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Glass Lewis & Co. "Proxy Paper"

(August 10, 2007)

Glass Lewis & Co., a proxy adviser to institutional investors, has issued its "Proxy Paper" report for the September 18, 2006 annual meeting of CA shareholders.

As indicated in the section copied below, the firm recommends that its clients vote against the re-election of Alphonse D'Amato as "the last holdout from the members of the audit committee" who had overseen the various frauds during 2000 and 2001, and for continuing to allow deficient reporting until last year. Glass Lewis states that the significant withholding of more than 25% of shareholder votes for Mr. D'Amato last year, when the firm made a similar negative recommendation, "bolsters our view that shareholders are concerned about his continued presence on the board and its audit committee given his track record of poor oversight over the reliability of the Company’s financial reporting."

The firm also recommends voting against the re-election of Jay Lorsch, based on his chairing the board committee that nominated Mr. D'Amato for re-election.

With Glass Lewis' permission, the sections of the Proxy Paper addressing the director election are copied below, and the full report can be downloaded from the following link:



P R O X Y   P A P E R  


CA, Inc.
Industry: Software & Programming
Meeting Date: August 22, 2007
Record Date: June 28, 2007


Rachel Perez, Lead Analyst





[pages 6-16]


Proposal 1.00: Election of Directors




The board has nominated 12 candidates to serve a one-year term each. If elected, their terms would expire at the Company's 2008 annual meeting of shareholders.

Over the last year, the Company continued to make progress in correcting its accounting and financial reporting irregularities that arose in 2000 and 2001. Most notably, the Company successfully remedied its material weaknesses, which had led to revenue recognition irregularities and numerous restatements over the last several years. Consequently, on May 30, 2007, the Company disclosed in a Form 10-K that its disclosure controls and procedures were effective as of March 31, 2007.

In our 2006 Proxy Paper, we stated that the Company faced significant challenges in maintaining and growing its revenue basis, as well as increasing its net income to improve its bottom line performance. Over the last fiscal year, the Company's total revenue has increased by 5%. Though this revenue growth is not phenomenal, this increase is reassuring to investors after a sharp decline of approximately 27.8% from late June 2001 to August 2006, during which time Lewis Ranieri served as a member of the board. In addition, the Company's net income from continuing operations has grown by 24% over the last fiscal year.

These positive indicators of improved financial performance, taken in conjunction with the Company’s effective internal controls and the satisfaction of its deferred prosecution agreement with federal regulators, signal that the Company is getting on the right track and charting a new course. However, we nevertheless believe that shareholders should be aware of the financial exposure posed by ongoing civil litigation and the conclusions of the special committee of the board that reviewed certain claims.

We also believe the Company should be commended for its corporate governance reforms, such as the establishment of a majority vote standard for director elections and decision to seek shareholder ratification of the Company’s poison pill that contains several shareholder-friendly provisions (see Proposal 2). However, in our view, these reforms do not go far enough to provide shareholders with meaningful input into these matters.

Replacement of the Chairman of the Board

In last year's Proxy Paper, we were concerned that Mr. Ranieri has served as a board member since 2001 and as chairman of the board since April 2004, during which time the Company has experienced declining stock performance and considerable management turnover. However, on June 13, 2007, the Company disclosed in a press release accompanying a Form 8-K that director McCracken succeeded Mr. Ranieri as chairman of the board in June 2007. Mr. Ranieri expressed his approval of the Company's decision, "...[with] the Company moving in the right direction, it is both fitting and appropriate that I step down as chairman. Bill McCracken is an outstanding choice to help lead this Company..." ("William E. McCracken Succeeds Lewis S. Ranieri as CA Chairman." Company Press Release. June 13, 2007). We believe the Company should be commended for replacing Mr. Ranieri with Mr. McCracken as chairman, given our view that Mr. Ranieri's board service and leadership of the board contributed to the Company's poor financial performance. In light of the Company's improved financial performance over the last year as well as the fact that Mr. Ranieri has stepped down from his service as chairman, we refrain from withholding votes from him on this basis at this time.

Expiration of the Deferred Prosecution Agreement that Resolved Government Investigations

As noted in our 2006 Proxy Paper, on September 22, 2004, the Company entered a deferred prosecution agreement ("DPA") with the U.S. Attorney's Office of the Eastern District of New York ("USAO") and a final consent judgment with the SEC. These agreements effectively resolved the agency investigations into the Company's past accounting practices associated with the timing of its revenue recognition with respect to certain software license agreements and the actions of former employees to impede the USAO and SEC investigations as long as the Company complied with the terms of the DPA.

On May 21, 2007, the Company announced in a Form 8-K that it had satisfied the terms of the DPA and that the DPA had expired. In the accompanying press release, the Company stated that the USAO reported that the Company had "complied with" the DPA, citing a May 2007 report of Lee Richards III, who was appointed as independent examiner under the DPA. As a result, the federal court judge ordered dismissal all pending charges against the Company in connection with the DPA.

However, in the Company's most recent annual report, the Company disclosed that the injunctive provisions of the consent judgment remain in effect. Specifically, the consent judgment contains provisions permanently enjoining the Company from violating certain provisions of federal securities laws.

Criminal Proceedings Against Former Executives

Under the DPA, the Company was required to cooperate fully with the USAO, the FBI and the SEC in their on-going investigations into the misconduct of any present or former employees and to support their efforts to obtain disgorgement of ill-gotten gains.

The federal criminal trials of David Kaplan (former head of financial reporting), David Rivard (former head of sales accounting), Lloyd Silverstein (former head of the global sales organization) and Ira Zar (former CFO), the former executives of the Company who oversaw the relevant financial operations during the periods in which the Company improperly recognized its revenue, have now concluded. In January 2004, Mr. Silverstein pled guilty to federal criminal charges of conspiracy to obstruct justice in connection with the ongoing investigation. In April 2004, Messrs. Kaplan, Rivard and Zar pled guilty to charges of conspiracy to obstruct justice and conspiracy to commit securities fraud in connection with the investigation. Mr. Zar also pled guilty to committing securities fraud. In January 2007, Mr. Zar was sentenced to a term of imprisonment for seven months and home confinement for seven months. A few days later, Messrs. Kaplan, Rivard, and Silverstein were all sentenced to home confinement for periods ranging from four months to six months. The federal court has deferred its decisions on restitution owed by Messrs. Kaplan, Rivard and Zar until a date to be determined.

SEC actions against each of the four former executives, arising from the same criminal conduct, allege that they participated in a widespread practice that resulted in the improper recognition of revenue by the Company. Messrs. Kaplan, Rivard, Silverstein and Zar each consented to a permanent injunction against violating, or aiding and abetting violations of, the securities laws, and also to a permanent bar from serving as an officer or director of a publicly held company. Litigation related to the SEC’s claims for disgorgement and civil penalties against these individuals is on-going.

As noted in last year's Proxy Paper, in September 2004, Steven Woghin, the Company's former general counsel, pled guilty to conspiracy to commit securities fraud and obstruction of justice in federal court. On May 30, 2007, the Company disclosed in a Form 10-K that, in January 2007, Mr. Woghin was sentenced to a term of imprisonment for two years and a supervised release for a period of three years. In February 2007, the federal court reduced Mr. Woghin’s term of imprisonment to one year and one day, with the balance of the initial two-year term to be served in home confinement. The federal court has deferred any decisions on whether Mr. Woghin shall be required to pay restitution until a future date.

Additionally, in April 2006, Sanjay Kumar, the Company's former chairman and CEO, and Stephen Richards, the Company's former executive vice president of worldwide sales, pled guilty to all counts of a nine count indictment, which included charges of securities fraud and obstruction of justice. In November 2006, Mr. Kumar was sentenced to 12-year prison term. In April 2007, the federal court ordered that Mr. Kumar pay restitution in the amount of $798.6 million, of which $50 million is due to be paid within 90 days of the date of the order or by July 31, 2007, whichever is later. Similarly, in November 2006, Mr. Richards was sentenced to a term of imprisonment for seven years and three years of supervised release. In June 2007, Mr. Richards agreed to pay $29.7 million in restitution, obligating him to pay such restitution in monthly payments equal to 15% of his gross income beginning 60 days following his release from prison (Chad Bray. "CA Ex-Executive to Pay Restitution." The Wall Street Journal. June 6, 2007).

The SEC brought civil actions against these individuals in federal court for violations of federal securities laws. Messrs. Kumar, Richards, and Woghin consented to partial judgments imposing permanent injunctions enjoining them from committing violations of the federal securities laws in the future and permanently barring them from serving as officers or directors of public companies. The SEC’s claims against Messrs. Woghin, Kumar and Richards for disgorgement and civil penalties are pending.

Civil Litigation

As discussed in last year's Proxy Paper, in addition to the government enforcement proceedings, several civil lawsuits have been filed by shareholders against the Company and certain of its former and current directors and employees. In August 2003, the Company agreed to the settlement of a class action and several derivative actions, claiming breach of fiduciary duties on the part of all individual defendants. As part of the class action settlement, the Company agreed to issue a total of up to 5.7 million shares of common stock to the shareholders represented in the lawsuits, and to pay the plaintiff's attorney's fees. In October and December 2004, four shareholders filed motions to vacate the order of final judgment and dismissal entered by the federal court in connection with the settlement of the derivative action and to reopen the settlement to permit the moving party to pursue individual claims against certain present and former officers of the Company (the "60(b) motions").

Additionally, in January 2005, a consolidated derivative action was brought in a federal district court in New York against the Company, as a nominal defendant, and certain of its former and current directors and officers, as well as KPMG, its current auditor, and Ernst & Young, its former auditor ("E&Y"). The consolidated complaint seeks contribution toward the consideration the Company had previously agreed to settle in the aforementioned class action. The consolidated complaint also seeks compensatory and consequential damages in an amount not less than $500 million on behalf of the Company. In addition, the consolidated complaint seeks unspecified damages against KPMG and E&Y for breach of fiduciary duty and the duty of reasonable care, as well as contribution and indemnity under Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act"). The consolidated derivative action has been stayed pending a ruling on the 60(b) motions.

On May 30, 2007, the Company disclosed that, in August and September 2006, certain shareholders brought a derivative actions in federal district court against certain current or former directors of the Company. The federal court consolidated these lawsuits in October 2006. The consolidated complaint alleges claims against the individual defendants for breach of fiduciary duty and for violations of Section 14(a) of the Exchange Act for alleged false and material misstatements made in the Company’s proxy statements issued from 1998 through 2005. The premises for these claims concern the disclosures made by the Company in its Form 10-K for fiscal year 2006 concerning the Company’s restatement of prior fiscal periods to reflect additional (i ) non-cash, stock-based compensation expense relating to employee stock option grants prior to the Company’s fiscal year 2002, (ii) subscription revenue relating to the early renewal of certain license agreements, and (iii) sales commission expense that should have been recorded in the third quarter of the Company’s fiscal year 2006. According to the complaint, certain of the individual defendants’ actions allegedly were "in violation of the spirit, if not the letter of the DPA." In March 2007, the Company and the individual director-defendants separately moved to dismiss the complaint.

In its most recent annual report, the Company also disclosed that, in September 2006, another shareholder filed a derivative action in Delaware Chancery Court against certain former and current directors and officers of the Company. The complaint alleges claims against these defendants for breach of fiduciary duty, corporate waste and contribution and indemnification, in connection with the accounting fraud and obstruction of justice that led to the criminal prosecution of certain former officials of the Company and to the DPA. In December 2006, the special litigation committee (discussed below) filed a motion to dismiss or, in the alternative, to stay the action in favor of the consolidated derivative action originally filed in the federal court in June 2004.

In our view, although legal disputes are common to many companies, shareholders should be concerned with any type of lawsuit or regulatory investigation involving the Company, as such matters could potentially expand in scope and prove to dampen shareholder value. As such, in the event that members of management or the board are implicated in any such legal proceedings, we may consider recommending that shareholders withhold votes from certain directors on that basis. However, due to the ongoing nature of the litigation, we do not feel that any such action is necessary at this time. We will continue to monitor the proceedings going forward.

The Special Litigation Committee Report

On April 13, 2007, the Company disclosed in a Form 8-K that, in February 2005, the board formed a special litigation committee consisting of two non-management members of the board (directors Zambonini and McCracken, with the later serving as its chairman), to control and determine the Company's response to the aforementioned consolidated derivative action and the 60(b) motions. The Company disclosed that the special litigation committee (the "committee") issued a 390 page report, which concluded the following:

  • It would be in the best interest of the Company to pursue certain of the claims against Charles Wang, the Company's former chairman and CEO, including filing a motion to set aside releases granted to Mr. Wang in 2000 and 2003. On the other hand, the committee determined that certain other claims against Mr. Wang should be dismissed as they are duplicative of the ones to be pursued and are for various reasons infirm. The committee will seek dismissal of these claims;
  • It would be in the best interests of the Company to pursue certain of the claims against former CFO Peter Schwartz. Certain other claims against Mr. Schwartz should be dismissed as they are duplicative of the ones to be pursued and are for various legal reasons infirm. The committee will seek dismissal of these claims;
  • It be in the best interests of the Company to pursue certain of the claims against the former Company executives who have pled guilty to various charges of securities fraud and/or obstruction of justice — including Messrs. Kaplan, Richards, Rivard, Silverstein, Woghin, and Zar. The committee has determined and directed that these claims be pursued by the Company using counsel retained by the Company, unless the committee is able to successfully conclude its ongoing settlement negotiations with these individuals shortly after the conclusion of their criminal restitution proceedings;
  • The claims against current and former directors Kenneth Cron, Alfonse D’Amato, Willem de Vogel, Gary Fernandes, Richard Grasso, Shirley Strum Kenny, Robert La Blanc, Jay Lorsch, Roel Pieper, Lewis Ranieri, Walter Schuetze, and Alex Vieux should be dismissed. The committee has concluded that these directors did not breach their fiduciary duties and the claims against them lack merit;
  • While the Company has potentially valid claims against former officer Michael McElroy (former senior vice president of the Company's legal department), it would be in the best interests of the Company to seek dismissal of the claims against him;
  • It would be in the best interests of the Company to seek dismissal of the claims against E&Y. The committee has recommended this dismissal in light of the relevant legal standards, in particular, the applicable statutes of limitation. However, the committee has recommended that the Company promptly sever all economic arrangements with E&Y; and
  • It would be in the best interests of the Company to seek dismissal of the claims against KPMG. The committee has determined that KPMG’s audits were professionally conducted. The committee has recommended this dismissal in the exercise of its business judgment in light of legal and factual hurdles as well as the value of the Company’s business relationship with KPMG. (See

In the same filing, the Company also announced that the committee had reached a settlement with certain of its former and current directors and officers. Specifically, the committee reached the following settlements subject to court approval:

  • A binding term sheet settlement with Mr. Kumar pursuant to which the Company will receive a $15.25 million judgment against Mr. Kumar secured in part by real property and executable against his future earnings. This amount is in addition to the $52 million that Mr. Kumar will repay to the Company's shareholders as part of his criminal restitution proceedings. Based on his sworn financial disclosures, the committee believes that, following his agreement with the government, Mr. Kumar had no material assets remaining;
  • A settlement agreement with Russell Artzt (currently executive vice president of products and a former board member of the Company). The committee noted that during its investigation, it did not uncover evidence that Mr. Artzt directed or participated in the "35 Day-Month" practice or that he was involved in the preparation or dissemination of the financial statements that led to the accelerated vesting of equity granted under the Company’s key employee stock ownership plan ("KESOP") as alleged in the derivative actions. Pursuant to this settlement, the Company will receive $9 million (the cash equivalent of approximately 354,890 KESOP shares); and
  • A settlement agreement with Charles McWade (the Company's former head of financial reporting and business development). Pursuant to this settlement, the Company will receive $1 million

As a result of these settlements, the committee will seek dismissal of all claims against Messrs. Kumar, Artzt, and McWade.

Sam Wyly's Response to the Special Litigation Committee Report

In response to the committee's report, dissident shareholder Sam Wyly labeled the special litigation committee's determination that certain claims against current and former executives and directors should be dismissed as "a whitewash." Mr. Wyly has a history of engaging with the Company, having initiated proxy contests in 2001 and 2002 through his Ranger Governance group. Mr. Wyly filed his response in connection with Ranger Governance's attempt to retain control over the one of the derivative lawsuits. Mr. Wyly claims that the special litigation committee focused on a particular wrongdoing against the Company by these individuals "despite evidence of their improper practices" and that it failed to pursue viable claims against certain former executives and current and former board members" for their "acts and/or omissions." Mr. Wyly's filing further accuses the Company's board of "shamefully" allowing legal claims against E&Y to lapse because of the statute of limitations. (Mark Harrington. "Dissident investor blasts CA report." July 26, 2007).

Mr. Wyly also claims the independence of the board's litigation committee was "compromised not only from the start, but throughout the entire process," noting that former special litigation committee member Laura Unger formerly worked for director Alfonse D'Amato's U.S. Senate banking committee. She later stepped down from the litigation committee (Mark Harrington. "Dissident investor blasts CA report." July 26, 2007).

Mr. Wyly's brief also questions the independence of Sullivan & Cromwell, the law firm representing the board's audit committee in connection with its investigation of the Company’s accounting practices, noting that Robert Giuffra, the law firm's counsel for the Company, once worked on D'Amato's U.S. Senate staff and is a "long-time friend" of D'Amato, who recommended Giuffra. According to the filing, Unger also worked with Giuffra. It accuses the law firm of failing to promptly report evidence against the Company's executives and of helping draft a press release that it claims "misrepresented the extent of the fraud at the company." Sullivan & Cromwell subsequently became the Company's defense and outside counsel (Mark Harrington. "Dissident investor blasts CA report." July 26, 2007).

We believe that the accusations of Mr. Wyly raise serious questions about the independence of the special litigation committee and Sullivan & Cromwell representation of the Company. One can only wonder how the law firm's conflicts checks did not conclude that such relationships prevented it from representing the Company and its audit committee in these matters. We are unaware of how long Ms. Unger served on the special litigation committee; however, we believe that her appointment to the committee was grossly inappropriate given her prior dealings with D'Amato, who was a board member subject to the committee's scrutiny and a defendant in the pending litigation.

While we refrain from recommending to withhold votes from Ms. Unger or special litigation committee members, Messrs. McCracken and Zambonini, we will closely monitor this issue going forward for any factual evidence demonstrating that they failed to serve shareholders' best interests. Furthermore, in light of the allegations raised by Mr. Wyly regarding the special litigation committee's report, we are concerned that Mr. McCracken now serves as chairman of the board. In our view, the chairman of the board should be independent from the the influence of those current directors that are defendants in the litigation that raises questions about their oversight during the Company's accounting improprieties.

Majority Vote Standard

On February 28, 2007, the Company disclosed in a Form 8-K that, in February 2007, the board amended the Company's bylaws to implement a majority vote standard for uncontested elections of directors. Under the amended bylaws, in an uncontested election, each director shall be elected only if the number of shares voted in favor of such candidate exceeds the number of shares voted against at any meeting for the election of directors at which a quorum is present. These provisions of the Company's amended bylaws can only be amended or repealed by the affirmative vote of the holders of not less than a majority of the outstanding shares entitled to vote on such action.

In conjunction with the bylaws amendment, the Company adopted amendments to its corporate governance principles to provide that an incumbent director shall not be eligible for nomination by the board unless the director has tendered his or her irrevocable resignation to the Company’s corporate governance committee before the mailing of the proxy statement for the annual meeting at which he or she is to stand for election. The irrevocable resignation shall be conditioned upon, and not effective until there has been, (i) a failure by such nominee to receive the requisite vote to be elected as a director and (ii) acceptance of such resignation by the board. The amended corporate governance principles provide that, in the event that a director does not receive the requisite majority vote required for election, the corporate governance committee (or such other committee of independent directors as the board may appoint) will make a recommendation to the board regarding the action to be taken with respect to such tendered resignation. Generally, the board must act within 90 days following certification of the vote (and promptly thereafter disclose its decision).

While we recognize that such a bylaw provision, in conjunction with the corporate governance principles, is a step in the right direction and an improvement from the plurality method commonly used to elect directors, we are concerned that this policy does not take the majority vote standard far enough. We view it as an example of the board enacting corporate governance reforms that appear to address the concerns put forth by shareholders, but when examined more closely, lack the substance that shareholders deserve. The most troubling aspect of the Company’s majority voting standard is the fact that any nominee who receives "against" votes from a majority of votes cast for his/her election will be required to submit a letter of resignation to the board, and, therefore, the board retains the ultimate authority to allow the director to continue to serve on the board.

In this case, we note that the bylaw amendment does not modify the director holdover rule under Delaware law, where the Company is incorporated. Under Delaware law, if an incumbent director is not elected, that director continues to serve as a "holdover director" until the director's successor is duly elected and qualified. However, recent additions to the Delaware General Corporate Law ("DGCL") offer a solution to this potential problem, providing that directors can be required to submit irrevocable resignations upon initial nomination. In the event the nominee does not receive a majority of the votes cast, the resignation already submitted to the Company will come into effect. In this case, the an director's irrevocable resignation is effective upon the board's acceptance of such resignation. As such, under the circumstances that the board decided not to accept the resignation, the resignation does not prevent the directors' continual service pursuant to the holdover rule.

An irrevocable director resignation provision that is conditioned solely upon failing to receive the requisite vote can be accompanied by a truncated holdover period added to a company's bylaws, by which the director will serve for no more than a specified period of time, such as 90 days. DGCL further stipulates that such a majority vote provision can be adopted unilaterally by shareholders, and once approved, cannot be repealed by the board. In our view, this type of provision, in combination with a truncated holdover period, will serve to alleviate any issues that may arise if an incumbent director is not elected, and will increase board accountability, which is needed at the Company.

In our view, in the extremely rare event that a majority of votes are withheld from a director up for election, we believe that such an outcry by shareholders should be viewed as irrefutable evidence that shareholders no longer believe the director is suited to serve on the board. Accordingly, we believe that any director, as an elected representative of shareholders, who receives “against" votes from a majority of the votes cast for his/her election should be required to resign from the board without any further evaluation by the board or the corporate governance committee. As such, we believe that the director's resignation should be conditioned solely upon failing to receive a majority of the votes cast and should not be conditioned upon acceptance by the board.

We also believe a policy as important as a majority vote policy should be ratified by shareholders and added to the Company’s certificate of incorporation or its bylaws in conjunction with a provision that says that it cannot be amended by the board without shareholder approval. As such, in this respect, we believe the Company should be commended for its commitment to good corporate governance practices regarding director elections by amended the bylaws to provide that the majority vote standard contained therein only be amended or repealed upon shareholder approval.

Amendment to the Company's Poison Pill

On October 16, 2006, the Company disclosed in a Form 8-K that the board adopted a stockholder protection rights agreement (the "rights plan") between the Company and Mellon Investor Services LLC without prior shareholder approval. The new rights plan extends the expiration date of the existing rights plan from November 30, 2006 to November 30, 2009 and modifies certain other provisions.

Pursuant to the plan, each share of common stock outstanding as of October 26, 2006 receives a dividend of one preferred share purchase right (a "Right") with certain anti-takeover effects. Specifically, a Right entitles each shareholder to purchase from the Company 1/1000th of a share of participating class A preferred stock, which when taken together will cause substantial dilution to a person or group that attempts to acquire the Company without conditioning the offer on the Rights being redeemed or a substantial number of Rights being acquired.

We believe that shareholder rights plans ("poison pill plans") are not in the best interest of shareholders. Specifically, they can reduce management accountability by substantially limiting opportunities for corporate takeovers. Rights plans can thus prevent shareholders from receiving a buy-out premium for their stock. Typically, we recommend that shareholders vote against these plans to protect their financial interests and ensure that they have the opportunity to consider any offer for their shares, especially those at a premium.

We believe that boards should be given wide latitude in directing the activities of the company and charting the company's course. However, on an issue such as this, where the link between the financial interests of shareholders and their right to consider and accept buyout offers is so substantial, we believe that shareholders should be allowed to vote on whether or not they support such a plan's implementation. This issue is different from other matters that are typically left to the board's discretion. Its potential impact on and relation to shareholders is direct and substantial. It is also an issue in which the interests of management may be very different from those of shareholders, and therefore ensuring shareholders have a voice is the only way to safeguard their interests.

We believe that the directors who served on the board at this time bear the responsibility for implementing the shareholder rights plan without first allowing shareholders to vote on its adoption. Under such circumstances, we normally recommend that shareholder vote against all directors who served the board during the time of the plans adoption. However, in this case, we note that the board is seeking shareholder ratification of the adoption of the rights plan (see Proposal 2). While we believe that shareholder ratification of the rights plan is not in their best interests, we recognize that the new rights plan contains several "shareholder-friendly" provisions, including a one year annual review by independent directors and a qualifying offer provision. As such, we refrain from recommending that shareholders withhold votes from any director on this basis at this time. We note, however, that the rights plan will continue in effect in the event that shareholder do not ratify it, unless the board takes action in response to the shareholder vote.

Lack of Transparency in the Company's Disclosure of Related-Party Transactions

In its 2007 proxy statement, the Company discloses that Mr. Loggren serves as executive of a company (he is president and CEO of Schneider National, Inc.), which received an unspecified dollar amount of purchases from CA, Inc. in fiscal year 2007. The Company further disclosed that the amount of such purchase was less than the greater of $1 million or 2% of the consolidated gross revenue of the company for which Mr. Loggren serves as an executive. The Company further disclosed that Messrs. Fernandes, La Blanc and Ranieri and Ms. Unger serve as a director, trustee or in a similar capacity (but not as an executive officer or employee) of a charitable organization that received contributions from the Company in the fiscal year 2007 that constituted less than the greater of $1 million or 2% of the organization’s total consolidated gross revenues during the organization’s last completed fiscal year.

We find this style of disclosure to be wholly inadequate. In our view, the Company should fully disclose the amount and nature of transactions that might reasonably impair a director's ability to act in shareholders' best interests. We believe that the cost of providing this disclosure is reasonable, particularly in light of the significant impact it may have on the board's overall independence.

In this case, we note that each of these directors, who are considered independent by the Company, also maintains one or more relationships that call into question their independence. Under circumstances of such poor disclosure, we would ordinarily recommend that shareholders withhold votes from those nominees that may have ongoing conflicts of interest. Though we are concerned that the Company's pattern of disclosure fails to adequately inform shareholders, we do not believe it is reasonable to suggest each of the foregoing directors in not independent on this basis. As such, we refrain from recommending that shareholders withhold votes on this basis at this time.

Given that the Company was previously subject to the DPA, which required that more than two-thirds of the Company's board members to be independent, we are particularly troubled by its lack of adequate disclosure regarding these related-party transactions. We believe the board should provide more comprehensive disclosure with regard to transactions between the Company and members of the board.

Robert Cirabisi's Continued Employment at the Company

As discussed in our 2006 Proxy Paper, we are concerned that Robert Cirabisi continues to serves as an executive officer of the Company. Mr. Cirabisi is senior vice president and corporate controller at the Company. According to the Company's most recent annual report, he is responsible for accounting, internal controls, sales accounting and equity administration. Mr. Cirabisi served as the Company's U.S. Controller in 2000, during the period in which serious accounting and financial reporting problems took place. We believe that the Company should untie its relationship with those executives that served in its accounting and finance departments during the time period in which the Company acknowledged improper accounting.

We recommend voting against the following nominees up for election this year based on the following issues:

Nominee D’AMATO has served as a member of the audit committee for more than 7 years. As discussed in our 2006 Proxy Paper, he is the last holdout from the members of the audit committee that approved certain financial data that improperly timed recognition of the Company’s license revenue in fiscal years 2000 and 2001. The Company stated that it had prematurely booked $1.8 billion in revenue in fiscal year 2000 and $445 million in fiscal year 2001. We believe that the audit committee is charged with the responsibility of properly overseeing the Company’s financial reporting. We further note that Mr. D’Amato served on the Company’s audit committee during a portion of the period when stock option backdating occurred at the Company. Specifically, on May 15, 2007, the Company disclosed in a Form 8-K that, as a result of its internal review, the Company determined that in years prior to fiscal year 2002, it did not communicate stock option grants to individual employees in a timely manner. In fiscal years 1996 through 2001, the Company experienced delays of up to approximately two years from the date that the employee stock options were approved by the committee of the board charged with such duties, and the date such stock options grants were communicated by management to individual employees. As discussed in last year’s Proxy Paper, as a result of the accounting errors associated with the backdating of options, the Company had to restate its previous financial statements to record an additional non-cash compensation expense of $343 million.

In last year’s Proxy Paper, we also expressed our concern that Mr. D’Amato had continuously been a member of the audit committee since the Company’s improper accounting that led to numerous restatements as well as lingering problems with its internal controls. While the Company now has effective internal controls and has not reported any further restatements  over the last fiscal year, we continue to believe that it would be best for Mr. D’Amato, as a member of the Company’s audit committee during periods of serious accounting irregularities, be removed from the board due to his lack of oversight. Furthermore, we note that Mr. D'Amato received over a 25% withhold vote at last year’s annual meeting. We believe that the significant withhold votes from Mr. D'Amato bolsters our view that shareholders are concerned about his continued presence on the board and its audit committee given his track record of poor oversight over the reliability of the Company’s financial reporting.

While we continue to be concerned that directors La Blanc and Schuetze continue to serve on the Company’s board and its audit committee, we recognize that these directors did not receive substantial withhold votes at last year’s annual meeting. Moreover, the effectiveness of the Company’s internal controls and lack of recent restatements suggest that shareholders have reason to be confident in such directors' service on the audit committee. As such, we refrain from recommending to vote against these nominees on this basis at this time.

Nominee LORSCH serves as chairman of the corporate governance committee. As explained above, at last year's annual meeting, director D'Amato received over a 25% withhold vote. We believe this raises concerns about whether the corporate governance committee is fulfilling its duty to shareholders considering that both Mr. D'Amato remains on the board. We believe directors sit on a board to represent the interests of shareholders. In our view, the corporate governance committee should heed the voice of shareholders and act to remove directors not supported by shareholders or correct the issues that raised shareholder concern. We do not believe that has been done here.

We do not believe there are substantial issues for shareholder concern as to any other nominee.

Accordingly, we recommend that shareholders vote:

AGAINST: D'Amato; Lorsch

FOR: All other nominees





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CA, Inc. 2006 Annual Meeting



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