Computer Associates 2008 Annual Report Download - page 100

the terms of the 1.625% Notes Call Spread, the Company can elect to receive (i) outstanding shares equivalent to the
number of shares that will be issued if all of the 1.625% Notes are converted into shares (23 million shares) upon
payment of an exercise price of $20.04 per share (aggregate price of $460 million); or (ii) a net cash settlement, net
share settlement or a combination, whereby the Company will receive cash or shares equal to the increase in the market
value of the 23 million shares from the aggregate value at the $20.04 exercise price (aggregate price of $460 million),
subject to the upper limit of $30.00 discussed below. The 1.625% Notes Call Spread is designed to partially mitigate the
potential dilution from conversion of the 1.625% Notes, depending upon the market price of the Company’s common
stock at such time. The 1.625% Notes Call Spread can be exercised in December 2009 at an exercise price of $20.04
per share. To limit the cost of the 1.625% Notes Call Spread, an upper limit of $30.00 per share has been set, such that
if the price of the common stock is above that limit at the time of exercise, the number of shares eligible to be
purchased will be proportionately reduced based on the amount by which the common share price exceeds $30.00 at
the time of exercise. As of March 31, 2008, the estimated fair value of the 1.625% Notes Call Spread was
approximately $88 million, which was based upon valuations from independent third-party financial institutions.
Fiscal Year 2005 Senior Notes
In November 2004, the Company issued an aggregate of $1 billion of unsecured Senior Notes (2005 Senior Notes) in a
transaction pursuant to Rule 144A. The Company issued $500 million of 4.75%, 5-year notes due December 2009 and
$500 million of 5.625%, 10-year notes due December 2014. In May 2007, a lawsuit captioned The Bank of New York v.
CA, Inc. et al., was filed in the Supreme Court of the State of New York, New York County. The complaint sought
unspecified damages and other relief, including acceleration of principal, based upon a claim for breach of contract.
Specifically, the complaint alleged that the Company failed to comply with certain purported obligations in connection
with our 5.625% Senior Notes due 2014 (the “Notes”), issued in November 2004, insofar as the Company failed to
carry out a purported obligation to cause a registration statement to become effective to permit the exchange of the
Notes for substantially similar securities of the Company registered under the Securities Act of 1933 that would be
freely tradable, and, having failed to effect such exchange offer, failed to carry out the purported obligation to pay
additional interest of 0.50% per annum after November 18, 2006. The Company denied that any such breach had
occurred. On December 21, 2007, the Company, The Bank of New York, and the holders of a majority of the Notes
reached a settlement of this litigation and executed a First Supplemental Indenture. The First Supplemental Indenture
provides, among other things, that the Company will pay an additional 0.50% per annum interest on the $500 million
principal of the Notes, with such additional interest began to accrue as of December 1, 2007. Pursuant to the
Supplemental Indenture, the Notes are now referred to as the Company’s 6.125% Senior Notes due 2014. As a result of
the settlement in the third quarter of fiscal year 2008, the Company recorded a charge of approximately $14 million,
representing the present value of the additional amounts that will be paid. This charge is included in “Other expenses
(gains), net” line item in the Consolidated Statements of Operations. In connection with the settlement, the Company
also entered into an Addendum to Registration Rights Agreement relating to the Notes. The Addendum confirms that
the Company no longer has any obligations under the original Registration Rights Agreement entered into with respect
to the Notes. The settlement became effective upon the signature of the Stipulation of Dismissal with Prejudice by
Justice Ramos of the New York Supreme Court on January 3, 2008.
The Company has the option to redeem the 2005 Senior Notes at any time, at redemption prices equal to the greater of
(i) 100% of the aggregate principal amount of the notes of such series being redeemed and (ii) the present value of the
principal and interest payable over the life of the 2005 Senior Notes, discounted at a rate equal to 15 basis points and
20 basis points for the 5-year notes and 10-year notes, respectively, over a comparable U.S. Treasury bond yield. The
maturity of the 2005 Senior Notes may be accelerated by the holders upon certain events of default, including failure to
make payments when due and failure to comply with covenants in the 2005 Senior Notes. The 5-year notes were issued
at a price equal to 99.861% of the principal amount and the 10-year notes at a price equal to 99.505% of the principal
amount for resale under Rule 144A and Regulation S.
90