Computer Associates 2006 Annual Report Download - page 146

Note 7 — Commitments and Contingencies (Continued)
director of a publicly held company. Litigation with respect to the SEC’s claims for disgorgement and penalties is
continuing.
A number of other employees, primarily in the Company’s legal and finance departments were terminated or
resigned as a result of matters under investigation by the Audit and Compliance Committee, including Steven
Woghin, the Company’s former General Counsel. Stephen Richards, the Company’s former Executive Vice
President of Sales, resigned from his position and was relieved of all duties in April 2004, and left the Company at
the end of June 2004. Additionally, on April 21, 2004, Sanjay Kumar resigned as Chairman, director and Chief
Executive Officer of the Company, and assumed the role of Chief Software Architect. Thereafter, Mr. Kumar
resigned from the Company effective June 30, 2004.
In April 2004, the Audit and Compliance Committee completed its investigation and determined that the Company
should restate certain financial data to properly reflect the timing of the recognition of license revenue for the
Company’s fiscal years ended March 31, 2001 and 2000. The Audit and Compliance Committee believes that the
Company’s financial reporting related to contracts executed under its current business model is unaffected by the
improper accounting practices that were in place prior to the adoption of the business model in October 2000 and
that had resulted in the restatement, and that the historical issues it had identified in the course of its independent
investigation concerned the premature recognition of revenue. However, certain of these prior period accounting
errors have had an impact on the subsequent financial results of the Company as described in Note 12 to the
Consolidated Financial Statements in the Company’s amended Annual Report on Form 10-K/A for the fiscal year
ended March 31, 2005. The Company continues to implement and consider additional remedial actions it deems
necessary.
On September 22, 2004, the Company reached agreements with the USAO and the SEC by entering into a Deferred
Prosecution Agreement (the DPA) with the USAO and consenting to the entry of a Final Consent Judgment in a
parallel proceeding brought by the SEC (the Consent Judgment, and together with the DPA, the Agreements). The
Federal Court approved the DPA on September 22, 2004 and entered the Consent Judgment on September 28, 2004.
The Agreements resolve the USAO and SEC investigations into certain of the Company’s past accounting practices,
including its revenue recognition policies and procedures, and obstruction of their investigations.
Under the DPA, the Company has agreed to establish a $225 million fund for purposes of restitution to current and
former stockholders of the Company, with $75 million to be paid within 30 days of the date of approval of the DPA
by the Federal Court, $75 million to be paid within one year after the approval date and $75 million to be paid within
18 months after the approval date. The Company made the first $75 million restitution payment into an interest-
bearing account under terms approved by the USAO on October 22, 2004. The Company made the second
$75 million restitution payment into an interest-bearing account under terms approved by the USAO on
September 22, 2005. The Company made the third and final $75 million restitution payment into an interest-
bearing account under terms approved by the USAO on March 22, 2006. Pursuant to the Agreements, the Company
proposed and the USAO accepted, on or about November 4, 2004, the appointment of Kenneth R. Feinberg as Fund
Administrator. Also, pursuant to the Agreements, Mr. Feinberg submitted to the USAO on or about June 28, 2005, a
Plan of Allocation for the Restitution Fund (the Plan). The Plan was approved by the Federal Court on August 18,
2005. The payment of these restitution funds is in addition to the amounts that the Company previously agreed to
provide current and former stockholders in settlement of certain private litigation in August 2003 (see
“— Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004”). This amount was paid by the
Company in December 2004 in shares at a then total value of approximately $174 million.
The Company also agreed, among other things, to take the following actions by December 31, 2005: (1) add a
minimum of two new independent directors to its Board of Directors; (2) establish a Compliance Committee of the
Board of Directors; (3) implement an enhanced compliance and ethics program, including appointment of a Chief
Compliance Officer; (4) reorganize its Finance and Internal Audit Departments; and (5) establish an executive
disclosure committee. The reorganization of the Finance Department is in progress and the reorganization of the
Internal Audit Department is substantially complete. On December 9, 2004, the Company announced that Patrick J.
Gnazzo had been named Senior Vice President, Business Practices, and Chief Compliance Officer, effective
January 10, 2005. On February 11, 2005, the Board of Directors elected William McCracken to serve as a new
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