. . 'Rev 12,s61 CIVIL COVER SHEFTT-T 6, in trie si-44 cm cam from NV re efotynsion cualoirml rowan nofrir formai, rof ouDDIOTNI Pt lijniAla forredroffeocookno cs mer 98 eV Ion *owl El roaniod troy 1004 omilot 01 CO,p1 nos troL apFromd ov to Area.' Carierarot 01* 1 I/74 a els ctery ca 00,4 1ga 2711 [Ancor of mason; rya ow dour iron ISIII NSTIVCTIONS ON ME a le4WIT/ITNifirgriC1 1. (a) pLAthrnFvs DEFENDANTS ' . LIale-s elZ Robert Leff Computer Assoc tesi.,Jnte144onal, Inc. 30 West 61st Street, Apt. 21B Charles B. Wang,Sajpga 3 rland New York, NY 10023 Charles P. McWade,--.--.A. kJ:, v. ,,...- . 417) caper. at ofsdotoct at 74141 .47ED nmorrwe New York coodry *0 11tainENZI or &ow won ooFiNoOor- IEXCEFrf IN U.S PLAINTIFF CASES] (IN U.S PLAINTIFF CASES p , No n svpsuoz commooN.4 nolo cAso a I..rjf :NG I. : rabic r oF 6.4•40 twoLvto .-
(C) meow% or ftirrt. goats& enCt 704100.1 Krala111 Arromanal, MOW ' - -• - - ' '" :7 4' Jeffrey A. Klafter .--- .,- Bernstein Litowitz Berger & Grossma nI.. LLP • • • : ,-- 1285 Avenue of the Americas, NY, NY 10019 /I r-) — H. BASIS OF JURISDICTION "Am 141 -5- P', CPIt lag coin UL CITIZENSHIP OF PRINCIPALRARTIES ove.a AN -a- B. co4 wiz ces P-"..1" • IF prormy Caws Orayi AND ale mo ono ookhoo.or ' PIP DEP PIP DEP 1:1 1 us GokoNionsof CO Panora OP.orsoon Gomm af Tin SW 0' 0 1 .4•0:4007a11741 Of PIanaVall ROM 0 . 0. No17/1 (U.S exoncenrrara Nos a Pier' cte &rains in Trot sow n t US Garernmoro •.: 0 Divoyfog Oaten of kreftwo Swot 0 2 0 i incoraorom ora Pyrcipoi PUI:st C I ; Z' • Orionaara (fracas, Car.areno of Palos • of Skarn= In Amara* Sane di Nem NI Otter+ C17 SuCTIC1 07 4 7. 1 0 1 7vrewan Nam C F : t e' -- Fcrecei Couvry N. ORIGIN feltAct m e r x cwi Box 0,40) Appeal io Dalno -- - Tom0fmnrim Juno tor go °NM 0 2 Florn7490 In00 • . -_-, 2 Harwood Imo 3 a Roecloisol of 01 5C Oitmamwo c 7 isiagaintle .- Prinoworg Soo Coot Appals* Ceiot Foopmed ispoofyi Unw000 JuDsonOnt
V. NATURE OF SUIT rPLACZ hP4 lr Di ONE Dor om.r) TORTS PaRFETTUREMENALTT— aRnizRI—TPTCY- 1—OTHER STAILTTES , CCINTRACT ' O Hs 1 POSIIIIILNIANIT 4141444141.444/777 a Ise kvarbas C Au war so Laic lia 0 as Sao Bortmome...• 0 rim mown laree C Ma 4100,0 a 21a l'amnalleft •• C los cam Am & ohl 3 4$4 amInia 0 sib Mee Aci 0 I. ;wow "ran WI 1111150•11 0 17111 oOn 112m71 Wu* 0 411 Immu+n 0 45 Iwo sow 116~I 0 1141 wiiisais• rolawais treat - 3 sat Wood mei - cl 1•1=1,51 6110•1•1 51511C IP 0 ma cumenwec Orermr. O lio Norm oanniowi I C No &n=1.4.Loo. & rouNct UMW 0 Bp tows lam. 0 447 Copearou a 2.41ownnm e d iripwl Swam 0 ria Poems 0~4 o lc i il 55 & 15•11 ,. PROPERTY RiGNTS 0 UV 11=2•Easellnep•014 me oft" lama bore amp. Con117019manowe DI" %ma* 50 0 DM Amos f.•••••• l wow a ,a, 0 1710041,44LSam 0 A/ aszval, r Or POssilog =We 0 44a Conunn=41 0 Ma lora 0 We m4 Wow Slum@ 'AM 0 V* ragas 44144174711. Pacoarn aimplowla 0 ma imlwart ja5 4 IgragioCawwccorr la* roomma 0 Ion war Amour 0 310 WO NEM 0 MN 011ur Wawa 0 IST1 apxywv al Omiarnm want a in 040 0 weir. 0 WI Colnmi Climr‘• • vows". Il 0 SW wow wow. 0 X• Quip fwnis LABIA SOCIAL SeCiJNIre lauic WO mas n *ROM comp 0 on op000np Not O IN Amsamilon Us a lel mew •••• . 0 gel gianeft Itiags 0 1111 00wCamise •Piwuj yam', .:.. 3.6 p.A.002.siek 0315 l'a. ham 11071•41. CI 611 MI p11611 go or 0 Is, Coal. nuam Lamm oPlive •11101 ft, 0 1•1 Owe uol4 Mil 0 Mt b•00•000• 0•90. DIN MM. %MAW 1,,./. 0 1111 Law5ares 1505•1•5 0 No 0A•comon laws" a sia amyl enr.v." .A3 - _REAL PROPERTY prim *min • piusolieft PETMOItsi o obi swims n1 to MG knor55 • CS 774 51••••p• 1•110•1; 0 ••• 0121051015 mww0D.A.0 7om 1,12.‘ I 0 170 room minim I 17417111 1 ea I. DIN aman ef ft* Cori...v..0. C rie 6fire Gon4101 r ... Irmo 0 0 121 11moihra 0 era IRIPIRIMIO 1 0 no miaow ue• Au FEDERAL Tax sums LEON tow ammo a ori•or - IN 1 144 010mime IleCams 111000100e. 0 C •=1 WM. 4 10/24.4.4 I 0 1.4 1.huarhavoiroi.4 . CI Azo Core= C too sowo um i155155 au•I5 NAM 0 /14 01111 14•11~km 0 2,2 %mg itaa nape. olo. Irmo OMa 7141 Imam urner Z 114 Maim a 140 /010101•1 lb MI al Onlimair11 0 SW Com 9••••y Amos 10 SI 41 Cow 7.0 rower 0 ma cli ° M 0- •15 Oa oars 0 SIMI 11N. 11Z caue O yll Swastp Oa 0 en se - WOO PIM ' • D U Para Cmullre 1111.11C ME VI. CAUSE OF ACTION len 114 y 6 Om Elgovsl wow vow,. tau aeloruic Ammon IMF ITamoon at cdo.aK to •onoof cleVrouso.000 aloven This action arises underiffturtns 10 (b) and 20(a) of the Exchange Act, 15 U. S .C. §§78j (b) , 78t (a) , and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission for material misrepresentations an d 77174 c/c0 00 Pr the. inyesti ng prIai 4 e. O4ECN YES DT, I aeryloyouci in comparii VII. REOuESTED IN crieolc IF naS IS A CLASS ACTION DEMAND $ COMPLAINT I 1 LINDER FR C P Z1 To be determined JURY DEMAND: Itmm z "c 1. 4111.RELATEO CASE(S) *at rpm:WM. .+JDod Occoo MAME la IF ANY .--- O en elowerusle oF Arra:way oF NM= February 27, 1998 / /(ked /r 111501,5:1 ME Mr I lUCEPT • Amour? ArlovromG 015., JUDGE %PAO .7..0131 -
'
f • I ARBITRATION CERTIFICATION
I. Jeffrey A. Klafter . counset for Robert Leff do hereby certify pursuoni to the Local Arbitration Rule Section 3(c). that le the best of ins lutowledee and belief the damages recoverable in thc ;item c captioned Cr% LI action tweed the sum or Sluusiou e‘ctusive 1 soleast and costs
Relief other than monetary damages is sought. • • -I.,.
I SCr.OSIIRE 1F INTERESTED PARTIES- LOCAL RULE 9
Identify any corporate parents. subsidiaries or affiliates of named conxirate panics-. None—
Did the cause arise in Nassau or Suffolk County Yes of
If vou answered yes, please indicate which county Suffolk
County of residence of plaintiffs) (1) New York (2) (3)
County of residence of defendant(s) (1) q,,,f F. k
.(2)- (3)
I am currently admitted in the Eastern District of New York and currently a member in good . standing of the bar of this court •
_ Yes
Are you currently the subject of any disciplinary action(s) in this or any other state or federal court?
- Yes (lf yera, please explain) No X
Plain provide your E-MAIL Addrcss arid bar code below Your bar code ccrisist of the =dab of your first and last name and the last foie digits of your social security number or any other four digit number registered by the anonacy with the Clerk of Court (This information Mani be provided pursuant to local rule 11.1(b) of the civil rules) ATTORNEY RAR. coot, <-O953
&hum; ADDREss JAK@blhglaw. c om
•
k. • 14946 UNITED STATES DISTRICT COURT cv 9iN EASTERN DISTRICT OF NEW YORK ..:(5) • "
ROBERT LEFF, On Behalf Of Himself "-!64i% And All Others Similarly Situated, • P.) 7-71 • . Lei — Plaintiff CLASS ACTION C FOR VIOLATI*ON.4.-QE v. FEDERAL SECIJRIT.IFS S to, • • COMPUTER ASSOCIATES INTERNATIONAL,: Plaintiff Demands':ii"- INC., CHARLES B. WANG, SANJAY KUMAR, : Trial,Byjury and CHARLES P. McWADEr
Defendants. - -x
All allegations made in this complaint are based on information and belief, except those •
allegations that pertain to the named plaintiff and his counsel, which are based on personal
knowledge. Plaintiffs information and belief is based, inim Alia, on the investigation made by - - _
and through his attorneys. . . .
NATURE OF THE ACTION
I. Plaintiff brings this federal securities fraud class action on behalf of himself and -
all purchasers of Computer Associates International, Inc. ("Computer Associates" or the - -
"Company") common stock during the period January 27, 1998 through and including February
11, 1998 (the "Class Period"), seeking damages for injuries caused by defendants' wrongful
conduct. -
2. On January 21, 1998, the price of Computer Associates common stock fell nearly 7
10% and closed at $47.25 per share following its announcement the night before that its sales of
client-server products, during its third fiscal quarter ended December 31, 1997, failed to achieve
-
- - ,
expected growth . In an effort to reverse this decline and reassure the investment community that • .. their concerns as to Computer Associates' growth prospects were unfounded, defendants
dispatched Computer Associate? CEO, defendant Sanjay Kumar ("Kumar"), to hold a series of • .
meetings with securities analysts and investors commencing on January 27, 1998. During these - - meetings, defendant Kumar assured the investment community that the Company's financial -
condition and business prospects were sound and falsely stated that the Company was not
planning any significant business acquisitions. As a direct result of Kumar's statements during
these meetings, Computer Associates common stock began its rOmmd on January 27, 1998 and
continued to do so during the s Period, reaching a high of $58 1/16 per share on February 10, f 1998. Contrary to Kumar's statements during these meetings, however, no later than mid- - • '••
December 1997, Computer Associates made a strategic decision to acquire Computer Sciences
Corporation ("CSC") and entered into confidential negotiations with senior officers of CSC to • _ acquire that company at a substantial premium over the then market price of CSC stock. By the • ,
beginning of the Class Period, the parties had discussed all major terms including price, with _ •
Computer Associates offering to acquire CSC for $100 per share, or $8.5 billion. During the
_Class Period, negotiations over price continued with Computer Associates raising its offer to •
acquire CSC to $108 per share or approximately $9.1 billion and ultimately sweetening its offer,
if CSC consented to the acquisition, to $114 per share, or $9.6 billion. •, 3. Defendant? misrepresentations, which deceived the investing public and
concealed Computer Associates' confidential negotiations with CSC, artificially inflated the
market price of Computer Associates stock during the Class Period. These misrepresentations
were designed, inter Rua, to reassure the market in the wake of Computer Associates' third
2
, . quarter earnings announcement and to artificially inflate the market price of Computer Associates
stock in order to allow defendants Charles B. Wang ("Wang") and Charles P. McWade
("McWade") to collectively sell over 200,000 shares of Computer Associates common stock for
proceeds of approximately $11 million, and to provide defendants Wang and Kumar with the
opportunity to obtain early vesting of nearly Si billion in stock previously granted to them.
4. Computer Associate's negotiations with CSC continued, in secret, until
Wednesday, February 11, 1998, when Computer Associates finally publicly disclosed that it had
been negotiating to acquire CSC and that it was offering $108 per share in cash. Upon that
announcement, Computer Associltes common shares plummeted to $50.75 per share on
February 11 from $58.0625 per share on February 10, 1998. Plaintiff and other members of the
Class who purchased Computer Associates stock during the Class Period suffered damages
because they had done so at artificially inflated prices in reliance upon defendants'
misrepresentations and/or the integrity of the market
EMS.D=QMANDYEEM
5. This Court has jurisdiction over the subject matter of this action pursuant to
_Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §78aa. The • 1: claims alleged herein arise under Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C.
§§78j(b), 78t(a), and Rule 10b-5 promulgated thereunder by the Securities and Exchange
Commission ("SEC"). f 6. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28
U.S.C. §1391(b). Many of the acts and transactions giving rise to the violations of law
complained of herein, including the preparation and dissemination to the investing public of false
• 3 11,
_ ..milmw•manaJ
, • I
/ and misleading information, occurred in this District In addition, defendant Computer
Associates maintains its principal executive offices in this District at One Computer Associates
Plaza, Islandia, New York 11788-7000.
7. In connection with the acts, conduct and other wrongs complained of herein, the
defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, •
the United States mails, and the facilities of the New York Stock Exchange — a national
securities exchange.
•.0, THE PARTIES 8. Plaintiff Robert aff purchased 500 shares of Computer Associates common stock - on January 28, 1968, in an open-market transaction, at a price of $53.00 per share, and suffered
damages as a result of the violations of the federal securities lawi pled herein.
9. Defendant Computer Associates is primarily engaged in the business of designing,
developing and marketing a wide range of software products for use in managing corporate • - . -
computer systems. The Company is the world's third largest independent software company, - .
after Microsoft and Oracle, providing software to approximately 95% of the world's largest -
- corporations. Computer Associates' products include over 500 offerings of systems, information .
management and business application packages designed to operate on mainframe and client- - —— - server network systems marketed by most of the world's major hardware manufacturers, ---
including 1BM, Hewlett-Packard Co., Digital Equipment Corp., Sun Microsystems, inc., Data . -
General Corp., Tandem Computers Inc., and Compaq Computer Corp. 11 10. At all times relevant hereto, defendant Wang was Chairman of the Board of - . . - • Directors (the "Board") and Chief Executive Officer of the Company, which he founded in 1976. • _ - • ;1F - 4 .11
• -2, • 4
, .. 472;',1 ,- . • • / Defendant Wang also was one of the largest shareholders of the Company at all relevant times
herein, exercising ownership or control over 18,707,248 shares of Computer Associates common •
stock, or approximately 5.1% of the Company's common stock issued and outstanding as of June , 20, 1997. For the fiscal year ended March 31, 1997 ("Fiscal 1997"), defendant Wang received
cash compensation from the Company totaling $6 million, along with stock awards valued at $7
million, and additional restricted stock grants described below. During the Class Period, as
defined in paragraph 10, below, defendant Wang sold 150,000 shares of Computer Associates „- common stock in the open market, realizing prqceeds from this sale in excess of $7.2 million.
11. At all times relevInt hereto, defendant Kumar was President and Chief Operating
Officer of the Company, as well as a member of its Board. During Fiscal 1997, defendant Kumar
received cash compensation from the Company totaling $4.15 million, along with stock awards
valued at $5.85 million, and additional restricted stock grants described below. i ! 12. all times relevant hereto, defendant McWade was Senior Vice President - At 1 Finance of the Company. During Fiscal 1997, defendant McWade received cash compensation .
from the Company totaling $490,000. During the Class Period, as defined in paragraph 10,
_below, defendant McWade sold 72,006 shares of Computer Associates common stock in the . open market, realizing proceeds from this sale of nearly $3.9 million. ., I 13. Defendants Wang, Kumar and McWade (collectively, the "Individual il , Defendants") made, reviewed, or were aware of, the false and/or misleading statements
complained of herein at the time they were made, knew or recklessly disregarded their false •
and/or misleading nature, and were in a position to control their contents or otherwise cause
corrective or accurate disclosures to have been made. The Individual Defendants engaged in this 1 5 11
11li a
.:-course of conduct from at least January 27, 1998 — the date on which defendant Kumar, with the
knowledge of the other defendants, met with various security analysts and investors in Computer
/ Associates common stock to expand upon the Company's recent earnings release — the purpose
and effect of which was to inflate the market price of Computer Associates common stock
through the issuance of false and misleading statements to the public, all as particularized herein,
thereby (i) causing a rebound in the price of Computer Associates common stock, which had
experienced a significant drop following the Company's third quarter earnings announcement
allowing Wang and Mc Wade to sell their stock at artificially inflated prices; and (iii) providing
defendants Wang and Kumar theopportunity to obtain fully vested stock grants_ from the
Company, valued at nearly $1 billion, at an earlier time than they would otherwise vest, pursuant .
to a stock incentive plan described below. - .,- PLAINTIFF CLASS ALLEGATIONS
14. Plaintiff brings this action on his own behalf and as a class action pursuant to Rule - 23(a) and Rule 23(b)(3) of the Federal Rules of Civil Procedure on behalf of a class (the "Class") . . of all persons or entities who purchased Computer Associates common stock on the open market • _ •
-from January 27;1998 the date on which defendant Kumar met with various investment .
analysts to discuss the Company's recent earnings announcement — through February 10, 1998 -- .
- the last trading day before Computer Associates' sttrprise announcement that it was offering to - -
acquire Computer Sciences Corporation common stock for $108 per share, inclusive (the "Class f - Period"). Excluded from the Class are the defendants herein, members of the immediate families-
of each of the Individual Defendants, parents, subsidiaries, officers, directors and affiliates of the _ • corporate defendant, and the legal representatives, heirs, successors or assigns of any such -
• . , .
I • _ I -
/ eluded party. 15. Shares of Computer Associates common stock were actively traded on the New
York Stock Exchange, which is an efficient market, throughout the Class Period. The members -
of the Class, as purchasers on that exchange, are so numerous that joinder of all members is 11 impracticable. While the exact number of Class members can only be determined by appropriate
discovery, plaintiff believes that Class members number in the thousands. As of October 31,
1997, Computer Associates had 364,543,273 shares of common stock issued and outstanding.
16. Plaintiffs claims are typical of the claims of the members of the Class. Plaintiff
and all members of the Class sustained damages as a result of defendants' wrongful conduct
complained of herein.
17. Plaintiff will fairly and adequately protect the interests of the members of the
Class, and has retained counsel competent and experienced in class and securities litigation.
18. A.class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Because the damages suffered by individual Class members
may be relatively small, the expense and burden of individual litigation make it virtually
-impossible for them to seek redress for the wrongful conduct alleged.
19. Common questions of law and fact exist as to all members of the Class and
predominate over any questions affecting solely individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by defendants' . . acts as alleged herein;
(b) whether defendants concealed and otherwise misrepresented the existence and status of merger negotiations between Computer
7
(c) Associates and Computer Sciences Corporation, a large computer consulting firm, as detailed below;
/ whether defendants acted knowingly and/or recklessly in omitting ' and/or misrepresenting material facts;
(d) whether defendants sold personal holdings of Computer Associates common stock while in possession of material, non-public information concerning the Company;
(e) whether the market price of Computer Associates common stock . during the Clasis Period was manipulated and/or artificially inflated due to the nondisclosures and/or misrepresentations complained of herein; and • (f) whether the members of the Class have sustained damages and, if • so, the appropriate measure thereof.
20. Plaintiff !allows of no difficulty that will be encountered in the management of this
litigation that would preclude its maintenance as a class action. - - - 21. The names and addresses of the record owners of Computer Associates common. - •
stock purchased during the Class Period are available from the Company's transfer agent(s). - . _ Notice can be provided to such record owners via first class mail using techniques and a form of
notice similar to those customarily used in class actions. . .
FACITAL ALLWATIONS - •
22. Computer Associates is one of the largest business software providers in the „. world, offering a wide array of products designed to assist businesses in managing their computer _ - - information systems. Although the Company develops products for use in client-server _ - •
networks, the bulk of its revenues are derived from sales of software designed for operation of
large mainframe systems. In fact, according to an analyst report prepared by the investment firm -
Morgan Stanley, Dean Witter on or about January 27, 1998, approximately 62% of the
8 • - • - . _
,...misnn•mimmounsmonnemak / 1, q 1 r. •
/ ;Company's Fiscal 1997 revenues were derived from the sale of mainframe software, while 34%
was attributable to client-server products.
23. Growth in the market for mainframe computer products has declined over recent
years, as many businesses have opted to install decentralized client-server computer networks
rather than larger, more expensive mainframe systems. Nevertheless, Computer Associates has
experienced substantial revenue and earnings growth during this time frame despite its
significant dependence on the sale of mainframe products as a result of its aggressive program of •
acquiring rival software developers, which has included at least one major purchase in each of
the past three fiscal years. For eiarnple, during its fiscal year ended March 31, 1995 ("Fiscal ' 1995"), the Company acquired The Ask Group, Inc., a developer of database management .
systems, for $310 million in cash. Computer Associates followed this acquisition with its
purchase, during its fiscal year ended March 31, 1996 ("Fiscal 1996"), of Legent Corporation, a
developer of a broad range of management information systems, for $1.8 billion in cash. Finally,
during Fiscal 1997, Computer Associates purchased Cheyenne Software, Inc., a developer of -
antivirus and storage backup software, for $11 billion in cash.
- 24. Largely due to these software acquisitions, the Company's revenues increased by
more than 54% between Fiscal 1995 and Fiscal 1997, from $2.623 billion to $4.04 billion. The
trading price of Computer Associates common stock also increased substantially as the
Company's revenues grew. Indeed, from the beginning of Fiscal 1995 to the end of Fiscal 1997,
the price of Computer Associates common stock has nearly tripled, as adjusted for stock dividend
splits, from a closing price of $8.734 per share on April 4, 1994, the first day of trading for Fiscal t
1995, to $25.922 per share on March 31, 1997.
9
. _ . /...... ,
25. Defendants Wang and Kumar have profited substantially from the substantial
increase in the price of the Company's common stock through their participation, along with
Russel M. Arizt ("Artzt"), Computer Associates Executive Vice President - Research and
Development, in the Company's 1995 Key Employee Stock Ownership Plan (the "1995 Incentive 11 Plan"). As detailed in the Company's Proxy Statement, dated July 7, 1995 (the "1995 Proxy"),
the 1995 Incentive Plan provides for the award of Computer Associates common stock to each r participant in the event that the price of this stock meets certain target prices for 30 days during /4
any fiscal year between Fiscal 1995 and the fiscal year ended March 31, 2000 ("Fiscal 200 ,9"), up
to a maximum of 12.15 million shares for defendant Wang, and 6.075 million shares for
defendant Kumar, as adjusted for stock dividends and splits. Wang, Kumar and Artzt are tile . .
only participants in the 1995 Incentive Plan.
26. Due to the rapid rise in the price of Computer Associates common stock, . _ _. and Kumar received the maximum awards of stock attainable under the 1995 defendants Wang .. . Incentive Plan well before March 31, 2000, with defendant Wang receiving grants of 4.05 : • : •-• - - _• . . _ . . . million shares, 3.24 million shares, and 4.86 million shares during Fiscal 1995, Fiscal 1996, and . -Fiscal 1997, respectively, and defendant Kumar receiving grants of 2025. million shares, 1.62 • -. .
million shares, and 2.43 million shares during each of these three fiscal years, as adjusted for - _-• - - "
stock dividends and splits. Pursuant to the terms of the 1995 Incentive Plan, however, ownership . . , ...... in these shares generally cannot vest, and will be forfeited, unless the closing price of Computer
...... - .. -
; ... .:. • -1 . 10 T
- • -, ;- - . __ e . . f •
'Associates common stock, as adjusted for stock dividends and splits, remains above $38.81 per
share for 60 days during Fiscal 2000. Nevertheless, the plan contains an exception to this rule,
providing that ownership in any shares granted
shall immediately vest, and shall no longer be subject to forfeiture. .. on the first day on or before [March 31, 2000] that the closing price of the Common Stock. . has exceeded [$53.33 per share, as adjusted for stock dividends and splits] .. .for %trading days within any twelve-month period (emphasis added).
27. Thus, purs' uant to the terms of the 1995 Incentive Plan, ownership in the shares
awarded to defendants Wang and Kumar cannot vest prior to Fiscal 2000, despite the fact that
Computer Associates common stock has not closed below the trigger level of $38.87 per share
since July 10, 1997, unless the stock closes above $53.33 per share on 60 days within any twelve-
month period. On October 21, 1997, the Company's common stock attained this level for the
first time, reaching an all-time closing price high, as adjusted for stock dividends and splits, of
$53.50 per share: Consequently, instead of waiting until Fiscal 2000, defendants Wang and
Kumar would secure vested ownership of 18.225 million shares of Computer Associates
common stock with a market value exceeding $975 million no later than October 21, 1998, if the
- stock closes above $53.33 per share on 59 more occasions prior to that date. During the period
October 21, 1997 through January 20, 1998, the price of the Company's common stock had
closed above $53.33 on nine days, with only 51 more days required to secure immediate vesting
- of the $ 1 billion in stock grants issued pursuant to the 1995 Incentive Plan.
28. As the Company's fiscal year ending March 3 I,. 1998 ("Fiscal 1998") proceeded,
however, defendants realized that Computer Associates faced significant challenges that
threatened not only the ability of defendants Wang and Kumar to secure early vesting of their
11
• • . . . .._.:.• _ _ -
/ ..13. illion dollar stock grants pursuant to the 1995 Incentive Plan, but also threatened the long te rm
revenue and earnings growth of the Company. For example, despite the Company's success in
battling IBM to become the co-leader in supplying software for mainframe computers, i defendants knew that opportunities for growth in this area were limited. Indeed, on or about July
21, 1997, Fortune Magazine published a profile of Computer Associates, in which it described - .
the mainframe computer market as "an unglamourous, stagnant business — growing just 6%
annually. . .", and noting that the Company had avoiderldhe pitfalls of this declining market only
through pursuit of its aggressive acquisition itrategy. Fortune also noted that growth in the i mainframe market might prove impossible in the future for the Company:
All his success aside, Wang now stands at a crossroads. With the mainframe market an unlikely poaching ground for future major buyouts — the Justice Department set conditions on the Company's last major takeover — Wang knows he has to find new ways to grow...... -.. , • la I 29. Further, as the Company acknowledged in January 1998, during Computer 1
Associate's third fiscal quarter ended December 31, 1997, defendants began to realize that
revenue growth in the Company's client-server products had slowed significantly, and was _ .....,_ unlikely to show sequential growth from the prior quarter. Thus, defendants !mew that Computer- .-.7;:-. _ Associates faced an apparent slowdown in its growth, as sales of its client-server products failed , to meet prevailing expectations, while opportunities for further growth in its staple mainframe
business WM severely limited. Defendants also knew that disclosure of these facts, without a
plan to return to record growth in the future, would cause the trading price of the Company's .
common stock to decline substantially. .,. ._ .
.. 12 ... . ,
n , INIMIM . , . r
30. Thus, during December 1997 or earlier, defendants made a strategic decision to
/ fuel the Company's future growth by taking the dramatic step of entering the field of
management and information systems consulting, by acquiring CSC. Specifically, while
F Computer Associates' rapid growth had provided it with a 25% share of the mainframe computer 1 ' software market, the Company often remained at a competitive disadvantage when bidding for -
contracts from the world's largest corporations, which tend to favor companies such as IBM that .1 . are capable of providing both software and training and support to operate their complex
computer systems.
31. CSC is a computer consulting firm specializing in providing clients with a wide
range of professional services, including management consulting, infomiatiort systems consulting
and integration, and operations support. Despite having completed over 60 acquisitions since
Computer Associates was founded in 1976, CSC was markedly different than any of these prior business combinations both in terms of the nature of its business and its size, having reported i I revenues of $5.616 billion for its fiscal year ended March 31, 1997, and possessing a market
capitalization of nearly $6.5 billion as of December 1, 1997.
32. . As reported by Computer Associates on February 11, 1998, during mid-December 1
1997, defendants Wang and Kumar contacted CSC Chairman and Chief Executive Officer Van
B. Honeycutt ("Honeycutt") for the purpose of negotiating an acquisition of CSC by Computer
Associates. As negotiations progressed during December 1997 and January 1998, it became .
clear to defendants that, to acquire CSC, Computer Associates would be forced to pay a . substantial premium over CSC's $6.5 billion market capitalization, which would dilute the . i Company's earnings for several years. Indeed, as reported in a February 24, 1998 Wall Street
. 13 . .
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.. :- . . I / Journal article, CSC has alleged in a complaint it filed against Computer Associates on February
23, 1998 (the "CSC Complaint") that Computer Associates offered $100 per share or $8.5 billion .
to acquire CSC, in a meeting with CSC's Chairman, Honeycutt on December 18, 1997. It has
also been reported that Computer Associates had negotiations with CSC over a sweetened offer . - of $114 per share, or $9.6 billion. These offers were made based upon discussions with . investment bankers, as well as other parties which were prepared to finance the acquisition. .. 1 33: After the close of trading on January 20, Computer Associates announced .•-• ,revenues and earnings for the third quarter of Fiscal 1998, ending December 31, 1997, that fell .0. significantly below-prevailing exipectations. Specifically, while the Company posted record - i ii f ' revenues of approximately $1.053 billion for the quarter, its sale of client-server products failed
to achieve the 40% to 50% level of growth widely expected in the investment community. On „ .1 _ _ - •1 . .. , the day following the Company's announcement, the price of Computer Associates common ... • . _ - . , ..., . stock fell nearly 10% to close at $47.25 per share. Several investment analysts attributed this _ _ . . , .,:• .. .- - •- ,_ 4 decline to concerns with respect to future growth of client-server revenues. For example, in an .. :- ----"- - — -
interview published by Bloomberg News Service, Prudential Securities analyst Douglas Crook . - - _ ------_- .. _commented that he had lowered his rating on the Company's common stock to "hold" from - .•-_ .--
"buy", noting that — •• , __::-,..:-:- . -,,- :,, .--. -. The stock is down on the question, is growth in client-server ,._ • - .. . . , _ ... • . - over. . . The Street was expecting the client-server business to . _ continue marching on and eventually take over the revenue mix. • _ _ _ • -
34. In an effort to stem this decline, defendants dispatched Kumar to a series of . : .. ' ..' • --:r _ . meetings with security analysts and investors, commencing on January 27, 1998, the goal of - ' "•-'-- ' '
which was to restore faith in the Company's business condition and financial prospects, and . _ . ._ 14 . .
I 2. I
/ thereby cause a rebound in the price of Computer Associates stock. Due to the acquisition costs discussed, and the resulting dilution in Computer Associate's earnings which would occur for
several years through the necessary amortization of Goodwill, defendants knew that disclosure of
Computer Associate's negotiations with CSC would likely prevent a rebound in the price of
Computer Associates stock and drive the trading !nice of Computer Associates common stock
below the $53.33 level required to accelerate the vesting of common nearly $1 billion worth of I stock granted to defendants Wang and Kumar pursuant to the 1995 Incentive Plan. Thus,
defendants resolved to avoid disclosing the existence of merger discussions with CSC to the a - - , public until absolutely nece.ssary! ; 35. During one sucii meeting on January 27, 1998 — the first day of the Class Period
— defendant Kumar, with the knowledge and acquiescence of defendants Wang and McWade,
attended a luncheon meeting with various investors and securities analysts of the firm Cowen &
Company, at which they knew Kumar would seek to restore public confidence in the financial ,i condition and business prospects of Computer Associates. At the meeting, defendant Kumar ..
represented to analysts and investors attending the meeting that the Company's management was
_pleased with Computer Associates' financial results for the third quarter of Fiscal 1998, ended ;
December 31, 1997, and that client-server product sales had shown stronger momentum than in
prior quarters. Jr,urnar further stated. that the Company was not planning any business acquisitions beyond sevekalmnall transactions valued at $5 to $15 million. To the contrary, Kumar indicated at the meeting that the Company expected to generate $1 billion in cash during
Fiscal 1998, which Computer Associates planned to apply toward its debt during calendar 1998. .
, 15 . I - ,
. ._. ,. . _ .
..
36. Defendant Kumar's representations at the January 27 meeting concerning planned
/.acquisitions and paying down debt by the Company were materially false and misleading. At the
time Kumar made these statements, defendants knew that they were engaged in serious
negotiations to acquire CSC at a price which would dilute Computer Associate's earnings for
several years. Indeed, according to CSC's Complaint, as reported in the February 24, 1998 Wall
Street Journal article, at a meeting between senior officers of Computer Associates and CSC on
February 5, 1998, defendant Wang offered to pay Mr. Honeycutt "more thin $50 million,"
including "guaranteed stock options worth a least $35 million as well as a guaranteed seven-year 1 .., contract with an annual_ base income of no less than $2.5 million," as part of an acquisition • proposal. Moreover, as admitted by defendant Kumar in a February 10, 1998 letter to
Honeycutt, the parties had reached agreement by February 5, 1998:
— "on the need and manner of retaining key managers and employees" , — "on providing stock option grants to key managers and employees". - . ;
— "that the CSC organization within the combined company will be on equal footing to Computer Associate's existing product organization."
4 The negotiations which commenced prior to the Class Period therefore continued throughout the
-Class Period. • . . 37. Defendant Kumar's meeting with investors and security analysts accomplished . -,_ ..: _• ___ . -
defendants' goal of restoring the investment community's faith in the business condition and
J financial prospects of the Company, causing the analysts to recommend the purchase of _-. . _ - . _...... , Computer Associates common stock to their clients, and investors to purchase such stock, based ...... _ upon the representations made at the meeting. Indeed, on the day of the meeting, the price of - . --- • --_,:'
16 . ,
i . , , ' `- ,. - • 'Computer Associates common stock rose $1.25 per share, and continued to rise above $53.33 per
share following the meeting. After the meeting at Cowen & Company, Kumar spoke at a similar
meeting at Goldman Sachs. / 38. Between January 27 and February 10, 1998, the closing price of Computer
Associates common stock exceeded $53.33 per share on eight days, bringing the total number of
days on which the stock closed above this level since October 21, 1997,10 seventeen. Thus,
• defendants Wang and Kumar would secure vested ownership of their billion dollar stock grants
pursuant to the 1995 Incentive Plan if the Company's common stock closed above $53.33 per.,
share on any 43 days prior to October 21, 1998.
39. Although defendant Kumar's meetings with investors and security analysts 1'
accomplished defendants' goal of causing the price of Computer Associates common stock to
increase above $53.33 per share, defendants knew that they could not delay announcing their
ongoing merger discussions with CSC indefinitely. Specifically, between December 15, 1997
and February 10, 1998, the price of CSC common stock increased by nearly 20%, from $77.5625
to $92.1875 per share. As reported in a February 12, 1998 LA Times article, this increase was
_attributable to rumors spreading through the marketplace of a possible acquisition of CSC. Thus,
defendants knew that Computer Associates faced a choice of either disclosing its merger
negotiations, or jeopardizing the Company's ability to offer the substantial premium necessary to
consummate the acquisition due to the dramatic rise in the price of CSC common stock.
40. Realizing that the Company would soon be forced to disclose its bid to acquire
CSC, and in the wake of the materially false and misleading representations issued by defendant
Kumar at the investor and analyst meetings, as detailed above, defendants Wang and McWade
17 •
_ . •
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/ availed themselves of the opportunity to sell substantial quantities of Computer Associates -
common stock at artificially inflated prices. Specifically, on January 27, 1998, defendant Wang
sold 150,000 shares of Computer Associates common stock in an open market transaction, at a ., price of $48.06 per share, realizing proceeds from this sale of $7.209 million. Shortly thereafter,
on January 30, 1998, defendant McWade sold 72,006 shares of Computer Associates common
stock in an open market transaction, at a price of $53.65 per share, realizing proceeds in excess '
of $3.8 million. It was publicly reported on February 23, 1998 that Computer Associates
executives are being probed by the SEC for possible trading on inside information about the bid . . to acquire CSC. ,These defendants are the only executives who sold Computer Associates stock
during the Clasg Period. ..._. ._ . _ 41. Following these sales, and contrary to Kumar's prior representations to investors
and analysts, before the market opened on February 11, 1998, Computer Associates shocked the - --_--.,-",- ... _. - .... . market by announcing that it had offered to purchase CSC for $108 per share, in cash, in a - . -
transaction valued at approximately $9.1 billion The Company's press release, which included a - _ - copy of a letter from defendant Kumar to CSC Chairman Van Honeycutt, revealed for the first -- • - -_.
_time not only the existence of the offer, but also the fact that the two companies had devoted ----.' • 1 _ "significant time to negotiating the terms of an acquisition since December 1997, and that the .
parties had agreed on many of the major terms. Computer Associates further announced that its — -
Board had unanimously approved the transaction, and that the Company had "obtained the
necessary financing commitments to consummate this transaction without delay." In a
conference call With analysts subsequent to this announcement, Computer Associates
18
' .______..__ , - 1 :.? ,d I I .management further disclosed that the transaction, if completed, would dilute the Company's earnings for several years. / 42. Following the Company's shocking announcement, the price of Computer
Associates common stock declined by nearly 13%, falling from $58.0625 per share on February • -- ,• 10 to close at $50.75 per share the next day. In the days that followed, the price of Computer
Associates common stock declined further, trading as low as $44.75 per share on February 17. ., COUNT 1 i
Against Computer Associates and the Individual Defendints For Violations of Section 10(b) of the Exchange Act And Rule 10b-5 Promulgated Thereunder . f 43. Plaintiff repeats and realleges each of the allegations set forth in the foregoing
paragraphs. 44. Throughout the Class Period, defendants, directly and indirectly, by the use and means of instrumentalities of interstate commerce, engaged and participated in a continuous
course of conduct to conceal the existence and advanced status of merger discussions between
the Company and CSC, including the cost of such an acquisition to Computer Associates, and the 1 fact that such an acquisition would dilute the Company's earnings for several years. Defendants
employed devices, schemes, and artifices to defraud while in possession of material, adverse non- ,
public information and engaged in acts, practices, and a course of conduct which included the . • making of, or participation in the making of, untrue and/or misleading statements of material fact 1'
and omitting to state material facts necessary in order to make the statements made about Computer Associates not misleading.
19 . . •
. . . . -
45. Defendant Wang, as Chairman of the Board, Chief Executive Officer, and one of '- the largest shareholders of Computer Associates, is liable as a direct participant in the wrongs • • complained of herein. Through his position of control and authority as an officer and director of
Computer Associates, Wang was a direct participant in the negotiations with CSC and I development of the offer publicly announced on February 11, 1998. He also was able to and did control the content of the public statements disseminated by Kumar on behalf of the Company during the meetings with various security analysts and investors complained of herein. With knowledge of the false and/or misleading nature of these statements, or in reckle,s disregard of their falsity, for the reasons set folth above, Wang caused the heretofore complained of public • statements to contain misstatements and omissions of material facts as alleged herein.
46. Defendant Kumar, as President, Chief Operating Officer, and a member of the
Board of the Company, is liable as a direct participant in the wrongs complained of herein. - - - - •
Through his position of control and authority as the second most senior operational officer of the
Company, Kumar was a direct participant in the negotiations with CSC and development of the • _ - . offer publicly announced on February 11, 1998. He also was directly responsible for making the - . . materially false and misleading statements complained of herein. Consequently, Kumar either • . knew or, but for his reckless disregard of the truth, should have known that his statements during the Class Period with respect to Computer Associates' acquisition plans were materially false and . misleading.
47. Defendant McWade, as Senior Vice President - Finance of Computer Associates, is liable as a direct participant in the wrongs complained of herein. Through his position of control and authority as an officer of the Company, McWade was a direct participant in the
20 negotiations with CSC and development of the offer publicly announced on February 11, 1998.
He was also able to and did control the content of the public statements disseminated by Kumar
on behalf of Computer Associates during the meetings with securities analysts and investors complained of herein. With knowledge of the false and/or misleading nature of the statements • complained of herein, or in reckless disregard of the truth, for reasons set forth above, McWade caused the heretofore complained of public statements to contain misstatements and omissions of material facts' as alleged herein.
48. Defendant Computer Associates is liable as a direct participant in the wrongs complained of herein in that Kurntar's statements to investors and security analysts were made in hi§ capacity as President and Chief Operating Officer of the Company. They are therefore attributable to Computer Associates.
49. Defendants misrepresentations and/or omissions concerning the existence and status of merger negotiations with CSC were intentional or reckless and done for the purpose of causing a rebound in the price of Computer Associate's stock and enriching defendants Wang,
Kumar and McWade at the expense of plaintiff and the members of the Class. Defendants', misrepresentations and omissions inflated the price of Computer Associates common stock and allowed defendants Wang and McWade to sell thousands of shares of their stock to the public during the Class Period at inflated prices while in the possession of material, adverse information, and to realize proceeds from these unlawful sales in excess of $11 million.
Defendants also engaged in this wrongful conduct for the purpose of securing early vesting of stock grants from the Company for defendant Wang and Kumar pursuant to the 1995 Incentive
Plan, valued at nearly $I billion.
21
4
1 . . . . . 50. As a result of these deceptive practices and false and misleading statements and omissions, the market price of Computer Associates common stock was artificially inflated during the Class Period. In ignorance of the false and misleading nature of the representations and omissions described above and the deceptive and manipulative devices employed by the defendants, plaintiff and the other members of the Class, in reliance on either the integrity of the market or directly on the statements of defendants, purchased Computer Associates common 1 stock at artificially inflated prices.
51. Had plaintiff ancl,the other members of the Class known of the material adverse information not disclosed by defendants, or been aware of the truth behind defendants' material - misstatements, they would not have purchased Computer Associates common stock at artificially inflated prices.
52. By virtue of the foregoing, defendants have violated Section 10(b) of the . Exchange Act and Rule I Ob-5 promulgated thereunder. . -1 . COUNT II
Against The Individual Defendants For • • Violations Of Section 2000 Of The Exchange Act
53. Plaintiff repeats and realleges each of the allegations set forth in the foregoing - -
54. Each of the Individual Defendants acted as a controlling person of Computer
Associates within the meaning of Section 20 of the Exchange Act during the Class Period.
Specifically, each of the Individual Defendants had the power and authority to cause the
Company to engage in the wrongful conduct complained of herein by reason of the following:
22 (a) Defendant Wang had the power and authority to cause the Company to
engage in the wrongful conduct alleged herein, by virtue of his position as Chairman of the Board
and Chief Executive Officer of Computer Associates, as well as his ownership of approximately
5.1%, or approximately 18.7 million shares of the Computer Associates common stock issued
and outstanding;
(b) Defendant Kumar had the power and authority to cause the Company to
engage in the wrongful conduct alleged herein, by virtue of his position as President, Chief
Operating Officer, member of the Company's Board, and second most senior officer of the
Company throughout the Class Flriod; and
(c) Defendant McWade had the power andauthority to cause the Company to
engage in the wrongful conduct alleged herein, by virtue of his position as Senior Vice President
- Finance, which provided him with extensive knowledge of and control over the Company's
operations and public statements.
55. By reason of the wrongful conduct alleged herein, the Individual Defendants are
liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of their wrongful conduct, plaintiff and the other members of the Class suffered damages in connection
with their purchases of Computer Associates common stock during the Class Period.
PRAYERYOR RELIEF
WHEREFORE, plaintiff, on behalf of himself and the members of the Class, prays for
judgment as follows:
23
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A. Declaring this action to be a proper class action maintainable pursuant to Rule 23
of the Federal Rules of Civil Procedure on behalf of the Class, and declaring plaintiff to be a
proper Class representative;
B. Awarding plaintiff and the other members of the Class damages as a result of the
wrongs complained of herein;
C. Awarding plaintiff and the other members of the Class their costs and expenses in
this litigation, including reasonable attorneys' fees and experts' fees and other costs and
disbursements; and
D. Awarding plaintifrand the other members of the Class such other and further
relief as the Court may deem just and proper.
JURY TRIAL DEMANDED • Plaintiff demands a trial by jury of all issues so triable.
Dated: February 27, 1998 . - BERNSTEIN L1TOWITZ BERGER & GROSSMANN LLP
- • n By 41-,adifar-ar 5-1 .111 ,op Ard Tv* ) •
/7 • i (RG- t.. I)
- 1285 Avenue of the Americas New York, NY 10019 - • (212) 554-1400 _ r • •
•
. ' \ ROBERT\ CAP \ 9[11101. .WPD/1.2614\1 24
_ CERTIFICATION
Robert Leff ("Plaintiff') declares, as to the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the foregoing complaint and authorized its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the - direction of plaintiffs counsel or in order to participate in this private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary.
4. Plaintiffs purchases during the Class Period of Computer Associates Intematiofial, Inc. common stock are as follows: --
Transaction Price,Per Share Date
Purchased 500 shares $53.00 1/28/98
5. During the three years prior to the date of this Certificate, Plaintiff has neither sought to serve nor served as a representative party for a class in any other action filed under the federal securities laws, except for.
In re Corr Therapeutics Securities Litigation, Case No. C98 20104 (RM IN) (N.D. Cal.)
6. Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiffs pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to the representation of the class as .ordered or approved by the court.
I declare under penalty of perjury that the foregoing is true and correct Executed this.' day of February, 1998 at New York, New York
bert Leff V
•
IROBERINMIS COTO] I .11411)112634% I
r f -