Computer Associates 2006 Annual Report Download - page 149

Note 7 — Commitments and Contingencies (Continued)
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 (see
“— Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004”) and seeks on behalf of the
Company compensatory and consequential damages in an amount no less than $500 million in connection
with the USAO and SEC investigations (see “— 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, de Vogel 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, de Vogel, 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, de Vogel, 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 (Messrs. Wang and Kumar) and Chief Financial Officer (Mr. 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 consolidated derivative action has been stayed pending resolution of the 60(b) Motions (see “— Stockholder
Class Action and Derivative Lawsuits Filed Prior to 2004”). Also, on February 1, 2005, the Company established a
Special Litigation Committee of independent members of its Board of Directors to, among other things, control and
determine the Company’s response to this litigation. The Special Litigation Committee is continuing to review these
matters.
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 and
investigations 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 (the 2002 Agreements). Plaintiffs seek to obtain
this declaratory judgment in order to file a derivative suit on behalf of the Company (see “— Derivative Actions
Filed in 2004” above). 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. On February 18, 2005,
Mr. Wyly filed a separate lawsuit in the United States District Court for the Northern District of Texas (the Texas
Federal Court) alleging that he is entitled to attorneys’ fees in connection with the original litigation filed in Texas.
The two actions have been consolidated. On March 31, 2005, the plaintiffs amended their complaint to allege a
claim that they were defrauded into entering the 2002 Agreements and to seek rescission of those agreements and
damages. The amended complaint in the Ranger Governance litigation seeks rescission of the 2002 Agreements,
unspecified compensatory, consequential and exemplary damages and a declaratory judgment that the 2002
Agreements are null and void and that plaintiffs did not breach the 2002 Agreements. On May 11, 2005, the
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