Computer Associates 2005 Annual Report Download - page 131

Table of Contents
Note 7 — Commitments and Contingencies (Continued)
Derivative Actions Filed in 2004
In June 2004, a purported derivative action was filed in the Federal Court by Ranger Governance Ltd. against certain current or former
employees and/or directors of the Company. In July 2004, two additional purported derivative actions were filed in the Federal Court by
purported Company shareholders against certain current or former employees and/or directors of the Company. In November 2004, the
Federal Court issued an order consolidating these three derivative actions. The plaintiffs filed a consolidated amended complaint (the
Consolidated Complaint) on January 7, 2005. The Consolidated Complaint names as defendants Charles B. Wang; Sanjay Kumar; Ira H.
Zar; David Kaplan; David Rivard; Lloyd Silverstein; Russell M. Artzt; Alfonse D’ Amato; Stephen Richards; Michael A. McElroy;
Charles P. McWade; Peter A. Schwartz; Gary Fernandes; Robert E. La Blanc; Lewis S. Ranieri; Jay W. Lorsch; Kenneth Cron; Walter P.
Schuetze; Willem deVogel; Richard Grasso; Roel Pieper; Steven Woghin; KPMG LLP; and Ernst & Young LLP. The Company is
named as a nominal defendant. The Consolidated Complaint alleges a claim against Messrs. Wang, Kumar, Zar, Kaplan, Rivard,
Silverstein, Artzt, D’ Amato, Richards, McElroy, McWade, Schwartz, Fernandes, La Blanc, Ranieri, Lorsch, Cron, Schuetze, deVogel,
Grasso, Pieper and Woghin for contribution towards the consideration the Company had previously agreed to provide current and former
stockholders in settlement of certain class action litigation commenced against the Company and certain officers and directors in 1998
and 2002 (refer to “Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004”) as well as all damages suffered by the
Company in connection with the USAO and SEC investigations (refer to “The Government Investigation”). The Consolidated
Complaint also alleges a claim seeking unspecified relief against Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein, Artzt,
D’ Amato, Richards, McElroy, McWade, Fernandes, La Blanc, Ranieri, Lorsch, Cron, Schuetze, deVogel and Woghin for violations of
Section 14(a) of the Exchange Act for alleged false and material misstatements made in the Company’ s proxy statements issued in 2002
and 2003. The Consolidated Complaint also alleges breach of fiduciary duty by Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein,
Artzt, D’ Amato, Richards, McElroy, McWade, Schwartz,Fernandes, La Blanc, Ranieri, Lorsch, Cron, Schuetze, deVogel, Grasso,
Pieper and Woghin. The Consolidated Complaint also seeks unspecified compensatory, consequential and punitive damages against
Messrs. Wang, Kumar, Zar, Kaplan, Rivard, Silverstein, Artzt, D’ Amato, Richards, McElroy, McWade, Schwartz, Fernandes, La Blanc,
Ranieri, Lorsch, Cron, Schuetze, deVogel, Grasso, Pieper and Woghin based upon allegations of corporate waste and fraud. The
Consolidated Complaint also seeks unspecified damages against Ernst & Young LLP and KPMG LLP, for breach of fiduciary duty and
the duty of reasonable care, as well as contribution and indemnity under Section 14(a) of the Exchange Act. The Consolidated Complaint
requests restitution and rescission of the compensation earned under the Company’ s executive compensation plan by Messrs. Artzt,
Kumar, Richards, Zar, Woghin, Kaplan, Rivard, Silverstein, Wang, McElroy, McWade and Schwartz. Additionally, pursuant to
Section 304 of the Sarbanes-Oxley Act, the Consolidated Complaint seeks reimbursement of bonus or other incentive-based equity
compensation received by defendants Wang, Kumar, Schwartz and Zar, as well as alleged profits realized from their sale of securities
issued by the Company during the time periods they served as the Chief Executive Officer (Wang and Kumar) and Chief Financial
Officer (Ira Zar) of the Company. Although no relief is sought from the Company, the Consolidated Complaint seeks monetary damages,
both compensatory and consequential, from the other defendants, including current or former employees and/or directors of the
Company, KPMG LLP and Ernst & Young LLP in an amount totaling not less than $500 million.
The derivative action has been stayed pending resolution of the 60(b) motions discussed above that have been filed in connection with
the settlement of previously filed litigation. Also, on February 1, 2005, the Company established a Special Litigation Committee of
independent members of its Board of Directors to control and determine the Company’ s response to this litigation. The Special
Litigation Committee has moved for a stay of the derivative litigation until it completes its investigation of the claims alleged in the
derivative action. That motion is pending.
The Company is obligated to indemnify its officers and directors under certain circumstances to the fullest extent permitted by Delaware
law. As a part of that obligation, the Company has advanced and will continue to advance certain attorneys’ fees and expenses incurred
by current and former officers and directors in various litigations arising out of similar allegations, including the litigation described
above.
Texas Litigation
On August 9, 2004, a petition was filed by Sam Wyly and Ranger Governance, Ltd. against the Company in the District Court of Dallas
County, Texas, seeking to obtain a declaratory judgment that plaintiffs did not breach two separation agreements they entered into with
the Company in 2002. Plaintiffs seek to obtain this declaratory judgment in order to file a derivative suit on behalf of the Company (refer
to “Derivative Actions” filed in 2004). On September 3, 2004, the Company filed an answer to the petition and on September 10, 2004,
the Company filed a notice of removal seeking to remove the action to federal court (where the action is currently pending). The
Company subsequently moved to transfer the action to the United States District Court for the Eastern District of New York. That
motion is still pending. On February 18, 2005, Mr. Wyly filed a separate lawsuit in Texas federal
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