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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
COMPUWARE CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
COMPUWARE CORPORATION
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Corporate Headquarters
ONE CAMPUS MARTIUS, DETROIT, MICHIGAN 48226-5099
(313) 227-7300 [COMPUWARE LOGO]
July 18, 2006
Dear Compuware Shareholder:
You are cordially invited to attend the 2006 Annual Meeting of Shareholders
of Compuware Corporation to be held at 3:00 p.m., Eastern Time, on Tuesday,
August 22, 2006. The meeting will be held at Compuware's corporate offices, One
Campus Martius, Detroit, Michigan 48226-5099.
The following pages contain the formal Notice of the Annual Meeting and the
Proxy Statement. You may wish to review this material for information concerning
the business to be conducted at the meeting and the nominees for election as
directors.
Please indicate whether you plan to attend the meeting in the space
provided on the proxy card, or press the appropriate key if voting by telephone
or by Internet. If your shares are currently held in the name of your broker,
bank or other nominee and you wish to attend the meeting, you must obtain a
letter from your broker, bank or other nominee indicating that you are the
beneficial owner of a stated number of shares of stock as of the June 30, 2006
record date and BRING THE LETTER WITH YOU TO THE MEETING. This will help us
determine whether you are permitted to attend the meeting. You must be a
Compuware shareholder or the named representative of a Compuware shareholder to
attend the meeting. You must also obtain a legal proxy if you desire to vote at
the meeting and your shares are held in the name of your broker, bank or another
nominee.
Your vote is important. Whether you plan to attend the meeting or not, we
urge you to vote your shares, by completing, signing and returning your proxy
card or by telephone or Internet, as soon as possible. This will ensure that
your shares are voted in the event you are unable to attend the meeting. You
may, of course, revoke your proxy and, if you are a shareholder of record, vote
in person at the meeting if you so desire.
Sincerely,
/s/ PETER KARMANOS, JR.
Peter Karmanos, Jr.
Chairman and Chief Executive Officer
COMPUWARE CORPORATION
ONE CAMPUS MARTIUS
DETROIT, MICHIGAN 48226-5099
NOTICE OF THE 2006 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 22, 2006
To the Shareholders:
This is our notice to you that the 2006 Annual Meeting of Shareholders of
Compuware Corporation will be held at our corporate offices, One Campus Martius,
Detroit, Michigan 48226-5099, on Tuesday, August 22, 2006 at 3:00 p.m., Eastern
Time, to consider and act upon the following matters:
(1) The election of nine directors to serve until the next Annual Meeting
of Shareholders and until their successors are elected and qualified;
(2) The ratification of the appointment of Deloitte & Touche LLP, our
independent registered public accounting firm, to audit our
consolidated financial statements for the fiscal year ending March 31,
2007;
(3) The ratification of the Rights Agreement, dated October 25, 2000, as
amended; and
(4) Such other business as may properly come before the meeting.
Only shareholders of record at the close of business on June 30, 2006 will
be entitled to vote at the meeting.
We call your attention to the attached Proxy Statement and the accompanying
proxy card. We request that you vote your shares and indicate whether you plan
to attend the meeting by either signing, dating and returning the proxy card in
the enclosed envelope or by using the telephone or Internet voting mechanisms
described in the Proxy Statement. If you attend the meeting and are a
shareholder of record, you may vote your shares in person at the meeting.
Due to space configurations at our headquarters, it may be necessary for us
to use an additional conference room at this year's meeting to accommodate all
shareholders who wish to attend.
A copy of the 2006 Annual Report for the fiscal year ended March 31, 2006
accompanies this notice.
By Order of the Board of Directors,
/s/ THOMAS COSTELLO, JR.
Thomas M. Costello, Jr., Secretary
Detroit, Michigan
July 18, 2006
COMPUWARE CORPORATION
PROXY STATEMENT
2006 ANNUAL MEETING OF SHAREHOLDERS
INTRODUCTION
This Proxy Statement and the accompanying Notice of the 2006 Annual Meeting
of Shareholders, 2006 Annual Report and proxy card are furnished in connection
with the solicitation of proxies by the Board of Directors of Compuware
Corporation. The proxies are being solicited for use at the 2006 Annual Meeting
of Shareholders to be held at 3:00 p.m., Eastern Time, on Tuesday, August 22,
2006, at the headquarters of Compuware Corporation, One Campus Martius, Detroit,
Michigan 48226-5099, and at any adjournment of that meeting. The proxies are
being solicited from holders of our common shares, par value $.01 per share. We
expect this Proxy Statement and the accompanying materials will be first sent or
given to shareholders on or about July 18, 2006.
We urge you to vote your shares promptly to make certain your vote will be
counted at the meeting. There are four different ways you may cast your vote.
You may vote by:
- TELEPHONE, using the toll-free number listed on your proxy card. Please
follow the instructions on your proxy card. If you vote using the
telephone, you should not mail in your proxy card;
- INTERNET, by going to the voting site at http://www.eproxyvote.com/cpwr
and following the instructions on the screen. When prompted for your
Voter Control Number, enter the number printed on the proxy card. If you
vote using the Internet, you should not mail in your proxy card;
- MARKING, SIGNING, DATING AND MAILING each proxy card and returning it in
the envelope provided; or
- ATTENDING AND COMPLETING A BALLOT AT THE ANNUAL MEETING, if you are a
shareholder of record. If your shares are held in "street name" (held for
your account by a broker, bank or other nominee), contact the broker,
bank or other nominee that holds your shares to obtain a legal proxy and
bring it with you to the meeting. TO BE ABLE TO VOTE SHARES YOU HOLD IN
STREET NAME AT THE MEETING, YOU MUST HAVE A LEGAL PROXY FROM YOUR BROKER,
BANK OR OTHER NOMINEE ISSUED IN YOUR NAME GIVING YOU THE RIGHT TO VOTE
THE SHARES. YOU WILL NOT BE ABLE TO USE THE FORM OF PROXY ENCLOSED WITH
THIS PROXY STATEMENT FOR THIS PURPOSE.
If you give a proxy, you may revoke it at any time before it is voted by:
- giving our Secretary a written notice of revocation that is dated later
than the proxy card;
- signing a later-dated proxy card relating to the same shares and
delivering it to the transfer agent;
- voting again by telephone or Internet (prior to August 21, 2006 at 11:59
p.m., Eastern Time), since only your latest vote will be counted; or
- attending the Annual Meeting and voting in person, if you are a
shareholder of record.
Your attendance at the Annual Meeting of Shareholders will not in and of
itself revoke your proxy. Any written notice of revocation should be sent to:
Secretary, Compuware Corporation, One Campus Martius, Detroit, Michigan
48226-5099.
References in this Proxy Statement to fiscal 2006 mean the 12 months ended
March 31, 2006 and references to the Company are to Compuware Corporation.
Holders of record of our common shares at the close of business on June 30,
2006 are entitled to notice of the 2006 Annual Meeting of Shareholders and to
vote at the meeting. On June 30, 2006, we had 373,662,618 outstanding common
shares, our only class of stock outstanding. Each of these shares is entitled to
one vote on each matter submitted for a vote at the meeting. The presence,
either in person or by proxy, of the holders of at least a majority of these
outstanding common shares is necessary to constitute a quorum at the 2006 Annual
Meeting of Shareholders. Shares relating to abstentions, broker non-votes and
withheld votes will be counted for purposes of determining the presence of a
quorum.
All valid proxies that are properly signed, dated and returned in time for
the meeting will be voted as specified in the proxy. IF NO SPECIFICATION IS
MADE, THE PROXIES WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF THE NOMINEES
LISTED, FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AND FOR
THE RATIFICATION OF THE RIGHTS AGREEMENT, AS AMENDED.
If any other matters requiring a shareholder vote properly come before the
meeting, the persons appointed as proxies in the enclosed proxy card will vote
on such matters in accordance with their best judgment to the extent permitted
by law.
(1) ELECTION OF DIRECTORS
NOMINEES
Our Board of Directors proposes that the nine directors named in the
following summary be elected as our directors, each to hold office until the
2007 Annual Meeting of Shareholders and until his or her successor is elected
and qualified. If a quorum is present, the nine nominees receiving the greatest
number of votes cast at the meeting or its adjournment will be elected. Withheld
votes will not be deemed votes cast in determining which nominees receive the
greatest number of votes cast and will therefore have no effect on the election.
All nominees for election have indicated their willingness to serve, if
elected. If any of them is unable or declines to serve as a director, the proxy
holders intend to vote the proxies in accordance with their best judgment for
the election of another person nominated in accordance with our Bylaws.
Mr. Lowell Weicker is not standing for reelection, and his term will expire
at the 2006 annual meeting.
A brief summary of each nominee's principal occupation and other
information follows:
PETER KARMANOS, JR.
Mr. Karmanos, age 63, one of our founders, has served as one of our
directors since our inception in April 1973, as our Chairman of the Board since
November 1978 and as our Chief Executive Officer since July 1987. Mr. Karmanos
has also acted as our President since October 2003. Mr. Karmanos is also a
director of Taubman Centers, Inc. and Worthington Industries, Inc.
DENNIS W. ARCHER
Mr. Archer, age 64, has served as one of our directors since January 2002.
Mr. Archer has been a partner and Chairman of the law firm of Dickinson Wright
PLLC since January 2002. The law firm serves as counsel to us. Mr. Archer served
as Mayor of the city of Detroit, Michigan from January 1994 through December
2001 and as an Associate Justice of the Supreme Court of the State of Michigan
from 1986 to 1990. Mr. Archer is a past President of the National League of
Cities and the American Bar Association, and is currently a director of Johnson
Controls, Inc. and Masco Corporation.
GURMINDER S. BEDI
Mr. Bedi, age 58, has served as one of our directors since October 2002.
Mr. Bedi is a private investor. He served as Vice President of Ford Motor
Company from October 1998 through his retirement in December 2001. Mr. Bedi
served as Vehicle Line Director at Ford Motor Company from October 1996 through
October 1998 and in a variety of other managerial positions at Ford for more
than 30 years. Since May 2006, Mr. Bedi is also a director of KEMET Corporation.
WILLIAM O. GRABE
Mr. Grabe, age 68, has served as one of our directors since April 1992. Mr.
Grabe is a Managing Director of General Atlantic LLC, a private equity firm that
provides capital for innovative companies where information technology or
intellectual property is a key driver of growth, and has been affiliated with
General Atlantic LLC and its predecessors since April 1992. Mr. Grabe is also a
director of Bottomline Technologies,
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Digital China Holdings, Ltd., Patni Computer Systems, Gartner, Inc., Lenovo
Group and several privately held companies in which General Atlantic LLC is an
investor.
WILLIAM R. HALLING
Mr. Halling, age 67, has served as one of our directors since October 1996.
Mr. Halling is a private investor. Mr. Halling served as the President of The
Detroit Economic Club from May 1995 through March 2002. Mr. Halling is also a
director of Detroit Legal News and LaSalle Bank Corporation, a member of the ABN
AMRO Group. Mr. Halling is a certified public accountant and is the Company's
Audit Committee financial expert, as defined by the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Mr. Halling served as a director
for KPMG LLC from October 1990 through June 1993 and as Managing Partner of its
Michigan/Toledo business unit from August 1986 through June 1993.
FAYE ALEXANDER NELSON
Ms. Nelson, age 53, has served as one of our directors since October 2002.
Ms. Nelson is President and Chief Executive Officer of the Detroit Riverfront
Conservancy, Inc. Prior to joining the Conservancy in November 2003, Ms. Nelson
was the Vice President of Government Affairs for Wayne State University. Prior
to joining Wayne State in February 1996, Ms. Nelson was employed by Kmart
Corporation for 15 years where she served as Corporate Attorney and Director for
Government Affairs. Ms. Nelson serves on the board of several community, civic
and economic development organizations, including the Michigan Economic Growth
Authority, University of Detroit Mercy and TechTown.
GLENDA D. PRICE
Dr. Price, age 66, has served as one of our directors since October 2002.
Dr. Price served as the President of Marygrove College from 1998 through June
2006 and is currently President Emeritus. Prior to assuming her responsibilities
at Marygrove, Dr. Price was the Provost at Spelman College in Atlanta. Dr. Price
has held positions as faculty and administrator at several academic
institutions, as well as practicing as a clinical laboratory scientist. Dr.
Price is also a director of LaSalle Bank Corporation, a member of the ABN AMRO
Group.
W. JAMES PROWSE
Mr. Prowse, age 63, has served as one of our directors since December 1986.
Mr. Prowse has been a private investor since he left the Company in 1999. He
began his employment with us in 1984 and served as our Executive Vice President
from February 1998 until March 1999. From January 1992 through January 1998, Mr.
Prowse served as our Senior Vice President.
G. SCOTT ROMNEY
Mr. Romney, age 65, has served as one of our directors since January 1996.
Mr. Romney has been a partner at Honigman Miller Schwartz and Cohn LLP, a law
firm, since 1977. The law firm serves as counsel to us.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THESE NOMINEES.
(2) RATIFICATION OF APPOINTMENT OF THE INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP ("Deloitte") has acted as our independent registered
public accounting firm since fiscal 1991, including the audit of our
consolidated financial statements for fiscal 2006. Subject to the shareholders'
ratification, the Audit Committee has selected Deloitte to be our independent
auditors for the fiscal year ending March 31, 2007. Before appointing Deloitte
as our independent auditors to audit our books and accounts for the fiscal year
ending March 31, 2007, the Audit Committee carefully considered the firm's
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qualifications as our independent auditors. Deloitte is registered by the Public
Company Accounting Oversight Board as a registered public accounting firm.
Representatives from Deloitte are expected to be present at the 2006 Annual
Meeting of Shareholders and will have the opportunity to make a statement at the
meeting if they desire to do so. Their representatives will also be available to
respond to appropriate questions.
We are asking our shareholders to ratify the appointment of Deloitte as the
Company's independent registered public accounting firm for fiscal 2007. The
affirmative vote of a majority of the votes cast by the holders of shares of the
Company's common stock entitled to vote is required to ratify the appointment of
the independent registered public accounting firm. Abstentions and broker
non-votes will be disregarded for purposes of determining the number of votes
counted toward this vote.
If the shareholders fail to ratify the appointment of Deloitte, the Audit
Committee would reconsider its appointment. Even if the appointment is ratified,
the Audit Committee, in its discretion, may direct the appointment of a
different independent accounting firm at any time during the year if the Audit
Committee determines such a change would be in our shareholders' best interests.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFYING THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM TO AUDIT THE COMPANY'S FISCAL 2007 CONSOLIDATED FINANCIAL
STATEMENTS.
INDEPENDENT AUDITOR FEES
The following table sets forth the fees billed by Deloitte for services
rendered to the Company for the last two fiscal years.
<Table>
<Caption>
FEE CATEGORY FISCAL 2006 FEES FISCAL 2005 FEES
- ------------ ---------------- ----------------
Audit fees.................................................. $2,167,038 $2,009,315
Audit-related fees.......................................... 0 9,000
Tax fees.................................................... 1,224,510 2,079,486
All other fees.............................................. 36,310 39,485
---------- ----------
Total fees.................................................. $3,427,858 $4,137,286
========== ==========
</Table>
AUDIT FEES
The aggregate fees billed by Deloitte were for professional services
rendered for the audit of our annual financial statements and the reviews of the
interim financial statements included in our Forms 10-Q. The amounts in the
table include $652,000 and $800,000 for services relating to Deloitte's audits
of the effectiveness of internal controls over financial reporting and of
management's assessment of the effectiveness of internal controls over financial
reporting for fiscal 2006 and 2005, respectively.
AUDIT-RELATED FEES
The aggregate fees billed by Deloitte for audit-related services were for
assurance and related services that are reasonably related to the performance of
the audit or review of our financial statements and are not reported under
"Audit Fees." Fees paid in 2005 were for Deloitte's participation in the
Company's responses to the SEC regarding its Form 10-K for the year ended March
31, 2004.
TAX FEES
The aggregate fees billed by Deloitte for tax-related services were for
professional services for international, federal, state and local tax
compliance, tax advice and tax planning.
4
ALL OTHER FEES
The aggregate fees billed by Deloitte for services other than those covered
under the captions "Audit Fees," "Audit-Related Fees" and "Tax Fees" above were
primarily for foreign statutory reports and in fiscal 2005 for an audit of costs
charged to the Company by an unrelated lessor.
POLICY FOR PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
All audit services and all non-audit services our independent auditors are
permitted to perform for us under applicable federal securities regulations must
be approved by the Audit Committee pursuant to its pre-approval policy. As
permitted by the applicable regulations, the Committee's policy utilizes a
combination of specific pre-approval on a case-by-case basis of individual
engagements of the independent auditors and pre-approval of specified categories
of engagements. The policy provides that the duty to pre-approve may be
delegated to one or more designated members of the Audit Committee, with any
such pre-approval reported to the Audit Committee at its next regularly
scheduled meeting.
All engagements of the independent auditor to perform any audit services
and non-audit services have been approved by the Committee in accordance with
the policy. The policy has not been waived in any instance.
In its review of non-audit services and its appointment of Deloitte to
serve as the Company's independent registered public accounting firm for fiscal
2007, the Audit Committee considered whether the provision of such services is
compatible with maintaining Deloitte's independence. The Audit Committee
reviewed and considered the nature of the non-audit services provided by
Deloitte to Compuware management and determined the services were permitted
under the rules and regulations concerning auditor independence promulgated by
the SEC to implement the Sarbanes-Oxley Act of 2002, as well as the rules
promulgated by the American Institute of Certified Public Accountants, and does
not consider the provision of such services by Deloitte to be incompatible with
the maintenance of Deloitte's independence.
(3) RATIFICATION OF RIGHTS AGREEMENT
BACKGROUND
The Company is a party to a Rights Agreement with Equiserve Trust Company,
N.A. (now known as Computershare Trust Company N.A.), as rights agent, dated as
of October 25, 2000 (as amended, the "Rights Agreement"). Over the last 25
years, hundreds of corporations have adopted similar agreements as an
anti-takeover device in an attempt to defend against abusive or otherwise
undesirable attempts to acquire control, such as:
- taking control through open-market purchases without giving the
shareholders a control premium for their shares or the protections of the
federal tender offer rules;
- attempting to acquire the company at a time when the company's common
stock is undervalued and at a price that is less than the stock's
intrinsic value; and
- attempting, through a partial tender offer, to acquire a majority
interest in the company and then forcing the remaining public
shareholders to accept cash and/or securities of lesser value.
The Rights Agreement discourages such attempts by making an acquisition of
the Company that is not approved by the Company's Board prohibitively expensive
for the acquiror by significantly diluting the acquiror's stock interest in the
Company and increasing the number of shares of common stock that would have to
be acquired. If the acquiror accumulates 20 percent or more of the Company's
common stock, each right granted under the Rights Agreement ("Right") would
permit the Right holder to acquire newly issued shares of common stock of the
Company or, in certain circumstances, the acquiror at a price equal to half the
market value for the $40.00 exercise price of the Rights. For example, a
shareholder who owned 100 common shares (with 100 Rights attached) at the time
an acquiror acquired 21 percent of the outstanding common stock, assuming a
market value of the common stock at that time of $10.00 per share, the
shareholder's Rights
5
would permit the shareholder to acquire a total of 800 shares of common stock
($40 exercise price divided by $5 (50 percent of the $10 market value) times 100
Rights equals 800 shares) for $5.00 per share or a total purchase price of
$4,000. Rights held by the acquiror and by certain related persons and
transferees would become void. However, before an acquiror acquires more than 20
percent of the outstanding common stock, the Rights may be redeemed by the Board
or, in certain circumstances by the shareholders, or the terms of the Rights may
be modified by the Board to, among other things, exempt a particular acquiror
from the dilutive effects of the Rights. These provisions have the effect of
encouraging potential acquirors to negotiate with the Board before acquiring 20
percent or more of the common stock so that the Board may redeem or modify the
Rights as part of an acquisition.
The Board believes that the Rights Agreement is in the best interests of
the Company's shareholders because it:
- Provides a way for the Board to defend shareholders against abusive
tactics used to gain control of the Company without paying all
shareholders a fair premium, and to ensure that all Company shareholders
are treated fairly and equally in an acquisition of the Company.
- Encourages anyone seeking to acquire control of the Company to negotiate
in good faith with the Board and gives the Board significant negotiating
power on behalf of the shareholders. This enables the Board to negotiate
a fair premium for shareholders that is consistent with the intrinsic
value of the Company and to block any transaction by an acquiror who is
unwilling to pay a fair price (subject to the shareholders' right to
redeem the Rights under certain circumstances described below).
- Slows the process by which a potential acquiror may gain control of the
Company, thereby affording the Board additional time to evaluate a
proposed transaction and, if necessary, seek alternative transactions or
implement other courses of action to maximize shareholder value.
- Provides the Board with the ability to run an effective auction of the
Company or other sale process, where the Board has decided to sell the
Company, and to protect a negotiated transaction from interlopers once
the auction or other sale process is completed.
- Reduces the likelihood that a potential acquiror who is unwilling to pay
a sufficient premium will attempt to acquire the Company by means of an
open market accumulation, a partial bid for the Company, a front-end
loaded tender offer or other coercive or unfair takeover tactics, since
it limits the size of the position the acquiror may take without the
concurrence of the Board.
- Does not prevent the making of unsolicited offers or the acquisition of
the Company at a full and fair price since the existence of the Rights
Agreement does not eliminate the Board's responsibility to consider
acquisition proposals in a manner consistent with the directors'
fiduciary duties to shareholders.
In May 2006, the Company modified the Rights Agreement to increase the
stock ownership threshold that is permitted before the Rights become exercisable
from 15 percent to 20 percent, to decrease the term of the Rights Agreement to
three years from the date of the amendment and to include a "Qualified Offer"
provision that would, under certain circumstances, permit shareholders to cause
the Rights to be redeemed and the Qualified Offer to be accepted without Board
approval. In amending the Rights Agreement, the Company consulted shareholders,
proxy advisors and published guidelines and modified the Rights Agreement to
include these progressive, "shareholder-friendly" provisions. The Board's
decision to enter into the Rights Agreement and later to amend the Rights
Agreement was not made in response to, or in anticipation of, any acquisition
proposal, and is not intended to prevent a non-coercive takeover bid from being
made for the Company or to keep management or the directors in office.
Shareholders are being asked to vote to ratify the Rights Agreement in an
effort to determine the viewpoint of shareholders on the advisability of the
Rights Agreement. Ratification of the Rights Agreement requires the affirmative
vote of a majority of the votes cast on the matter by the shareholders entitled
to vote at the Annual Meeting. Abstentions and broker non-votes will be
disregarded for purposes of determining the number of votes cast and will have
no effect on the outcome of the vote. If the Rights Agreement is not
6
ratified by shareholders as proposed, the Board intends to reevaluate the Rights
Agreement and determine whether it believes the Rights Agreement in its current
form continues to be in the shareholders' best interests. The Board may, as a
result of such reevaluation and determination, terminate the Rights Agreement,
modify the terms of the Rights Agreement or allow the Rights Agreement to remain
in place without change, among other actions.
SUMMARY OF RIGHTS AGREEMENT
The following is a summary of the material terms of the Rights Agreement.
The statements below are only a summary, and we refer you to the full text of
the Rights Agreement, which was filed as an exhibit to Form 8-A filed with the
SEC on October 26, 2000, and Amendments No. 1 and 2 to the Rights Agreement,
which were filed with the SEC as exhibits to the Company's Form 8-K on May 11,
2006. Each statement in this summary is qualified in its entirety by this
reference.
GENERAL
Currently, under the terms of the Rights Agreement, each share of common
stock outstanding has one Right attached to it, so that the purchase of a share
of common stock is also a purchase of the attached Right. Certificates
representing the Company's common stock also represent the attached Rights. The
Rights are not currently exercisable or separately tradable.
After the "Distribution Date," which is described below, each Right will
become separately tradable and initially will entitle the holder to purchase
from the Company one two-thousandth of a share of Series A Junior Participating
Preferred Stock (the "Preferred Shares") at a price of $40.00 (the "Purchase
Price"), subject to adjustment. Each one two-thousandth of a Preferred Share has
rights that are roughly equivalent to one share of common stock. If certain
circumstances occur as discussed below, the Rights would instead entitle their
holders to purchase common stock of the Company or an acquiror. The Rights will
expire at the close of business on May 9, 2009 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or unless the Rights are earlier
redeemed as described below.
EVENTS CAUSING EXERCISABILITY AND SEPARATE TRANSFERABILITY
A "Distribution Date" will occur and the Rights will become exercisable and
separately tradable upon the earlier of:
(1) the first public announcement that a person or group (other than
the Company, any subsidiary, or a benefit plan of the Company or its
subsidiaries), has acquired, or obtained the right to acquire, except under
limited circumstances, beneficial ownership of 20 percent or more of the
outstanding common stock; or
(2) the close of business on the tenth business day (or such later
date as the Company's Board of Directors may determine) after the
commencement of, or a public announcement of an intention to commence
(which tender offer is not terminated within such ten business days), a
tender or exchange offer the consummation of which would result in a person
or group becoming an Acquiring Person (as defined in the following).
Generally, a person or group whose acquisition of common stock causes a
Distribution Date pursuant to clause (1) above (including pursuant to the
completion of a tender or exchange offer described in (2)) is an "Acquiring
Person." As soon as practicable following the Distribution Date, separate Right
certificates will be mailed to holders of record of the common stock as of the
close of business on the Distribution Date.
EVENTS CAUSING ADJUSTMENT OF THE SHARES ACQUIRABLE UPON EXERCISE OR THE
PURCHASE PRICE
Generally, if any person becomes an Acquiring Person, each holder of a
Right, other than the Acquiring Person (and any affiliates and certain
transferees), will then have the right to receive upon exercise and payment to
the Company of the Purchase Price, instead of one-two thousandth of a Preferred
Share, that number of shares of Company common stock having an average market
value equal to two times the Purchase
7
Price. Any Rights that are beneficially owned by any Acquiring Person (or any
affiliate or certain transferees) will be null and void. In other words, the
Rights holders, other than the Acquiring Person and certain others, may at that
time purchase Company common stock at a 50 percent discount.
Alternatively, in the event that, after the first public announcement that
a person or group has become an Acquiring Person, the Company is a party to a
merger, statutory share exchange or sale of more than 50 percent of the
Company's assets or earning power in a transaction with an Acquiring Person or
certain specified related parties or in which all holders of Company common
stock are not treated alike, then each holder of a Right (except Rights that
have been voided as set forth previously) shall have the right to receive upon
exercise and payment to the Company of the Purchase Price, instead of one-two
thousandth of a Preferred Share, common shares of the acquiring or surviving
company having an average market value equal to two times the Purchase Price. In
other words, the Rights holders, other than the Acquiring Person and certain
others, may at that time purchase the acquiring or surviving company's common
shares at a 50 percent discount.
The Purchase Price payable and the number of shares issuable upon exercise
of the Rights are subject to adjustment from time to time to prevent dilution
upon the occurrence of specified events affecting the Preferred Shares. The
number of outstanding Rights and the Purchase Price are also subject to
adjustment in the event of a stock dividend on the common stock payable in
common stock or subdivisions or combinations of the common stock occurring
before the Distribution Date.
REDEMPTION OF THE RIGHTS
At any time before a person becomes an Acquiring Person, the Board may
redeem the Rights in whole, but not in part, at a price of $.001 per Right (the
"Redemption Price"), payable in cash or common stock. The Board may also redeem
the Rights for a limited time after 60 days after the later of the date a person
or group becomes an Acquiring Person and the effective date of a registration
statement under the Securities Act of 1933 with respect to securities issuable
upon exercise of the Rights.
In addition, if the Company receives a "Qualified Offer" (as defined in the
following paragraph), the Rights may be redeemed by the shareholders if approved
by them at a special meeting of shareholders called to vote on a resolution
accepting the Qualified Offer and to authorize the redemption of the Rights
pursuant to the provisions of the Agreement. The special meeting must be held
within 90 business days after the Company receives a request from shareholders
to hold such a meeting. If a resolution to redeem the Rights is approved at the
special meeting (or if the special meeting is not held on or before the 90th
business day after receipt of the request for a meeting), it will become
effective immediately prior to the consummation of any Qualified Offer
consummated within 60 days after the earlier of the special meeting or the 90th
business day after receipt of a request for a special meeting of shareholders.
A "Qualified Offer" is a tender offer for all outstanding common stock not
already beneficially owned by the person making the offer that meets all of the
following conditions:
- the same per share price is offered for all shares, and such price per
share is greater than the highest closing price for the common stock
during the 365 calendar day period immediately preceding the date on
which the offer is commenced, represents a reasonable premium above the
average of the closing prices for the five trading days immediately
preceding the date on which the offer is commenced, is at least 70
percent cash (with any non-cash consideration consisting of common stock
of the offeror), and is to be paid upon consummation of the offer;
- if the consideration offered includes shares of common stock of the
offeror, the offeror is a publicly owned United States corporation and
its common stock is traded on either the New York Stock Exchange or The
NASDAQ National Market ("NASDAQ"), no further stockholder approval is
required to issue such common stock, no other class of voting stock of
the offeror is outstanding, and the offeror shall permit the Company's
investment banking firm and legal counsel to have access to such
offeror's books, records, management, accountants and other advisers for
the purpose of permitting such investment banking firm and such legal
counsel to conduct a due diligence review to
8
permit such investment banking firm to be able to render a fairness
opinion with respect to the consideration being offered;
- the offer is accompanied by written financing commitments and/or the
offeror has on hand cash or cash equivalents, for the full amount of all
financing necessary to consummate the offer and follow-on merger;
- the offer is subject to a non-waivable condition that a minimum of 90
percent of the outstanding common stock (other than those owned by the
offeror) will be tendered and not withdrawn as of the offer's expiration
date;
- the offer by its terms remains open for at least 60 business days and at
least 10 business days after the date of any special meeting of
shareholders called under the redemption provisions, plus 15 business
days after any change in price or after any bona fide alternative offer
for a higher consideration is made;
- the offer is accompanied by a written opinion of a nationally recognized
investment banking firm stating that the price to be paid to holders
pursuant to the offer is fair and including any written presentation of
such firm showing the analysis and range of values underlying such
conclusion;
- on or before the date the offer is commenced, such person makes an
irrevocable written commitment to the Company (1) to acquire, within five
business days following completion of the offer, all shares of common
stock not beneficially owned by such person at the same cash price per
share as paid in the offer, (2) not to amend its offer to reduce the
price or otherwise change the terms in a way that is adverse to tendering
shareholders, and (3) if the offer is not consummated, that such person
will not make another offer for the common stock within one year if at
least 85 percent of the common stock not owned by such person has not
been tendered; and
- the offer is subject only to the conditions specified in the definition
and usual and customary terms and conditions, and is not subject to any
financing, funding or similar condition, nor to any condition relating to
completion of or satisfaction with any due diligence or similar
investigation.
AMENDMENTS
The Rights Agreement may be amended by the Board before the Distribution
Date without the consent of the Right holders. After the Distribution Date, the
Rights Agreement may be amended by the Board to cure any ambiguity, to correct
or supplement any provision which may be defective or inconsistent with any
other provision, to make changes which do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring Person), or, subject
to certain limitations, to shorten or lengthen any time period under the Rights
Agreement (other than a time period governing redemption at a time when the
Rights are not redeemable).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO
RATIFY THE RIGHTS AGREEMENT.
CORPORATE GOVERNANCE
We are committed to sound corporate governance principles. Having such
principles is essential to maintaining our integrity in the marketplace and
ensuring that we are managed for the long-term benefit of our shareholders. Our
business affairs are conducted under the direction of our Board of Directors.
Our Board strives to ensure the success and continuity of our business through
the selection of a qualified management team. It is also responsible for
ensuring that our activities are conducted responsibly and ethically.
The Board's committee charters provide the framework under which the
committees are governed. In May 2004, the Board adopted revised charters for the
Audit Committee, the Compensation Committee and the Nominating/Governance
Committee in order to satisfy the new listing standards of NASDAQ and the new
rules of the SEC. The Company revised its Code of Conduct in November 2003. The
Code of Conduct applies to all of our employees, including our chief executive
officer and chief financial officer/chief
9
accounting officer. The Board adopted a Code of Conduct for non-employee
directors in May 2004. The Codes of Conduct address those areas in which we must
act in accordance with law or regulation, and also establish the
responsibilities, policies and guiding principles that will assist us in our
commitment to adhere to the highest ethical standards and to conduct our
business with the highest level of integrity. Our Codes of Conduct and Board
committee charters are posted in the Corporate Governance section of the
"Investor Relations" page at www.compuware.com, and will be provided free of
charge to any shareholder upon written request to our Secretary at Compuware
corporate headquarters. To the extent any amendment is made with respect to the
Codes of Conduct that requires disclosure under applicable SEC rules,
information regarding such amendment will be posted on the Company's website.
BOARD OF DIRECTORS
DIRECTOR INDEPENDENCE
Our Board has determined that Dennis W. Archer, Gurminder S. Bedi, William
O. Grabe, William R. Halling, Faye Alexander Nelson, Dr. Glenda D. Price, W.
James Prowse, G. Scott Romney and Lowell P. Weicker, Jr. meet the independence
requirements of NASDAQ.
MEETINGS; PRESIDING DIRECTOR
Our Board of Directors held five meetings in fiscal 2006. Each of the
directors attended more than 75 percent of the meetings of the Board and the
committees of which they were a member. Although not required, the Board
strongly encourages all directors to attend our Annual Meeting of Shareholders.
Ms. Nelson, Dr. Price and Messrs. Archer, Bedi, Halling, Karmanos, Prowse,
Romney and Weicker attended last year's Annual Meeting of Shareholders. The
independent directors have selected Mr. Prowse to preside over executive
sessions of the Board (without the CEO or other employees present). The
independent directors met in executive session four times in fiscal 2006.
COMMUNICATIONS WITH THE BOARD
Shareholders may communicate with the Board of Directors or any individual
director by sending a letter to Compuware Corporation, One Campus Martius,
Detroit, Michigan 48226-5099, Attn: Secretary (or any individual director). The
Secretary will receive the correspondence and forward it to the presiding
director or to any individual director or directors to whom the communication is
addressed. The Secretary is authorized to review, sort and summarize all
communications received prior to their presentation to the presiding director or
to whichever director(s) the communication is addressed. If such communications
are not a proper matter for Board attention, the Secretary is authorized to
direct such communication to the appropriate department. For example,
shareholder requests for materials or information will be directed to investor
relations personnel.
BOARD COMMITTEES AND THEIR FUNCTIONS
Standing committees of the Board include an Audit Committee, a Compensation
Committee, a Nominating/Governance Committee, a Strategic Planning Committee, a
Diversity/Community/Shareholder Relations Committee and an Executive Committee.
AUDIT COMMITTEE
From March through July 2005, the Audit Committee consisted of Mr. Halling,
Dr. Didier, Dr. Price and Mr. Prowse. Since August 2005, the Audit Committee has
consisted of Mr. Halling, Dr. Price and Mr. Prowse. The Board determined that
all the members of our Audit Committee are independent as required by the rules
of the SEC and the listing standards of NASDAQ. In addition, the Board of
Directors determined that all members of the Audit Committee are financially
literate, and that Mr. Halling qualifies as the audit committee financial
expert, as defined by the rules and regulations of the SEC. The Audit Committee
met seven times during the past fiscal year.
10
The Audit Committee is organized and conducts its business pursuant to a
written charter adopted by the Board of Directors. The Audit Committee's
principal responsibilities include: (a) selection of our independent registered
public accounting firm; (b) overseeing our accounting and financial reporting
processes and the audits of our financial statements; and (c) assisting the
Board in overseeing: (i) the integrity of our financial statements, (ii) our
compliance with legal and regulatory requirements, (iii) the independent
auditor's qualifications and independence, (iv) the performance of our internal
audit function and independent auditor, and (v) our system of disclosure
controls and procedures and our system of internal controls regarding finance,
accounting, legal compliance, and ethics. The Audit Committee also provides an
avenue for communication between internal auditors, the independent registered
public accountants and the Board. See the "Report of the Audit Committee" below.
REPORT OF THE AUDIT COMMITTEE
The information contained in this report shall not be deemed to be
"soliciting material" or "filed" with the SEC or subject to the liabilities of
Section 18 of the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), except to the extent that we specifically incorporate it by reference
into a document filed under the Securities Act of 1933, as amended (the
"Securities Act") or the Exchange Act.
Our management is responsible for the preparation, presentation and
integrity of our financial statements. Management selects the accounting and
financial reporting principles used to prepare the financial statements.
Management also designs the internal controls and procedures to assure
compliance with accounting and reporting standards and applicable laws and
regulations. The independent registered public accountants are responsible for
auditing our financial statements, expressing an opinion as to their conformity
with generally accepted accounting principles, examining the Company's system of
internal controls and expressing an opinion on those controls. The Committee's
responsibility is generally to monitor and oversee these processes.
In performance of its oversight function, our Audit Committee has:
- reviewed and discussed our audited financial statements for the fiscal
year ended March 31, 2006 with our management and our independent
registered public accountants;
- discussed with our independent registered public accountants the matters
required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AU 380), as it has been modified or supplemented;
- received the written disclosures and the letter from our independent
registered public accountants required by Independence Standards Board
Standard No. 1 (Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees), as it has been modified or
supplemented; and
- discussed with our independent registered public accountants their
independence.
Based on the review and discussions described above in this paragraph, our
Audit Committee recommended to our Board of Directors that the audited financial
statements for the fiscal year ended March 31, 2006 be included in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2006 for filing with the
SEC.
By the Audit Committee,
William R. Halling
Glenda D. Price
W. James Prowse
COMPENSATION COMMITTEE
During fiscal 2006, the Compensation Committee consisted of three
directors, Ms. Nelson and Messrs. Grabe and Weicker. The Board determined that
all the members of our Compensation Committee are independent as required by the
rules of the listing standards of NASDAQ. The Compensation Committee is
11
organized and conducts its business pursuant to a written charter adopted by the
Board of Directors. The Compensation Committee's principal responsibilities
include determining and recommending to the full Board for its approval
compensation programs that are effective in attracting and retaining key
executives, link pay to performance and are administered fairly and in the
shareholders' interests. This includes making recommendations regarding
executive compensation policy, administering Board- and shareholder-approved
plans, approving benefit programs and making decisions for the Board with
respect to the compensation of officers, directors and key executives. The
Compensation Committee met six times during the past fiscal year. See section
titled "Compensation Committee Report on Executive Compensation."
NOMINATING/GOVERNANCE COMMITTEE
During fiscal 2006, the Nominating/Governance Committee consisted of five
individuals, Messrs. Bedi, Grabe, Halling, Prowse and Weicker. The Board
determined that all the members of our Nominating/ Governance Committee are
independent as required by the listing standards of NASDAQ. The Nominating/
Governance Committee is organized and conducts its business pursuant to a
written charter adopted by the Board of Directors. The Committee makes
recommendations to the Board of Directors on nominees to the Board, including
nominees submitted by shareholders. The Committee is also responsible for
determining that adequate information is available to the Board to determine
whether the Company's business is managed with propriety and in the best
interest of shareholders, and for implementing a board structure that is
adequate to process and respond to this information. The Committee met four
times during fiscal 2006. The members of the Nominating/Governance Committee are
also designated as the Qualified Legal Compliance Committee prescribed by the
Standards of Professional Conduct for Attorneys Appearing and Practicing Before
the SEC in the Representation of an Issuer.
CONSIDERATION OF DIRECTOR NOMINEES.
In evaluating and determining whether to recommend a person as a
candidate for election as a director, the Board considers qualifications,
such as relevant management and/or industry experience; high personal and
professional ethics, integrity and values; ability to vigorously support
the Company's diversity initiatives; a commitment to representing the
long-term interests of our shareholders as a whole; independence pursuant
to the rules of the SEC and the listing standards of NASDAQ; and an ability
and willingness to devote the required amount of time to carry out the
duties and responsibilities of directors.
IDENTIFYING DIRECTOR NOMINEES.
The Board may employ a variety of methods for identifying and
evaluating director nominees. The Board regularly assesses the size of the
Board, the need for particular expertise on the Board and whether any
vacancies are expected due to retirement or otherwise. In the event that
vacancies are anticipated, or otherwise arise, the Board would consider
various potential candidates for director that may come to the Board's
attention through current Board members, professional search firms,
shareholders or other persons. These candidates would be evaluated at
regular or special meetings of the Board, and may be considered at any
point during the year.
CONSIDERATION OF CANDIDATES RECOMMENDED BY SHAREHOLDERS.
The Committee will consider candidates recommended by the
shareholders, when nominations are properly submitted, under the criteria
summarized above in "Consideration of Director Nominees." The deadlines and
procedures for shareholder submissions of director-nominees are described
below under "Shareholder Proposals and Director Nominations for 2007 Annual
Meeting of Shareholders." In addition, as to each person whom a shareholder
proposes to nominate for election as a director, the shareholder must
submit to the Company all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director of the Company if
elected), as well as specified information about the shareholder making the
submission. Following verification of the shareholder status of persons
recommending candidates, the Committee will make an initial analysis
12
of the qualifications of any candidate recommended by shareholders or
others pursuant to the criteria summarized above to determine whether the
candidate is qualified for service on the Board before deciding to
undertake a complete evaluation of the candidate. If a shareholder or
professional search firm in connection with the nomination of a director
candidate provides any materials, such materials would be forwarded to the
Board as part of its review. Other than the verification of compliance with
procedures and shareholder status, and the initial analysis performed by
the Board, the Board would treat a potential candidate nominated by a
shareholder in the same fashion as any other potential candidate during the
review process.
STRATEGIC PLANNING COMMITTEE
In fiscal 2006, the Strategic Planning Committee consisted of Messrs.
Archer, Bedi and Romney. The Strategic Planning Committee, in cooperation with
the Company's management, identifies business issues facing the Company, and
recommends potential strategies to solve those issues. The Strategic Planning
Committee met three times during the past fiscal year.
DIVERSITY/COMMUNITY/SHAREHOLDER RELATIONS COMMITTEE
From March through July 2005, the Diversity/Community/Shareholder Relations
Committee consisted of Mr. Archer, Dr. Didier, Ms. Nelson, Dr. Price and Mr.
Romney. Since August 2005 Diversity/ Community/Shareholder Relations Committee
has consisted of Mr. Archer, Ms. Nelson, Dr. Price and Mr. Romney. The
Diversity/Community/Shareholder Relations Committee makes recommendations to
assist the Company in achieving its initiatives regarding diversity, community
and shareholder relations. The major objectives of the diversity initiatives are
to (a) create an inclusive environment that recognizes, understands, utilizes
and values the contributions of all employees; (b) advance efforts that will
attract, develop and retain a diverse slate of employees and candidates; (c)
enhance affirmative opportunities to attract diverse vendors; (d) build
relationships with organizations that are diverse; and (e) develop strategies to
assist with the diversity initiatives.
The shareholder relations objectives of the Committee are to oversee the
Company's shareholder relations policies and programs so that the Company's
communications with shareholders are timely, relevant, accurate and, pursuant to
the advice of legal counsel, meet all legal obligations to investors. The
Committee provides strategic oversight for shareholder communications and
related processes so that investors and potential investors have access to
relevant information about the Company's vision, mission and operating results.
The Diversity/Community/Shareholder Relations Committee met four times during
the past fiscal year.
EXECUTIVE COMMITTEE
During fiscal 2006, the Executive Committee consisted of Messrs. Archer,
Bedi, Karmanos and Prowse. The Executive Committee undertakes certain tasks as
may be directed by the Board from time to time, pursuant to a written charter
adopted by the Board during fiscal 2006. The Executive Committee met five times
during fiscal 2006.
13
SECURITY OWNERSHIP OF MANAGEMENT AND MAJOR SHAREHOLDERS
The following table shows, as of the close of trading on June 30, 2006, the
beneficial ownership of our common shares by all directors and executive
officers as a group who were serving as such on that date, by each current
director and nominee, by each executive officer named in the Summary
Compensation Table and by all persons known to us to beneficially own more than
five percent of our outstanding common shares. The number of shares beneficially
owned is determined according to SEC rules and is not necessarily indicative of
beneficial ownership for any other purpose. Under those rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or dispositive power and also any shares as to which the individual
has the right to acquire on June 30, 2006 or within 60 days thereafter through
the exercise of any stock option or other right. Except as otherwise noted, each
beneficial owner identified in the table below has sole voting and dispositive
power with respect to the shares shown in the table.
<Table>
<Caption>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------ ----------------------- --------
Dennis W. Archer............................................ 24,700(2) *
Gurminder S. Bedi........................................... 28,585 *
Thomas M. Costello, Jr. .................................... 687,054 *
Laura L. Fournier........................................... 791,367 *
William O. Grabe............................................ 359,761 *
William R. Halling.......................................... 267,670 *
Henry A. Jallos............................................. 3,975,432 1.1%
Peter Karmanos, Jr. ........................................ 23,769,239(3) 6.2%
Faye Alexander Nelson....................................... 10,230 *
Robert C. Paul.............................................. 5,509 *
Glenda D. Price............................................. 10,000 *
W. James Prowse............................................. 1,844,024(4) *
G. Scott Romney............................................. 218,070(5) *
Lowell P. Weicker, Jr. ..................................... 150,163 *
All executive officers and directors as a group (15
persons).................................................. 32,143,786(6) 8.3%
Massachusetts Financial Services............................ 19,680,178(7) 5.3%
Dodge & Cox................................................. 48,784,532(8) 13.1%
Oppenheimer Funds........................................... 27,788,462(9) 7.4%
</Table>
- -------------------------
* Less than one percent
(1) The column includes shares held for officers and directors through our ESOP
and shares that the individual has the right to acquire on June 30, 2006 or
within 60 days thereafter pursuant to stock options, as set forth below.
<Table>
<Caption>
NAME ESOP SHARES OPTION SHARES
- ---- ----------- -------------
Dennis W. Archer............................................ 0 24,500
Gurminder S. Bedi........................................... 0 2,500
Thomas M. Costello, Jr. .................................... 1,462 654,427
Laura L. Fournier........................................... 20,437 699,947
William O. Grabe............................................ 0 184,324
William R. Halling.......................................... 0 218,168
Henry A. Jallos............................................. 34,707 3,907,644
Peter Karmanos, Jr. ........................................ 379,229 7,947,410
Faye Alexander Nelson....................................... 0 2,500
Robert C. Paul.............................................. 69 0
Glenda D. Price............................................. 0 0
W. James Prowse............................................. 0 1,150,598
G. Scott Romney............................................. 0 181,571
Lowell P. Weicker, Jr. ..................................... 0 150,163
All executive officers and directors as a group............. 435,904 15,123,752
</Table>
14
- -------------------------
(2) Dennis Archer elected to defer receipt of his fiscal 2007 $40,000 annual
retainer fee. As of April 3, 2006, Mr. Archer is credited with 5,063
Deferred Compensation Units, which will become payable in cash based on the
fair market value of Company common stock on the date that Mr. Archer ceases
to be a member of the Board of Directors. Mr. Archer has no voting or
dispositive power with respect to these Units and they are excluded from the
amount shown in the table above.
(3) Includes (a) 3,212,622 shares owned by Mr. Karmanos' trusts, as to which Mr.
Karmanos has shared dispositive power for 47,272 of the 3,212,622 shares;
(b) 5,808,978 shares held by Mr. Karmanos' partnerships, as to which Mr.
Karmanos has shared voting and dispositive power; and (c) 6,421,000 shares
held by Mr. Karmanos' stock LLC, with respect to which shares Mr. Karmanos
has no dispositive power and are held subject to forward purchase contracts
maturing at various times between January 2007 and September 2008. Mr.
Karmanos' address is Compuware Corporation, One Campus Martius, Detroit,
Michigan 48226-5099.
(4) Includes (a) 193,426 shares owned by Mr. Prowse's trust and (b) 500,000
shares, with respect to which shares Mr. Prowse has no dispositive power and
are held subject to a forward purchase contract maturing in February 2008.
(5) Includes 3,000 shares owned by Mr. Romney's wife, with respect to which
shares Mr. Romney has no voting or dispositive power.
(6) See notes (2), (3), (4) and (5) for information on shares with respect to
which persons included in the group do not currently have sole voting and
investment power.
(7) Based solely on a Schedule 13G/A, dated March 22, 2006, filed by
Massachusetts Financial Services Company ("MFS") with the SEC on March 22,
2006 disclosing ownership as of December 31, 2005. MFS' address is 500
Boylston Street, 10th Floor, Boston, Massachusetts 02116. According to the
Schedule 13G/A, MFS has sole voting power with respect to 19,671,968 shares
and sole dispositive power with respect to 19,680,178 shares.
(8) Based solely on a Schedule 13G/A, dated February 3, 2006, filed by Dodge &
Cox with the SEC on February 3, 2006 disclosing ownership as of December 31,
2005. Dodge & Cox's address is 555 California Street, 40th Floor, San
Francisco, California 94104. According to the Schedule 13G/A, Dodge & Cox
has sole voting power with respect to 44,448,132 shares, shared voting power
with respect to 750,600 shares and sole dispositive power with respect to
48,784,532 shares.
(9) Based on information obtained from Oppenheimer Funds Inc. disclosing
ownership as of March 31, 2006. Oppenheimer Funds' address is Two World
Financial Center, 225 Liberty Street, New York, New York 10281. Oppenheimer
Funds Inc. shares dispositive power with respect to its shares with
Oppenheimer Private Investments, an affiliated fund of Oppenheimer Funds
Inc.
15
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table sets forth information for the fiscal years indicated
concerning the compensation of (1) our Chief Executive Officer and (2) each of
our four other most highly compensated executive officers based on salary and
bonus paid for services rendered in fiscal 2006 who were serving as executive
officers on March 31, 2006. These executive officers are collectively referred
to as the Named Officers.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ AWARDS
OTHER ------------
ANNUAL SECURITIES ALL OTHER
COMP. UNDERLYING COMP.
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) OPTIONS(#) ($)(3)
- --------------------------- ---- --------- ----------- ------ ------------ ---------
Peter Karmanos, Jr. ............... 2006 971,850 1,749,330 77,780 194,370 0
Chairman of the Board and 2005 635,925 1,457,775 6,140 97,185 0
Chief Executive Officer 2004 657,546 940,500 5,971 95,000 185,000
Henry A. Jallos.................... 2006 572,942 1,035,000 115,000 0
President and COO, Products 2005 537,075 767,250 51,150 0
2004 486,833 495,000 50,000 0
Robert C. Paul..................... 2006 409,200 736,560 81,840 0
President and COO, Covisint 2005 409,200 613,800 40,000 0
2004 34,100 0 250,000 0
Laura L. Fournier.................. 2006 395,833 720,000 80,000 0
Senior Vice President, 2005 368,765 506,385 33,759 0
Chief Financial Officer and 2004 314,505 163,350 32,500 0
Treasurer
Thomas M. Costello, Jr. ........... 2006 395,833 720,000 80,000 0
Senior Vice President, 2005 363,650 460,350 30,690 0
Human Resources; Secretary 2004 292,100 148,500 15,000 0
and General Counsel
</Table>
- -------------------------
(1) Beginning with fiscal 2004, the executive incentive compensation program
covering the Named Officers included two components, the first of which is a
cash incentive, which is earned only if the Company achieves specified
earnings per share or revenue targets and is paid early in the next fiscal
year. One of the targets was achieved for fiscal 2006, 2005 and 2004, and as
a result the Named Officers were paid a cash incentive bonus. The second
component of the executive incentive compensation program covering the Named
Officers, which began with fiscal 2004, is performance cash, which is 50
percent of the cash incentive earned. Performance cash is earned and paid in
a lump sum at the end of a two-year vesting period, subject to continued
employment during the vesting period. One of the targets was achieved for
fiscal 2006, 2005 and 2004, and as a result the Named Officers were credited
with performance cash based on 50% of the cash incentive paid. The following
table shows both components of the bonuses earned by the Named Officers
during the last three years.
16
<Table>
<Caption>
CASH PERFORMANCE
INCENTIVE CASH
NAMED OFFICER YEAR BONUS($) CREDITED($) TOTAL($)
- ------------- ---- --------- ----------- ---------
Peter Karmanos, Jr. ........................................ 2006 1,166,220 583,110 1,749,330
2005 971,850 485,925 1,457,775
2004 627,000 313,500 940,500
Henry A. Jallos............................................. 2006 690,000 345,000 1,035,000
2005 511,500 255,750 767,250
2004 330,000 165,000 495,000
Robert C. Paul.............................................. 2006 491,040 245,520 736,560
2005 409,200 204,600 613,800
2004 0 0 0
Laura L. Fournier........................................... 2006 480,000 240,000 720,000
2005 337,590 168,795 506,385
2004 108,900 54,450 163,350
Thomas M. Costello, Jr. .................................... 2006 480,000 240,000 720,000
2005 306,900 153,450 460,350
2004 99,000 49,500 148,500
</Table>
- -------------------------
(2) All amounts identified for fiscal 2004, 2005 and $13,995 of the amount
identified for fiscal 2006 represent the value of the discount from fair
market value of the shares of common stock purchased by Mr. Karmanos from
the Company during those fiscal years. Mr. Karmanos purchases shares from
the Company on the same terms as provided in the Company's Global Employee
Stock Purchase Plan to all employees of the Company, although he does not
participate in the Plan directly due to his beneficial ownership of more
than five percent of the Company's outstanding shares. The balance of the
amount identified for fiscal 2006 consists of non-cash perquisites afforded
to Mr. Karmanos on the same basis as other executive officers. The non-cash
perquisites provided to Mr. Karmanos included $49,743 for the Company's cost
of his use of leased automobiles. Perquisites paid by the Company to the
other Named Officers and to Mr. Karmanos during fiscal 2005 and 2004 did not
exceed the lesser of $50,000 or 10 percent of salary and bonus paid for the
year and, therefore, have been excluded pursuant to applicable rules.
(3) In fiscal 2004, we paid approximately $185,000 in life insurance premiums in
connection with a split-dollar life insurance arrangement on the life of Mr.
Karmanos. In connection with that arrangement, Mr. Karmanos' children or
trusts for their benefit paid the insurance premiums allocable to term life
insurance and a portion of the premiums allocable to whole life insurance.
We paid the remainder of the premiums. In fiscal 2005, Mr. Karmanos'
children and trusts repaid $2,225,706 to the Company, which is the total of
all of the premiums paid by us.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made during the last fiscal year to each of the Named Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
INDIVIDUAL GRANTS
-----------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE GRANT DATE
OPTIONS IN FISCAL PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) YEAR ($/SH) DATE VALUE($)(2)
- ---- ------------- ---------- -------- ---------- -----------
Peter Karmanos, Jr. ...................... 194,370 6.96% $7.245 06/22/2015 $870,719
Henry A. Jallos........................... 115,000 4.12% $7.245 06/22/2015 $515,166
Robert C. Paul............................ 81,840 2.93% $7.245 06/22/2015 $366,619
Laura L. Fournier......................... 80,000 2.86% $7.245 06/22/2015 $358,376
Thomas M. Costello, Jr. .................. 80,000 2.86% $7.245 06/22/2015 $358,376
</Table>
17
- -------------------------
(1) Fifty percent of the option becomes exercisable on the third anniversary of
the date of grant, and 25 percent of the option shares vest on the fourth
and fifth anniversaries of the date of grant. The option shares accelerate
and are 100 percent exercisable in the event of death or disability and may
be included by the Named Officer in the Replacement Program. Under the
Replacement Program, the Named Officer may request, no more than twice in a
calendar year, a replacement option grant at the time of exercise if the
Named Officer pays the exercise price and/or withholding taxes by
surrendering their stock to us. The Named Officer receives a replacement
option grant equal to the number of shares surrendered for the exercise
price and/or the withholding taxes. All replacement options have an exercise
price equal to the fair market value of the common shares on the date of
grant and are 100 percent exercisable on the date of grant, which is the
date of the related exercise.
(2) Amounts determined using the Black-Scholes pricing model. Weighted average
assumptions used for valuation of these stock option grants were as follows:
expected volatility of 74.27 percent, risk-free interest rate of 3.61
percent, and expected lives at date of grant of 5.0 years. Dividend yields
were assumed to be zero, as the Company has never issued cash dividends.
Actual gains, if any, will be dependent on overall market conditions and on
future performance of the common shares.
OPTIONS EXERCISED IN LAST FISCAL YEAR AND OPTION HOLDINGS
The following table sets forth information concerning stock options
exercised in the last fiscal year by each of the Named Officers and the value of
unexercised options held by each of the Named Officers as of March 31, 2006.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES MARCH 31, 2006(#) MARCH 31, 2006($)(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Peter Karmanos, Jr. .... 40,000 $224,400 7,662,410 766,555 $247,950 $815,118
Henry A. Jallos......... 0 0 3,757,644 416,150 130,500 436,439
Robert C. Paul.......... 0 0 0 371,840 0 87,276
Laura L. Fournier....... 36,000(2) 212,080 639,947 220,009 52,200 254,316
Thomas M. Costello,
Jr. .................. 128,000 674,148 614,427 183,190 43,500 167,423
</Table>
- -------------------------
(1) Represents the amount by which the market price of the Company's common
stock exceeded the exercise prices of the outstanding options on March 31,
2006 (excluding those that had an exercise price of more than the market
price). Market price is based on the closing price on NASDAQ on that date of
$7.83.
(2) Two separate stock options totaling 36,000 shares were exercised by Ms.
Fournier prior to their respective expiration dates. Ms. Fournier delivered
to the Company 19,742 shares to pay the exercise price and taxes on the gain
and acquired a net 16,258 shares of Company common stock.
18
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The information contained in this report shall not be deemed to be
"soliciting material" or "filed" with the SEC or subject to the liabilities of
Section 18 of the Exchange Act, except to the extent that we specifically
incorporate it by reference into a document filed under the Securities Act or
the Exchange Act.
GENERAL COMPENSATION PHILOSOPHY
A basic philosophy of Compuware Corporation is that executive officers,
including the Company's Chief Executive Officer ("CEO"), and other key employees
have a meaningful portion of their total compensation tied to the Company's
profitability and revenue goals. In furtherance of this philosophy, certain key
employees have been identified throughout the organization and are eligible to
participate in the executive incentive compensation program. Executive
compensation is administered by the Compensation Committee of the Board. The
Compensation Committee is comprised of three independent directors.
COMPENSATION FOR EXECUTIVES
Under the executive incentive compensation program, a participant's
compensation is comprised of his/her base salary as well as annual and long-term
incentives. Incentive awards are based on an established percentage of the
participant's base salary and are tied to the Company's business objectives. The
incentives include (a) an annual cash bonus, which is earned and paid only if
the Company achieves specified earnings per share ("EPS") or revenue targets,
(b) long-term performance cash, which if specified EPS and/or revenue targets
are met, pays a cash award at the end of a two-year vesting period, and (c)
stock options structured to vest over a five-year period. Since incentive awards
account for a large percentage of total compensation and since such awards are
tied to the Company's business objectives, the largest variable in determining
total compensation of the CEO, the executive officers, and certain other key
participants in the executive incentive compensation program is the Company's
profitability and meeting revenue goals. The executive incentive compensation
program was introduced following consultation with Towers Perrin, a nationally
recognized independent consultant.
Base Salary: Mr. Karmanos, the Company's Chief Executive Officer, pursuant
to authority delegated to him by the Compensation Committee and with concurrence
of the Committee of his general recommendations, increased the salaries of Mr.
Jallos to $575,000 and Ms. Fournier to $400,000, effective June 1, 2005 and
increased the annual salaries of Mr. Jallos to $600,000, Mr. Paul to $425,000,
Ms. Fournier to $450,000 and Mr. Costello to $425,000 effective June 1, 2006.
Annual Incentive: If the EPS and revenue targets are met, the total annual
incentive cash compensation for fiscal 2006 represented 200 percent of the
executive officer's base salary, half of which is measured against EPS
attainment and half of which is measured against revenue attainment. The EPS and
revenue components were reviewed and calculated independently. Three performance
levels were established around the EPS and revenue targets. Bonus awards range
from 50 percent to 150 percent for each component depending on the level of
attainment and are prorated between performance levels. The actual annualized
salary as of June 1, 2005 was used in calculating the fiscal 2006 target total
cash compensation. The Compensation Committee determined that the EPS target was
achieved for fiscal 2006 and, as a result, the executive officers received the
annual cash bonus representing 120 percent of their base salary. In fiscal 2007
the target total annual incentive cash compensation for each of the Named
Officers will represent 200 percent of the executive's base salary as of June 1,
2006.
Long-Term Incentive: The total long-term incentive compensation for fiscal
2006 represented 200 percent of the executive officer's base salary, half of
which was allocated to long-term performance cash and half of which was paid in
the form of options granted under the Company's Fiscal 1998 Stock Option Plan.
The annualized salary as of June 1, 2005 was used in calculating the value of
the fiscal 2006 long-term incentive.
Long-term performance cash represents 50 percent of the total actual annual
incentive cash compensation award earned and is paid in a lump sum at the end of
a two-year vesting period, subject to continued employment during the vesting
period. As noted above, the Company's fiscal 2006 performance met one of the
19
predetermined targets (EPS), and so the executives were credited with a
long-term performance cash award that represents 60 percent of the executives'
base salary. Executive officers will receive payment of this performance cash
award in April 2008 if the retention condition is met. In April 2006, the
executive officers and other participants in the executive incentive
compensation program who had been part of the program in fiscal 2004 and
remained employed by the Company through April 1, 2006 received performance cash
that had been awarded for fiscal 2004 performance.
Stock option grants represent 50 percent of the long-term incentive award.
In fiscal 2006, the number of options was determined by dividing one-half of the
target long-term incentive compensation amount by five. Option grants were
structured to encourage long-term loyalty to the Company. Options will have
value only to the extent that the market price of the stock increases over the
market value on the grant date. Fifty percent of the option shares become
exercisable on the third anniversary of the date of grant, 25 percent become
exercisable on the fourth anniversary and the remainder of the option shares
become exercisable on the fifth anniversary. Participants in the fiscal 2006
executive incentive compensation program were granted options in June 2005. It
is expected that participants in the fiscal 2007 executive incentive
compensation program will be granted options in August 2006.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
Base Salary: Effective June 1, 2006, and pursuant to the direction of the
Compensation Committee, Mr. Karmanos' salary was increased to $1,000,000. Mr.
Karmanos did not receive a salary increase in fiscal 2006.
Annual Incentive: Under the executive incentive compensation program in
fiscal 2006, Mr. Karmanos was eligible to receive, on the same basis as the
other executive officers, an annual cash bonus if specified EPS and/or revenue
targets were achieved. One of the targets (EPS) was achieved for fiscal 2006 and
as a result Mr. Karmanos earned and received 120 percent of his base salary
under the terms of the executive incentive compensation program.
Long-Term Incentive: As a result of the Company's fiscal 2006 performance
and on the same basis as the other executive officers, Mr. Karmanos was also
credited with a long-term performance cash award that represents 60 percent of
his base salary. Mr. Karmanos will receive payment of this performance cash
award in April 2008 if the retention condition is met. In April 2006, Mr.
Karmanos received long-term performance cash that had been awarded for fiscal
2004 performance.
On the same basis as the other executive officers, Mr. Karmanos was granted
options in June 2005 for fiscal 2006. As a participant in the fiscal 2007
executive incentive compensation program, it is expected that Mr. Karmanos will
be granted options in August 2006.
In fiscal 2007 and consistent with the compensation philosophy of the
Company, the profitability and revenue goals of the Company remain the primary
variables in the executive incentive program to recognize and reward Mr.
Karmanos, the key executive officers and certain other key employees for any
specified achievement.
20
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), restricts the deductibility of executive compensation paid to the
Company's CEO and each of the four other most highly compensated executive
officers (as determined at the end of any fiscal year) to not more than $1
million in annual compensation (including gains from the exercise of certain
stock option grants). Some of the Company's option plans contain a
shareholder-approved restriction on the number of options that may be granted
which is intended to cause compensation realized in connection with the exercise
of options granted under these plans to be exempt from the restriction on
deductibility. The Compensation Committee has concluded, and may conclude in the
future, that it is appropriate to exceed the limitations on deductibility under
Section 162(m) to ensure that executive officers are compensated in a manner
that it believes to be consistent with the best interests of the Company and its
shareholders.
By the Compensation Committee,
William O. Grabe
Faye Alexander Nelson
Lowell P. Weicker, Jr.
COMPENSATION OF DIRECTORS
CASH COMPENSATION
For fiscal 2006, the Board of Directors received an annual retainer of
$40,000. In addition, each non-employee director who is serving as the
chairperson of a Board committee other than the Audit Committee receives an
additional annual retainer of $5,000. The annual retainer for the chair of the
Audit Committee was $10,000. Non-employee directors receive $2,500 for attending
each Board meeting and $1,500 for attending each committee meeting. We also
reimburse non-employee directors for out-of-pocket expenses they incur for
education and for attending Board and committee meetings.
Beginning in fiscal 2006, directors may defer the receipt of all or a
portion of their cash compensation if the director has made a written election
to do so prior to the beginning of such fiscal year.
To facilitate these deferrals, the Board has adopted the 2005 Non-Employee
Directors Deferred Compensation Plan (the "Deferred Compensation Plan"). The
Deferred Compensation Plan allows directors to defer all or a portion of their
cash compensation in the form of cash or deferred compensation units ("Units"),
with each Unit representing one share of common stock. The number of Units
allocated to a director's Deferred Compensation Plan account is calculated by
dividing the amount of fees the director elects to defer into Units by the fair
market value of a share of Company common stock on the date the fees otherwise
would have been paid. The value of Units in a director's Plan account (each Unit
having a value equal to the fair market value of one share of the Company's
common stock at the time of distribution), plus interest accrued on the cash in
the account at the U.S. federal funds rate, will be distributed to the director
in a lump sum or according to a schedule, as elected by the director, beginning
on the earliest of the director's death, the director's disability, a change in
control of the Company, the director's separation from service or a specified
date elected by the director. Participating directors are also permitted to make
withdrawals in the event of an "unforeseeable emergency" that qualifies as a
permissible distribution event for purposes of Section 409A of the Internal
Revenue Code.
21
PHANTOM STOCK AWARDS
The director compensation arrangement also includes awards under the 2002
Directors Phantom Stock Plan (the "Phantom Plan"). Under the Phantom Plan in
each quarter of fiscal 2006, the non-employee directors received phantom stock
unit grants valued at $35,000 each. The number of phantom stock units allocated
to a director's Phantom Plan account is calculated by dividing the value of the
award by the fair market value of a share of Company common stock on the date
the award is granted. A phantom stock unit gives the non-employee director the
right to receive the value of a share of the Company's common stock in cash upon
vesting, which occurs on the date the non-employee director ceases to be a
member of the Board, unless removed from the Board for cause. The following
table shows the total number and value of phantom stock units held by the
current non-employee directors.
PHANTOM STOCK AWARDS
<Table>
<Caption>
PHANTOM STOCK UNIT
NAME BALANCE AS OF 06/30/06 06/30/06 UNIT VALUE
- ---- ---------------------- -------------------------
Dennis W. Archer.................................... 44,675 $298,429
Gurminder S. Bedi................................... 42,194 281,856
William O. Grabe.................................... 44,675 298,429
William R. Halling.................................. 44,675 298,429
Faye Alexander Nelson............................... 42,194 281,856
Glenda D. Price..................................... 42,194 281,856
W. James Prowse..................................... 44,675 298,429
G. Scott Romney..................................... 44,675 298,429
Lowell P. Weicker................................... 44,675 298,429
</Table>
EQUITY OWNERSHIP
Beginning in fiscal 2006, the Board also determined that it would be in the
best interest of the Company's shareholders for the non-employee directors to
have a substantial investment in our common stock. As a result, the Board is
requiring all non-employee directors to hold or purchase a minimum value of our
common stock as follows: $40,000 as of 2006; $80,000 as of 2007; $120,000 as of
2008; $160,000 as of 2009; and $200,000 as of 2010. Non-employee directors would
be expected to hold such shares during the remainder of their term of office. In
May 2006, the Board determined that because Units acquired under the Director
Deferred Compensation Plan subject directors to the same potential gains and
losses as ownership of Company common stock, the fees a director defers into
Units would be taken into account in determining whether the director satisfies
the above minimum ownership requirements. The Board also determined that the
date for determining compliance with the policy would be the last day of the
trading window under the Company's insider trading policy preceding the end of
the first fiscal quarter of each fiscal year.
22
PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in the
cumulative total shareholder return on our common shares with the cumulative
total return of the cumulative total shareholder return of the S&P 500 Index,
the Total Return Index for The NASDAQ U.S. Index and the cumulative total return
of the Total Return Index for NASDAQ Computer and Data Processing Services
Stocks for the period from April 1, 2001 through March 31, 2006. The graph
includes a comparison to the S&P 500 index in accordance with SEC rules, as the
Company's stock is part of such index. The graph assumes the investment of $100
in our common shares, the S&P 500 index and each of the two NASDAQ indexes on
March 31, 2001 and the reinvestment of all dividends.
The comparisons in the graph are required by the SEC. You should be careful
about drawing any conclusions from the data contained in the graph, because past
results do not necessarily indicate future performance. The information
contained in this graph shall not be deemed to be "soliciting material" or
"filed" with the SEC or subject to the liabilities of Section 18 of the Exchange
Act, except to the extent that we specifically incorporate it by reference into
a document filed under the Securities Act or the Exchange Act.
TOTAL RETURN TO SHAREHOLDERS
(INCLUDES REINVESTMENT OF DIVIDENDS)
[PERFORMANCE CHART]
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
Base Period
Company/Index Mar 01 Mar 02 Mar 03 Mar 04 Mar 05 Mar 06
- ---------------------------------------------------------------------------------------------------------------------------------
Compuware Corp $100 $132.41 $34.77 $ 76.00 $ 73.85 $ 80.31
S&P 500 Index $100 $100.24 $75.42 $101.91 $108.73 $121.48
NASDAQ U.S. Index $100 $100.78 $73.97 $109.17 $109.90 $129.63
NASDAQ Computer & Data Processing Index $100 $101.86 $74.16 $ 93.70 $ 99.69 $117.33
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
OTHER MATTERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than 10 percent of a registered
class of our equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of our common shares and other
equity securities.
23
Officers, directors and greater-than-10 percent shareholders are required by SEC
regulations to furnish us with copies of all Section 16(a) reports they file.
To our knowledge, based solely on our review of the copies of such reports
furnished to us during or with respect to fiscal 2006, or written
representations that no Form 5 was required, we believe that all Section 16(a)
filing requirements applicable to our officers, directors and greater than 10
percent beneficial owners were met during fiscal 2006 except as follows. Eleven
purchases from the Company (reportable on 10 forms since 1997) that were made by
Mr. Karmanos on the same terms and conditions as provided in the Company's
Global Employee Stock Purchase Plan (the "GESPP") were reported either late or
on-time but with incomplete detail. The ownership of the shares resulting from
these purchases, and in most cases the acquisitions themselves, were previously
disclosed in Mr. Karmanos' prior Section 16 filings as if the purchases had been
made pursuant to the GESPP. The disclosure regarding these purchases, all of
which were exempt from liability under Section 16(b), has been revised in
accordance with applicable SEC rules.
RELATED-PARTY TRANSACTIONS
In fiscal 2006, we paid a total of approximately $1,225,000 in ticket,
advertising and suite license fees to certain major and minor league sports
venues, including arenas and teams located in Raleigh, North Carolina; Plymouth,
Michigan and Ft. Myers, Florida. These arenas and teams are owned, managed or
controlled by entities owned and controlled by interests of Peter Karmanos, Jr.,
our Chairman of the Board and CEO, namely Compuware Sports Corporation ("CSC")
and Gale Force Sports & Entertainment, LLC ("GFSE"). This amount includes the
approximately $840,000 we paid to CSC pursuant to a Promotion Agreement dated
September 8, 1992, which agreement requires CSC to undertake certain promotional
activities on behalf of the Company. The Promotion Agreement automatically
renews for successive one-year terms, unless terminated by either party with 60
days notice. The total amount also includes the approximately $250,000 we paid
to GFSE pursuant to an Advertising Agreement, dated December 1, 1996, which
agreement includes the right to name the Plymouth, Michigan arena "Compuware
Arena" and the placement of fixed advertising in and about the arena. The
Advertising Agreement will terminate on November 30, 2016.
Business needs occasionally require various employees of Compuware to
travel on private aircraft. We are a party to an exchange agreement with Karthe
Corporation, a company that is 50 percent owned by Peter Karmanos, Jr. Under the
exchange agreement, we allow Karthe to use Compuware's aircraft and, in
exchange, Karthe allows Compuware to use Karthe's aircraft. During fiscal 2006,
Karthe used Compuware's aircraft for approximately 46 hours, and Compuware used
Karthe's aircraft for approximately 75 hours. Compensation for the use of the
aircraft is paid in hours, and no cash or other compensation is exchanged by the
parties under the agreement unless the agreement is terminated. As of March 31,
2006, Karthe owed Compuware approximately 49 hours under the agreement. These
hours are valued at approximately $82,000. We believe that such services were
provided by us and to us under this arrangement on terms that were no less
favorable than could have been obtained from unaffiliated third parties.
As a benefit to various employees of the Company, we occasionally invite
them to vacation in condominium units that were acquired from an unaffiliated
third party by a trust in which Mr. Karmanos is the trustee and beneficiary.
These units were acquired by the trust as an accommodation to the Company in
order to preserve this valuable incentive for the Company's employees. We
reimbursed Mr. Karmanos approximately $77,000 in miscellaneous expenses related
to employees' use of the condominium units in fiscal 2006. We believe that the
expenses paid by us are at or below market rates and are no less favorable than
we could have obtained from unaffiliated third parties.
Dennis W. Archer, one of our directors, is a partner in the law firm of
Dickinson Wright PLLC. We engaged the Dickinson firm to perform legal services
in fiscal 2006, and we expect to continue to engage the Dickinson firm to
perform legal services in fiscal 2007.
G. Scott Romney, one of our directors, is a partner in the law firm of
Honigman Miller Schwartz and Cohn LLP. We engaged the Honigman firm to perform
legal services in fiscal 2006, and we expect to continue to engage the Honigman
firm to perform legal services in fiscal 2007.
24
EXPENSE OF SOLICITING PROXIES
We will bear the expense of soliciting proxies, including the cost of
preparing, printing and mailing the Notice of the 2006 Annual Meeting of
Shareholders, the Proxy Statement, the 2006 Annual Report and the accompanying
proxy card. These materials are generally being sent to brokers, nominees and
other shareholders of record by U.S. mail, and to employees who are shareholders
by internal electronic mail. We may supplement our solicitation of proxies by
mail with personal interview, telephone or facsimile solicitation by our
directors, officers and other regular employees. We will not pay any special
compensation to them for these services. We have also retained Georgeson
Shareholder Communications, Inc. to assist our solicitation of proxies, at an
approximate cost of $9,000, plus reasonable expenses. We will request that
brokers, nominees and other similar record-holders forward proxy material to the
beneficial owners of our common shares, and we will reimburse them upon request
for their reasonable expenses incurred in forwarding such material.
SHAREHOLDER PROPOSALS AND
DIRECTOR NOMINATIONS FOR 2007 ANNUAL MEETING OF SHAREHOLDERS
Proposals of shareholders that are intended to be presented at our 2007
Annual Meeting of Shareholders must be received by our Secretary at our offices,
One Campus Martius, Detroit, Michigan 48226, no later than March 19, 2007 to be
considered for inclusion in our Proxy Statement and proxy card relating to that
meeting. In addition, our bylaws provide that, in order for a shareholder
proposal or nomination to be properly brought before the 2007 Annual Meeting, we
must receive written notice of such proposal or nomination and the information
required by the bylaws on or before May 24, 2007. If the date for the 2007
Annual Meeting of Shareholders is significantly different than the first
anniversary of the 2006 Annual Meeting of Shareholders, the bylaws and SEC rules
provide for an adjustment to the notice periods described above. All proposals
for director-nominees or matters to be considered and voted upon by shareholders
at the meeting, whether intended to be included in the Company's proxy or not,
should be sent by certified mail, return receipt requested and should satisfy
the applicable informational requirements contained in the Company's bylaws and
the rules of the SEC. We expect the persons named as proxies for the 2007 Annual
Meeting of Shareholders to use their discretionary voting authority, to the
extent permitted by law, with respect to any proposal presented at that meeting
by a shareholder who does not provide us with written notice of such proposal
complying with the applicable requirements on or before such date.
25
(COMPUWARE(R) LOGO) ANNUAL MEETING ADMISSION TICKET
000000000.000 ext
MR A SAMPLE 000004 000000000.000 ext
DESIGNATION (IF ANY) 000000000.000 ext
ADD 1 000000000.000 ext
ADD 2 LEAST ADDRESS LINE 000000000.000 ext
ADD 3 000000000.000 ext
ADD 4 000000000.000 ext
ADD 5
ADD 6
2006 ANNUAL MEETING OF
COMPUWARE CORPORATION SHAREHOLDERS
AUGUST 22, 2006, 3:00 P.M. EASTERN TIME
COMPUWARE HEADQUARTERS
ONE CAMPUS MARTIUS
DETROIT, MI 48226
UPON ARRIVAL, PLEASE PRESENT THIS ADMISSION TICKET
AND PHOTO IDENTIFICATION AT THE REGISTRATION DESK.
THIS TICKET ADMITS ONLY THE STOCKHOLDER LISTED
TO THE LEFT AND IS NOT TRANSFERABLE.
PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS.
- -----------------------------------------------------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD 123456 C0123456789 12345
- -----------------------------------------------------------------------------------------------------------------------------
[ ] Please mark this box with an X if your address MR A SAMPLE (THIS AREA IS SET UP
has changed and print the new address below. TO ACCOMMODATE 140 CHARACTERS)
___________________________________________________
___________________________________________________
A ELECTION OF DIRECTORS - THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS.
1. The election of nine directors to serve until the next Annual Meeting of Shareholders and until their successors are
elected and qualified.
FOR WITHHOLD FOR WITHHOLD FOR WITHHOLD
01 - Dennis W. Archer [ ] [ ] 04 - William R. Halling [ ] [ ] 07 - Glenda D. Price [ ] [ ]
02 - Gurminder S. Bedi [ ] [ ] 05 - Peter Karmanos, Jr. [ ] [ ] 08 - W. James Prowse [ ] [ ]
03 - William O. Grabe [ ] [ ] 06 - Faye Alexander Nelson [ ] [ ] 09 - G. Scott Romney [ ] [ ]
B ISSUES - THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS.
FOR AGAINST ABSTAIN
2. The ratification of the appointment of Deloitte & Touche LLP [ ] [ ] [ ] Mark this box with an X if [ ]
as the independent registered public accounting firm. you plan to attend the
Annual Meeting.
3. The ratification of the Rights Agreement, dated October 25, [ ] [ ] [ ] Mark this box with an X if [ ]
2000, as amended. you have made comments
below.
In their discretion, the Proxy is also authorized to the extent permitted by law, to vote
on any and all other matters as may properly come before the meeting, including the _________________________________
authority to vote to adjourn the meeting. The undersigned hereby revokes any proxy or
proxies heretofore given to vote upon or act with respect to said stock, and hereby _________________________________
ratifies and confirms all that the Proxy named herein and their substitutes, or any of
them, may lawfully do by virtue hereof. The undersigned acknowledges receipt of the _________________________________
Notice of the Annual Meeting and the Proxy Statement, both dated July 18, 2006 and the
2006 Annual Report.
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR INSTRUCTIONS TO BE EXECUTED.
Please be sure to sign and date this proxy card. Please sign exactly as your name(s) appear(s) on the books of the Company.
Joint owners should each sign personally. Trustees, custodians, and other fiduciaries should indicate the capacity in which
they sign, and where more than one name appears, a majority must sign. If shareholder is a corporation, the signature should
be that of an authorized officer who should indicate his or her title.
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (mm/dd/yyyy)
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ADMISSION TICKET
The entrance for Compuware visitor parking is on Farmer Street between Monroe Street and Gratiot Avenue. Once you have
parked, please take the elevator down to the Farmer Street (ground) level. Cross the street to the Farmer Street entrance of
the Compuware building, and make your way to the registration desk.
PLEASE FOLD AND RETURN THIS CARD IF VOTING BY MAIL.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints as Proxy, Thomas M. Costello, Jr., or Laura L. Fournier, with power of substitution, to vote
the shares of Common Stock that the undersigned is entitled to vote at the Annual Meeting of Shareholders of Compuware
Corporation, to be held on August 22, 2006 and at any adjournment(s) thereof.
THE PROXY WILL VOTE YOUR SHARES IN ACCORDANCE WITH YOUR DIRECTIONS ON THIS CARD. IF YOU DO NOT INDICATE YOUR CHOICE ON THIS
CARD, BY INTERNET OR TELEPHONE, THE PROXY WILL VOTE YOUR SHARES (A) FOR ALL THE NOMINEES FOR DIRECTOR AS LISTED IN PROPOSAL
1, (B) FOR RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, (C) FOR RATIFICATION OF THE
RIGHTS AGREEMENT, AND (D) IN THEIR DISCRETION WITH RESPECT TO ANY AND ALL OTHER MATTERS BROUGHT BEFORE THE MEETING TO THE
EXTENT PERMITTED BY APPLICABLE LAW.
PLEASE VOTE, DATE AND SIGN ON REVERSE, AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
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Dear Shareholder:
This proxy card relates to the 2006 Annual Meeting of Shareholders of Compuware Corporation. Also enclosed are Compuware
Corporation's Notice of the Annual Meeting, Proxy Statement and 2006 Annual Report.
Your vote counts, and you are strongly encouraged to exercise your right to vote your shares.
Please mark the box on this proxy card to indicate how your shares should be voted. Then sign the card and return it in the
enclosed postage-paid envelope. You may also vote your shares by Internet or telephone by following the instructions below.
Your vote must be received prior to the Annual Meeting of Shareholders on August 22, 2006.
Thank you in advance for your prompt consideration of this matter.
Sincerely,
Compuware Corporation
TELEPHONE AND INTERNET VOTING INSTRUCTIONS
YOU CAN VOTE BY TELEPHONE OR INTERNET! AVAILABLE 24 HOURS A DAY 7 DAYS A WEEK!
Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy.
(Telephone) TO VOTE USING THE TELEPHONE (WITHIN U.S. AND CANADA) (Internet) TO VOTE USING THE INTERNET
- - Call toll free 1-800-652-VOTE (8683) in the United - Go to the following web site:
States or Canada any time on a touch tone telephone. There WWW.COMPUTERSHARE.COM/EXPRESSVOTE
is NO CHARGE to you for the call.
- - Follow the simple instructions provided by the recorded - Enter the information requested on your computer
message. screen and follow the simple instructions.
VALIDATION DETAILS ARE LOCATED ON THE FRONT OF THIS FORM IN THE COLORED BAR.
IF YOU VOTE BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL BACK THIS PROXY CARD.
PROXIES SUBMITTED BY TELEPHONE OR THE INTERNET MUST BE RECEIVED BY 11:59 P.M., EASTERN TIME, ON AUGUST 21, 2006.
THANK YOU FOR VOTING