Computer Associates 2007 Annual Report Download - page 120

Pursuant to the DPA, 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 Restitution Fund Plan). The Restitution Fund Plan was
approved by the Federal Court on August 18, 2005. The Company’s payments to the restitution fund, which will be allocated
and distributed to certain current and former stockholders of the Company as determined by the Fund Administrator, are in
addition to the amounts that the Company previously agreed to provide current and former stockholders in settlement of
certain class action lawsuits in August 2003 (see “— Stockholder Class Action and Derivative Lawsuits Filed Prior to 2004”).
This latter amount was paid by the Company in December 2004 in shares at a then total value of approximately $174 million.
Under the Agreements, the Company also agreed, among other things, to take the following actions by December 31, 2005:
(1) to add a minimum of two new independent directors to its Board of Directors; (2) to establish a Compliance Committee of
the Board of Directors; (3) to implement an enhanced compliance and ethics program, including appointment of a Chief
Compliance Officer; (4) to reorganize its Finance and Internal Audit Departments; and (5) to 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 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. On April 26, 2007, the Board of Directors elected Raymond J. Bromark to serve as a new independent
director.
Under the Agreements, the Company 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 specified matters. The
Agreements provided that the Independent Examiner would also review the Company’s compliance with the Agreements and
periodically report 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 (now, Richards Kibbe & Orbe LLP), to serve as
Independent Examiner. On September 15, 2005, Mr. Richards issued his six-month report concerning his recommendations
for best practices regarding certain areas specified in the Agreements. On December 15, 2005, March 15, 2006, June 15,
2006, September 15, 2006 and December 15, 2006, Mr. Richards issued quarterly reports concerning the Company’s
compliance with the Agreements. On May 1, 2007, Mr. Richards issued a Final Report concerning the Company’s compliance
with the Agreements.
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.
Under the DPA, the USAO agreed to seek dismissal of the charges the USAO filed against the Company in connection with the
DPA, upon the Company’s compliance with the DPA. However, it was also agreed that the USAO could prosecute such
charges against the Company at any time while the DPA was in effect if the USAO were to determine that the Company
deliberately gave materially false, incomplete or misleading information pursuant to the DPA, committed any federal crime
while the DPA was in effect or knowingly, intentionally and materially violated any provision of the DPA.
In his Fourth Report, dated June 15, 2006, the Independent Examiner described certain issues regarding the Company’s
internal accounting controls and reorganization of the Finance Department. Accordingly, by letter dated September 14, 2006,
the USAO informed the Federal Court that the USAO had determined to extend the term of the Independent Examiner to
May 1, 2007. The extension was made pursuant to paragraph 22 of the DPA and with the consent of the Company. The
Independent Examiner’s term was otherwise set to expire on September 16, 2006. The USAO, the SEC, the Independent
Examiner and the Company agreed that the extension to May 1, 2007 was appropriate in light of the control-environment and
commission-related material weaknesses announced in the 2006 Form 10-K, and issues concerning the reorganization of the
Finance Department to be addressed by the Company’s then new Chief Financial Officer, Nancy Cooper, who had joined the
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