Computer Associates 2006 Annual Report Download - page 147

Note 7 — Commitments and Contingencies (Continued)
independent director, and also changed the name of the Audit Committee of the Board of Directors to the Audit and
Compliance Committee of the Board of Directors and amended the Committee’s charter. On April 11, 2005, the
Board of Directors elected Ron Zambonini to serve as a new independent director. On November 11, 2005, the
Board of Directors elected Christopher Lofgren to serve as a new independent director. Under the Agreements, the
Company has also agreed to the appointment of an Independent Examiner to examine the Company’s practices for
the recognition of software license revenue, its ethics and compliance policies and other matters. Under the
Agreements, the Independent Examiner also reviews the Company’s compliance with the Agreements and
periodically reports findings and recommendations to the USAO, SEC and Board of Directors. On March 16,
2005, the Federal Court appointed Lee S. Richards III, Esq. of Richards Spears Kibbe & Orbe LLP, to serve as
Independent Examiner. Mr. Richards will serve for a term of 18 months unless his term of appointment is extended
under conditions specified in the DPA. On September 15, 2005, Mr. Richards issued his six-month report
concerning his recommendations regarding best practices. On December 15, 2005, March 15, 2006 and
June 15, 2006, Mr. Richards issued his first three quarterly reports concerning the Company’s compliance with
the DPA.
Under the DPA, the Company is obligated, among other things, to take certain steps to improve internal controls and
to reorganize its Finance Department. If the Company has not substantially implemented these and other required
reforms for a period of at least two successive quarters before September 30, 2006, the USAO and the SEC may, in
their discretion, extend the term of the Independent Examiner. In his Fourth Report dated June 15, 2006, the
Independent Examiner expressed the view that, in light of certain internal control issues, which are described in
Item 9A of this Form 10-K, including the fact that the Company has not yet hired a new chief financial officer, he is
no longer able to conclude that the Company will be able to meet its obligation under the DPA to have improved
internal controls and reorganized the Finance Department for two successive quarters prior to September 30, 2006.
Consequently, the Company believes that the term of the Independent Examiner may be extended beyond
September 30, 2006. Whether the USAO and the SEC will decide to extend the term or take any other action
in connection with the DPA will be made by them in their discretion. The Company is continuing to review these
matters to determine what further steps it should take to address the internal control issues referenced above.
Pursuant to the DPA, the USAO will defer and subsequently dismiss prosecution of a two-count information filed
against the Company charging it with committing securities fraud and obstruction of justice if the Company abides
by the terms of the DPA, which currently is set to expire within 30 days after the Independent Examiner’s term of
engagement is completed. Pursuant to the Consent Judgment with the SEC, the Company is permanently enjoined
from violating Section 17(a) of the Securities Act of 1933 (the Securities Act), Sections 10(b), 13(a) and 13(b)(2) of
the Securities Exchange Act of 1934 (the Exchange Act) and Rules 10b-5, 12b-20, 13a-1 and 13a-13 under the
Exchange Act. Pursuant to the Agreements, the Company has also agreed to comply in the future with federal
criminal laws, including securities laws. In addition, the Company has agreed not to make any public statement, in
litigation or otherwise, contradicting its acceptance of responsibility for the accounting and other matters that are
the subject of the investigations, or the related allegations by the USAO, as set forth in the DPA.
Under the Agreements, the Company also is required to cooperate fully with the USAO and SEC concerning their
ongoing investigations into the misconduct of any present or former employees of the Company. The Company has
also agreed to fully support efforts by the USAO and SEC to obtain disgorgement of compensation from any present
or former officer of the Company who engaged in any improper conduct while employed at the Company.
After the Independent Examiner’s term expires, the USAO will seek to dismiss its charges against the Company.
However, the Company shall be subject to prosecution at any time if the USAO determines that the Company has
deliberately given materially false, incomplete or misleading information pursuant to the DPA, has committed any
federal crime after the date of the DPA or has knowingly, intentionally and materially violated any provision of the
DPA (including any of those described above). Also, as indicated above, the USAO and SEC may require that the
term of the DPA be extended beyond 18 months.
On September 22, 2004, Mr. Woghin, the Company’s former General Counsel, pled guilty to conspiracy to commit
securities fraud and obstruction of justice under a two-count information filed against him by the USAO. The SEC
also filed a complaint in the Federal Court against Mr. Woghin alleging that he violated Section 17(a) of the
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