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Sanjay Kumar, president and CEO of Computer Associates International Inc., on July 30 denied allegations made by dissident shareholder Sam Wyly in a lawsuit that alleges CA is keeping valuable information from its shareholders. “Wyly is claiming we have a secret survey that we did, which shows some bad results,” Kumar told The Deal. “We believe [Wyly] is trying to win a proxy election based on sound bites — and we think the investors are much smarter than to fall for sound bites,” he said. Texas billionaire Wyly and his company Ranger Governance Ltd. of Dallas are seeking to take control over CA’s board at its Aug. 29 shareholder meeting. Wyly has engaged in a war of words and accusations over the past few weeks. On July 30 he filed a countersuit against CA in response to a suit CA filed in June. CA’s suit accused Wyly of violating a non-compete clause signed when he sold his company, Sterling Software, to CA in Feb. 2000. The lawsuit was filed in the United States District Court in the Eastern District of New York in which he asked for undisclosed compensatory damages from CA. Citing a Delaware Chancery Court case as precedent, Wyly, who owns less than 1 percent of CA stock, claims the company’s top executives violated Securities and Exchange Commission regulations by receiving excessive compensation in 1999. He is also asking CA to pay Ranger’s undisclosed costs of the countersuit, including attorneys’ fees. According to the filing, Wyly, his brother Charles and Ranger Governance together own about $55 million of CA stock and options. The law firm of Jones, Day, Reavis & Pogue represented Ranger Governance in the lawsuit. “�The current senior management and board of Computer Associates are inept and have caused chronic underperformance of the company’s share price, as witnessed by the negative 11 percent return for shareholders over the last five years, during one of the strongest software markets in history,” the suit alleges. As he has done throughout the proxy fight, which began in late June, Kumar defended his company and its recent performance and belittled Wyly’s chances at succeeding in taking over CA. Kumar told The Deal that CA has provided necessary financial information requested by the SEC and Wall Street analysts. One of Wyly’s points of contention has been the executive compensation paid to CA top brass. According to Monday’s suit, in fiscal 1999 Islandia, N.Y.-based CA’s compensation committee awarded founder and chairman Charles Wang, Kumar and Russell Artzt, executive vice president of research and development, a total of more than $1 billion of stock, or 20.25 million shares, a violation of the 6 million share limit established by the SEC. The suit reported that lawsuits were filed against CA regarding the compensation, which was deemed in Nov. 1999 by the Chancery Court to be illegal. In a previous interview with The Deal, Wang said the original compensation plan was meant to align the objectives of management and objectives of shareholders. But when the stock award for executives kicked in during the fifth year, the company was in the midst of a financial slump — and it brought unexpected attention to the compensation amount. “People don’t realize this was a five-year plan with a seven-year tail,” Wang said. “We obviously did not articulate clearly what the plan was.” Kumar said CA had put together the five-year plan, which was approved by 85 percent of the shareholders and Institutional Shareholder Services. Several years later the company was sued over a technicality regarding a stock split, he said. In the end, CA’s top executives gave back 20 percent in a settlement and disclosed the findings in a press release, annual filings and proxy statements. “And for the record,” Kumar said Monday, “last year we got no incentive compensation.” Wyly has also accused CA of withholding data about one of CA’s current board nominees, Roel Pieper. Wyly alleges that Pieper, a former chairman of Lernout & Hauspie Speech Products NV of Belgium, was a director and senior employee of the Belgian firm when “it was revealed the company was perpetrating a massive fraud against its shareholders, by overstating its revenues by hundreds of millions of dollars,” the suit stated. Lernout & Hauspie subsequently filed for Chapter 11. Wyly alleged that CA did not disclose Pieper’s employment by Lernout & Hauspie in the proxy statement filed with the SEC. Kumar said Pieper, already on the board of CA, wasn’t on the board of Lernout & Hauspie when the proxy was filed. Under SEC regulations, he said, CA had to include Pieper’s principal place of employment. Wyly’s suit said CA confused shareholders about the financial health of the company by reporting pro forma earnings instead of actual performance numbers last week. Kumar said CA, in its earnings announcement July 23, reported both sets of numbers and was responding to Wall Street’s requests to include pro forma earnings, since the company launched a new business model last October. CA now recognizes revenues each quarter on long-term deals, rather than recognizing total revenues during the quarter in which the deal is signed. But, Kumar notes, “the pro forma numbers will be less meaningful,” by the end of this year. Copyright (c)2001 TDD, LLC. All rights reserved.

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