<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMPUTER SCIENCES CORPORATION
(Name of Subject Company)
------------------------------
CAI COMPUTER SERVICES CORP.
COMPUTER ASSOCIATES INTERNATIONAL, INC.
(Bidder)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
(Title of Class of Securities)
20536310-4
(CUSIP Number of Class of Securities)
SANJAY KUMAR
PRESIDENT AND CHIEF OPERATING OFFICER
C/O COMPUTER ASSOCIATES INTERNATIONAL, INC.
ONE COMPUTER ASSOCIATES PLAZA
ISLANDIA, NEW YORK 11788-7000
TELEPHONE: (516) 342-5224
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidder)
------------------------------
COPIES TO:
SCOTT F. SMITH, ESQ.
HOWARD, DARBY & LEVIN
1330 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
TELEPHONE: (212) 841-1000
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Statement amends and supplements the Tender Offer Statement on Schedule
14D-1 filed with the Securities and Exchange Commission on February 17, 1998
(the "Schedule 14D-1"), relating to the offer by CAI Computer Services Corp., a
Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Computer
Associates International, Inc., a Delaware corporation ("Computer Associates"),
to purchase all outstanding shares of Common Stock, par value $1.00 per Share,
of Computer Sciences Corporation, a Nevada corporation, together with (unless
and until the Purchaser declares that the Rights Condition has been satisfied)
the Series A Junior Participating Preferred Stock Purchase Rights associated
therewith, upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated February 17, 1998 (the "Offer to Purchase"), and in the
related Letter of Transmittal, at a purchase price of $108 per Share (and
associated Right) net to the tendering stockholder in cash, without interest
thereon. Capitalized terms used and not defined herein shall have the meanings
assigned to such terms in the Offer to Purchase and the Schedule 14D-1.
ITEM 10. ADDITIONAL INFORMATION.
Item 10(e) is hereby supplemented as follows:
On February 17, 1998, Computer Associates filed with the United States
District Court for the District of Nevada a complaint seeking declaratory and
injunctive relief (the "Complaint") and a Brief in support of its Motion for
Expedited Declaration and on the merits of the relief requested in the
Complaint. Copies of the Complaint and the Brief are filed as Exhibits (g)(1)
and (g)(2) respectively, to this Statement, and are incorporated herein by
reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(g)(1) Complaint of Computer Associates seeking Declaratory and Injunctive Relief, filed
with the United States District Court for the District of Nevada on February 17,
1998.
(g)(2) Brief in Support of Motion for Expedited Hearings on Claims for Declaratory Relief
and on the Merits of the Relief Requested, filed with the United States District
Court for the District of Nevada on February 17, 1998.
</TABLE>
2
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 18, 1998
CAI COMPUTER SERVICES CORP.
BY /S/ PETER SCHWARTZ
-----------------------------------------
Name: Peter Schwartz
Title: Vice President and Treasurer
COMPUTER ASSOCIATES INTERNATIONAL, INC.
BY /S/ PETER SCHWARTZ
-----------------------------------------
Name: Peter Schwartz
Title: Senior Vice President and
Chief Financial Officer
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT NAME
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
(g)(1) Complaint of Computer Associates seeking Declaratory and Injunctive Relief, filed with the United States
District Court for the District of Nevada on February 17, 1998.
(g)(2) Brief in Support of Motion for Expedited Hearings on Claims for Declaratory Relief and on the Merits of
the Relief Requested, filed with the United States District Court for the District of Nevada on February
17, 1998.
</TABLE>
4
<PAGE>
Exhibit (g)(1)
SCHRECK MORRIS
STEVE MORRIS
MATTHEW McCAUGHEY
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 474-9400
HOWARD, DARBY & LEVIN
C. WILLIAM PHILLIPS
DANIEL M. MANDIL
1330 Avenue of the Americas
New York, New York 10019
(1) 841-1000
Attorneys for Plaintiff Computer Associates International, Inc.
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
- - - - - - - - - - - - - - - - - - x
COMPUTER ASSOCIATES :
INTERNATIONAL, INC.,
:
Plaintiff,
:
v. Case No.
:
COMPUTER SCIENCES
CORPORATION, :
Defendant. :
- - - - - - - -- - - - - - - - - - - x
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF
Plaintiff Computer Associates International, Inc. ("Computer
Associates"), by its counsel, alleges upon knowledge with respect to itself and
its own acts, and upon information and belief as to all other matters, as
follows:
<PAGE>
Nature of Action
1. Computer Associates has announced today that it will commence a tender
offer for all of the outstanding stock of defendant Computer Sciences
Corporation ("CSC" and the "Company") at a price of $108 per share in cash, an
aggregate price of approximately $ 9 billion for the Company (the "Offer"). The
Offer represents a substantial premium over the closing trading price of CSC
common stock on Tuesday, February 10, 1998, the last trading day before Computer
Associates' previous public announcement of its proposal to acquire CSC.
Computer Associates intends, as soon as practicable following consummation of
the Offer, to have CSC merge with a Computer Associates' subsidiary. By this
merger, Computer Associates envisions the creation of a world-class information
technology solutions provider for the Twenty-first Century.
2. Computer Associates brings this action to prevent CSC from breaching
its fiduciary duties by using various anti-takeover devices to block the Offer.
The Offer is fully financed, non-coercive and fair to CSC stockholders. The
Offer does not pose a threat to the interests of CSC stockholders or to its
corporate policies or effectiveness. The Offer is conditioned upon the removal
or inapplicability of a number of CSC's anti-takeover devices, which CSC
management may attempt to deploy in light of its public opposition to the
acquisition proposed by Computer Associates. These devices include a "poison
pill" and the Nevada Business Combinations Statute, Nev. Rev. Stat. Section
78.411 (1996) (the "Business Combination Statute").
3. CSC rejected Computer Associates' earlier proposals for a business
combination and has refused to negotiate with Computer Associates. Instead, CSC
seeks to deprive its stockholders of a full and fair opportunity to decide for
themselves whether
-2-
<PAGE>
to accept the substantial premium offered by Computer Associates. CSC has
embarked upon a campaign whose purpose is to ensure the continued control of CSC
by current top management, notwithstanding its fiduciary obligations to its
stockholders. This campaign threatens the full use of an assortment of
anti-takeover devices in order to entrench top management.
4. Given the fair and non-coercive nature of the Offer and its
substantial value to CSC stockholders, CSC should not be permitted to deny its
stockholders this opportunity. CSC's use of its "poison pill" or other
anti-takeover devices to block the Offer will constitute an unreasonable
response to the Offer, in violation of the fiduciary duties owed to CSC
stockholders.
5. To overcome these impediments, Computer Associates seeks to remove a
sufficient number of CSC directors to allow the stockholders to designate a
majority of directors who will permit the stockholders to decide whether to
accept the Offer. To this end, Computer Associates seeks, inter alia:
(a) the written consent of two-thirds of CSC stockholders to remove a
sufficient number of directors to enable the stockholders to designate
a majority of the Board;
(b) the written consent of a majority of CSC stockholders to fill the
vacancies of removed directors with designees who will allow the
stockholders to decide for themselves whether to accept the Offer;
(c) agent designations to call a special meeting of stockholders for the
purpose of removing directors, should Computer Associates fail to
obtain sufficient written consents to replace a majority of directors;
and
-3-
<PAGE>
(d) to ensure that, if Computer Associates fails to remove sufficient
directors by written consent or by a special meeting, CSC cannot delay
its annual meeting to be held in August 1998, at which meeting the
stockholders will vote on all directors.
6. Computer Associates seeks declaratory relief to determine definitively
the legality of its consent and agent designation solicitation. Computer
Associates' solicitations are specifically authorized by CSC's Bylaws (the
"Bylaws") and by applicable Nevada law. However, because there are several
areas where there are questions of interpretation regarding these authorities,
Computer Associates asks the Court for a prompt determination that:
(1) pursuant to Article VIII Section 1 of the Bylaws, a vote or consent of
a majority of the outstanding voting shares of CSC is sufficient to
amend the Bylaws;
(2) pursuant to Article II Section 7 and Article III Section 2 of the
Bylaws, a vote or consent of two-thirds of the outstanding voting
shares of CSC is sufficient to remove a sufficient number of directors
to designate a majority of the Board;
(3) Computer Associates' proposal to determine the directors to be removed
complies with Article III Section 2 of the Bylaws and Section 78.335
of the Nevada Revised Statutes;
(4) pursuant to Article III Section 2 of the Bylaws and Section 78.335 of
the Nevada Revised Statutes, a majority of CSC stockholders may fill
-4-
<PAGE>
vacancies caused by their removal of directors by vote or written
consent;
(5) pursuant to Nevada Revised Statute 78.350, CSC does not have the
authority to set the record date for determining stockholders entitled
to give written consents and agent solicitations;
(6) pursuant to Article II Section 2 of the Bylaws, the upcoming annual
meeting of the stockholders must be held on August 11, 1998, and may
not be postponed by the CSC Board to a later date; and
(7) Computer Associates' filings pursuant to Section 14(d)(1) of the
Securities Exchange Act of 1934 comply with applicable federal law.
7. Computer Associates also brings this action for injunctive relief to
prevent any effort by CSC to manipulate or otherwise subvert the process of
corporate democracy by, for example, adopting amendments to Bylaws that impair
the CSC stockholders' existing rights to amend the Bylaws and to call a special
shareholders meeting. Computer Associates also seeks injunctive relief to
prevent any effort by CSC to amend CSC's Bylaws or taking other actions intended
to interfere with the shareholder franchise or otherwise delay the annual
meeting. Finally, Computer Associates seeks injunctive relief to prevent the
application of CSC's anti-takeover devices and other defensive measures to
Computer Associates' Offer and proposed merger.
Parties
8. Plaintiff Computer Associates is a Delaware corporation with its
principal executive offices in Islandia, New York. Through a subsidiary,
Computer Associates is the beneficial holder of approximately 170,000 shares, or
0.2%, of CSC
-5-
<PAGE>
common stock. Computer Associates is a leading designer and developer of
standardized computer software products for use with desktop, midrange and
mainframe computers. Its products include a broad range of business software
used in systems management, information management, the development of
financial, human resource, manufacturing, distribution and banking systems
applications, and desktop computer software.
9. Defendant CSC is a Nevada corporation with its principal executive
offices in El Segundo, California. CSC is a leader in the information
technology services industry. CSC specializes in the application of advanced
and complex information technology - including the software developed by
Computer Associates - and offers an array of professional services to industry
and government.
Jurisdiction and Venue
10. This Court has jurisdiction over this action pursuant to 28 U.S.C.
Sections 1331 and1332(a) and 15 U.S.C. Section 78n(e) (Section 14(e) of the
Securities Exchange Act of 1934 ("the Exchange Act")). The amount in
controversy is in excess of $75,000.
11. Venue is proper in this District under 28 U.S.C. Sections 1391(b)
and (c).
Computer Associates' Offer
12. In December 1997, Computer Associates contacted CSC's Chairman and
Chief Executive Officer, Van B. Honeycutt, to determine whether CSC would be
interested in pursuing a business combination with Computer Associates. After
meetings and discussions concerning a possible business combination, Honeycutt
reported that CSC had no interest in pursuing such a combination.
-6-
<PAGE>
13. On February 11, 1998, Computer Associates publicly announced its offer
to acquire CSC in a merger transaction for $108 per share in cash for all
outstanding shares of CSC. Computer Associates conveyed the Offer to CSC's
Honeycutt by letter dated February 10, 1998, which noted that the price
represented a premium of nearly 35% over the closing price of CSC's common stock
on the day the parties commenced their their discussions in December 1997. As
the letter also noted:
The combination of [Computer Associates]'s strength in software and CSC's
services capabilities, together with our collective personnel, would create
the perfect model for the next generation of information technology
solutions provider that will lead our industry into the next millennium.
February 10, 1998 Letter (attached as Exhibit 1). On February 11, 1998,
Computer Associates' Chairman and Chief Executive Officer, Charles B. Wang,
assured all CSC employees that Computer Associates will not lay off any CSC
employee as a result of the merger, but "will offer every employee a position in
the combined company." February 11, 1998 Letter (attached as Exhibit 2).
14. On February 17, Computer Associates announced its intention to
commence a tender offer pursuant to which Computer Associates seeks to acquire
all of the outstanding shares of CSC stock at $108 per share, for a total value
of approximately $9 billion. The Offer is conditioned upon, inter alia, (a)
valid tender of a majority of the outstanding shares of CSC's common stock; (b)
redemption, invalidation or inapplicability of the CSC "poison pill"; and (c)
approval of the acquisition of shares pursuant to the Business Combination
Statute, or the inapplicability of the statute.
-7-
<PAGE>
15. On the same day, Computer Associates filed preliminary
solicitation materials with the Securities and Exchange Commission ("SEC"),
pursuant to section 14(a) of the Exchange Act, 15 U.S.C. Section 78n(a), and
Regulation 14A promulgated thereunder. The solicitation materials (a) solicit
consents from CSC stockholders to amend the Bylaws and to replace a majority of
the CSC directors, and (b) solicit agent designations from CSC stockholders to
call a special shareholders meeting to take such actions. Computer Associates
also filed with the SEC tender offer materials pursuant to section 14(d)(1) of
the Exchange Act, 15 U.S.C. Section 78n(d)(1), and Regulation 14D promulgated
thereunder.
16. Computer Associates intends, as soon as practicable following
consummation of the Offer, to propose and seek to have CSC consummate a merger
or similar business combination with Computer Associates, or a direct or
indirect wholly-owned subsidiary thereof. The purpose of the merger is to
acquire all CSC shares not tendered and purchased pursuant to the Offer or
otherwise.
17. Computer Associates' Offer is clearly in the best interests of
CSC's stockholders. It is a fully financed, all cash offer, available to all
CSC stockholders, for all outstanding shares. It is not "front-end loaded" or
otherwise coercive in nature. The Offer provides CSC stockholders with the
opportunity to realize a substantial premium over the market price of their
shares prior to the announcement of the Offer.
18. The Offer and second-step merger cannot be consummated unless the
CSC Board - voluntarily or by direction of a court - removes or makes
inapplicable CSC anti-takeover devices, including CSC's "poison pill" and the
Business Combination Statute.
-8-
<PAGE>
19. In light of CSC's prior rejection of Computer Associates' attempt
to explore a business combination with CSC and its refusal to negotiate with
Computer Associates, the current CSC Board of Directors can be expected to
resist Computer Associates' Offer. Indeed, according to news reports, CSC has
already made contact with International Business Machines Corp., AT&T Corp. and
Electronic Data Systems Corp. in an attempt to find a "white-knight" bidder to
ward off Computer Associates' Offer. CSC management can also be expected to
maintain and to deploy CSC's anti-takeover devices and actively to oppose the
Offer.
First Claim for Relief
(Injunctive Relief)
20. Computer Associates repeats and realleges each of the allegations set
forth in paragraphs 1 through 19 as if fully set forth here.
21. CSC is prohibited by Nevada law from amending its Bylaws in any manner
or taking any other action that would have the purpose or effect of impeding the
effective exercise of the stockholder franchise. (The CSC Bylaws are attached
as Exhibit 3).
22. Any effort by CSC:
(a) to amend its Bylaws in any way that would impede the effective
exercise of the stockholder franchise;
(b) to materially delay the conduct of the 1998 annual meeting; or
(c) to prevent the stockholders from replacing the existing CSC directors
by written consent, at a special meeting, or at the 1998 annual
meeting;
would be illegal.
-9-
<PAGE>
23. Computer Associates has no adequate remedy at law.
Second Claim for Relief
(Injunctive Relief)
24. Computer Associates repeats and realleges each of the allegations set
forth in paragraphs 1 through 23 as if fully set forth here.
25. CSC has armed itself with a number of anti-takeover provisions,
including a shareholders' "rights plan," better known as a "poison pill." CSC's
"poison pill," if not redeemed, rendered inapplicable or invalidated, will block
Computer Associates' Offer and deprive CSC stockholders of the opportunity to
sell their stock at a price substantially above the prevailing market rate.
26. CSC also has the anti-takeover protections of the Business Combination
Statute. Under the Business Combination Statute, a third party like Computer
Associates that acquires 10% or more of the voting power of CSC's stock cannot
engage in a business combination with CSC for three years, unless the
acquisition of the shares or the business combination is approved by the CSC
board in advance, the stockholder receives approval for the business combination
from a majority of the disinterested shares, or the offer meets certain fair
price criteria. The Business Combination Statute, if not rendered inapplicable
or invalidated, may block Computer Associates' Offer and deprive CSC
stockholders the opportunity to sell their stock at a price substantially above
the prevailing market rate.
27. The effect of these anti-takeover mechanisms is to frustrate and to
impede the ability of CSC stockholders to decide for themselves whether to
receive the benefits of the Offer and proposed second-step merger. These
devices unreasonably and
-10-
<PAGE>
inequitably frustrate and impede the ability of Computer Associates to
consummate its Offer and merger proposal. The failure of CSC and its board to
redeem the CSC "poison pill" and to adopt a resolution approving the Offer for
purposes of the Business Combination Statute constitutes a breach of their
fiduciary duty and thus a violation of Nevada law.
28. Computer Associates has no adequate remedy at law.
Third Claim for Relief
(Declaratory Judgment)
29. Computer Associates repeats and realleges each of the allegations set
forth in paragraphs 1 through 28 as if fully set forth here.
30. Computer Associates seeks a declaration that under the current CSC
Bylaws, the holders of two-thirds of the outstanding CSC voting shares have the
power to remove and replace a majority of the CSC directors by vote or written
consent.
31. As described in materials filed with the SEC, Computer Associates
intends to solicit consents from CSC stockholders to amend the CSC Bylaws and,
by the vote or consent of two-thirds of the stockholders, to replace a
sufficient number of CSC directors to designate a majority of the Board.
Computer Associates seeks a declaration that it may amend the Bylaws by the vote
or consent of a majority of stockholders.
32. Computer Associates also has proposed that the determination of the
directors to be removed should be made, in the first instance, by the Board, but
if the Board fails or refuses to do so within one week of the adoption of the
proposal, then directors would be removed according to the votes at the last
annual meeting, with the directors receiving the least votes being the first to
be removed.
-11-
<PAGE>
33. CSC has announced its opposition to the Offer and can be expected to
oppose the solicitation of consents for the purpose of amending the Bylaws and
replacement of its Board of Directors.
34. Accordingly, Computer Associates seeks a declaratory judgment that
Article VIII Section 1 of the Bylaws permits a vote or consent of a majority of
the outstanding voting shares of CSC to amend the Bylaws; that Article II
Section 7 and Article III Section 2 of the Bylaws permit Computer Associates,
with the vote of two-thirds of the outstanding voting shares of CSC, to remove a
sufficient number of directors to designate a majority of the Board; that
Computer Associates' proposal to determine the directors to be removed complies
with Article III Section 2 of the Bylaws and Section 78.335 of the Nevada
Revised Statutes; and that Article III Section 2 of the Bylaws and Section
78.335 of the Nevada Revised Statutes permit a majority of CSC stockholders to
fill vacancies of removed directors or additional seats on the board by written
consent.
Fourth Claim for Relief
(Declaratory Judgment)
35. Computer Associates repeats and realleges each of the allegations set
forth in paragraphs 1 through 34 as if fully set forth here.
36. Section 78.330 of the Nevada Revised Statutes provides that the
bylaws of a corporation may set the date, time and place for the annual meeting
of the stockholders.
37. Article II Section 2 of the CSC Bylaws provides, that "[a]nnual
meetings of the stockholders shall be held on the second Monday in August, if
not a legal holiday,
-12-
<PAGE>
and if a legal holiday, then on the next secular day following at 2:00 p.m., or
at such other time and date as the Board of Directors shall determine."
38. Because August 10, 1998, is not a legal holiday, the CSC Board lacks
the authority to alter the meeting date. Under the applicable By-law, such
authority exists only if the second Monday in August is a legal holiday.
Accordingly, Computer Associates seeks a declaratory judgment that the annual
meeting be held on August 10, 1998.
Fifth Claim for Relief
(Declaratory Judgment)
39. Computer Associates repeats and realleges each of the allegations set
forth in paragraphs 1 through 38 as if fully set forth here.
40. Section 14(d)(1) of the Securities Exchange Act of 1934 provides that
[i]t shall be unlawful for any person . . . to make a tender
offer for . . . any class of equity security . . unless at
the time copies of the offer . . . are first published or
sent or given to security holders such person has filed with
the Commission a statement containing . . . information as
the Commission may by rules and regulations prescribe as
necessary or appropriate in the public interest or for the
protection of investors. All requests or invitations for
tenders . . . shall be filed as part of such statement and
shall contain such of the information contained in such
statement as the Commission may by rules and regulations
prescribe.
These rules and regulations are set forth in Regulation 14D promulgated by the
SEC under the Act.
41. Section 14(e) of the Exchange Act makes it unlawful
-13-
<PAGE>
for any person to make any untrue statement of a material
fact or omit to state any material fact necessary in order
to make the statements made, in the light of the
circumstances under which they are made, not misleading, or
to engage in any fraudulent, deceptive, or manipulative acts
or practices, in connection with any tender offer . . . .
42. On February 17, 1998, Computer Associates distributed its tender offer
materials to the CSC stockholders and filed its Schedule 14D-1 statement with
the SEC. Given CSC's actions to oppose and defeat Computer Associates'
acquisition proposal, CSC will mount a section 14(e) challenge to the legality
of Computer Associates' Schedule 14D-1 filing.
43. Accordingly, Computer Associates seeks a declaration that its Schedule
14D-1 complies with applicable federal law and is not subject to attack by the
CSC Board under section 14(e) of the Exchange Act.
WHEREFORE, Computer Associates seeks judgment:
(a) Enjoining CSC from amending its by-laws to in any way impede
the effective exercise of the stockholder franchise or to impede the
Offer, including without limitation amendments that impair the CSC
stockholders' existing rights to amend the bylaws and to call a
special stockholders meeting;
(b) Enjoining CSC from refusing to redeem CSC's "poison pill"
and refusing to make the provisions of the Nevada Business Combination
Statute inapplicable to the Offer by declining to approve the Offer;
(c) Declaring that Article VIII Section 1 of the Bylaws permits
a vote or consent of a majority of the outstanding voting shares of
CSC to amend the Bylaws;
-14-
<PAGE>
(d) Declaring that Article II Section 7 and Article III Section
2 of the Bylaws permit Computer Associates, with the vote of
two-thirds of the outstanding voting shares of CSC, to remove a
sufficient number of directors to designate a majority of the Board;
(e) Declaring that Computer Associates' proposal to determine
the directors to be removed complies with Article III Section 2 of the
Bylaws and Section 78.335 of the Nevada Revised Statutes;
(f) Declaring that Article III Section 2 of the Bylaws and
Section 78.335 of the Nevada Revised Statutes permit a majority of CSC
stockholders to fill vacancies of removed directors or additional
seats on the board by written consent;
(g) Declaring that Nevada Revised Statute Section 78.350 does
not allow CSC to set the record date for determining stockholders
entitled to give written consents and agent solicitations;
(h) Declaring that, under its bylaws, the CSC annual meeting
must occur on August 10, 1998;
(i) Declaring that Computer Associates Schedule 14D-1 complies
with applicable federal law;
(j) Awarding Computer Associates its costs of suit, including
reasonable attorneys' fees; and
(k) Granting Computer Associates such other and further relief
as the Court may deem just and proper.
-15-
<PAGE>
Dated: February 17, 1998
SCHRECK MORRIS
By: ____________________
Steve Morris
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 382-2101
-and-
HOWARD, DARBY & LEVIN
By: ____________________
C. William Phillips
1330 Avenue of the Americas
New York, New York 10019
(212) 841-1000
Attorneys for Plaintiff
Computer Associates International, Inc.
16
<PAGE>
Exhibit (g)(2)
SCHRECK MORRIS
STEVE MORRIS
MATTHEW McCAUGHEY
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 474-9400
HOWARD, DARBY & LEVIN
A. WILLIAM PHILLIPS
DANIEL M. MANDIL
ADAM B. SIEGEL
DAVID H. HOFFMAN
1330 Avenue of the Americas
New York, New York 10019
(212) 841-1000
Attorneys for Plaintiff Computer Associates International, Inc.
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
- - - - - - - - - - - - - - - - - - - - x
COMPUTER ASSOCIATES :
INTERNATIONAL, INC.,
:
Plaintiff,
:
v. Case No.
:
COMPUTER SCIENCES
CORPORATION, :
Defendant. :
- - - - - - - - - - - - - - - - - - - - - x
COMPUTER ASSOCIATES' BRIEF
IN SUPPORT OF MOTION FOR EXPEDITED HEARINGS ON CLAIMS
FOR DECLARATORY RELIEF AND ON THE MERITS OF THE RELIEF REQUESTED
<PAGE>
Table of Contents
Page
Preliminary Statement 1
Statement of Facts 4
Computer Associates' Cash Tender Offer to Acquire CSC 5
CSC's Anti-Takeover Devices 6
1. The Director Replacement Proposals 7
2. The Anti-Entrenchment Proposals 8
The Need for a Declaratory Judgment 9
1. Amendment of the Bylaws 9
2. The Removal of Directors 9
3. Replacement of Directors 11
Argument 12
Point I A Majority of Stockholders May Amend the Bylaws 13
Point II Two-thirds of the Stockholders May Remove a Sufficient Number of
Directors to Designate a
Majority of the Board 14
A. Nevada Protects the Right of Stockholders to
Remove Directors Without Cause 15
B. The Statutory Limitation upon Removal is Designed
to Protect Cumulative Voting 16
Point III The Stockholders May Fill Vacancies Caused by the
Removal of Directors 21
Point IV CSC May Not Select the Record Date for Computer
Associates' Solicitations 4
Conclusion 25
<PAGE>
<TABLE>
<CAPTION>
Table of Authorities
<S> <C>
Cases Page
Aetna Life Ins. Co. v. Haworth,
300 U.S. 227 (1937) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Campbell v. Loew's, Inc.,
134 A.2d 852 (Del. Ch. 1957). . . . . . . . . . . . . . . . . . . . . . . 12, 22
Central Montana Elec. Power Cooperative, Inc. v. Bonneville Power Admin.,
840 F.2d 1472 (9th Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . 12
Chan v. Society Expeditions, Inc.,
123 F.2d 1287 (9th Cir. 1997)
cert. dismissed, 1998 WL 43162 (Feb. 5, 1998) . . . . . . . . . . . . . . . . 14
DiEleuterio v. Cavaliers of Delaware, Inc.,
No. 8801, 1987 Del. Ch. LEXIS 381 (Del. Ch. 1987) . . . . . . . . . . . . . . 22
Edgar v. MITE, 457 U.S. 624 (1982) . . . . . . . . . . . . . . . . . . . . . . . . .2
Edmond v. United States,
117 S.Ct. 1573 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Hilton Hotels Corp. v. ITT Corp.,
978 F. Supp. 1342 (D. Nev. 1997). . . . . . . . . . . . . . . . . . . . . .3, 15
Maryland Casualty Co. v. Pacific Coal & Oil Co.,
312 U.S. 270 (1941) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Moon v. Moon Motor Car Co.,
151 A. 298 (Del. Ch. 1930). . . . . . . . . . . . . . . . . . . . . . . . . . 12
In re Rogers Imports, Inc.,
116 N.Y.S.2d 106 (Sup. Ct. 1952). . . . . . . . . . . . . . . . . . . . . . . 19
Scott County Tobacco Warehouses, Inc. v. R.J. Harris,
201 S.E.2d 780 (1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Shoen v. AMERCO,
885 F. Supp. 1332 (D. Nev. 1994). . . . . . . . . . . . . . . . . . . . . . . .3
Wolfson v. Avery,
126 N.E.2d 701 (1955) . . . . . . . . . . . . . . . . . . . . . . . . . . . .n.1
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Statutes
Conn. Gen. Stat. Section 33-742(c). . . . . . . . . . . . . . . . . . . . . . . . 20
Del. Code Ann. tit. 8, Section 141(k) . . . . . . . . . . . . . . . . . . . . . . 16
Del. Code. Ann. tit. 8, Section 223 . . . . . . . . . . . . . . . . . . . . . . . 22
Nev. Rev. Stat. Section 78.320. . . . . . . . . . . . . . . . . . . . . . . . .22-23
Nev. Rev. Stat. Section 78.335. . . . . . . . . . . . . . . . . . . . . . . . passim
Nev. Rev. Stat. Section 78.350. . . . . . . . . . . . . . . . . . . . . . . . .3, 24
Nev. Rev. Stat. Section 78.360. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Nev. Rev. Stat. Section 78.3789 . . . . . . . . . . . . . . . . . . . . . . . . . .7
Nev. Rev. Stat. Section 78.3790 . . . . . . . . . . . . . . . . . . . . . . . . .7-8
Nev. Rev. Stat. Section 78.411. . . . . . . . . . . . . . . . . . . . . . . . . . .6
28 U.S.C. Section 2201. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 12
Fed. R. Civ. P. 57 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 12
Other Authorities
Black & Kraakman, A Self-Enforcing Model of Corporate Law,
109 Harv. L. Rev. 1911 (1996) . . . . . . . . . . . . . . . . . . .n.3
Cumulative Voting - Removal, Reduction and Classification of Corporate Boards,
22 U. Chi. L. Rev. 751 (1955) . . . . . . . . . . . . . . . . . . .n.3
Cumulative Voting, Yesterday and Today: The July 1986 Amendments to Ohio's
Corporation Law, 55 U. Cin. L. Rev. 1265 (1987) . . . . . . . .17, n.3
Gordon, Institutions as Relational Investors:
A New Look at Cumulative Voting, 94 Colum. L. Rev. 124 (1994) . . .n.1
2 Model Business Corporation Act Ann.
(3d ed. Official Supp. 1996). . . . . . . . . . . . . . . 15-16, 18-19
Williams, Cumulative Voting.
Harv. Bus. Rev. 108 (May - June 1955) . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE>
Plaintiff Computer Associates International, Inc. ("Computer
Associates") submits this brief pursuant to 28 U.S.C. Section 2201 and Rule 57
of the Federal Rules of Civil Procedure. Computer Associates seeks an expedited
declaration that the Bylaws of Computer Sciences Corporation ("CSC") and
relevant Nevada statutes do not prohibit CSC's stockholders from replacing its
directors. Removal and replacement of these directors will allow the
stockholders to decide whether to accept a $9 billion cash tender offer made by
Computer Associates to acquire all of CSC's outstanding stock.
Preliminary Statement
Computer Associates has commenced a tender offer to acquire CSC for $108
per share (the "Offer"). This price represents a substantial premium over
the market price of the stock before Computer Associates' proposal was made
public. Investors have greeted the Offer with enthusiasm, buying up CSC
stock in heavy trading.
Notwithstanding the investors' enthusiastic response to the premium
offered by Computer Associates, CSC has spurned the Offer and has refused to
negotiate further. Instead, CSC top management is searching for means to
block the Offer, including employing various anti-takeover devices that, if
not removed, could block the Offer completely. If management's efforts
succeed, CSC stockholders will be deprived of the opportunity to decide for
themselves whether to accept Computer Associates' Offer.
Computer Associates has begun to solicit written consents and proxies to
put in the hands of its stockholders the decision on CSC's future. The
primary purpose of this solicitation is to replace a majority of CSC
directors with a slate that will support the power of the stockholders to
decide CSC's fate.
-1-
<PAGE>
Computer Associates seeks the written consent of two-thirds of CSC
stockholders to remove a sufficient number of directors for Computer
Associates to designate a majority of the board. Further, Computer
Associates seeks the written consent of a majority of CSC stockholders to
fill the vacancies caused by these removals with a slate of directors who
will allow the stockholders to decide for themselves whether to accept
Computer Associates' Offer. Computer Associates also seeks agent
designations to call a special meeting of stockholders for the purpose of
removing directors, should it fail to obtain sufficient written consents to
remove a majority of directors. Finally, Computer Associates seeks to ensure
that, if it fails to remove a majority of directors by written consent or by
a special meeting, CSC cannot delay its annual meeting, to be held in August
1998, according to the CSC bylaws (the "Bylaws"), at which time the
stockholders will vote on all directors.
Computer Associates has embarked upon this course in the good faith belief
that it is supported by the Bylaws and Nevada corporate law. There are,
however, certain questions of interpretation under the Bylaws and applicable
law regarding the course of action Computer Associates proposes to take.
Computer Associates asks the Court to determine definitively the legality of
this course of action. These issues are ripe for determination and in need
of speedy resolution, before the current CSC board implements other defensive
measures to deprive the stockholders of their right to pass on the merger
proposal. Uncertainty in the exercise of stockholder rights damages all of
the parties, and delay threatens to nullify the Offer. As the United States
Supreme Court has recognized, time is critical in battles for corporate
control. See Edgar v. MITE, 457 U.S. 624, 637 (1982).
-2-
<PAGE>
Computer Associates asks the Court promptly to declare that
(1) Article VIII Section 1 of the Bylaws permits a vote or consent of a
majority of the outstanding voting shares of CSC to amend the Bylaws;
(2) Article II Section 7 and Article III Section 2 of the Bylaws permit
Computer Associates, with the vote of two-thirds of the outstanding
voting shares of CSC, to remove a sufficient number of directors to
designate a majority of the board;
(3) Computer Associates' proposal to determine the directors to be removed
complies with Article III Section 2 of the Bylaws and Section 78.335
of the Nevada Revised Statutes;
(4) Article III Section 2 of the Bylaws and Section 78.335 of the Nevada
Revised Statutes permit a majority of CSC stockholders to fill
vacancies of removed directors or additional seats on the board by
written consent; and
(5) Nevada Revised Statute Section 78.350 does not allow CSC to set the
record date for determining stockholders entitled to give written
consents and agent solicitations.
As this Court said in Hilton Hotels Corp. v. ITT Corp., "the right of
shareholders to vote for the members of the board [of directors] . . .
underlies the concept of corporate democracy." 978 F. Supp. 1342, 1347 (D.
Nev. 1997) (citing Shoen v. AMERCO, 885 F. Supp. 1332, 1340-42 (D. Nev.
1994)). By issuing the declarations described above, this Court will ensure
that CSC's stockholders are accorded the full
-3-
<PAGE>
measure of participation in CSC's affairs guaranteed by the Bylaws and Nevada
corporate law.
Statement of Facts
Computer Associates is a leading designer and developer of standardized
computer software for use with desktop, midrange and mainframe computers.
Its products include a broad range of business software used in financial,
human resource, manufacturing, distribution and banking systems applications,
and desktop computer software. Computer Associates is a Delaware corporation
with its headquarters in Islandia, New York.
CSC is a leader in the information technology services industry. The
Company specializes in the application of advanced and complex information
technology - including the software developed and manufactured by Computer
Associates - and offers an array of professional services to industry and
government. CSC is a Nevada corporation with its headquarters in El Segundo,
California.
In December 1997, Computer Associates management contacted CSC's Chairman
and Chief Executive Officer, Van B. Honeycutt, to determine whether CSC would
be interested in pursuing a business combination with Computer Associates.
As Computer Associates' President and Chief Operating Officer Sanjay Kumar
later noted in a letter to Honeycutt,
The combination of CA's strength in software and CSC's services
capabilities, together with our collective personnel, would create the
perfect model for the next generation of information technology
solutions provider that will lead our industry into the next
millennium.
-4-
<PAGE>
February 10, 1998 Letter (attached to the Complaint as Exhibit A). However,
after meetings and discussions with top management, Honeycutt reported that
CSC had no interest in pursuing such a combination.
In the February 10 letter, Computer Associates offered to purchase all
shares of CSC common stock for $108 per share in cash. Computer Associates
released the letter to the public on February 11. The reaction of the stock
market was dramatic, as CSC investors rushed to demand more stock upon the
news of the Offer.
Computer Associates' Cash Tender Offer to Acquire CSC
On February 17, Computer Associates announced its intention to commence a
tender offer pursuant to which Computer Associates seeks to acquire all of
the outstanding shares of CSC stock at $108 per share. The total value of
the transaction is approximately $9 billion. Computer Associates intends, as
soon as practicable following consummation of the Offer, to propose and seek
to have CSC consummate a merger or similar business combination with Computer
Associates or a direct or indirect wholly-owned subsidiary thereof.
Computer Associates' Offer is clearly in the best interests of CSC's
stockholders. It is a fully financed, all cash offer, available to all CSC
stockholders, for all outstanding shares. It is not "front-end loaded" or
otherwise coercive in nature. The Offer provides CSC stockholders with the
opportunity to realize a substantial premium over the market price of their
shares prior to the announcement of Computer Associates' Offer.
-5-
<PAGE>
CSC's Anti-Takeover Devices
Computer Associates' Offer is conditioned upon, inter alia, (a)
redemption, invalidation or inapplicability of the CSC "poison pill"; and (b)
approval of the acquisition of shares pursuant to the Nevada Business
Combination Statute, Nev. Rev. Stat. Section 78.411 et seq., or the
inapplicability of the statute. These two conditions refer to anti-takeover
devices available to CSC that, if not removed or rendered inapplicable, will
block the Offer completely, depriving CSC stockholders of the opportunity to
accept Computer Associates' Offer.
The decision whether to use these anti-takeover devices lies, in the first
instance, with the CSC Board of Directors - the board has the power to redeem
the "poison pill" and to approve the acquisition, thereby rendering the
Business Combination Statute inapplicable. If the board refuses to take
these actions, the stockholders must be given the opportunity to exercise
their rights under CSC's charter, Bylaws and Nevada law to replace current
directors on the board with a majority who, consistent with their fiduciary
obligations, will support Computer Associates' Offer.
CSC management has rebuffed Computer Associates' attempt to explore a
business combination with CSC and can be expected to resist Computer
Associates' Offer. Because CSC's anti-takeover devices will preclude CSC
stockholders from accepting Computer Associates' Offer, Computer Associates
has embarked upon a consent solicitation and proxy campaign to replace
current CSC directors with a majority of directors who will support Computer
Associates' Offer.
In preliminary solicitation materials filed on February 17 with the
Securities and Exchange Commission ("SEC"), Computer Associates has described
its plans to
-6-
<PAGE>
ensure that CSC stockholders have the opportunity to decide upon Computer
Associates' Offer. Computer Associates intends to pursue two sets of
proposals: the Director Replacement Proposals and the Anti-Entrenchment
Proposals.
1. The Director Replacement Proposals. By these proposals, Computer
Associates seeks to replace the current CSC directors with directors who will
allow stockholders to decide whether to accept the Offer. For this purpose,
Computer Associates intends to solicit written consents and proxies from CSC
stockholders:
(a) to amend the Bylaws to establish that CSC stockholders may, by written
consent, take any action that they could take at a stockholders'
meeting;
(b) to remove all of the existing directors from the board, or as many
directors as may be removed by the percentage of stockholders who
execute written consents or vote in favor of removal; and
(c) to fill the vacancies created by removal with directors who are
committed to allowing CSC stockholders to choose freely whether to
accept the Offer.
Computer Associates intends to enact the Director Replacement Proposals by
soliciting the written consents of a sufficient number of CSC stockholders,
pursuant to Bylaws Article VIII Section 1 (requiring a majority of
outstanding shares to amend the Bylaws) and Article III Section 2 (requiring
2/3 of outstanding shares to remove directors). Both provisions allow CSC
stockholders to act by written consent in lieu of a meeting.
Computer Associates also seeks to call a Special Stockholders' Meeting,
pursuant to Bylaws Article II Section 3,which allows the holders of a
majority of CSC shares to call such a meeting, and pursuant to Nevada Revised
Statutes Sections 78.3789 and 78.3790, which allows for a potential acquirer
of more than 20% of outstanding stock to call a statutory special meeting.
At this meeting, Computer Associates will seek to enact the
-7-
<PAGE>
Director Replacement Proposals in the event that it fails to garner
sufficient written consents to enact the proposals.
2. The Anti-Entrenchment Proposals. In the preliminary solicitation
materials filed with the SEC, Computer Associates also seeks to adopt certain
Anti-Entrenchment Proposals. These proposals are designed to take away the
power of the board to delay the Company's Annual Meeting, at which all
directors are subject to election, in the event that the Director Replacement
Proposals are not adopted by a sufficient number of CSC stockholders. For
this purpose, Computer Associates intends to solicit written consents and
proxies from CSC stockholders:
(a) to prevent the board from delaying the 1998 Annual Meeting to a date
later than August 10, 1998, except for delays of not more than thirty
days for extraordinary circumstances beyond the board's control;
(b) to adopt a "Stockholder Protection Bylaw" that would require a vote of
a quorum of all of the directors in office or a vote of the
stockholders to approve certain "Defensive Actions" by the board,
including any action by the board to frustrate the stockholder
franchise in deciding whether to accept Computer Associates' Offer;
and
(c) with certain exceptions, to repeal any Bylaws adopted by the board
since February 1*, 1998.
Computer Associates is simultaneously pursuing these alternative methods
to provide CSC stockholders with the means to decide whether to accept the
Offer at the earliest possible date. Thus, in the event that Computer
Associates fails to implement the Director Replacement Proposals by written
consents, then Computer Associates will call a special stockholders meeting
pursuant to Article II Section 3 and Nevada Revised Statutes Section
78.3790. If for any reason it is determined that a special stockholders'
meeting is unavailable to achieve these goals, Computer Associates will seek
to replace CSC
-8-
*The Brief as originally filed with the Court contained a typographical error,
listing the date as February 17, 1998 rather than February 1, 1998, resulting
in an incorrect description of the proposal. That typographical error has been
corrected here.
<PAGE>
directors with a majority of directors who support the Offer at the August
CSC annual meeting, and will seek to prevent CSC management from adjourning
that meeting.
The Need for a Declaratory Judgment
Computer Associates seeks a declaration to resolve the following issues
under the Bylaws:
1. Amendment of the Bylaws. Computer Associates seeks written consents
from holders of a majority of CSC shares of common stock to accomplish the
Bylaw amendments outlined above. The Bylaws themselves describe two possible
ways that stockholders may act by consent. Article VIII Section 1 of the
Bylaws authorizes such amendment "by the affirmative vote or written consent
of a majority of the outstanding shares of this corporation, except as
otherwise provided in these By-laws." Article II Section 10 of the Bylaws
currently allows the stockholders to take any action without a stockholders'
meeting (except the election of directors) upon the written consent of
stockholders holding at least three-fourths of the outstanding stock.
Computer Associates seeks a declaration that the appropriate standard for
amendments to the Bylaws by written consents is that set forth in the more
specific provisions of Article VIII Section 1 - empowering CSC stockholders
to amend the Bylaws by written consents from holders of a majority of shares
- - and not that set forth in the general provision of Article II Section 10,
which requires consent of holders of three fourths of the shares, but makes
no specific reference to bylaw amendments.
1.The Removal of Directors. Computer Associates seeks a declaration that
two-thirds of the stockholders may remove a sufficient number of existing
directors to enable the stockholders to designate a majority of the board,
and that its proposal for
-9-
<PAGE>
determining which directors will be removed complies with the Bylaws and
Nevada statutes.
(a) Under Article III Section 2 of the Bylaws and under Section 78.335
of the Nevada Revised Statutes, the holders of two-thirds of the outstanding
CSC common stock may remove a director by vote or by written consent. Carved
out from this general right of removal, however, is the limitation that no
single director may be removed "except upon the vote of stockholders owning
sufficient shares to have prevented his election to office in the first
instance." Nev. Rev. Stat. Section 78.335(a).
Article III Section 2 and Section 78.335(a) are worded in terms of the
level of support needed to remove a single director. Therefore, there is a
question of interpretation regarding the level of support needed to remove
all or a majority of the directors. That answer is found in the purpose of
the exception: as explained below, the statute and parallel Bylaw section
are designed to protect the scheme of cumulative voting for directors, which
allows minority stockholders to gain representation on the Board of
Directors. The cumulative voting exception thus prevents a stockholder
holding two-thirds of the stock from removing all of the directors, but it
does not confer upon a minority stockholder the right to retain more
directors than it has the power to elect.
Computer Associates seeks a declaration to clarify that this limitation
only protects from removal the number of directors that a minority could have
elected. Thus, for example, if two-thirds of CSC stockholders execute a
written consent to remove directors, a sufficient number of directors will be
removed to enable such stockholders to designate a majority of the board. A
contrary interpretation goes beyond the purpose of
-10-
<PAGE>
the cumulative voting exception and allow minority shareholders to preserve
more board seats than they could gain through cumulative voting rights.
(b) Computer Associates also seeks a declaration that its proposal for
the removal of directors complies with Article III Section 2 of the Bylaws
and Section 78.335 of the Nevada Revised Statutes. Computer Associates
proposes to remove the entire Board of Directors. However, if Computer
Associates fails to solicit sufficient support to remove the entire board, it
seeks to remove as many directors as possible in light of the percentage of
stockholders approving its proposal to remove directors. In this way,
Computer Associates proposes to preserve the number of directors that would
have been elected by those who do not approve of the removal proposal.
In the event that Computer Associates fails to obtain sufficient
stockholder support to remove all of the directors, Computer Associates
proposes that the board determine the identity of the directors who will be
removed. Thus, for example, assuming that six of the existing directors are
removed, the identity of those six would be determined in the first instance
by the Board of Directors. If the board fails to make this determination
within one week of the adoption of the removal proposal, then the directors
shall be removed in order of ascending number of votes received by each
director at CSC's last annual meeting of stockholders.
3. Replacement of Directors. Computer Associates seeks to fill the
vacancies created by the removal of directors with a majority of directors
who will support the Offer and will allow CSC stockholders the right to
decide upon its merits. Section 78.335 of the Nevada Revised Statutes and
Article III Section 2 of the Bylaws provide that board vacancies may be
filled by a majority of the remaining directors (emphasis added).
-11-
<PAGE>
This language does not trump the stockholders' right to fill vacancies
created by removal of directors. Indeed, courts interpret narrowly any
incursion into the inherent powers of the stockholders to fill board
vacancies. See Campbell v. Loew's, Inc., 134 A.2d 852, 857 (Del. Ch. 1957);
Moon v. Moon Motor Car Co., 151 A. 298, 301-302 (Del. Ch. 1930). Computer
Associates seeks confirmation that the stockholders may fill such vacancies
on the board.
Argument
The Declaratory Judgment Act, 28 U.S.C. Section 2201, authorizes federal
courts to make prospective declarations regarding "the rights and other legal
relations of any interested party" such as those sought in this action. The
purpose of the Act is to permit litigants the opportunity to have rights,
liabilities and other legal relationships clarified in as expeditious and
inexpensive as manner as possible. Central Montana Elec. Power Cooperative,
Inc. v. Bonneville Power Admin., 840 F.2d 1472, 1475 & n.1 (9th Cir. 1988).
Indeed, Federal Rule of Civil Procedure 57 specifically provides that "[t]he
court may order a speedy hearing of an action for a declaratory judgment and
may advance it on the calendar."
Here, CSC has made plain its rejection of Computer Associates' Offer and
its intent to stop Computer Associates' takeover attempts. Because of CSC's
anti-takeover devices, the only recourse for Computer Associates is to submit
its proposal to CSC stockholders, the owners of the Company. If the
stockholders want to sell their company to Computer Associates for $108 per
share, they should be permitted to do so. Whether they will have that
opportunity depends upon the Court's interpretation of the Bylaws and Nevada
statutes.
-12-
<PAGE>
Speedy resolution of the action will determine conclusively the rights of
Computer Associates and CSC under the Bylaws and will permit Computer
Associates to proceed with its tender offer free of any uncertainty as to
stockholder rights. A speedy determination will serve the interests of all
parties in allowing a quick determination whether CSC stockholders wish their
Company to merge with Computer Associates. Given the real conflict that the
Court can resolve conclusively and with great utility to all parties,
declaratory judgment is appropriate. See Maryland Casualty Co. v. Pacific
Coal & Oil Co., 312 U.S. 270, 273 (1941); Aetna Life Ins. Co. v. Haworth, 300
U.S. 227, 241 (1937).
Point I
A Majority of Stockholders
May Amend the Bylaws.
Computer Associates seeks a declaration that the Bylaws may be amended by
the written consent of the holders of a majority of common stock. Article
VIII Section 1 of the Bylaws specifically authorizes such amendment "by the
affirmative vote or written consent of a majority of the outstanding shares
of this corporation, except as otherwise provided in these By-laws."
However, Article II Section 10 of the Bylaws currently states:
Any action, except election of directors, which may be taken by a vote of
the stockholders at a meeting, may be taken without a meeting and without
notice if authorized by the written consent of stockholders holding at
least three-fourths of the voting power.
There is no conflict between these provisions. Article VIII Section 1
specifically empowers a majority of the stockholders to amend the Bylaws by
written consents; nothing in Article II Section 10 contradicts this specific
provision. Article II Section 10 merely
-13-
<PAGE>
provides a general authorization for shareholder action by written consent of
three-fourths of the voting shares if there is no more specific provision for
shareholder action by written consent. Such specific provisions exist not only
in Article VIII Section 1, dealing with bylaw amendments, but also in Article
III Section 2, which allows removal of directors by written consent of
two-thirds of the voting shares.
A contrary interpretation renders Article VIII Section 1 meaningless: the
majority requirement to amend by written consent is useless if superseded by
a three-fourths requirement for written consents generally. Moreover,
Article II Section 10 establishes a specific exception for the election of
directors - the very subject of the proposed Bylaw amendment that Computer
Associates proposes to pass.
It is a standard rule of statutory construction that more specific
provisions directly addressing a point at issue control over more general
ones that do not directly address the point. Edmond v. United States, 117
S.Ct. 1573, 1578 (1997); Chan v. Society Expeditions, Inc., 123 F.2d 1287,
1296 (9th Cir. 1997), cert. dismissed, 1998 WL 43162 (Feb. 5, 1998). Article
VIII Section 1 specifically addresses amendment by consent, while Article II
Section 10 only generally addresses the consent procedure. In this case, the
former provision should prevail.
Point II
Two-thirds of the Stockholders
May Remove a Sufficient Number of Directors
to Designate a Majority of the Board.
Computer Associates seeks a declaration that if a two-thirds supermajority
of CSC stockholders votes to replace a sufficient number of directors to
designate a majority of the board, it should be entitled to actually replace
those directors. This result
- -14-<PAGE>
is required by principles of corporate democracy and is fully consistent with
the protection of minority stockholders embodied in the Nevada and CSC
cumulative voting provisions. See Hilton Hotels Corp. v. ITT Corp., 978 F.
Supp. at 1347.
A. Nevada Protects the Right of Stockholders
to Remove Directors Without Cause.
Nevada gives stockholders the power to remove directors without cause, but
only if a two-thirds supermajority of the voting power of issued and
outstanding shares votes to do so. Nev. Rev. Stat. Section 78.335(1).
Allowing the stockholders to remove directors without cause (contrary to the
common law rule protecting directors from such removal) implements the basic
principle of corporate democracy that "since the shareholders are the owners
of the corporation, they should normally have the power to change the
directors at will." Official Cmt. to Model Business Corporation Act ("MBCA")
Section 8.08 (1984), in 2 MBCA Annotated 8-70 (3d ed. 1996 Supp.); see also
id. (this provision "reverses the common law position that directors have a
statutory entitlement to their office and can be removed only for cause");
Scott County Tobacco Warehouses, Inc. v. R.J. Harris, 201 S.E.2d 780, 783
(1974). Nevada's commitment to the stockholders' power to remove directors
without cause is particularly strong. Unlike the Model Business Corporation
Act, which gives the corporation discretion whether to confer this power on
the stockholders, theNevada statute makes it mandatory. Cf. MBCA Section
8.08(a) ("The shareholders may remove one or more directors with or without
cause unless the articles of incorporation provide that directors may be
removed only for cause."). -15-<PAGE>
To be sure, Nevada law also restricts the exercise of this power by
placing an extra burden upon stockholders who seek to remove directors - a
two-thirds supermajority requirement. Of the 48 states with director-removal
statutes, only Nevada, Maine and Montana have such a supermajority
requirement. 2 MBCA Annotated 8-75; cf. Del. Code Section 141(k) (majority
requirement). Of those three states, only Nevada explicitly gives
corporations the power to increase this two-thirds supermajority percentage.
2 MBCA Annotated 8-75; Nev. Rev. Stat. Section 78.335(1)(b) ("The articles of
incorporation may require the concurrence of a larger percentage of the stock
entitled to voting power in order to remove a director.").
In sum, Nevada's removal statute both ensures that stockholders can regain
control of the corporation by allowing them to remove directors without
cause, while ensuring the responsible exercise of this power by requiring a
two-thirds (or more) supermajority. Notably, CSC has not elected to increase
the supermajority requirement beyond two-thirds. See CSC Bylaws Art. III
Section 2. If the CSC stockholders achieve this supermajority in favor of
removal, they have the right to remove a sufficient number of the CSC
directors to designate a majority to the board.
B. The Statutory Limitation upon Removal
Is Designed to Protect Cumulative Voting.
Nevada allows corporations to provide for cumulative voting in the
election of directors, Nev. Rev. Stat. Section 78.360(1), and CSC has done
so, CSC Bylaws Art. II Section 7. The purpose of cumulative voting is to
give equal treatment to both majority and minority shareholders, by giving
both majority and minority shareholders the ability to achieve proportional
representation on the board:
-16-
<PAGE>
In essence, cumulative voting is designed to permit
stockholder groups to elect directors in rough proportion to
their shares of stock.
Williams, Cumulative Voting, Harv. Bus. Rev., May-June 1955, at 108, 109. The
historical development of the cumulative voting movement confirms that the goal
was proportional representation for both majority and minority shareholders.
See, e.g., Comment, Cumulative Voting, Yesterday and Today: The July, 1986
Amendments to Ohio's General Corporation Law, 55 U. Cin. L. Rev. 1265, 1272
(1987):
Proponents of the mandatory right [to cumulative voting]
asserted the traditional argument that cumulative voting was
necessary to protect the interests of minority shareholders
in proportion to their stock ownership. They asserted that
the right did not threaten majority control because upon
notice of a shareholder's intent to cumulate votes, the
majority could retain control of the board by doing
likewise.
(Emphasis added.)(1)
Nevada's cumulative-voting removal provision, which is essentially the
same as the provision in the Model Business Corporation Act, protects the
rights of the minority to representation on the board, providing that:
In the case of corporations which have provided in their
articles of incorporation for the election of directors by
cumulative voting, no director may be removed from office
under the provisions of this section except upon the vote of
(1) See also Wolfson v. Avery, 126 N.E.2d 701, 708-09 (1955) (at 1870 Illinois
constitutional convention - the birth of cumulative voting for corporate
directors - purpose behind cumulative voting movement was proportional
representation); Gordon, Institutions as Relational Investors: A New Look at
Cumulative Voting, 94 Colum. L. Rev. 124, 142 (1994) ("[t]he objective [of those
in favor of cumulative voting] was to protect minority interests against
overreaching by a majority, particularly in circumstances in which
representation on the board would give the minority the information necessary to
police against fraud") (emphasis added).
-17-
<PAGE>
stockholders owning sufficient shares to have prevented his election
to office in the first instance . . . .
Nev. Rev. Stat. 78.335(1)(a).(2) This provision is included almost verbatim in
CSC's Bylaws. CSC Bylaws Art. III Section 2. The Official Comment to the Model
Business Corporation Act confirms that the purpose of this provision is the same
as the purpose of cumulative voting in general - to preserve the integrity of
the minority's right to proportional representation without disturbing the
majority's right to proportional representation:
This provision guarantees that a minority faction with
sufficient votes to guarantee the election of a director
under cumulative voting will be able to protect that
director from removal by the remaining shareholders.
Official Com. to MBCA Section 8.08, in 2 MBCA Ann. 8-71 (emphasis added).
The protection of minority rights under cumulative voting extends only as
far as necessary to preserve the right of the minority to maintain
proportional representation on the board. In other words, the limitation on
the rights of two-thirds of the stockholders to remove directors does not
create an additional "super-supermajority" requirement where, for example,
removal of three of six directors requires the vote of 90% of the
stockholders. Such an interpretation would defeat the majority's right to
(2) The only non-stylistic difference between the Nevada and Model Act
provisions is that Nevada's places the burden on the majority shareholders to
have votes necessary to remove the director, rather than requiring the minority
shareholders to garner votes to block removal. Compare Nev. Rev. Stat.
78.335(1)(a) ("no director may be removed from office . . . except upon the vote
of stockholders owning sufficient shares to have prevented his election to
office in the first instance") with MBCA Section 8.08(c) ("a director may not be
removed if the number of votes sufficient to elect him under cumulative voting
is voted against his removal").
-18-
<PAGE>
proportional representation, thereby violating both the provision's basic
purpose and the bedrock principle of shareholder voting rights that underlies
corporate democracy.
Indeed, the cases that address these provisions confirm the point. It has
long been recognized that cumulative voting rights cannot survive without a
corollary requirement that removal of directors also must be accomplished
pursuant to cumulative voting principles. For instance, in In re Rogers
Imports, Inc., 116 N.Y.S.2d 106, 107 (Sup. Ct. 1952), a corporation had
enacted bylaws providing (1) that directors would be elected by cumulative
voting, and (2) that individual directors could be removed by majority vote.
The court held that the two bylaws could not coexist. As the court observed,
"of what use would be the cumulative voting provision when, immediately after
an election the majority stockholder could then remove the director without
cause?" Id.
Commentators also confirm that cumulative-voting removal provisions are a
necessary corollary to cumulative-voting election provisions.(3)In fact, all
49 of the states that permit cumulative voting (as well as the Model Business
Corporation Act) contain a cumulative-voting removal provision. See 2 MBCA
Annotated 8-76 (citing Connecticut
(3) See Black & Kraakman, A Self-Enforcing Model of Corporate Law, 109 Harv. L.
Rev. 1911, 1945 n.63 (1996) ("For mechanical reasons, a system with cumulative
voting must restrict shareholder power to remove individual directors, but not
the entire board. If directors could be removed individually, a majority
shareholder could vote to remove a director elected cumulatively by a minority
shareholder, and thus nullify the effect of cumulative voting."); Comment,
Cumulative Voting, Yesterday and Today: The July, 1986 Amendments to Ohio's
General Corporation Law, 55 U. Cin. L. Rev. at 1272 & n.46 ("The power to remove
directors is closely connected with the power to elect directors using
cumulative voting. A majority group, through removal power, might nullify the
cumulative voting right by simply removing individual directors elected by the
minority"; Comment, Cumulative Voting - Removal, Reduction and Classification of
Corporate Boards, 22 U. Chi. L. Rev. 751, 752 (1955) ("A method exists for
depriving the minority of its voice on the board even after it has elected its
representative if the majority has the power to remove without cause.")
(emphasis added).
-19-
<PAGE>
and Massachusetts as states without such a provision; Connecticut actually has
such a provision, Conn. Gen. Stat. Section 33-742(c), and Massachusetts does not
allow cumulative voting); MBCA Section 8.08(c). As these authorities make
clear, the purpose of cumulative-voting removal provisions is to allow minority
shareholders to protect minority directors. Its purpose is not to allow
minority shareholders to protect all directors.
Computer Associates' consent solicitation seeks exactly this - to remove
directors from the "majority" portion of the board, not the "minority"
portion of the board. Under Computer Associates' solicitation, a minority
faction explicitly retains the right, proportional to its strength, to
protect specific directors from removal. See supra at 11 (explaining the
mechanics of Computer Associates' consent solicitation). Computer Associates
simply seeks to ensure that majority shareholders are entitled to the same
proportional representation as minority shareholders.
Computer Associates' interpretation is also consistent with the language
of Article III Section 2 of the Bylaws and Section 78.335 of the Nevada
Revised Statutes, as applied to an effort to remove more than one director.
In an election to the board, the opponents of Computer Associates' removal
and replacement effort would not be able to concentrate all their voting
power in support of each of the existing members of the board, but would have
to spread their votes among the board members whose seats they were seeking
to preserve. If they spread their votes too thinly, Computer Associates, with
consents or proxies from a majority of the voting shares, would be able to
win the election for every board seat. Mathematically, if Computer
Associates held consents for removal and replacement of existing board
members from holders of two-thirds of the voting stock, the existing board
members would only be able to hold onto three of their nine
-20-
<PAGE>
seats, and Computer Associates would be able to prevent the election of more
than that number. This is the scheme of the statute that best preserves
cumulative voting rights. It should be adopted by the Court.
Point III
The Stockholders May Fill Vacancies
Caused by the Removal of Directors.
Computer Associates proposes to fill vacancies caused by removal with
directors that support the rights of CSC stockholders to accept Computer
Associates' Offer. Its proxy solicitation seeks the written consents of CSC
stockholders to so fill the vacancies. Computer Associates therefore seeks a
declaration that a majority of stockholders may fill vacancies caused by
removal and may do so by written consent.
1. The language of the relevant Nevada statute and the Bylaws confirm
the power of the stockholders to fill vacancies left by their removal of
directors with designees of their choosing. Although Section 78.335 of the
Nevada Revised Statutes and Article III Section 2 of the Bylaws provide that
in the event of the removal of a director or directors, the majority of the
remaining members of the CSC board "may" fill such vacancies, neither the
statute nor the Bylaws require that the remaining directors "shall" undertake
this task. The use of the permissive "may" instead of "shall" indicates the
intention of the legislature to authorize both the remaining board members
and the stockholders to fill these vacancies. CSC has not removed this
authority from either group in its articles of incorporation.
The distinction between "may" and "shall" with respect to the relative
powers of directors and stockholders has long been recognized by Delaware
law, which
-21-
<PAGE>
also provides that stockholders and directors share the power to fill vacancies
on the board. See Del. Code Ann. tit. 8, Section 223(1). Prior to 1949, the
power to fill board vacancies was vested solely in the remaining board members,
as the relevant statute provided that "[v]acancies shall be filled by a majority
of the remaining directors." In 1949, the statute was amended, the word "shall"
was replaced by "may," and the statute's reach was extended to newly-created
directorships as well as vacancies. See DiEleuterio v. Cavaliers of Delaware,
Inc., No. 8801, 1987 Del. Ch. LEXIS 381 at *5-*12 (Del. Ch. Feb. 9, 1987)
(explaining the history of the relevant Delaware statutes). In 1957, the
Chancery Court considered whether shareholders had the power to fill newly
created directorships, in light of the amended statute that provided that the
directors "may" undertake this task. The Court held that the amendment was "not
worded so as to make the statute exclusive. It does not prevent the
stockholders from filing the new directorships." Campbell v. Loew's Inc., 134
A.2d 852, 857 (Del. Ch. 1957). Accordingly, the Court properly recognized that
the use of the word "may" by the Delaware legislature designated the joint
authority of the remaining directors and the stockholders to fill these
positions.
The Nevada legislature adopted Section 78.335, identical in relevant
respects to the amended version of the Delaware statute, with the permissive
"may," indicating its intent that the stockholders and the remaining
directors both have the power to fill vacancies on the board. The
legislature chose not to vest this power solely in the remaining members of
the board; its choice controls.
2. Nevada law also allows CSC stockholders to fill vacancies by written
consent, without a meeting. Section 78.320 of the Nevada Revised Statutes
-22-
<PAGE>
provides that, unless prohibited in a corporation's articles of incorporation or
bylaws, actions that may be taken at a meeting of stockholders may be
accomplished by written consent from the stockholders. Written consents
representing the requisite share of the corporation's voting power may
accomplish whatever can be done at a meeting of stockholders holding the same
share of voting power.
Before giving effect to the amendment proposed by Computer Associates,
Article II Section 10 of the CSC Bylaws alters the required proportion of
stockholders needed for the corporation to act by written consent, but this
difference does not apply to the election of directors. Section 10 provides
that "[a]ny action, except election of directors, which may be taken by the
vote of the stockholders at a meeting, may be taken without a meeting and
without notice if authorized by the written consent of stockholders holding
at least three-fourths of the voting power." The Bylaws thus increase the
percentage of consents required from 50 to 75 percent for all actions except
for the election of directors (and, by means of Article VIII Section 1,
amendment of the Bylaws).
The Bylaws' exception for the election of directors is necessary to
preserve the scheme of cumulative voting for directors pursuant to Article II
Section 7 of the Bylaws. As stated in Nevada Revised Statutes Section
78.320, the corporation's cumulative voting provisions must be applied to
elections of directors by consent, as well as at a meeting of the
stockholders. Because CSC's directors must be elected by cumulative voting,
the application of the 75% provision contained in Article II Section 10 of
the Bylaws cannot sensibly be applied to the election of directors.
-23-
<PAGE>
Point IV
CSC May Not Select the Record Date
for Computer Associates' Solicitations.
CSC may attempt to thwart Computer Associates' efforts to remove the
directors by the selection of a premature record date for the purpose of
disenfranchising stockholders whose interest is to accept Computer
Associates' Offer. However, the Nevada legislature has specifically removed
the power to set record dates for solicitations of written consents and agent
designations from the board.
Article V Section 5(b) of the Bylaws purports to authorize the CSC board
to select the record date for determining stockholders entitled to give
written consents. See also id., subsection (c) (purporting to authorize the
board to select the record date for determining stockholders "for any other
purpose.") But the legislature specifically removed this power in Nevada
Revised Statute Section 78.350, which provides only that the board may fix a
record date for a "meeting" of stockholders. Indeed, prior to 1991, Section
78.350 expressly granted authority to a Nevada board to determine the record
date for a solicitation of stockholder's written consents. In 1991, however,
this subsection was repealed. There is no longer any such statutory grant of
authority.
-24-
<PAGE>
In light of this legislative action, the record date for the Computer
Associates' solicitation of written consents must be the date on which the
first executed consent is presented to the CSC. This is the only applicable
provision remaining in the Bylaws. See Article V Section 5(b). The same
analysis applies to the solicitation of agent designations.
Conclusion
For the foregoing reasons, Computer Associates respectfully requests that
the Court promptly declare:
(1) Article VIII Section 1 of the Bylaws permits a vote or consent of a
majority of the outstanding voting shares of CSC to amend the Bylaws;
(2) Article II Section 7 and Article III Section 2 of the Bylaws permit
Computer Associates, with the vote of two-thirds of the outstanding
voting shares of CSC, to remove a sufficient number of directors to
designate a majority of the board;
(3) Computer Associates' proposal to determine the directors to be removed
complies with Article III Section 2 of the Bylaws and Section 78.335
of the Nevada Revised Statutes;
(4) Article III Section 2 of the Bylaws and Section 78.335 of the Nevada
Revised Statutes permit a majority of CSC stockholders to fill
vacancies left by removed directors or additional seats on the board
by written consent; and
-25-
<PAGE>
(5) Nevada Revised Statute 78.350 does not allow CSC to set the record
date for determining stockholders entitled to give written consents
and agent solicitations.
Dated: February 17, 1998
Respectfully submitted,
SCHRECK MORRIS
By: _________________________
STEVE MORRIS
MATTHEW McCAUGHEY
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 382-2101
HOWARD, DARBY & LEVIN
C. WILLIAM PHILLIPS
DANIEL M. MANDIL
ADAM B. SIEGEL
DAVID H. HOFFMAN
1330 Avenue of the Americas
New York, New York 10019
(212) 841-1000
Attorneys for
COMPUTER ASSOCIATES
INTERNATIONAL, INC.