-owned subsidiaries. In general,
Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
38
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United States federal
income tax consequences of the ownership and disposition of the notes and shares
of common stock into which the notes are convertible (the "securities"). Unless
otherwise specified, this summary addresses only holders that hold the notes and
any shares of common stock into which the notes are converted as capital assets.
As used herein, "U.S. holders" are beneficial owners of the securities, that
are, for United States federal income tax purposes, (1) citizens or residents of
the United States, (2) corporations created or organized in, or under the laws
of, the United States, any state thereof or the District of Columbia,
(3) estates, the income of which is subject to United States federal income
taxation regardless of its source, or (4) trusts if (A) a court within the
United States is able to exercise primary supervision over the administration of
the trust and (B) one or more United States persons have the authority to
control all substantial decisions of the trust. In addition, certain trusts in
existence on August 20, 1996 and treated as a U.S. holder prior to such date may
also be treated as U.S. holders. As used herein, "non-U.S. holders" are
beneficial owners of the securities, other than partnerships, that are not U.S.
holders as defined above. If a partnership (including for this purpose any
entity treated as a partnership for United States federal tax purposes) is a
beneficial owner of the securities, the treatment of a partner in the
partnership will generally depend upon the status of the partner and upon the
activities of the partnership. Partnerships and partners in such partnerships
should consult their tax advisors about the United States federal income tax
consequences of owning and disposing of the securities.
This summary does not describe all of the tax consequences that may be
relevant to a holder in light of its particular circumstances. For example, it
does not deal with special classes of holders such as banks, thrifts, real
estate investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, or tax-exempt investors. It also does not
discuss securities held as part of a hedge, straddle, "synthetic security" or
other integrated transaction. This summary also does not address the tax
consequences to (i) persons that have a functional currency other than the U.S.
dollar, (ii) certain U.S. expatriates or (iii) shareholders, partners or
beneficiaries of a holder of the securities. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of any
state or local government or of any foreign government that may be applicable to
the securities. This summary is based on the Internal Revenue Code of 1986, as
amended, the Treasury regulations promulgated thereunder and administrative and
judicial interpretations thereof, all as of the date hereof, and all of which
are subject to change or differing interpretations, possibly on a retroactive
basis.
YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL
AND FOREIGN INCOME, FRANCHISE, PERSONAL PROPERTY AND ANY OTHER TAX CONSEQUENCES
OF THE OWNERSHIP AND DISPOSITION OF THE SECURITIES.
TAXATION OF U.S. HOLDERS
THE NOTES
This subsection describes certain of the material United States federal
income tax consequences of owning, converting and disposing of the notes. The
discussion regarding United States federal income tax laws assumes that
transfers of the notes and payments thereon will be made in accordance with the
applicable indenture and deposit agreement.
39
INTEREST INCOME
The Company may be required to pay liquidated damages in the form of
additional interest on the notes if it fails to comply with certain obligations
under the Registration Rights Agreement. See "Description of the
Notes--Registration Rights." If there were more than a remote likelihood that
such additional interest will be paid, the notes could be subject to the rules
applicable to contingent payment debt instruments, including mandatory accrual
of interest in accordance with those rules. The Company believes (and this
discussion assumes) that the likelihood of such an event occurring is remote.
Accordingly, interest paid on the notes generally will be taxable to a U.S.
holder as ordinary interest income at the time such payments are accrued or
received (in accordance with the holder's regular method of tax accounting).
NOTES PURCHASED WITH MARKET DISCOUNT
A holder will be considered to have purchased a note with "market discount"
if the holder's basis in the note immediately after the purchase is less than
the note's stated redemption price at maturity. A note is not treated as having
market discount if the amount of market discount is de minimis. For this
purpose, the amount of market discount is de minimis if it does not exceed the
product of 0.25 percent of the stated redemption price at maturity on the
purchase date multiplied by the number of complete years to maturity remaining
as of such date. If the note has de minimis market discount, a holder must
generally include such de minimis amount in income (as capital gain) as stated
principal payments are made.
If a note is treated as having market discount, any partial payment of
principal on, or gain recognized on the maturity or disposition of, the note
will generally be treated as ordinary income to the extent that such gain does
not exceed the accrued market discount on the underlying note. Alternatively, a
holder of a note may elect to include market discount in income currently over
the life of the note. Such an election applies to all debt instruments with
market discount acquired by the electing holder on or after the first day of the
first taxable year to which the election applies and may not be revoked without
the consent of the Internal Revenue Service. When such an election is made,
market discount accrues on a straight-line basis unless the holder further
elects to accrue such discount on a constant yield to maturity basis. This
latter election is applicable only to the debt security with respect to which it
is made and is irrevocable. A holder of a note that does not elect to include
market discount in income currently generally will be required to defer
deductions for interest on borrowings allocable to such note in an amount not
exceeding the accrued market discount on such note until the maturity or
disposition of such note.
NOTES PURCHASED AT A PREMIUM
A holder will be considered to have purchased a note at a premium if the
holder's basis in the note immediately after the purchase is greater than the
amount payable at maturity. A holder may elect to treat such premium as
"amortizable bond premium," in which case the amount of interest required to be
included in the holder's income each year with respect to the interest on the
note will be reduced by the amount of the amortizable bond premium allocable
(based on the note's yield to maturity) to such year. Any election to amortize
bond premium is applicable to all bonds (other than bonds the interest on which
is excludible from gross income) held by the holder at the beginning of the
first taxable year to which the election applies or thereafter acquired by the
holder, and may not be revoked without the consent of the Internal Revenue
Service.
CONVERSION OF NOTES INTO COMMON STOCK
A U.S. holder will generally not recognize gain or loss upon the conversion
of a note into common stock (except with respect to cash received in lieu of a
fractional share). A U.S. holder's tax basis in the
40
common stock received on conversion of a note will be the same as the U.S.
holder's adjusted tax basis in the note at the time of conversion (exclusive of
any tax basis allocable to a fractional share). The holding period for the
common stock received on conversion will include the holding period of the
converted note. Cash received in lieu of a fractional share upon conversion of a
note will be treated as a payment in exchange for the fractional share.
Accordingly, the receipt of cash in lieu of a fractional share will generally
result in capital gain or loss, if any, measured by the difference between the
cash received for the fractional share and the U.S. holder's adjusted tax basis
allocable to the fractional share.
ADJUSTMENT OF CONVERSION RATE
If at any time the Company makes a distribution of property to shareholders
that would be taxable as a dividend for United States federal income tax
purposes (for example, distributions of evidences of indebtedness or assets, but
generally not stock dividends or rights to subscribe for common stock) and,
pursuant to the anti-dilution provisions of the indenture, the conversion rate
of the notes is increased, such increase may be deemed to be the payment of a
taxable dividend to a U.S. holder of the notes to the extent of the Company's
current and accumulated earnings and profits. If the conversion rate is adjusted
at the Company's discretion or in certain other circumstances and such
adjustment has the effect of increasing the holder's proportionate interest in
the Company's assets or earnings, it may result in a deemed distribution to such
holder. Any deemed distributions will be taxable as a dividend, return of
capital, or capital gain to the U.S. holder, as described in "--The Common
Stock--Dividends" below.
SALE, EXCHANGE, REDEMPTION OR REPURCHASE OF THE NOTES
A U.S. holder will generally recognize capital gain or loss equal to the
difference between the amount realized on the sale, exchange, redemption,
repurchase by the Company or other disposition of a note (except to the extent
the amount realized is attributable to accrued interest, which will be taxable
as ordinary interest income) and the holder's adjusted tax basis in such note. A
holder's adjusted tax basis in the note generally will be the initial purchase
price for such note less any principal payments received by the holder. In the
case of a holder other than a corporation, preferential tax rates may apply to
gain recognized on the sale of a note if such holder's holding period for such
note exceeds one year. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal and interest on the notes and payments of the proceeds of the sale of
the notes, and a backup withholding tax may apply to such payments if the holder
fails to comply with certain identification requirements. Backup withholding is
currently imposed at a rate of 30%, which rate is scheduled to be reduced in
future years. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against such holder's United
States federal income tax and may entitle the holder to a refund, provided that
the required information is furnished to the Internal Revenue Service.
THE COMMON STOCK
DIVIDENDS
The amount of any distribution made in respect of the common stock will be
equal to the amount of cash and the fair market value, on the date of
distribution, of any property distributed. Generally, distributions will be
treated as a dividend, subject to tax as ordinary income, to the extent of the
Company's current or accumulated earnings and profits, then as a tax-free return
of capital to the
41
extent of a holder's tax basis in the common stock and thereafter as gain from
the sale or exchange of such common stock as described below.
In general, a dividend distribution to a corporate holder will qualify for
the 70% dividends-received deduction. The dividends-received deduction is
subject to certain holding period, taxable income, and other limitations.
SALE OR EXCHANGE OF COMMON STOCK
Upon the sale, exchange or other disposition of common stock, a holder
generally will recognize capital gain or loss equal to the difference between
(1) the amount of cash and the fair market value of any property received upon
the sale or exchange and (2) such holder's adjusted tax basis in the common
stock. In the case of a holder other than a corporation, preferential tax rates
may apply to such gain if the holder's holding period for the common stock
exceeds one year. Subject to certain limited exceptions, capital losses cannot
be applied to offset ordinary income for United States federal income tax
purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
dividends on common stock and payments of the proceeds of the sale of common
stock, and a backup withholding tax may apply to such payments if the holder
fails to comply with certain identification requirements. Backup withholding is
currently imposed at a rate of 30%, which rate is scheduled to be reduced in
future years. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against such holder's United
States federal income tax and may entitle the holder to a refund, provided that
the required information is furnished to the Internal Revenue Service.
TAXATION OF NON-U.S. HOLDERS
THE NOTES
The rules governing United States federal income taxation of a non-U.S.
holder of notes are complex and no attempt will be made herein to provide more
than a summary of such rules. Special rules may apply to certain non-U.S.
holders such as "controlled foreign corporations," "passive foreign investment
companies" and "foreign personal holding companies." Non-U.S. holders should
consult with their own tax advisors to determine the effect of federal, state,
local and foreign income tax laws, as well as treaties, with regard to an
investment in the notes, including any reporting requirements.
INTEREST INCOME
Generally, interest income of a non-U.S. holder that is not effectively
connected with a United States trade or business is subject to a withholding tax
at a 30% rate (or, if applicable, a lower tax rate specified by a treaty).
However, interest income earned on a note by a non-U.S. holder will qualify for
the "portfolio interest" exemption and therefore will not be subject to United
States federal income tax or withholding tax, provided that such interest income
is not effectively connected with a United States trade or business of the
non-U.S. holder and provided that (1) the non-U.S. holder does not actually or
constructively own 10% of more of the total combined voting power of the
Company's stock entitled to vote; (2) the non-U.S. holder is not a controlled
foreign corporation that is related to the Company through stock ownership;
(3) the non-U.S. holder is not a bank which acquired the note in consideration
for an extension of credit made pursuant to a loan agreement entered into in the
ordinary course of business; and (4) either (A) the non-U.S. holder certifies to
the payor or the payor's agent, under penalties of perjury, that it is not a
United States person and provides its name, address, and certain other
information on a properly executed Internal Revenue Service Form W-8BEN or a
suitable substitute form or (B) a securities clearing organization, bank or
other financial institution that
42
holds customer securities in the ordinary course of its trade or business and
holds the notes in such capacity, certifies to the payor or the payor's agent,
under penalties of perjury, that such a statement has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner, and furnishes the payor or the payor's agent with a copy
thereof. The applicable United States Treasury regulations also provide
alternative methods for satisfying the certification requirements of
clause (4), above. If a non-U.S. holder holds the note through certain foreign
intermediaries or partnerships, such holder and the foreign intermediary or
partnership may be required to satisfy certification requirements under
applicable United States Treasury regulations.
If a non-U.S. holder cannot satisfy the requirements for the portfolio
interest exemption as described above, payments of interest will be subject to
the 30% United States federal withholding tax, unless such holder provides the
payor or the payor's agent with a properly executed (1) Internal Revenue Service
Form W-8BEN (or suitable substitute form) claiming an exemption from or
reduction in withholding under the benefit of an applicable tax treaty or
(2) Internal Revenue Service Form W-8ECI (or suitable substitute form) stating
that interest paid on the note is not subject to withholding tax because it is
effectively connected with a United States trade or business as discussed below.
Except to the extent that an applicable income tax treaty otherwise
provides, a non-U.S. holder generally will be taxed on a net income basis in the
same manner as a U.S. holder if such non-U.S. holder is engaged in a trade or
business in the United States and interest on the note is effectively connected
with the conduct of such trade or business. If such non-U.S. holder is a
corporation, it may be subject to an additional 30% branch profits tax (unless
reduced or eliminated by an applicable treaty) on its effectively connected
earnings and profits from the taxable year.
CONVERSION OF NOTES INTO COMMON STOCK
A non-U.S. holder's conversion of a note into common stock will generally
not be a taxable event except with respect to cash received in lieu of a
fractional share, which will be taxed as described below under "--Sale,
Exchange, Redemption or Repurchase of the Notes."
ADJUSTMENT OF CONVERSION RATE
Certain adjustments in the conversion rate of the notes may be treated as a
taxable dividend to a non-U.S. holder. See "--Taxation of U.S. Holders--The
Notes--Adjustment of Conversion Rate" above and "--The Common Stock--Dividends"
below.
SALE, EXCHANGE, REDEMPTION OR REPURCHASE OF THE NOTES
A non-U.S. holder generally will not be subject to United States federal
income tax or withholding tax on any gain realized on the sale, exchange,
redemption, repurchase by the Company or other disposition of a note unless
(1) the gain is effectively connected with a United States trade or business of
the non-U.S. holder, (2) in the case of a non-U.S. holder who is an individual,
such holder is present in the United States for a period or periods aggregating
183 days or more during the taxable year of the disposition, and either
(A) such holder has a "tax home" in the United States or (B) the disposition is
attributable to an office or other fixed place of business maintained by such
holder in the United States or (3) the Company is or has been a "U.S. real
property holding corporation" for U.S. federal income tax purposes. The Company
believes that it is not currently and does not anticipate becoming a "U.S. real
property holding corporation" for United States federal income tax purposes.
If an individual non-U.S. holder falls under clause (1) above, such
individual generally will be taxed on the net gain derived from a sale in the
same manner as a U.S. holder. If an individual non-U.S. holder falls under
clause (2) above, such individual generally will be subject to a flat 30% tax on
the gain derived from a sale, which may be offset by certain United States
capital losses
43
(notwithstanding the fact that such individual is not considered a resident of
the United States). Individual non-U.S. holders who have spent (or expect to
spend) 183 days or more in the United States in the taxable year in which they
contemplate a sale or other disposition of a note are urged to consult their tax
advisors as to the tax consequences of such sale. If a non-U.S. holder that is a
foreign corporation falls under clause (1), it generally will be taxed on the
net gain derived from a sale in the same manner as a U.S. holder and, in
addition, may be subject to the branch profits tax on such effectively connected
income at a 30% rate (or such lower rate as may be specified by an applicable
income tax treaty).
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
United States backup withholding tax will not apply to payments on the notes
to a non-U.S. holder if the statement described in clause (4) of "Interest
Income" is duly provided by such holder, provided that the payor does not have
actual knowledge that the holder is a United States person. Information
reporting requirements may apply with respect to interest payments on the notes,
in which event the amount of interest paid and tax withheld (if any) with
respect to each non-U.S. holder will be reported annually to the Internal
Revenue Service. Information reporting requirements and backup withholding tax
will not apply to any payment of the proceeds of the sale of notes effected
outside the United States by a foreign office of a "broker" as defined in
applicable United States Treasury regulations (absent actual knowledge that the
payee is a United States person), unless such broker (1) is a United States
person as defined in the Internal Revenue Code, (2) is a foreign person that
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States, (3) is a controlled foreign
corporation for United States federal income tax purposes or (4) is a foreign
partnership with certain U.S. connections. Payment of the proceeds of any such
sale effected outside the United States by a foreign office of any broker that
is described in clause (1), (2), (3) or (4) of the preceding sentence may be
subject to backup withholding tax and information reporting requirements, unless
such broker has documentary evidence in its records that the beneficial owner is
a non-U.S. holder and certain other conditions are met, or the beneficial owner
otherwise establishes an exemption. Payment of the proceeds of any such sale to
or through the United States office of a broker is subject to information
reporting and backup withholding requirements unless the beneficial owner of the
notes provides the statement described in clause (4) of "--Interest Income" or
otherwise establishes an exemption.
THE COMMON STOCK
The rules governing United States federal income taxation of a non-U.S.
holder of common stock are complex and no attempt will be made herein to provide
more than a summary of such rules. Non-U.S. holders should consult with their
own tax advisors to determine the effect of federal, state, local and foreign
income tax laws, as well as treaties, with regard to an investment in the common
stock, including any reporting requirements.
DIVIDENDS
Distributions made with respect to the common stock that are treated as
dividends paid, as described above under "--Taxation of U.S. Holders--The Common
Stock--Dividends," to a non-U.S. holder (excluding dividends that are
effectively connected with the conduct of a United States trade or business by
such holder and are taxable as described below) will be subject to United States
federal withholding tax at a 30% rate (or a lower rate provided under an
applicable income tax treaty). Except to the extent that an applicable income
tax treaty otherwise provides, a non-U.S. holder will be taxed in the same
manner as a U.S. holder on dividends paid (or deemed paid) that are effectively
connected with the conduct of a United States trade or business by the non-U.S.
holder. If such non-U.S. holder is a foreign corporation, it may also be subject
to a United States branch profits tax on such effectively
44
connected income at a 30% rate (or such lower rate as may be specified by an
applicable income tax treaty). Even though such effectively connected dividends
are subject to income tax and may be subject to the branch profits tax, they
will not be subject to United States federal withholding tax if the holder
delivers a properly executed Internal Revenue Service Form W-8ECI (or successor
form) to the payor or the payor's agent.
A non-U.S. holder who wishes to claim the benefit of an applicable income
tax treaty is required to satisfy certain certification and other requirements.
If the non-U.S. holder is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty, such holder may obtain a
refund of any excess amounts withheld by filing an appropriate claim for refund
with the Internal Revenue Service.
SALE OR EXCHANGE OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax or withholding tax on the sale, exchange or other disposition of
common stock unless (1) the gain is effectively connected with a United States
trade or business of the non-U.S. holder, (2) in the case of a non-U.S. holder
who is an individual, such holder is present in the United States for a period
or periods aggregating 183 days or more during the taxable year of the
disposition, and either (A) such holder has a "tax home" in the United States or
(B) the disposition is attributable to an office or other fixed place of
business maintained by such holder in the United States or (3) the Company is or
has been a "U.S. real property holding corporation" for United States federal
income tax purposes. The Company believes that it is not currently and does not
anticipate becoming a "U.S. real property holding corporation" for United States
federal income tax purposes.
If an individual non-U.S. holder falls under clause (1) above, such
individual generally will be taxed on the net gain derived from a sale in the
same manner as a U.S. holder. If an individual non-U.S. holder falls under
clause (2) above, such individual generally will be subject to a flat 30% tax on
the gain derived from a sale, which may be offset by certain United States
capital losses (notwithstanding the fact that such individual is not considered
a resident of the United States). Individual non-U.S. holders who have spent (or
expect to spend) 183 days or more in the United States in the taxable year in
which they contemplate a sale of common stock are urged to consult their tax
advisors as to the tax consequences of such sale. If a non-U.S. holder that is a
foreign corporation falls under clause (1), it generally will be taxed on the
net gain derived from a sale in the same manner as a U.S. holder and, in
addition, may be subject to the branch profits tax on such effectively connected
income at a 30% rate (or such lower rate as may be specified by an applicable
income tax treaty).
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Dividends on common stock held by a non-U.S. holder will be subject to
information reporting and may be subject to backup withholding requirements
unless certain certification requirements are satisfied. United States
information reporting requirements and backup withholding tax will not apply to
any payment of the proceeds of the sale of common stock effected outside the
United States by a foreign office of a "broker" as defined in applicable
Treasury regulations, unless such broker (1) is a United States person as
defined in the Internal Revenue Code, (2) is a foreign person that derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States, (3) is a controlled foreign corporation for
United States federal income tax purposes or (4) is a foreign partnership with
certain U.S. connections. Payment of the proceeds of any such sale effected
outside the United States by a foreign office of any broker that is described in
clause (1), (2), (3) or (4) of the preceding sentence may be subject to backup
withholding tax and information reporting requirements, unless such broker has
documentary evidence in its records that the beneficial owner is a non-U.S.
holder and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption. Payment of the proceeds of any such sale to or through
the United States office of a broker
45
is subject to backup withholding tax and information reporting requirements
unless the beneficial owner of the common stock certifies to the payor or the
payor's agent, under penalties of perjury, that it is not a United States person
and provides its name, address and certain other information on a properly
executed Internal Revenue Service Form W-8BEN or a suitable substitute form or
otherwise establishes an exemption.
U.S. FEDERAL ESTATE TAX
The U.S. federal estate tax will not apply to notes owned by an individual
who is not a citizen or resident of the United States at the time of his or her
death, provided that (1) the individual does not actually or constructively own
10% or more of the total combined voting power of the Company's stock entitled
to vote and (2) interest on the note would not have been, if received at the
time of death, effectively connected with the conduct of a trade or business in
the United States by such individual. However, common stock held by a decedent
at the time of his or her death will be included in such holder's gross estate
for U.S. federal estate tax purposes unless an applicable estate tax treaty
provides otherwise. Noteholders that are individuals should be aware that there
have been recent amendments to the U.S. federal estate tax rules, and such
holders should consult with their own tax advisors with regard to an investment
in the notes and the common stock.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE SECURITIES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
LEGAL MATTERS
The validity of the notes and any shares of common stock issuable upon
conversion of the notes offered hereby have been passed upon for us by
Covington & Burling, New York, New York.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and schedule supporting such
consolidated financial statements of Computer Associates International, Inc. and
subsidiaries as of March 31, 2002 and 2001 and for each of the years in the
three-year period ended March 31, 2002, included in Computer Associates
International, Inc. and subsidiaries Annual Report on Form 10-K for the year
ended March 31, 2002, have been incorporated by reference in this registration
statement in reliance upon the report of KPMG LLP, independent accountants,
incorporated by reference in this registration statement, and upon the authority
of said firm as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended June 30, 2002 and 2001 and September 30, 2002 and 2001, incorporated by
reference herein, the independent accountants have reported that they applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate reports included in the Company's
quarterly reports on Form 10-Q for the quarters ended June 30, 2002 and
September 30, 2002, and incorporated by reference herein, states that they did
not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. The accountants are not subject to the liability provisions
of Section 11 of the Securities Act of 1933 (the "1933 Act") for their report on
the unaudited interim financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by the
accountants within the meaning of Sections 7 and 11 of the 1933 Act.
46
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by Computer
Associates in connection with resales of the securities being registered. All
amounts are estimates subject to future contingencies except the SEC
registration statement filing fee.
SEC Registration Statement Filing Fee....................... $ 60,720
Legal Fees and Expenses..................................... 50,000
Accounting Fees and Expenses................................ 20,000
Printing Fees............................................... 40,000
Miscellaneous............................................... 4,280
--------
Total..................................................... $175,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his duty. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.
In accordance with Delaware Law, the certificate of incorporation of
Computer Associates contains a provision to limit the personal liability of the
directors of Computer Associates for violations of their fiduciary duty. This
provision eliminates each director's liability to Computer Associates or its
stockholders for monetary damages except (1) for any breach of the director's
duty of loyalty to Computer Associates or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) under Section 174 of the Delaware Law providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions, or (4) for any transaction from which a director
derived an improper personal benefit. The effect of this provision is to
eliminate the personal liability of directors for monetary damages for actions
involving a breach of their fiduciary duty of care, including any such actions
involving gross negligence.
Reference is made to Section 5 of the registration rights agreement
incorporated by reference as Exhibit 4.2 hereto for a description of the
indemnification arrangements in connection with the registration of the notes
under the Securities Act.
II-1
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
4.1 Rights Agreement dated as of June 18, 1991 between the
Company and Manufacturers Hanover Trust Company (a)
4.2 Registration Rights Agreement, dated as of March 18, 2002,
between Computer Associates and the Initial Purchasers
4.3 Indenture between the Company and State Street Bank and
Trust Company, including form of Note
5.1 Opinion of Covington & Burling, dated September 13, 2002
8.1 Tax opinion of Covington & Burling, dated December 3, 2002
*10.1 Call Spread Option Confirmation, dated March 13, 2002,
between Citibank, N.A. and Computer Associates
International, Inc.
*10.2 Call Spread Option Confirmation, dated March 13, 2002,
between Bank of America, N.A. and Computer Associates
International, Inc.
12.1 Statement Regarding Computation of Ratios
*23.1 Consent of KPMG LLP, independent accountants
*23.2 Awareness Letter of KPMG LLP, independent accountants
23.3 Consent of Covington & Burling (included in opinion filed as
exhibit 5.1)
23.4 Consent of Covington & Burling (included in opinion filed as
exhibit 8.1)
24.1 Power of Attorney (as set forth on the signature pages of
this Registration Statement)
25.1 Statement of Eligibility of Trustee on Form T-1
------------------------
* Filed herewith; all other exhibits previously filed.
(a) Incorporated by reference to our Annual Report on Form 10-K for the fiscal
year ended March 31, 2002, filed with the SEC on May 15, 2002
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in the volume of the securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price
II-2
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing this Registration Statement on Form S-3 and has duly
caused this Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized in the City Islandia, State of New York,
on this 12th day of December, 2002.
COMPUTER ASSOCIATES INTERNATIONAL, INC.
By: /s/ IRA H. ZAR
-----------------------------------------
Name: Ira H. Zar
Title: Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, Chief Executive
* Officer and Chairman
------------------------------------------- (Chief Executive Officer December 12, 2002
Sanjay Kumar and Chairman)
*
------------------------------------------- Executive Vice President December 12, 2002
Russell M. Artzt and Director
*
------------------------------------------- Director December 12, 2002
Kenneth Cron
*
------------------------------------------- Director December 12, 2002
Alfonse M. D'Amato
*
------------------------------------------- Director December 12, 2002
Robert E. La Blanc
*
------------------------------------------- Director December 12, 2002
Jay W. Lorsch
------------------------------------------- Director
Lewis Ranieri
*
------------------------------------------- Director December 12, 2002
Walter P. Schuetze
II-4
SIGNATURE TITLE DATE
--------- ----- ----
------------------------------------------- Director
William S. Stavropoulos
*
------------------------------------------- Director December 12, 2002
Alex Serge Vieux
*
------------------------------------------- Director December 12, 2002
Thomas H. Wyman
*By: /s/ IRA H. ZAR December 12, 2002
--------------------------------------
Ira H. Zar
Attorney-in-fact
II-5
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
*4.2 Registration Rights Agreement, dated as of March 18, 2002,
between Computer Associates and the Initial Purchasers
*4.3 Indenture between the Company and State Street Bank and
Trust Company, including form of Note
*5.1 Opinion of Covington & Burling, dated September 13, 2002
*8.1 Tax opinion of Covington & Burling, dated December 3, 2002
10.1 Call Spread Option Confirmation, dated March 13, 2002,
between Citibank, N.A. and Computer Associates
International, Inc.
10.2 Call Spread Option Confirmation, dated March 13, 2002,
between Bank of America, N.A. and Computer Associates
International, Inc.
*12.1 Statement Regarding Computation of Ratios
23.1 Consent of KPMG LLP, independent accountants
23.2 Awareness Letter of KPMG LLP, independent accountants
*23.3 Consent of Covington & Burling (included in opinion filed as
exhibit 5.1)
*23.4 Consent of Covington & Burling (included in opinion filed as
exhibit 8.1)
*24.1 Power of Attorney (as set forth on the signature pages of
this Registration Statement)
*25.1 Statement of Eligibility of Trustee on Form T-1
------------------------
* Previously filed.
II-6