A judge has ordered three top executives at Computer Associates (CA) to return nearly half of the $1.1 billion in stock they received last year, after saying it was acquired improperly.
Charles Wang, CA's chief executive officer, Sanjay Kumar, chief operating officer, and Russell Artzt, vice president, were jointly awarded 20.25 million shares of the company's stock, which was worth a projected $1.1 billion over five years, as part of an executive compensation package awarded in the Spring of last year.
Wang had a 60 per cent share of the stock, Kumar 30 per cent and Artzt 10 per cent, and the package was approved by stockholders in 1995.
But in September, 1998, Martin Unger, lawyer with Tenzer Greenblatt LLP, filed a lawsuit on behalf of shareholder Lisa Sanders against seven CA directors, contending they had exceeded their authority in granting the stock to the executives.
Aside from Wang, Kumar and Artzt, the other directors named in the suit were Richard Grasso, Willem de Vogel, Irving Goldstein and Shirley Strum Kenny.
On Tuesday, Myron Steele, Delaware Chancery Court Vice Chancellor, granted summary judgment in favour of the plaintiffs, however, and ordered that 9.5 million shares of stock, valued at $550 million, be returned to CA.
Steele ruled that the executives were entitled to 6 million shares in line with the firm's compensation plan, a figure that rose to 10.75 million shares after adjustments for stock splits.
But he also said that CA's board had exceeded its authority in granting the executives an additional 9.5 million shares as a result of three additional three for two stock splits.
Tenzer Greenblatt's Unger claimed: "Computer Associates ignored the terms of a stockholder approved executive ownership plan when they issued 9.5 million more shares than allowed. Computer Associates last year took a charge of $1 billion when it distributed the stock."
He continued: "It now appears that the company will recapture more than half of that amount. In addition, it will have to remove 9.5 million shares of stock from its total outstanding."He added: "This is the largest case of its kind that we are aware of. The lesson here is that company directors are obligated to shareholders to follow the plans as written. Computer Associates directors did not do this."
The judge also ordered Wang, Kumar and Artzt to account for any profits or benefits that could be directly traced to the 9.5 million shares they received.
But CA retorted: "The judge's ruling is a narrow reading of the compensation plan that gives no regard to the stock splits that occurred between the years that the plan was overwhelmingly approved by the shareholders and when the shares were granted."
It continued: "The original intent of the plan - which remains its intent today - was to award these key executives the stock which would have been equivalent to 3.75 per cent of the company's equity. The court's reading of the share limitation provision frustrates the purpose of the plan"
"This was reflected in the shareholders' rejection at this year's annual meeting of CA shareholders of a proposal to limit executive compensation," the statement added.
A source at the defendants' attorneys' office said the judgment would almost certainly be appealed.
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