Appeals Court Upholds Decision Against CA
Computer Associates International
The U.S. Court of Appeals for the Second Circuit concurred with a jury decision reached in August 2000 that CA paid more money to On-Line Software Chairman and CEO Jack Berdy than it did to other shareholders.
In a class-action lawsuit filed in September 1991, a New York district court jury ordered CA to pay $5.7 million, or $1.46 per share, to 1,500 On-Line shareholders. The court added an additional $4.65 million in interest.
The jury determined that CA's payment of $5 million to Berdy violated the Security and Exchange Commission's "Best Price Rule," which requires that a buyer must pay all target stockholders the highest price it pays to any target stockholders during a tender offer.
CA argued the payment to Berdy was for a non-compete agreement.
"We are disappointed with the decision of the court. We continue to believe our actions in this situation were proper in all respects, and we are considering our next steps," CA said Thursday in a statement.
CA, Islandia, N.Y., recently came under fire after the vendor agreed to pay $10 million in exchange for entrepreneur Sam Wyly's agreement to a five-year standstill from engaging in proxy contests for CA board seats and to extend Wyly's non-compete agreement with CA for another five years.
The non-compete agreement was implemented after Wyly sold Sterling Software to CA in April 2000.
Calling the settlement "greenmail," Institutional Shareholder Services (ISS), a Rockville, Md.-based proxy consulting and services firm, recommended that its client base of pension plans, investment managers and bank trust departments withhold their votes during last month's annual CA shareholder meeting for all seven of the incumbent CA directors for approving the payment.
Greenmail is the practice of paying a corporate raider to terminate a hostile takeover attempt.
CA is in the midst of a federal inquiry, launched in February, into its accounting practices.
Shares of CA Thursday closed down 44 cents at $10.55.