-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EVxQgBPQP+li0ALAcRU19djHlz2Is/3C0RFkgn5DgrhLE3JpjF4QBhRsAlgbwyXH JeDYo4XoC+FjS6qIf9xoDA== 0000950150-98-000253.txt : 19980227 0000950150-98-000253.hdr.sgml : 19980227 ACCESSION NUMBER: 0000950150-98-000253 CONFORMED SUBMISSION TYPE: SC 14D9/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980226 SROS: NYSE SROS: PCX SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER SCIENCES CORP CENTRAL INDEX KEY: 0000023082 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 952043126 STATE OF INCORPORATION: NV FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: SC 14D9/A SEC ACT: SEC FILE NUMBER: 005-06907 FILM NUMBER: 98550648 BUSINESS ADDRESS: STREET 1: 2100 E GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3106150311 MAIL ADDRESS: STREET 1: 2100 EAST GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER SCIENCES CORP CENTRAL INDEX KEY: 0000023082 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 952043126 STATE OF INCORPORATION: NV FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: SC 14D9/A BUSINESS ADDRESS: STREET 1: 2100 E GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3106150311 MAIL ADDRESS: STREET 1: 2100 EAST GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 SC 14D9/A 1 AMENDMENT NO. 1 TO SCHEDULE 14-D9 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ COMPUTER SCIENCES CORPORATION (NAME OF SUBJECT COMPANY) COMPUTER SCIENCES CORPORATION (NAME OF PERSON FILING STATEMENT) ------------------------ 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) ------------------------ HAYWARD D. FISK, ESQ. VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY COMPUTER SCIENCES CORPORATION 2100 EAST GRAND AVENUE EL SEGUNDO, CALIFORNIA 90245 (310) 615-0311 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING THIS STATEMENT) ------------------------ Copies to: RONALD S. BEARD, ESQ. GIBSON, DUNN & CRUTCHER LLP 333 SOUTH GRAND AVENUE LOS ANGELES, CA 90071-3197 (213) 229-7000 ================================================================================ 2 INTRODUCTION This Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") relates to an offer by CAI Computer Services Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Computer Associates International, Inc., a Delaware corporation ("Parent"), to purchase all of the issued and outstanding Shares (as hereinafter defined) of Computer Sciences Corporation, a Nevada corporation (the "Company"). ITEM 1. SECURITY AND SUBJECT COMPANY The name of the subject company is Computer Sciences Corporation. The address of the principal executive office of the Company is 2100 East Grand Avenue, El Segundo, California 90245. The title of the class of equity securities to which this Schedule 14D-9 relates is the Company's common stock, par value $1.00 per share, including associated Series A Junior Participating Preferred Stock Purchase Rights (the "Shares"). ITEM 2. TENDER OFFER OF THE BIDDER This Schedule 14D-9 relates to the tender offer disclosed in the Schedule 14D-1, dated February 17, 1998, filed with the Securities and Exchange Commission (the "Commission") by Purchaser (as amended, the "Schedule 14D-1"), relating to an offer by Purchaser to purchase all of the issued and outstanding Shares for an amount equal to $108.00 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated February 17, 1998, and the related Letter of Transmittal (which, together with the Offer to Purchase, as amended or supplemented from time to time, constitute the "Offer"). As set forth in the Schedule 14D-1, the principal executive office of Purchaser and Parent is located at One Computer Associates Plaza, Islandia, NY 11788. ITEM 3. IDENTITY AND BACKGROUND (a) The name and business address of the Company, which is the person filing this Schedule 14D-9, are set forth in Item 1 of this Schedule 14D-9. (b) Reference is made to the information contained under the captions "Election of Directors -- Compensation of Directors," "Proposed 1997 Nonemployee Director Stock Incentive Plan" and "Executive Compensation" in, and in Appendix A to, the Company's proxy statement dated July 2, 1997 relating to the Company's 1997 Annual Meeting of Stockholders (the "1997 Proxy Statement"), the relevant portions of which are filed as Exhibit (c)(1) hereto and are incorporated herein by reference. Except as described herein or incorporated herein by reference, there are no material contracts, agreements, arrangements or understandings or any actual or potential conflicts of interest between the Company or its affiliates and (i) any of the Company's executive officers, directors or affiliates or (ii) Purchaser and its executive officers, directors or affiliates. Supplemental Executive Retirement Plan. Effective as of February 2, 1998, the Company amended and restated its Supplemental Executive Retirement Plan (the "SERP"), which was described in the Company's 1997 Proxy Statement. The following summary of the material amendments to the SERP is qualified in its entirety by reference to the full text of the SERP, as amended and restated, a copy of which is filed as Exhibit (c)(2) to this Schedule 14D-9 and is incorporated herein by reference. Change in Control Provisions. The definition of "Change in Control" in the SERP was expanded to include a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which does not result in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, provided that the outstanding voting securities of the Company immediately prior to such business combination (or, if applicable, the securities of the Company into which such voting securities are converted as a result of such 2 3 business combination) represent less than 50% of the voting power of the Company immediately following such business combination. The amendments to the SERP redefine "involuntary separation" (the occurrence of which within 36 months following a Change in Control entitles a participant to certain benefits under the SERP) to include voluntary separation for "Good Reason." Voluntary separation for Good Reason is defined in the SERP as the participant's separation from the Company within six months of the occurrence of any of the following without the participant's express written consent: (i) a substantial change in the nature, or diminution in the status, of the participant's duties or position from those in effect immediately prior to the Change in Control; (ii) a reduction in the participant's annual base salary from that in effect or, from any increases approved prior to the Change in Control; (iii) a reduction in the overall benefits provided to the participant by the Company from the amounts in effect on, or, from any increases approved prior to the Change in Control; (iv) a termination of, or reduction in the participant's participation under, any stock option or other incentive compensation plan in effect immediately prior to the Change in Control, where the participant is not offered the opportunity to participate in an alternative incentive plan of reasonably equivalent value; (v) a reduction in the number of paid vacation days per year available to the participant or a material reduction or elimination of any perquisite enjoyed by the participant immediately prior to the Change in Control; (vi) a relocation of the participant's principal place of employment to greater than 35 miles from his previous place of employment; (vii) a material breach by the Company of any stock option or restricted stock agreement; or (viii) conduct by the Company, against the participant's volition, that would cause the participant to commit fraudulent acts or would expose him to criminal liability. For purposes of clauses (ii) through (viii), Good Reason shall not exist if (x) the aggregate value of all compensation received by the participant after the Change in Control is reasonably equivalent to that received or approved to be received prior to the Change in Control or (y) if the reduction in aggregate value is due to reduced performance by the Company, the business unit of the Company for which the participant is responsible, or the participant. The amendments to the SERP provide that, upon a Change in Control, the Company will transfer to an irrevocable grantor trust (as described in Section 671 of the Internal Revenue Code), assets equal in value to all accrued obligations under the SERP as of the date that is one day after a Change in Control. The Company's obligation to establish and fund such a trust does not affect the Company's obligation to provide supplemental pension payments under the SERP to the extent that such benefits are not paid out of the assets of the trust. Amendment and Termination. Prior to the February 2, 1998 amendments, the SERP provided that the amendment, modification, suspension or termination of the SERP following a Change in Control would cause the full vesting of benefits accrued under the SERP to any SERP participant who was a participant prior to the Change in Control. As amended, the SERP provides that it may not be amended, modified, suspended or terminated following a Change in Control without the express written consent of all participants. Claim Review Procedure. The amendments to the SERP establish a procedure for the review of claims relating to benefits allegedly owing under the SERP. Any participant who believes that he is owed benefits under the SERP may, within 90 days after such benefits were to have been received, file a request for review of the claim with one of certain designated officers of the Company. If such a request is filed and the claim is denied, the officer with whom the request was filed must notify the claimant of the specific reasons for the denial of the claim. At such time, the claimant will also be advised of his right to appeal the denial of his claim to the Plan Appeal Committee and of the means by which such an appeal should be made. The Plan Appeal Committee is obligated to act upon any appeal made to it within 90 days unless unusual circumstances exist, in which case the Plan Appeal Committee must respond to the appeal within 180 days. Stock Options and Restricted Stock Effective February 2, 1998, the Company amended the terms of certain outstanding stock options and restricted stock, as described below. 3 4 Amendment of Stock Options. All nonqualified stock options currently held by employees of the Company and its affiliates who are participants in the SERP were amended in the following respects: (a) Minimum three-month exercise period after termination of employment. Each option was amended to provide that it will not terminate, or cease to be exercisable to purchase the underlying shares with respect to which it had vested as of the date of the optionee's termination of employment, prior to the earlier of (i) the expiration date of the option or (ii) three months after the date of termination of employment. (b) Retirement age reduced from 65 to 62. Each option provided that: (i) if the optionee retired, the option would remain exercisable for three years thereafter to purchase the underlying shares with respect to which it had vested as of the date of retirement; and (ii) if the optionee terminated employment prior to retirement age, the option would remain exercisable for three months thereafter to purchase the underlying shares with respect to which it had vested as of the date of termination of employment. Each option was amended to reduce the retirement age from 65 to 62. (c) Certain determinations to be made by continuing members of the Compensation Committee. Each option provided that unless the Compensation Committee of the Board of Directors determined otherwise within 10 business days thereafter, the option would become exercisable in full upon the date that any person became the beneficial owner of 30% or more of the outstanding Common Stock. Each option was amended so that this determination may only be made by vote of a majority of the directors of the Company who are, and immediately prior to such event were, members of the Compensation Committee. (d) Amendment of definition of Change in Control. Each option defined "Change in Control" as the first to occur of the following events: (i) the dissolution or liquidation of the Company; (ii) a sale of substantially all of the property and assets of the Company; (iii) a reorganization, merger or consolidation of the Company the consummation of which results in the outstanding securities of any class then subject to the option being exchanged for or converted into cash, property and/or securities not issued by the Company; (iv) any date upon which the directors of the Company who were nominated by the Board of Directors for election as directors cease to constitute a majority of the directors of the Company or (v) a change of control of the Company of the type required to be disclosed in a proxy statement pursuant to Item 6(e) (or any successor provision) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Each option was amended to add the following additional event (the "Additional Event"): a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which does not result in the outstanding securities of any class then subject to the option being exchanged for or converted into cash, property and/or securities not issued by the Company, provided that the outstanding voting securities of the Company immediately prior to such business combination (or, if applicable, the securities of the Company into which such voting securities are converted as a result of such business combination) represent less than 50% of the voting power of the Company immediately following such business combination. (e) Acceleration of option upon Change of Control. Each option provided that if the optionee's employment with the Company or any of its subsidiaries were voluntarily or involuntarily terminated within three years after a Change of Control, then (i) the portion of the option that had not vested on or prior to the date of termination of employment would fully vest on such date and (ii) the option would remain exercisable until the earliest of the third anniversary of such date, the expiration date of the option, or, if applicable, the first anniversary of the optionee's death. Each option was amended to provide that upon a Change of Control: (1) the portion of the option that has not vested on or prior thereto will fully vest on such date and (2) the option will remain exercisable until the earliest of the third anniversary of such date, the expiration date of the option, or, if applicable, the first anniversary of the optionee's death. 4 5 All nonqualified stock options which are currently held by employees of the Company and its affiliates who are not participants in the SERP, and which were granted by the Company under its 1978, 1980, 1984, 1987, 1990, 1992 or 1995 Stock Incentive Plans, other than options granted pursuant to Schedules approved by the taxing authorities in the United Kingdom or France, were amended in the same manner as described in clauses (a), (b) and (c) above, and were also amended as described below: (x) Additional event causing acceleration of option. Each option provided that unless the Compensation Committee of the Board of Directors determined otherwise, the option would become exercisable in full upon the approval of any of the following three types of transaction by the Board and the stockholders of the Company: (i) the dissolution or liquidation of the Company, (ii) a sale of substantially all of the property and assets of the Company or (iii) a reorganization, merger of consolidation of the Company the consummation of which would result in the outstanding securities of any class then subject to the option being exchanged for or converted into cash, property and/or securities not issued by the Company. Each option was amended to add the Additional Event described in clause (d) above as a fourth type of transaction the approval of which has the effect described in the preceding sentence. Amendment of Restricted Stock. All restricted stock currently held by employees of the Company and its affiliates who are participants in the SERP was amended in the following respects: (a) Certain determinations to be made by continuing members of the Compensation Committee. All such restricted stock provided that unless the Compensation Committee of the Board of Directors determined otherwise within 10 business days thereafter, all restrictions imposed upon the restricted stock would lapse if any person became the beneficial owner of 30% or more of the outstanding Common Stock. All restricted stock was amended so that this determination may only be made by vote of a majority of the directors of the Company who are, and immediately prior to such event were, members of the Compensation Committee. (b) Lapse of restrictions upon a Change of Control. All such restricted stock provided that if the holder's employment with the Company or any of its subsidiaries were voluntarily or involuntarily terminated within three years after any of the events described in clauses (d)(i), (ii), (iii), (iv) or (v) in Amendment of Stock Options above, then all restrictions imposed upon the restricted stock would lapse. All such restricted stock was amended to add the Additional Event described in such clause (d), and to provide that all restrictions imposed upon the restricted stock would automatically lapse upon the first to occur of such events (rather than upon the termination of the holder's employment within three years thereafter). All restricted stock which is currently held by employees of the Company and its affiliates who are not participants in the SERP, and which was granted by the Company under its 1990 or 1992 Stock Incentive Plans, was amended in the following respects: (x) Certain determinations to be made by continuing members of the Compensation Committee. All such restricted stock provided that all restrictions imposed upon the restricted stock would lapse upon the occurrence of any of the following events: (i) unless the Compensation Committee of the Board of Directors determined otherwise within ten business days thereafter, the first date upon which any person became the beneficial owner of 30% or more of the outstanding Common Stock; (ii) any date upon which the directors of the Company who were nominated by the Board of Directors for election as directors cease to constitute a majority of the directors of the Company, unless, prior to such date, the Board of Directors shall determine otherwise; or (iii) a change in control of the Company of the type required to be disclosed in a proxy statement pursuant to Item 6(e) (or any successor provision) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, unless, prior to such change in control, the Board of Directors shall determine otherwise. All restricted stock was amended so that the determination described in clause (i) above may only be made by vote of a majority of the directors of the Company who are, and immediately prior to such event were, members of the Compensation Committee. 5 6 (y) Lapse of restrictions upon a Change in Control. All such restricted stock provided that unless the Compensation Committee of the Board of Directors determined otherwise, all restrictions imposed upon the restricted stock would lapse upon any of the events described in clauses (d)(i), (ii) or (iii) in Amendment of Stock Options above. All such restricted stock was amended to add the Additional Event described in such clause (d). Deferred Compensation Plan The Company has a Deferred Compensation Plan (as amended and restated to date, the "Deferred Compensation Plan"). The following summary of the material terms of the Deferred Compensation Plan is qualified in its entirety by reference to the full text of the Deferred Compensation Plan, a copy of which is filed as Exhibit (c)(5) hereto and is incorporated herein by reference. The Deferred Compensation Plan permits nonemployee members of the Company's Board of Directors and certain designated officers and employees of the Company to defer into a deferred compensation account some or all of such person's retainer, consulting fees, committee fees and meeting fees (in the case of a nonemployee director) or such person's annual bonus pursuant to the Company's Annual Management Incentive Plan (in the case of officers or employees) pursuant to an election made by such person no later than the last day of the next preceding fiscal year. The annual rate of return credited to each deferred compensation account equals 120% of the 120-month rolling average yield on a ten-year U.S. Treasury Note, calculated as of December 31 of the preceding year. The full value of the deferred compensation account becomes payable upon death, retirement after the person turns 62 or upon termination prior to retirement. Up to the full value may be withdrawn within three years of a Change in Control (in which event a 5% withdrawal penalty applies), in the event of certain hardship events (in which event no penalty applies) or otherwise (in which event a 10% withdrawal penalty applies). "Change in Control" is defined as (a) the acquisition by any person, entity or group (as defined in Section 13(d)(3) of the Exchange Act), as beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the then outstanding securities of the Company, (b) a change during any period of two (2) consecutive years of a majority of the Board as constituted as of the beginning of such period, unless the election of each director who was not a director at the beginning of such period was approved by vote of at least two-thirds of the directors then in office who were directors at the beginning of such period, (c) a sale of substantially all of the property and assets of the Company, (d) a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which results in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, (e) a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which does not result in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, provided that the outstanding voting securities of the Company immediately prior to such business combination (or, if applicable, the securities of the Company into which such voting securities are converted as a result of such business combination) represent less than 50% of the voting power of the Company immediately following such business combination, or (f) any other event constituting a change in control of the Company for purposes of Schedule 14A of Regulation 14A under the Exchange Act. Upon a Change in Control, the Company will transfer to an irrevocable grantor trust (as described in Section 671 of the Internal Revenue Code), assets equal in value to all accrued obligations under the Deferred Compensation Plan as of the date that is one day after a Change in Control. The Company's obligation to establish and fund such a trust does not affect the Company's obligation to provide benefits payments under the Deferred Compensation Plan to the extent such benefits are not paid out of the assets of the trust. Severance Plan. On February 2, 1998, the Company's Board of Directors adopted the Computer Sciences Corporation Severance Plan for Senior Management and Key Employees (the "Severance Plan"). The following summary of the Severance Plan is qualified in its entirety by reference to the full text of the Severance Plan, a copy of which is filed as Exhibit (c)(3) to this Schedule 14D-9 and is incorporated herein by reference. 6 7 The Severance Plan provides for certain payments to covered employees ("Participants") in the event of a change in control of the Company. The payment is a multiple of the Participant's annual base salary plus the average annual incentive bonus over the three years prior to the Participant's termination of employment. The multiple is two for all Participants except Mr. Honeycutt, whose multiple is three. Participants are also entitled to receive medical and similar benefits for a period of years equal to the applicable multiple (two or three). On February 2, a total of 17 Participants (including Mr. Honeycutt) were designated to be eligible for benefits under the Severance Plan. Payments are to be made under the Severance Plan if a Participant has a voluntary employment termination for "Good Reason" within 24 months following a Change in Control (as defined in the SERP) or an involuntary employment termination other than for cause within 36 months following a Change in Control. In addition, Mr. Honeycutt is entitled to payments under the Severance Plan if he has a voluntary employment termination, with or without "Good Reason," during the thirteenth month following a Change in Control. No payments under the Severance Plan are due if a Participant's employment is terminated for cause or because of death or disability. "Good Reason" is defined generally to include a substantial change or diminution in duties or position, a reduction in annual base salary, a reduction in the aggregate value of all other benefits (subject to certain exceptions), or a relocation of the Participant's principal office of more than 35 miles. The Severance Plan further provides that the Company will reimburse Participants for any and all excise taxes which must be paid by the Participants as a consequence of a Change in Control of the Company. On February 18, 1998, the Company's Board of Directors authorized Mr. Honeycutt to designate up to 150 additional employees as Participants entitled to the benefits described above (with the multiple being two). The benefits would be payable to these additional employees, however, only if the Change in Control resulted in Parent directly or indirectly controlling the Company. As of the date hereof, an additional 135 employees have been designated as Participants under the Severance Plan on the basis described in this paragraph. ITEM 4. THE SOLICITATION OR RECOMMENDATION The Board of Directors of the Company presently expects to meet on Friday, February 27, 1998 to consider the Offer. As of the date hereof, the Board has not yet met to consider or act upon the Offer. Accordingly, at this time the Company has not yet made any recommendation to its stockholders regarding the Offer, but as previously disclosed publicly, will do so on or before March 2, 1998. On February 10, 1998, the Company received a widely publicized letter from Parent in which Parent's Chairman proposed that Parent and the Company enter into a consensual merger in which the Company's stockholders would receive $108 per share in cash. The Company scheduled a Board of Directors meeting for February 18, 1998 to consider this proposal. On Sunday, February 15, 1998, an investment banker employed by Parent orally advised the Company's financial advisor that Parent would be prepared to pay $114 per share in cash for the Company's outstanding Shares if a negotiated transaction were completed promptly. Subsequently, the Company received another widely publicized letter from Parent, which made reference to such conversation. Monday, February 16, 1998, was a Federal holiday. On the morning of February 17, 1998, Parent issued a press release in which it stated that it had filed with the SEC a Schedule 14D-1 and a Preliminary Solicitation and Proxy Statement, as part of a tender offer for the Company. In fact, Parent did not file its Schedule 14D-1 and Preliminary Proxy Statement until approximately 5:20 p.m. on Tuesday, February 17, 1998. On February 18, 1998, the Company's Board of Directors met to consider Parent's consensual merger proposal. Neither the Company's Board of Directors nor its financial or legal advisors had, by that time, completed their review of Parent's 181 page Schedule 14D-1 filed the previous night. After receiving the advice of the Company's financial and legal advisors, and after a thorough discussion among members of the Board concerning the advantages, disadvantages, risks and problems associated with Parent's consensual merger proposal, the Board of Directors voted unanimously to reject it. The Board of 7 8 Directors was aware, in taking such action, of the indication by Parent's investment banker that in a negotiated transaction the cash consideration to the Company's stockholders could be $114 per share. On February 19, 1998, the Company issued a press release and released a letter from the Company's Chairman and CEO, Van B. Honeycutt, to Parent's Chairman and CEO. The press release and the letter stated that, in the opinion of the Company's Board, Parent's proposal for a consensual merger did not represent fair value for the Company's stockholders and that any effort to combine the Company and Parent would not make business sense. A copy of the press release is attached hereto as Exhibit (a)(1). A copy of the letter is attached hereto as Exhibit (a)(2). With respect to the value component of the Board's decision, Mr. Honeycutt's letter stated that: "We believe that CSC has far greater near- and long-term prospects than are reflected in your bid. Based on our assessment of CSC's opportunities for growth and revenues and earnings per share, and the potential such growth has to effect significant appreciation in our stock price, we do not believe your offer rewards our shareholders for the true value of their investment. In addition, your offer fails to recognize that CSC shareholders own a unique asset that is impossible to replicate in the information technology marketplace. "CSC is in robust financial condition with a compound annual growth rate of 20.4% in revenue over the past five years and a 26.3% increase in income before special items for the same period. We have larger gains in market share and revenue than our primary competitor in 15 of the last 16 quarters. We have won or implemented $6.7 billion in large outsourcing contracts over the past 12 months and our pipeline of major new business prospects is extremely promising. "CSC is on course to grow our business in all of our markets through strong internal growth and an acquisition strategy designed to enhance our growth in geographical markets, key vertical industries and specialized service segments." With respect to the conclusion of the Board that the combination of the Company and Parent would not make business sense, Mr. Honeycutt's letter stated that: "CSC's strong financial condition, as reflected by our 'A' credit rating, is critical to our ability to secure the large, long-term outsourcing contracts that are key to growth in IT services. A combined CSC and CA would be irresponsibly leveraged and thus have a much lower credit rating and be at a distinct disadvantage in the competition for such business. "CSC's ability to provide independent solutions is a threshold issue for customers who demand platform neutrality. This neutrality would be severely compromised if CSC were to be acquired by CA and, as a result, we would lose substantial credibility in the marketplace. You have already stated publicly that you would redirect the efforts of many CSC employees to sales and service of CA's software products, a prospect that both our customers and employees would find unacceptable. "More than 25% of CSC's total anticipated revenues for fiscal 1999 are derived from outsourcing contracts that contain change in control provisions which would allow customers who are concerned about such issues to move to another services firm. We have already been notified by a number of such clients that they would either exercise such provisions or curtail or reduce the flow of new business to CSC should a CA takeover occur. In addition, software critical to CSC's data centers and other operations is licensed to CSC under contracts which are terminable by the licensor if CA acquires CSC. "The most important asset of Computer Sciences is our people. They create sustainable, competitive advantage and customer satisfaction and revenue generation, and are the best in the business. It is widely recognized that CSC and CA have dramatically different cultures, and it is clear that many of the very assets you are trying to buy -- our employees -- will decline to join your company. "Our Board of Directors and our management are committed to maximizing the value of our stockholders' investment, consistent with the highest standards of responsibility to our customers and 8 9 employees. Consistent with our fiduciary duty to stockholders, we are always prepared to give serious consideration to strategic options which fairly reflect the value of our corporation and which make business sense. Clearly, your offer does neither." ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED Goldman, Sachs & Co. ("Goldman Sachs") and J.P. Morgan Securities Inc. ("J.P. Morgan") have been retained by the Company to act as its financial advisors with respect to the acquisition proposal which Parent has made for the stock of the Company; Goldman Sachs also has been retained as financial advisor to assist the Company in responding to any other acquisition proposals it may receive or any other attempts to acquire control of the Company. Pursuant to the terms of their engagement letters, Goldman Sachs and J.P. Morgan will receive the following fees for their services: (a) a quarterly retainer fee of $2,500,000 for Goldman Sachs and $1,000,000 for J.P Morgan, payable on the first day of each three-month period during which they provide such services; and (b) a fee of $10,000,000 for Goldman Sachs and $4,000,000 for J.P. Morgan (with the quarterly retainer fees paid under clause (a) above credited on a one-time basis against such fees), payable on February 11, 1999 and February 13, 1999, respectively, in the event that Parent has not, directly or indirectly, become the beneficial owner of more than 50% of the outstanding Shares on or prior to such date. The Goldman Sachs engagement letter also provides that in the event that the Company determines to undertake a specific transaction in which all or a majority of the Company is sold to another person or persons, Goldman Sachs will have the right to act on the Company's behalf in connection with such transaction on customary terms and conditions, including customary fee provisions. The J.P. Morgan engagement letter provides that in the event the Company determines to proceed with a sale, merger, consolidation, business combination, or certain other specified transactions, during the term of the engagement the Company will enter into an amendment to the engagement letter providing for fees to J.P. Morgan in an amount to be determined after taking into account the results obtained and the custom and practice among investment bankers acting in similar transactions. The Company has also agreed to reimburse Goldman Sachs and J.P. Morgan for their reasonable out-of-pocket expenses, including fees and expenses of counsel, and to indemnify Goldman Sachs and J.P. Morgan and certain related persons against certain liabilities in connection with their engagement. Goldman Sachs and J.P. Morgan have each in the past been retained by the Company to render investment banking and advisory services, and each has received reasonable and customary compensation for such services. The Company has also retained Bozell Sawyer Miller Group ("BSMG") as a public relations advisor in connection with the Offer, and has retained Morrow & Co., Inc. ("Morrow") to assist the Company in communicating with its stockholders and to provide other services in connection with the Offer. The Company has agreed to pay BSMG and Morrow reasonable and customary compensation for such services, reimburse them for their reasonable out-of-pocket expenses and provide customary indemnities. Except as described above, neither the Company nor any person on its behalf has employed, retained or compensated any person or class of persons to make solicitations or recommendations to security holders concerning the Offer. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES (a) On February 2, 1998, the Board of Directors of the Company declared a 2-for-1 stock split in the form of a 100% stock dividend with respect to its common stock, par value $1.00 per share (the "Common Stock") payable on March 23, 1998 to the holders of record of Common Stock on March 2, 1998. On February 18, 1998, the Board of Directors of the Company authorized and declared a dividend of one preferred stock purchase right (a "New Right") for each share of Common Stock. The dividend is payable on 9 10 February 27, 1998 to the holders of record of Common Stock as of the close of business on such date. The New Rights will be issued pursuant to a Rights Agreement dated as of February 18, 1998 by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "New Rights Agreement"), a copy of which was included as Exhibit 10.23 to the Form 8-A filed by the Company with the Commission on February 25, 1998. The following summary of the New Rights Agreement is qualified in its entirety by reference to the full text of the New Rights Agreement, a copy of which is filed as Exhibit (c)(4) to this Schedule 14D-9 and is incorporated herein by reference in its entirety. On February 18, 1998, the Board of Directors of the Company also amended the first sentence of Section 3(a) of the Rights Agreement dated as of December 21, 1988, as amended and restated as of August 1, 1996, by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Old Rights Agreement"), in order to add the following additional language at the end of such sentence: "provided, however, that, notwithstanding anything to the contrary in the foregoing definition of the 'Distribution Date,' clause (ii) of the definition does not apply to the tender offer commenced by CAI Computer Services Corp. on February 17, 1998." A copy of the Old Rights Agreement, as amended and restated effective February 18, 1998 is attached as Exhibit (c)(15) hereto and is incorporated herein by reference in its entirety. In addition, the Board of Directors indicated that it will redeem the Old Rights promptly after the dividend of the New Rights has been paid. The following executive officers of the Company effected the following transactions in the Shares during the past 60 days. No other executive officer, director, affiliate or subsidiary of the Company effected any transaction in the Shares during such period. (i) Van B. Honeycutt, Chairman, President and Chief Executive Officer, exercised a stock option and purchased 4,200 Shares for $15.25 per Share on February 20, 1998, the last day prior to the expiration of the option. Mr. Honeycutt retained the Shares acquired upon such exercise. (ii) C. Bruce Plowman, Vice President, Corporate and Marketing Communications, exercised a stock option and purchased 3,000 shares of Common Stock for $39.25 per share on January 6, 1998. Mr. Plowman sold these 3,000 shares for $85.06 per share in an open market sale later that day. (b) To the best knowledge of the Company, all of its executive officers and directors presently intend to hold, and not tender to Purchaser, all of the Shares which they hold of record or beneficially own. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY (a) The Board has not yet met to consider the Offer. Such a Board meeting is presently scheduled for February 27, 1998. No negotiation has been or is being undertaken or is underway by the Company in response to the Offer which relates to or would result in: (1) an extraordinary transaction such as a merger or reorganization, involving the Company or any subsidiary of the Company; (2) a purchase, sale or transfer of a material amount of assets by the Company or any subsidiary of the Company; (3) a tender offer for or other acquisition of securities by or of the Company; or (4) any material change in the present capitalization or dividend policy of the Company. In light of the fact that the Board has not yet met to consider the Offer, no decision has, as yet, been made whether to undertake such negotiations in the future. (b) Other than the Board resolution adopted at the February 18, 1998 meeting of the Board to declare a dividend of Rights to acquire shares of the Company's Preferred Stock described in Item 6(a) hereof, there is no transaction, Board resolution, agreement in principle, or signed contract in response to the Offer that relates to or would result in one or more of the matters referred to in clauses (1), (2), (3) or (4) of Item 7(a) hereof. 10 11 ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED At a meeting on February 16, 1998, the Board adopted an amendment to the Company's Bylaws "opting out" of the "Control Shares" provisions of the Nevada General Corporation Law. The "Control Shares" provisions deny voting rights to shares acquired by a person, with reference to percentage thresholds stated in the provisions, unless a sufficient number of other shares are voted in favor of restoring such voting rights. At its February 18, 1998 meeting, the Board adopted a number of other amendments to the Company's Bylaws designed to protect against hasty, ill-considered, actions to disrupt, remove or replace the Company's Board of Directors with employees of Parent in advance of the Annual Meeting of Stockholders. The amendments are also intended to assure that within the limits of applicable Nevada law the Board of Directors will retain reasonable discretion in scheduling the Annual Meeting in order to assure adequate time for stockholders to be fully informed concerning the Offer and all other alternatives which may be available to them. In addition, the Bylaw amendments conform the provisions for indemnification of directors and officers to provisions covering the same subject set forth in the Restated Articles of Incorporation, and more generally remove or mitigate certain ambiguities in the Bylaws, as they existed prior to such amendments. A copy of the Amended and Restated Bylaws is attached hereto as Exhibit (c)(6). The following paragraphs are intended to briefly summarize the substantive changes made in the several Bylaw amendments. They are subject in all respects to the exact language of the amended Bylaws, as set forth in Exhibit (c)(6). The amendment of Article II, Section 2 of the Bylaws deletes language from the former provision stating that annual meetings of the stockholders shall be held on the second Monday in August, or at such other time and date as the Board of Directors shall determine. As amended, the reference to the second Monday in August is deleted. The amendment of Article II, Section 3 of the Bylaws removes the ability of holders of a simple majority of the Common Stock to call a special meeting of stockholders, except for a special meeting called to elect directors if an Annual Meeting has not been held for 18 months or if directors were not elected at the last Annual Meeting. The amendment of Article II, Section 6, which states the general majority voting requirement for action by stockholders, conforms the Bylaws to the Nevada General Corporation Law and adds an explicit cross-reference to supermajority provisions elsewhere in the Bylaws. The amendment of Article II, Section 10 increases from 75% to 90% the number of shares required for action by written consent of the stockholders. The amendment of Article II, Section 12 adds a 120-day advance notice requirement for stockholder proposals to be considered at an Annual Meeting. The amendment of Article III, Section 1 removes certain language considered superfluous. The amendment of Article III, Section 2 removes a provision in the Bylaws, as they existed prior to such amendments, pursuant to which the Board could remove any director for cause. The amendment also removes language taken from the Nevada General Corporation Law concerning the 2/3 supermajority of shares required to remove a director of a Nevada corporation. The amendment further provides that, because the Company's charter provides for cumulative voting in the election of directors, the proportion of the outstanding shares required to remove any director must be no less than the proportion equal to (a) one minus (b) the ratio of (x) one divided by (y) the sum of one plus the authorized number of directors. It is the Company's position that such interpretation is consistent with applicable Nevada law, although the Company is aware that Parent has made a contrary assertion in the Nevada federal court lawsuit described in the following paragraph. The amendment of Article III, Section 7 provides that 24 hours' notice is required for special meetings of the Board, if such notice is given orally, or by telegraph, facsimile, or electronic means instead of three days' notice as previously required. The amendment of Article VII revises the indemnification provisions of the Bylaws to mirror the provisions of the Company's Restated Articles of Incorporation. The amendment of Article VIII, Section 1 requires the affirmative vote of more than 80% of the outstanding stock in order to amend or repeal Bylaws by stockholder action. From the time that Parent publicly commenced its efforts to acquire the Company, a number of lawsuits involving the Company have been filed. As noted in response to Item 4, on February 10, 1998, Parent sent and publicly disclosed a letter in which it proposed to acquire the Company. On February 11, 1998 a class action lawsuit was filed in Clark County, Nevada district court seeking to enjoin the proposed merger transaction 11 12 from occurring. Other class action lawsuits were filed in subsequent days by the same counsel seeking contrary relief. On February 17, 1998, the same date on which it filed its Schedule 14D-1 and its Preliminary Solicitation and Proxy Statement, Parent filed suit in the United States District Court for the District of Nevada, captioned Computer Associates International, Inc. v. Computer Sciences Corporation (Case No. CV-S-98-00278-LDG), seeking (i) a declaratory judgment that "Computer Associates Schedule 14D-1 complies with applicable federal law," (ii) to enjoin the Company from amending its Bylaws in certain respects, (iii) to order the Company to redeem its "poison pill" and to make the provisions of the Nevada Business Combination Statute inapplicable to the Offer by approving the Offer, and (iv) a declaration that certain sections of the Bylaws, in conjunction with certain sections of the Nevada General Corporation Law, inter alia permit a vote or consent of holders of a majority of the outstanding shares of the Company to amend the Bylaws, permit Parent, with the vote of two-thirds of the outstanding voting shares of the Company, to remove a sufficient number of directors to designate a majority of the Board, permit a majority of the Company's stockholders to fill vacancies of removed directors or additional seats on the Board by written consent, prohibit the Company from setting the record date for determining stockholders entitled to give written consents and agent solicitations, require that the Company hold its annual meeting on August 10, 1998 and certain other matters. A copy of Parent's Complaint and Parent's Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief are attached hereto as Exhibits (c)(7) and (c)(8), respectively. A copy of Parent's brief in support of such Motion and on the merits of the relief requested is attached hereto as Exhibit (c)(9). On February 23, 1998, the Company filed its Response of Defendant Computer Sciences Corporation to Plaintiff Computer Associates International, Inc.'s Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief. The Response, inter alia, pointed out that the amendments adopted to the Company's Bylaws on February 16, 1998 and February 18, 1998 had rendered moot all of the claims in Parent's Complaint other than Parent's claim that its filings with the Securities and Exchange Commission were in compliance with all applicable federal law. The Response also stated that Parent's positions regarding corporate governance had no merit even under the pre-amendment Bylaws. A copy of the Response is attached hereto as Exhibit (c)(10). Also on February 23, 1998, Parent filed with the United States District Court for the District of Nevada its Supplemental and Amended Complaint. The Supplemental and Amended Complaint seeks emergency delaratory relief to void the amendments to the Company's Bylaws and to determine definitively the legality of Parent's Proxy Solicitation. Parent also sought an injunction against the use of a "poison pill" and other anti-takeover measures and certain other unspecified actions. A copy of the Supplemental and Amended Complaint is attached hereto as Exhibit (c)(11). Also on February 23, 1998, the Company filed a lawsuit in the Superior Court of the State of California for the County of Los Angeles, Central District, captioned Computer Sciences Corporation v. Computer Associates International, Inc., et al.(Case No. BC 186394). This Complaint by the Company included a number of causes of action, including (1) unfair, unlawful, and fraudulent business acts and practices in violation of California Business and Professions Code Sections 17200, et seq., including (a) improper attempt to buy loyalty; (b) attempted economic duress; (c) fraud and deceit; (d) improper intentional interference; and (e) unfair business acts; (2) economic duress; (3) intentional interference with prospective economic advantage and contractual relations; and (4) conspiracy. A copy of the Company's Complaint is attached hereto as Exhibit (c)(12). The information contained in all of the Exhibits referred to in Item 9 below is incorporated herein by reference in its entirety. ITEM 9. MATERIALS TO BE FILED AS EXHIBITS (a)(1) Press release issued by the Company dated February 19, 1998.+ (a)(2) Letter from Van B. Honeycutt to Charles Wang, dated February 19, 1998.+ (c)(1) Excerpts from the Company's Proxy Statement dated July 2, 1997.+ 12 13 (c)(2) The Company's Supplemental Executive Retirement Plan, as amended and restated effective as of February 2, 1998.+ (c)(3) The Company's Severance Plan for Senior Management and Key Employees, as amended and restated effective as of February 18, 1998.+ (c)(4) Rights Agreement dated as of February 18, 1998 by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.+ (c)(5) The Company's Deferred Compensation Plan, as amended and restated effective as of February 2, 1998.+ (c)(6) The Company's Bylaws, as amended and restated February 18, 1998.+ (c)(7) Complaint for Injunctive and Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation, case no. CV-S-98-00278-LDG.* (c)(8) Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation.* (c)(9) Brief in Support of Motion for Expedited Hearing on Claims for Declaratory Relief and on the Merits of the Relief Requested in Computer Associates International, Inc. v. Computer Sciences Corporation.* (c)(10) Response of the Company to the Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation.* (c)(11) Supplemental and Amended Complaint in Computer Associates International, Inc. v. Computer Sciences Corporation.* (c)(12) Complaint for (1) Unfair, Unlawful, and Fraudulent Business Acts and Practices in violation of California Business and Professions Code Sections 17200 et seq.; (2) Economic Duress; (3) Intentional Interference with Prospective Economic Advantage and Contractual Relations; and (4) Conspiracy in Computer Sciences Corporation v. Computer Associates International, Inc., case no. BC186394.* (c)(13) Form of Stock Option Agreement.++ (c)(14) Form of Restricted Stock Agreement.++ (c)(15) Amended and Restated Rights Agreement dated as of December 21, 1988, as amended and restated as of February 18, 1998 by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.+ - ------------------------ + Previously filed. * Filed herewith. ++ To be filed with an amendment to this Schedule 14D-9 13 14 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete, and correct. COMPUTER SCIENCES CORPORATION By: /s/ HAYWARD D. FISK ------------------------------------ Hayward D. Fisk Vice President, General Counsel and Secretary Dated: February 26, 1998 14 15 EXHIBIT INDEX (a)(1) Press release issued by the Company dated February 19, 1998. (a)(2) Letter from Van B. Honeycutt to Charles Wang, dated February 19, 1998. (c)(1) Excerpts from the Company's Proxy Statement dated July 2, 1997. (c)(2) The Company's Supplemental Executive Retirement Plan, as amended and restated effective as of February 2, 1998. (c)(3) The Company's Severance Plan for Senior Management and Key Employees, as amended and restated effective as of February 18, 1998. (c)(4) Rights Agreement dated as of February 18, 1998 by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. (c)(5) The Company's Deferred Compensation Plan, as amended and restated effective as of February 2, 1998. (c)(6) The Company's Bylaws, as amended and restated February 18, 1998. (c)(7) Complaint for Injunctive and Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation, case no. CV-S-98-00278-LDG. (c)(8) Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation. (c)(9) Brief in Support of Motion for Expedited Hearing on Claims for Declaratory Relief and on the Merits of the Relief Requested in Computer Associates International, Inc. v. Computer Sciences Corporation. (c)(10) Response of the Company to the Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation. (c)(11) Supplemental and Amended Complaint in Computer Associates International, Inc. v. Computer Sciences Corporation. (c)(12) Complaint for (1) Unfair, Unlawful, and Fraudulent Business Acts and Practices in violation of California Business and Professions Code Sections 17200 et seq.; (2) Economic Duress; (3) Intentional Interference with Prospective Economic Advantage and Contractual Relations; and (4) Conspiracy in Computer Sciences Corporation v. Computer Associates International, Inc., case no. BC186394. (c)(13) Form of Stock Option Agreement (c)(14) Form of Restricted Stock Agreement (c)(15) Amended and Restated Rights Agreement dated as of December 21, 1988, as amended and restated as of February 18, 1998 by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. 15 EX-99.(C)(7) 2 COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF 1 EXHIBIT (c)(7) SCHRECK MORRIS RECEIVED STEVE MORRIS AND FILED MATTHEW McCAUGHEY FEB 17 9:18 AM '98 1200 Bank of America Plaza LANCE S. WILSON 300 South Fourth Street CLERK Las Vegas, Nevada 89101 By_____________________ (702) 474-9400 DEPUTY HOWARD, DARBY & LEVIN C. WILLIAM PHILLIPS DANIEL M. MANDIL 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. CV-S-98-00278-LDG (RLH) 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: 2 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- 3 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- 4 (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- 5 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- 6 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 and 1332(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- 7 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- 8 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- 9 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- 10 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- 11 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- 12 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- 13 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- 14 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- 15 (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- 16 Dated: February 17, 1998 SCHRECK MORRIS By: STEVE MORRIS ----------------------------------- 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 ----------------------------------- C. William Phillips 1330 Avenue of the Americas New York, New York 10019 (212) 841-1000 Attorneys for Plaintiff Computer Associates International, Inc. -16- 17 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 (212) 841-1000 Attorneys for Computer Associates International, Inc. UNITED STATES DISTRICT COURT DISTRICT OF NEVADA - --------------------------------------- x COMPUTER ASSOCIATES : INTERNATIONAL, INC., Plaintiff, : Case No. v. : COMPUTER SCIENCES : CORPORATION, : Defendant. - --------------------------------------- x AFFIDAVIT OF STEVEN M. WOGHIN 18 STATE OF NEW YORK ) : ss.: COUNTY OF SUFFOLK ) Steven M. Woghin, being duly sworn, states: 1. I am Senior Vice-President and General Counsel of Computer Associates International, Inc. ("Computer Associates"), plaintiff in this action. I submit this affidavit in support of Plaintiff's Complaint For Injunctive and Declaratory Relief, and plaintiff's motion for expedited treatment pursuant to 28 U.S.C. Section 2201 and Federal Rule of Civil Procedure 57. 1 make this affidavit based upon personal knowledge, except as to those matters stated based upon information and belief. With respect to matters based upon information and belief, I am relying on the statements of others or publicly available documents, that I reasonably believe to be accurate. 2. This litigation concerns a tender offer. It is clearly to the advantage of the tens of thousands of shareholders, employees and customers affiliated with these two parties for the Court to provide a speedy declaration regarding the rights and duties of defendant's shareholders and directors, so that the tender offer can properly be evaluated and responded to. Only expedited treatment will provide for a speedy and fair resolution of these issues. 3. Plaintiff Computer Associates is a Delaware corporation with its principal executive offices in Islandia, New York. Computer Associates (through a wholly-owned subsidiary) is the beneficial holder of approximately 170,000 shares, or 0.2%, of CSC 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 -2- 19 systems management, information management, the development of financial, human resource, manufacturing, distribution and banking systems applications, and desktop computer software. 4. Upon information and belief, defendant Computer Sciences Corporation ("CSC" and the "Company") is a corporation incorporated in Nevada 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. 5. Computer Associates will announce on February 17, 1998 that it will commence a tender offer for all of the outstanding stock of defendant CSC at a price of $108 per share in cash, an aggregate price of approximately $9 billion for the Company (the "Offer"). 6. Computer Associates' Offer represents a substantial premium for CSC common stock. Computer Associates intends, as soon as practicable following consummation of the Offer, to have CSC merge with a Computer Associates' subsidiary, creating a world-class information technology solutions provider. 7. Computer Associates will also file a Schedule 14D-1 and exhibits thereto with the Securities and Exchange Commission on February 17, 1998. 8. Both Computer Associates and CSC are enormous operations, with tens of thousands of shareholders, employees, and customers. If a merger of Computer Associates and CSC is completed, it will be one of the largest mergers in the history of the American technology industry. -3- 20 9. CSC has rejected Computer Associates' proposal to acquire CSC and has refused to negotiate. It appears that CSC seeks to deprive its shareholders of a full and fair opportunity to decide for themselves whether to accept Computer Associates' proposal. 10. Until the CSC shareholders are provided with an opportunity to consider the Offer, and make their determination, there will be inevitable disruption to both Computer Associates and CSC and their respective operations. For each day that the issues raised in this litigation remain unresolved, the parties will incur additional and substantial transaction costs. 11. Moreover, speedy resolution of these issues is required so that the Offer may be fully and fairly considered by the CSC shareholders, as contemplated by the federal statutes governing tender offers. The policies of the federal securities laws will be frustrated if CSC shareholders are not provided with all the relevant information regarding the Offer. 12. Computer Associates brings this action to prevent CSC from using various anti-takeover devices to block the Offer. 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 fight 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). 13. Computer Associates also seeks to replace a majority of CSC directors with a slate of directors who will support Computer Associates' Offer consistent -4- 21 with their fiduciary duties. To this end, Computer Associates (a) has called for a special meeting of CSC shareholders, pursuant to agent designations that will be solicited from a majority of CSC shareholders; and (b) will seek consents from CSC shareholders to amend the CSC bylaws (the "Bylaws") and replace a majority of CSC directors and otherwise to protect CSC shareholders from CSC management's attempts to entrench its positions. 14. Computer Associates has announced that it is pursuing various strategies in connection with the Offer, each designed to enable the CSC shareholders to determine whether or not to accept the Offer. Computer Associates would like the CSC shareholders to have the opportunity to consider the Offer as soon as possible. 15. In furtherance of this objective, Computer Associates has proposed various alternatives that may be available to the CSC shareholders to enable them to properly consider the Offer. Although Computer Associates believes that each of its proposals is consistent with Nevada law and the CSC bylaws, Computer Associates has asked this Court for a series of declarations clarifying the legal relationships between CSC and its shareholders (including Computer Associates). 16. Until the Court issues the declarations sought by the action, Computer Associates and the other CSC shareholders cannot be fully confident that they have taken -5- 22 the steps necessary to ensure that the CSC shareholders, and not the current Board of Directors, will determine how to respond to the Offer. 17. Computer Associates bring this action for injunctive and/or declaratory relief regarding CSC's defensive measures as well as its proposals to enable the CSC shareholders to consider the Offer fully and fairly. Steven M. Woghin ----------------------------- Steven M. Woghin Sworn to before this 16th day of February, 1998 ANNE M. JONES - ------------------------------------- Notary Public ANNE M. JONES NOTARY PUBLIC, STATE OF NEW YORK NO 4913476 QUALIFIED IN NASSAU COUNTY COMMISSION EXPIRES NOVEMBER 23, 1999 -6- EX-99.(C)(8) 3 EX PARTE MOTION FOR EXPEDITED HEARING 1 EXHIBIT (c)(8) STEVE MORRIS RECEIVED MATTHEW McCAUGHEY AND FILED SCHRECK MORRIS FEB 17 9:19 AM '96 1200 Bank of America Plaza LANCE S. WILSON 300 South Fourth Street CLERK Las Vegas, Nevada 89101 By___________________ (702) 382-2101 DEPUTY C. WILLIAM PHILLIPS HOWARD, DARBY & LEVIN 1330 Avenue of the Americas New York, New York 10019 (212) 841-1000 Attorneys for Plaintiff CV-S-98-00278-LDG (RLH) UNITED STATES DISTRICT COURT DISTRICT OF NEVADA COMPUTER ASSOCIATES ) Case No. INTERNATIONAL, INC., ) ) EX PARTE MOTION FOR EXPEDITED Plaintiff, ) HEARING ON CLAIMS FOR ) DECLARATORY RELIEF(1) ) vs. ) COMPUTER SCIENCES CORPORATION, ) ) Defendant. ) ) ) _____________________________________ Plaintiff Computer Associates International, Inc. hereby moves, ex parte, for an expedited briefing schedule and a hearing on its claims for declaratory relief. _________________________ 1 STATEMENT IN ACCORDANCE WITH LR 7-5. Computer Associates has not made an effort to obtain a stipulation from Computer Sciences to expedite hearing of the declaratory relief claims here because Computer Sciences' prior efforts to achieve an amicable combination of the two companies have been rejected by Computer Sciences Corporation. Computer Associates has no reason to believe that Computer Sciences Corporation would agree to an early hearing on claims which, if resolved in Computer Associates favor, would facilitate the acquisition Computer Sciences has rejected. Because time is of the essence in this dispute, Computer Associates would be harmed by the delay that would be occasioned by seeking a stipulation that would not be agreed to. 2 I. INTRODUCTION: THIS IS A $9 BILLION TAKEOVER DISPUTE IN WHICH TIME IS OF THE ESSENCE. Computer Associates has tendered an offer to acquire all of the outstanding shares of Computer Sciences Corporation ("CSC"). Computer Associates also seeks a declaration that in accordance with CSC's bylaws and Nevada statutory corporate law, the holders of a majority of the outstanding CSC voting shares may amend the bylaws by written consent to allow the holders of two- thirds of the outstanding CSC voting shares to remove and replace a majority of the CSC directors by written consent. II. THE BASIS OF THIS MOTION A. FEDERAL RULE 57 AND CASE LAW SUPPORT EXPEDITING A DECISION ON DECLARATORY ISSUES TENDERED HERE. Federal Rule of Civil Procedure 57 provides that "(t)he court may order a speedy hearing of an action for a declaratory judgment and may advance it on the calendar." The Advisory Committee noted: A declaratory judgment is appropriate when it will terminate the controversy' giving rise to the proceeding. Inasmuch as it often involves only an issue of law on undisputed on relatively undisputed facts, it operates frequently as a summary proceeding, justifying docketing the case for early hearing as on a motion .... one respected state supreme court put it this way: "The purpose of the provision is to enable the court to expedite adjudication in a proper case in order to prevent the accrual of damages or to further the early adjudication of a controversy." City of Grand Forks V. Grand Forks Herald, Inc., 307 N.W.2D 572, 575 -2- 3 (N.D. 1981) (interpreting analogous state rule, citing 6 Moore's Federal Practice, [paragraph] 57.29). This court should exercise its discretion to hear and decide Computer Associates' declaratory relief claims as soon as possible. The case involves a nine or more billion dollar dispute between two national corporations with thousands of employees and stockholders, as further discussed in the affidavit of Steven M. Woghin, Senior Vice President and General Counsel of Computer Associates, filed herewith as Exhibit 1. The stock of each corporation is traded on the New York Stock Exchange. There is no pending state or federal action with which the relief sought here will interfere. This court has a history of addressing important issues of Nevada corporate law involving national corporations. See Hilton Hotels Corp. v. ITT Corp., 978 F. Supp. 1342 (D.Nev. 1997); Hilton Hotels Corp. and HLT v. ITT Corp., 962 F. Supp. 1309 (D. Nev. 1997), aff'd, 116 F.3d 1485 (9th Cir. 1997); Shoen v. Amerco, 885 F. Supp. 1332 (D. Nev. 1994); Batus Inc. v. McKay, 684 F. Supp. 637 (D. Nev. 1988). B. AMBIGUITY IN THE INTERPLAY OF CSC'S BYLAWS AND NEVADA CORPORATE LAW TENDER PURE ISSUES OF LAW THAT THE COURT CAN RESOLVE WITHOUT DISCOVERY AND OTHER ADJUNCTS OF TRIAL PREPARATION. An expedited ruling on Computer Associates' request for declaratory relief is necessary because NEVADA law is unclear on key points raised BY Computer Associates' proposed acquisition of defendant Computer Sciences Clarification now by judicial -3- 4 declaration of what Nevada law applies to this transaction in light of provisions in CSC's articles and bylaws may terminate this controversy early. C. TIME IS OF THE ESSENCE. It is a fact accepted by the federal courts that time is of the essence in corporate takeover cases. San Francisco Real Estate Investors v. Real Estate Investment Trust of America, 701 F.d. 1000, 1003 (1st Cir. 1983) ("While time and money are lost, so also is diminished if not destroyed any chance of success. Whether one questions the wisdom of such efforts or not, the fact is that loss of a best opportunity to seize control of a major corporation could be crucial"); delaying shareholder voting on a hostile takeover causes irreparable harm. ER Holdings, Inc. v. Norton Co.,735 F. Supp. 1094, 1102 (D.Mass. 1990) ("The courts of this Circuit have recognized that delay in these contexts is deadly"); Newell Co. v. Connolly, 624 F. Supp. 126, 129 (D. Mass. 1985) ("I will take judicial notice of the fact that time is of the essence in takeover cases and note that in many of the cases cited herein the bidding company withdrew its tender offer as a result of delays."). Courts frequently provide expedited hearings on declaratory relief claims affecting corporate takeover and merger proceedings. E.g. Avon Products, Inc. v. Chartwell Associates L.P., 738 F.Supp. 686 (S.D.N.Y. 1990), aff'd 907 F.d. 322 (2nd Cir. 1990)(expediting shareholders', request for declaration that -4- 5 corporation's defensive measures violated New York business corporation law); Dynamics Corp. of America v. CTS Corp., 637 F. Supp. 389 (N.D.Ill. 1986), aff'd 794 F.d. 250 (7th Cir. 1986), rev'd on other grounds, 481 U.S. 69 (1987) (expediting tender offeror's request for declaration that Indiana's control share acquisition statute violated federal law) Sullivan Money Management, Inc. v. FLS Holdings, Inc., Civ. A. No. 12731, 1992 WL 345453 (Del. Ch. Nov. 20, 1992); Marceau Investments v. Sonitrol Holding Co., Civ. A. No. 1991, 1991 WL 202185 (Del. Ch. Oct. 17, 1991). Any delay here in resolving the parties' respective rights will jeopardize Computer Associates' interests in taking over CSC and will cause irreparable harm to Computer Associates. See Exhibit 1, affidavit of Steven M. Woghin. This court should therefore provide for an expedited resolution of Computer Associates' declaratory relief claims. III. CONCLUSION: IT WOULD CONSERVE TIME, MONEY, AND JUDICIAL RESOURCES TO DECLARE RIGHTS NOW, AS COMPUTER ASSOCIATES REQUESTS. For the above reasons, Computer Associates requests that this court enter an order setting an expedited briefing and hearing schedule on Computer Associates' claims for declaratory relief as soon as practical and convenient following 20 days within which CSC may respond to the Complaint.(2) A proposed order ____________________ (2)Computer Associates has arranged for personal service today of the summons, complaint, this motion, and all related papers on CSC's resident agent, Corporation Trust Co., One East First Street, Reno, Nevada. Computer Associates will also serve these papers today via overnight delivery on CSC's at its CSC's principal place of business in El Segundo, California. -5- 6 is attached at exhibit B. SCHRECK MORRIS By: /s/ STEVE MORRIS ------------------------------------ STEVE MORRIS MATTHEW McCAUGHEY SCHRECK MORRIS 1200 Bank of America Plaza 300 South Fourth Street Las Vegas, Nevada 89101 (702) 382-2101 C. WILLIAM PHILLIPS HOWARD, DARBY & LEVIN 1330 Avenue of the Americas New York, New York 10019 (212) 841-1000 -6- 7 CERTIFICATE OF SERVICE Pursuant to Fed.R. Civ. P. I certify that I am an employee of SCHRECK MORRIS, and that on this day I deposited for overnight delivery via Federal Express at Las Vegas, Nevada, a true copy of the following enclosed in a sealed envelope upon which postage was prepaid for overnight delivery: MOTION TO EXPEDITE HEARING ON DECLARATORY JUDGMENT ACTION; COMPLAINT, AND SUMMONS was addressed to: VAN B. HONEYCUTT CHAIRMAN AND CHIEF EXECUTIVE OFFICER COMPUTER SCIENCES CORPORATION 2100 EAST GRAND STREET EL SEGUNDO, CA 90245 DATED this 17th day of February, 1998. By: /s/ DANA K. PROVOST ---------------------------------- An Employee of Schreck Morris -7- EX-99.(C)(9) 4 BRIEF IN SUPPORT OF MOTION 1 EXHIBIT (c)(9) COPY RECEIVED AND FILED FEB 17 9:23 AM '98 Lance S. Wilson Clerk SCHRECK MORRIS STEVE MORRIS MATTHEW McCAUGHEY 1200 Bank of America Plaza 300 South Fourth Street By____________________ Las Vegas, Nevada 89101 DEPUTY (702) 474-9400 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 Plaintiff Computer Associates International, Inc. UNITED STATES DISTRICT COURT DISTRICT OF NEVADA - --------------------------------------- x COMPUTER ASSOCIATES : INTERNATIONAL, INC., : Plaintiff, : v. : CV-S-98-00278-LDG (RLH) COMPUTER SCIENCES CORPORATION, : Defendant. - --------------------------------------- x COMPUTER ASSOCIATES' BRIEF IN SUPPORT OF MOTION FOR EXPEDITED HEARING ON CLAIMS FOR DECLARATORY RELIEF AND ON THE MERITS OF THE RELIEF REQUESTED 2 TABLE OF CONTENTS Page Preliminary Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Statement of Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Computer Associates' Cash Tender Offer to Acquire CSC . . . . . . . . . . . 6 CSC's Anti-Takeover Devices . . . . . . . . . . . . . . . . . . . . . . . 7 1. The Director Replacement Proposals . . . . . . . . . . . . . 8 2. The Anti-Entrenchment Proposals . . . . . . . . . . . . . . 9 The Need for a Declaratory Judgment . . . . . . . . . . . . . . . . . . 10 1. Amendment of the Bylaws . . . . . . . . . . . . . . . . . 10 2. The Removal of Directors . . . . . . . . . . . . . . . . . 11 3. Replacement of Directors . . . . . . . . . . . . . . . . . 12 Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Point I A Majority of Stockholders May Amend the Bylaws . . . . . . . . 14 Point II Two-thirds of the Stockholders May Remove a Sufficient Number of Directors to Designate a Majority of the Board . . . . . . . . . . . . . . . . . . . . . 15 A. Nevada Protects the Right of Stockholders to Remove Directors Without Cause . . . . . . . . . . . . . . . . . 16 B. The Statutory Limitation upon Removal is Designed to Protect Cumulative Voting . . . . . . . . . . . . . . . . . . 17 Point III The Stockholders May Fill Vacancies Caused by the Removal of Directors . . . . . . . . . . . . . . . . . . . . . . 22 Point IV CSC May Not Select the Record Date for Computer Associates' Solicitations . . . . . . . . . . . . . . . . . . . 25 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3 TABLE OF AUTHORITIES
PAGE CASE Aetna Life Ins. Co. v. Haworth, 300 U.S. 227 (1937) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Campbell v. Loew's, Inc., 134 A.2d 852 (Del. Ch. 1957) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,23 Central Montana Elec. Power Cooperative, Inc. v. Bonneville Power Admin., 840 F.2d 1472 (9th Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Chan v. Society Expeditions, Inc., 123 F.2d 1287 (9th Cir. 1997) cert. dismissed, 1998 WL 43162 (Feb. 5, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 DiEleuterio v. Cavaliers of Delaware, Inc., No. 8801, 1987 Del. Ch. LEXIS 381 (Del. Ch. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Edgar v. MITE, 457 U.S. 624 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Edmond v. United States, 117 S.Ct. 1573 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Hilton Hotels Corp. v. ITT Corp., 978 F. Supp. 1342 (D. Nev. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 16, 20 Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270 (1941) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Moon v. Moon Motor Car Co., 151 A. 298 (Del. Ch. 1930) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 In re Rogers Imports, Inc., 116 N.Y.S.2d 106 (Sup. Ct. 1952) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Scott County Tobacco Warehouses, Inc. v. R.J. Harris, 201 S.E.2d 780 (1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Shoen v. AMERCO, 885 F. Supp. 1332 (D. Nev. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,20 Wolfson v. Avery, 126 N.E.2d 701 (1955) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . n. 1
4 STATUTES Conn. Gen. Stat. Section 33-742(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Del. Code Ann. Tit. 8, Section 141(k) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Del. Code. Ann. Tit. 8, Section 223 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Nev. Rev. Stat. Section 78.320 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-25 Nev. Rev. Stat. Section 78.335 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Nev. Rev. Stat. Section 78.350 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,25 Nev. Rev. Stat. Section 78.360 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Nev. Rev. Stat. Section 78.3789 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Nev. Rev. Stat. Section 78.3790 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-9 Nev. Rev. Stat. Section 78.411 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 28 U.S.C. Section 2201 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,13 Fed. R. Civ. P. 57 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,13 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 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. Of Supp. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-17,19,21 Williams, Cumulative Voting. Harv. Bus. Rev. 108 (May - June 1955). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5 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. -2- 6 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). -3- 7 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 -4- 8 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. -5- 9 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. -6- 10 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 -7- 11 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 -8- 12 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 17, 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 -9- 13 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 By-laws 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. 2. 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 -10- 14 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 -11- 15 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 fight 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 the Company'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). -12- 16 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 antitakeover 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. -13- 17 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 -14- 18 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 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-THRDS 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 -15- 19 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(l). 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, the Nevada 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."). -16- 20 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(l)(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(l), 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. -17- 21 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) ("The 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). -18- 22 stockholders owning sufficient shares to have prevented his election to office in the first instance .... Nev. Rev. Stat. 78.335(l)(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 Cont. 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-super majority" 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 votes necessary to remove the director, rather than requiring the minority shareholders to garner votes to block removal. Compare Nev. Rev. Stat. 78.335(l)(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"). -19- 23 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). -20- 24 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 12 (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 -21- 25 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 -22- 26 also provides that stockholders and directors share the power to fill vacancies on the Board. See Del. Code Ann. tit. 8, Section 223(l). 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 -23- 27 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. -24- 28 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 its 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. -25- 29 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 -26- 30 (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 ------------------------------------- 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. -27- EX-99.(C)(10) 5 RESPONSE OF THE COMPANY TO THE EX PARTE MOTION 1 EXHIBIT (c)(10) WAYNE W. SMITH (CA Bar 054593) JOSEPH P. BUSCH, III (CA Bar 070340) THOMAS S. JONES (CA Bar 165796) ELIZABETH A. WARKE (CA Bar 185320) GIBSON, DUNN & CRUTCHER LLP 4 Park Plaza, Suite 1400 Irvine, California 92614-8557 (714) 451-3800 (Telephone) (714) 451-4220 (Facsimile) DAVID A. BATTAGLIA (CA Bar No. 130474) MICHELLE H. TREMAIN (CA Bar No. 187342) GIBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue Los Angeles, California 90071-3197 (213) 229-7000 (Telephone) (213) 229-7520 (Facsimile) C. STANLEY HUNTERTON (NV Bar No. 1891) TERRY JOHN CARE (NV Bar No. 4560) HUNTERTON & ASSOCIATES Bank of America Plaza 300 South Fourth Street, Suite 1110 Las Vegas, NV 89101 (702) 388-0098 (Telephone) (702) 388-0361 (Facsimile) Attorneys for Defendant COMPUTER SCIENCES CORPORATION UNITED STATES DISTRICT COURT DISTRICT OF NEVADA COMPUTER ASSOCIATES CASE NO. CV-S-98-00278-LDG (RLH) INTERNATIONAL, INC., RESPONSE OF DEFENDANT COMPUTER Plaintiff, SCIENCES CORPORATION TO PLAINTIFF COMPUTER ASSOCIATES v. INTERNATIONAL, INC.'S EX PARTE MOTION FOR EXPEDITED HEARING ON COMPUTER SCIENCES CORPORATION, CLAIMS FOR DECLARATORY RELIEF. Defendant. NO HEARING DATE SET [APPLICATION FOR ADMISSION PRO HAC VICE ON FILE] Pursuant to this Court's February 18, 1998 Order, Defendant Computer Sciences Corporation, a Nevada Corporation ("CSC"), hereby files its response to Plaintiff Computer Associates International, Inc.'s ("CAI") Ex Parte Motion for Expedited Hearing On Claims For Declaratory Relief. 2 TABLE OF CONTENTS
Page ---- I. INTRODUCTION................................................................................... 1 II. CAI'S ACTIONS POSE A THREAT TO CSC'S BUSINESS, RENDERING EXPEDITED CONSIDERATION APPROPRIATE............................................................ 1 III. EXPEDITIOUS TREATMENT IS APPROPRIATE FOR CSC'S CLAIMS THAT ARE NOT MOOT.............................................................................. 5 A. Prompt Consideration Of CAI's Section 14 Declaratory Relief Action Is Appropriate............................................................................ 5 B. CSC's Proposed Schedule For Expedited Consideration....................................... 7 1. The Current State Of The Pleadings................................................... 7 2. Discovery On The SEC Filings Claims.................................................. 7 3. A Proposed Briefing Schedule for CAI's Motion On The SEC Filings Claim........................................................................ 8 IV. THE FEBRUARY 18,1998, CSC BOARD MEETING RENDERED MOOT ALL CLAIMS IN THE COMPLAINT OTHER THAN THE SEC FILING CLAIMS......................................................................................... 9 A. CSC's Board Acted Properly In Amending Its Bylaws......................................... 9 B. CSC Has Amended Its Bylaws Relating To Action By Written Consent.......................... 11 C. CSC Has Amended Its Bylaws Relating To Removal Of Directors............................... 12 D. CSC's Bylaws Concerning The Selection Of Replacement Directors............................ 13 E. Calling Of Special Meeting Under N.R.S. Section 78.3789................................... 13 F. Annual Meeting Date....................................................................... 14 V. CAI'S POSITIONS REGARDING CORPORATE GOVERNANCE HAVE NO MERIT EVEN UNDER THE PRIOR BYLAWS.............................................................. 14 A. Nevada Law And CSC's Bylaws Should Be Interpreted Consistent With The Nevada Legislature's Desire To Prohibit Hurried Strong-Arm Transactions That Only Benefit The Corporate Raider....................................... 15 B. Nevada's Director Removal Statute Applies to CAI's Attempt to Unseat CSC Directors............................................................................. 16 C. Vacancies On The Board Of Directors May Not Be Filled By The Written Consent Of The Stockholders............................................................... 17 D. CSC Has The Authority To Select The Record Date For CAI's Solicitations............................................................................. 18
i 3
Page ---- E. CSC's Prior Bylaws Required Written Consent Of Three Fourths Of Issued And Outstanding Shares To Amend The Bylaws......................................... 18 F. The CSC Board Has The Right To Determine The Date Of The Annual Meeting 19 VI. CONCLUSION................................................................. 21 VI. CONCLUSION.................................................................................... 21
ii 4 TABLE OF AUTHORITIES --------------------
Page(s) CASES ------- Abella v. Universal Leaf Tobacco Co., 546 F. Supp. 795 (E.D. Va. 1982)..............................................................6 Gilbert v. El Paso. Co., 575 A.2d 1131 (Del. 1990)....................................................................11 Hilton Hotels Corp. v. ITT Corp., 962 F. Supp. 1309 (D. Nev. 1997), aff'd, 116 F.3d 1485 (9th Cir. 1997)....................10,20 Hilton Hotels Corp. v. ITT Corp., 978 F. Supp. 1342 (D. Nev. 1997)..............................................................9 Paramount Communications, Inc. v. Time Inc., 571 A.2d 1140 (Del. 1989)....................................................................10 Piper v. Chris-Craft Indus. Inc., 430 U.S. 1 (I 977))..........................................................................6 Polaroid Corp. v. Disney, 862 F.2d 987 (3d Cir. 1988);..................................................................6 Presbytery of New Jersey of Orthodox Presbyterian Church v. Florio, 40 F. 3d 1454 (3d Cir. 1994)..................................................................8 Ronson Corp. v. Liquifin Aktiengesellschaft, Liquigas, S.p.A. 497 F.2d 394 (3d Cir. 1974), cert. denied, 419 U.S. 870(1974).................................6 Skydell v. AresSerono S.A., 892 F. Supp. 498 (S.D.N.Y. 1995)..............................................................6 Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985)......................................................................9 Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995).................................................................10,11 STATUTES 15 U.S.C. Section 78n (West 1997)................................................................5 Nev. Rev. Stat. Section 78.120..................................................................18 Nev. Rev. Stat.Section 78.138....................................................................9 Nev. Rev. Stat. Section 78.330(l)............................................................19,20 Nev. Rev. Stat. Section 78.335(l)...............................................................16 Nev. Rev. Stat. Section 78.335(l)(a)............................................................16
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Page(s) ------- Nev. Rev. Stat. Sections 78.411-78.444..........................................................15 MISCELLANEOUS Information Week U.K. 2..........................................................................4 Investor's Business Daily, 5.....................................................................4 Keith P. Bishop, Nevada Corporation Law & Practice 119 (1994 Supp.).............................17 Legislative History of 91-4 A.B. 655 of the 66th Session of the Nevada Legislature p. 75 (attaching Minutes of the Nevada State Legislature, Joint Senate and Assembly Committees on Judiciary p. 2 (testimony of Attorney General Frankie Sue Del Papa))...........................................................14,15 Los Angles Times, 9..............................................................................4 New York Times, 2................................................................................4 The Washington Post, 5...........................................................................4 William Strunk Jr. & E.B. White, The Elements of Style 2 (3rd. ed. 1979).....................19,20
iv 6 I. INTRODUCTION. Evidencing a quickly emerging pattern of premature confrontation, CAI has come to this Court claiming that it needs expedited treatment of its claims as stated in its Complaint For injunctive Relief ("Complaint") -- treatment to which CAI asserts CSC would not agree. 1 CAI is wrong regarding CSC's position. CSC agrees that expeditious treatment of this matter is both appropriate and necessary. Events subsequent to the filing of the Complaint, however, have changed the landscape and narrowed the issues before this Court. Nevertheless, CSC welcomes an expedited and complete airing of the remaining allegations of the Complaint and proposes a schedule herein that will achieve just that. In Section II of this Response, CSC explains the circumstances which make expedited treatment for the remaining allegations in the Complaint appropriate. Section III of this Response describes CSC's proposal for expedited treatment. Section IV explains how many of the allegations of the Complaint are now moot due to subsequent events. Finally, Section V briefly discusses the allegations of the Complaint as filed and the lack of merit to them. II. CAI'S ACTIONS POSE A THREAT TO CSC'S BUSINESS, RENDERING EXPEDITED CONSIDERATION APPROPRIATE. CSC is a service-based company. Its 44,000 employees and 600 offices world-wide offer a wide range of professional services including management consulting, information systems - ---------- 1 This Court's Local Rule 7-5 requires any party seeking ex parte relief to attempt to seek a stipulation from opposing parties with respect to the matter sought. See United States District Court for the District of Nevada Local Rule 7-5. This was not necessary, according to CAI, because "Computer Associates has no reason to believe that Computer Sciences Corporation would agree to an early hearing on claims which, if resolved in Computer Associates favor, would facilitate the acquisition Computer Sciences has rejected." Ex Parte Motion l.n.l. Even this statement misrepresents the status of affairs as it existed at the time of the filing of the Ex Parte Motion. CSC had not considered CAI's take over offer and, thus, had not "rejected" it at the time of the filing. Subsequent to the filing, CSC's Board of Directors did meet and consider the offer. As a result of that meeting, on February 19, 1998, CSC's Chief Executive Officer Van B. Honeycutt sent a letter to Charles Wang rejecting CAI's acquisition offer. 1 7 consulting, development, and integration, outsourcing, and operations support. Given the core nature of CSC's services to its clients, CSC has made client security and satisfaction its paramount concern. CAI has carried on a confrontational campaign designed to force CSC's Board into a rash and ill-advised decision regarding the sale of CSC and to lure investors on Wall Street into believing that CSC was "in play." This campaign began when CAI Chairman Charles Wang and CAI President and Chief Operating Officer Sanjay Kumar making an unsolicited contact with CSC Chief Executive Officer Van B. Honeycutt on December 18, 1997. At the meeting, Wang began by stating, "Wouldn't it be great to be partners." Honeycutt, who had no idea what he was talking about, indicated that his company already had a license relationship whereby CSC had the ability to use CAI's software with many of its clients. Wang then explained that he envisioned a different partnership through a combination in which CAI purchased CSC. He stated that such a transaction would be a good strategy for CAI. Honeycutt responded that he could see no advantage for CSC in such a relationship, an issue which Wang had neglected to address. Honeycutt stressed that CSC was not up for sale, and that he could not support any transaction based on the assertions Wang made. At no time before that meeting, at the meeting, or since has Mr. Honeycutt indicated that he considered CSC "for sale" or "in play." Nonetheless, Wang proceeded to make an offer to buy CSC at an unfair and disadvantageous price, in a transaction which would be detrimental to the interests of CSC and its customers, employees, and stockholders. Wang punctuated his offer with the suggestion that, absent a merger, CAI would directly compete with CSC by buying several small companies in CSC's business. Subsequently, Mr. Kumar made a number of other unsolicited phone calls to Mr. Honeycutt, urging that the parties convene a meeting of financial advisors. Each time Mr. Honeycutt refused. A second brief meeting was held on February 5, which Honeycutt attended based on the promise that Defendants were going to reveal their business plan for a combined entity, and therefore explain how the transaction benefited CSC. Defendants did not keep this promise. At that meeting, however, neither Mr. Wang nor Mr. Kumar said anything about a business plan. Instead, Defendants threatened to directly and wrongfully harm CSC if it refused to 2 8 agree to a transaction on CAI's terms. Mr. Honeycutt set forth a series of reasons why the transaction was unattractive to CSC, many of which were later contained in his February 18th letter rejecting the offer. Mr. Wang continued to make statements that CAI would soon compete with CSC or that he would take his offer to the CSC shareholders with or without the CSC Board's endorsement and reiterated that CSC would be severely damaged if CSC did not accede to CAI's demands. Subsequent to the meeting, inexplicably, Mr. Kumar sent a letter announcing that a deal had been reached with respect to everything but price. Mr. Honeycutt was flabbergasted. He spoke with Mr. Kumar and asked him why he sent the letter. Mr. Honeycutt stressed again in no uncertain terms that no deal had been reached, that there were no agreements between the parties on anything, and that the letter did not attempt to summarize any meeting which Mr. Honeycutt attended. Mr. Honeycutt stated that he would respond to Mr. Kumar's letter with a letter. Shortly thereafter, on February 10, 1998, CSC received a widely publicized "bear hug" letter, restating many of the misrepresentations in Mr. Kumar's February 6, 1998 letter. In this letter (attached to the Declaration of Terry Care ("Care Dec.") at Ex. A), Mr. Wang offered a transaction at $108 a share. Mr. Honeycutt immediately notified the CSC Board of Directors and the Board scheduled a meeting for Wednesday, February 18, 1998 to consider the proposal. CAI was notified of this schedule. Before CSC could consider or respond to Mr. Wang's proposal and without any other contact between Mr. Honeycutt and CAI, CAI commenced a hostile tender offer, filed preliminary proxy materials and commenced this action seeking expedited adjudication of various issues of corporate and securities law. Throughout this hurried course of events, CAI has engaged in conduct that nowhere resembles the "reasonable" and "friendly" characterization in the Complaint. This campaign has included making offers to CSC management and not waiting for responses, assuming reactions from CSC before it has even had time to consider the proposals made, making material misrepresentations and omissions in filings with the United States Securities and Exchange Commission, making false statements in the press regarding contacts between CAI and CSC, contacting CSC employees and "welcoming" them to CAI as if the deal had been consummated, 3 9 communicating directly with CSC's customers regarding the future result of the transaction, and engaging in other potentially unlawful and unseemly activities. Most importantly, for purposes of expedition, this conduct has resulted in uncertainty in CSC's customer and employee base regarding CSC's future and the continued performance by CSC of its services. CA, a software supplier, has achieved a well-deserved reputation in industry as being tough on employees and customers alike.(2) This type of customer relationship is unacceptable in the highly service-based segment in which CSC operates. Thus, CSC's customer base has expressed significant concern over the take-over prospects with some customers going so far as to declare themselves to the press as being "CA free." With uncertainty growing with each day as to CSC's future and the misrepresentations and material omissions piling up in the media, CSC too wants to clear the air in order to assure its valued customers and employees that CSC is committed to continuing the tradition of unparalleled service in the systems administration market. In order to quell fears among its customers and employees and in accord with established corporate principles, at its February 18, 1998 board meeting, the CSC Board took certain measures to protect CSC, its shareholders, its customers and its employees and permit the time necessary to maximize value for the shareholders of CSC.(3) The Nevada Revised Statutes expressly provide, "The selection of a period for the achievement of corporate goals is the responsibility of the - ---------- 2 CAI's negative reputation for customer service is well known and well publicized in the national press. "I've never seen one vendor with so many dissatisfied customers as CA seems to have" (Investor's Business Daily, 5/26/95); "I think CA's lack of finesse has cost them in the customer relations arena" (Los Angeles Times, 9/13/93); "By the early 1990's, Computer Associates had become known for its ravenous appetite ..., for jacking up maintenance costs ... and for pushing its many licensing contracts at the expense of good customer relations. It was not uncommon for the company to sue a client over relatively minor infractions" (New York Times, 2/4/97); "Some customers ... maintain a strict 'no CA' policy.... Many also claim that after CA acquires a company and lays off scores of people, customer service falls off" (Fortune, 7/21/97); "In a ... survey of 50 major CA customers ... 75 percent rated its service as below average" (The Washington Post, 5/10/92). "Computer Associates should be feeling uncomfortable because it has been treating a lot of customers like dirt - particularly those it has gained through acquisition. (InformationWeek U.K. 2/20/98). CAI's terrible reputation is in sharp contrast to that of CSC: "In contrast, CSC is a customer advocate. As a services company, it has to treat customers with kid gloves to get repeat business" (Bloomberg, 2/12/98). 3 The CSC Board also met briefly on February 16, 1998 to opt out of the Nevada Control Shares provision. 4 10 directors." Nev. Rev. Statutes Section 78.120(3). The CSC Board also considered CAI's offer and rejected it as an "ill-considered and unwelcome attempt to force an acquisition threatening damages to the value" of CSC. Id. Exh B (attaching letter from CSC CEO Van B. Honeycutt to Charles Wang, CAI CEO, rejecting offer). As Mr. Honeycutt explained, the CAI offer did not represent fair value for CSC in light of CSC's potential for growth in revenues and earnings per share and the combination simply "does not make sense" considering, among other reasons, the demand of the customer base to retain platform neutrality -- a facet that would be lacking once a software vendor teamed with a systems administrator. Id. As shown below, the bylaws adopted and other acts taken retain the shareholders enfranchisement but give a breathing space to allow CSC's Board the opportunity to review its options and conduct CSC's operations in a manner that maximizes shareholder value and serves all other interests cognizable under Nevada law. One effect of these changes is to moot much of the Complaint. See infra Section IV. Thus, as shown below, the only issue remaining in the Complaint to be considered on an "expedited" basis is that relating to the prayer that CAI's SEC filings be deemed in conformance with law. CSC agrees that this is an important issue -- one that must be resolved in a timely and complete fashion. IV. EXPEDITIOUS TREATMENT IS APPROPRIATE FOR CS'S CLAIMS THAT ARE NOT MOOT A. PROMPT CONSIDERATION OF CAI'S SECTION 14 DECLARATORY RELIEF ACTION IS APPROPRIATE. In light of CAI's mootness problem discussed in Section IV, infra, all that remains is its request that this Court declare that CAI's "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. "Complaint 1 43. Nothing that the CSC Board at its February 18, 1998 meeting affected this request and CSC concurs that in order to resolve this action, prompt attention should be given to this claim. CAI has asked this Court to deem its disclosure full and truthful in all material respects and has sued CSC to require it to participate in the process. Evaluation of CAI's 14D-1 filing requires 5 11 that CSC be given the opportunity to conduct discovery. Section 14 prohibits "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 not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation." 15 U.S.C. Section 78n (West 1997). Courts routinely recognize that a Section 14 analysis of a proxy statement or tender offer requires a searching review of the documents, the statement and assertions made therein, its factual underpinnings, the assumptions made in the SEC filings and the conclusions drawn. See, e.g., Ronson Corp. v. Liquifin Aktiengesellschaft, Liquigas, S.p.A, 497 F.2d 394 (3d Cir. 1974), cert. denied, 419 U.S. 870 (1974). This requirement is not surprising given that the purpose of Section 14 is to compel disclosure of information pertaining to tender offers and proxy solicitations to public shareholders of target companies allowing them to make an informed decision. See, e.g., Piper v. Chris-Craft Indus. Inc., 430 U.S. 1 (1977) ("The purpose of the Williams Act is to insure that public shareholders who are confronted by a cash tender offer for their stock will not be required to respond without adequate information . . . " (quoting Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58 (1975)); Skydell v. AresSerono S.A., 892 F. Supp. 498 (S.D.N.Y. 1995); see also Polaroid Corp. v. Disney, 862 F.2d 987 (3d Cir. 1988) ("The theory of the [Williams] Act is that shareholders are unable to protect their interests fully in making ... decisions if the tender offerer fails to provide all material information regarding the offer."); Abella v. Universal Leaf Tobacco Co., 546 F. Supp. 795 (E.D. Va. 1982) (purpose of Section 14 is to ensure full disclosure). CAI has asked this Court to deem its disclosures full and truthful in material respects. In an effort to assist this Court in making that determination, CSC proposes an expedited discovery schedule to assess just that issue. Only once this discovery has occurred can meaningful consideration begin as to whether CAI discharged its Section 14 responsibilities. 6 12 B. CSC's PROPOSED SCHEDULE FOR EXPEDITED CONSIDERATION. Expeditious handling of this case requires that a pleading schedule be established to correct the current state of the pleadings, that a discovery schedule be implemented, and that a briefing schedule on CAI's request for declaratory relief regarding its SEC filings be set. 1. THE CURRENT STATE OF THE PLEADINGS. Most of the claims asserted in the present complaint are moot based on the events of this past week. See infra. The only claim that has not been mooted is CAI's request that its submissions to the Securities and Exchange Commissions be declared lawful ("the SEC Filings Claim"). Accordingly, CAI should be required to file an amended complaint if it desires to assert any claims other than the SEC Filings Claim by not later than February 26, 1998. 2. DISCOVERY On THE SEC FILINGS CLAIMS. Today, CSC has served its first round of discovery on CAI and third parties relating to the SEC Filings Claim. A copy of that discovery is appended hereto for the Court's reference as Exhibit C to the Care Declaration. That discovery establishes the following broad schedule: o CAI will produce responsive documents by not later than March 6, 1998. Because the date is shorter than the 30 days contemplated by Rule 34 of the Federal Rules of Civil Procedure, CSC requests that the Court exercise discretion under Rule 34 and reduce the time required for CAI's response to permit the expedited handling of this matter. The production of documents prior to taking depositions will make the depositions more efficient, and will obviate the need to reconvene depositions after the documents have been produced. o Custodians of record for third parties will produce responsive documents on March 9 or during that week. o Depositions of four of CAI's officers and inside directors will take place during the weeks of March 16 and 23. Because Rule 30 of the Federal Rules of Civil Procedure imposes a 10 witness limit on the number of depositions that can be taken and CSC has noticed the depositions of 15 percipient witnesses and seven custodians of record, CSC requests leave of Court to take the indicated depositions. 7 13 o Depositions of CAI's four outside directors will commence on March 27 and be completed during the week of March 30. o Nothing is scheduled during the period from April 2 through April 10 due to the Holy Week, Easter and Passover observances. o The depositions of two of CAI's advisors and of its five financiers will take place during the weeks of April 13 and April 20. Under this schedule, CSC contemplates that it will be finished with its discovery on the SEC Filings Claim by April 23. More time may be needed to conduct additional discovery dependent upon any amended claims asserted by CAI 3. A PROPOSED BRIEFING SCHEDULE FOR CAI's MOTION On THE SEC FILINGS CLAIM. CAI's motion is devoid of any evidentiary support for its demand that this Court find its SEC filings to be adequate. CSC assumes that CAI plans to file support for its request for a declaration on the SEC Filings Claim. CSC proposes that the following schedule be adopted: o CAI will file and serve by either personal service or by fax its papers in support of its motion on or before May 4, 1998. o CSC will file and serve by either personal service or by fax its opposition to the motion on or before May 25, 1998. o CAI will file and serve by either personal service or by fax its reply in support of the amended motion on or before June 8, 1998. o A hearing will be conducted on CAI's motion on or after June 15, 1998, dependent on this Court's schedule. CSC will propose a briefing schedule on any motion for any other claim asserted by CAI in an amended complaint at such time as CSC has had an opportunity to review that amended complaint.(4) - ---------- (4) CSC has filed concurrently herewith a Proposed Order setting forth these dates. 8 14 IV. THE FEBRUARY 18,1998, CSC BOARD MEETING RENDERED MOOT ALL CLAIMS IN THE COMPLAINT OTHER THAN THE SEC FILING CLAIMS. Declaratory relief is inappropriate where subsequent events have materially changed the underlying basis. See, e.g., Presbytery of New Jersey of Orthodox Presbyterian Church v. Florio, 40 F.3d 1454, 1463 (3d Cir. 1994). This flows from the prohibition that federal courts should not render advisory opinions. Id. The Complaint seeks either declaratory or injunctive relief under a number of CSC bylaw provisions in effect at the time Mr. Wang first contacted Mr. Honeycutt. These provisions are no longer in force thus rendering the alleged factual predicate to much of the Complaint void. A. CSC'S BOARD ACTED PROPERLY IN AMENDING ITS BYLAWS. In Nevada, as elsewhere, it is a well-settled principle that the business and affairs of a corporation are managed by its board of directors. Each member of that board, in carrying out his or her managerial role, is "charged with an unyielding fiduciary duty to the corporation and its shareholders." Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985).(5) In acting in this fiduciary capacity, a director is legally obligated to proceed with a "critical eye" in assessing information presented to him or her, in order to exercise an "informed business judgment" relating to decisions affecting the future of a corporation or its shareholders. Id. In the specific context of a takeover proposal, paramount among a director's fiduciary duties is the careful and considered evaluation of the takeover proposal. Legislatures and courts have each created an affirmative duty on a director "to act in an informed and deliberate manner in determining whether to approve an agreement of merger before submitting the proposal to the stockholders." Id. at 873. Contrary to CAI's suggestion, the directors are not simply a conduit through which a shareholder meeting is called for each and every takeover proposal. Indeed, a - ---------- (5) This Court has stated that "[w]here, as here, there is no Nevada statutory or case law on point for an issue of corporate law, this Court finds persuasive authority in Delaware case law. " Hilton Hotels Corp. v. ITT Corp., 978 F. Supp. 1342, 1346 (D. Nev. 1997) 9 15 director violates this fiduciary duty by leaving to the shareholders alone the decision to approve or disapprove such a proposal. Id. Under Nevada law, the director's decision involves consideration of "[t]he interests of the corporation's employees, suppliers, creditors and customers," and "[t]he long-term as well as short-term interests of the corporation and its stockholders, including the possibility that these interests may be best served by the continued independence of the corporation." Nev. Rev. Stat. Section 78.138 (emphasis added). While clearly ignored by CAI, the CSC Board also has the ability to declare itself not for sale -- a refusal to entertain offers may comport with a valid exercise of business judgment. There is simply no duty imposed on a board of directors to negotiate with third parties, or sell a corporation whenever a premium price is offered, as long as the directors make a good faith, informed decision that it would be in the corporation's best interest to reject the offer. See Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995) (noting recognition of the "prerogative of a board of directors to resist a third party's unsolicited acquisition proposal offer."); Paramount Communications, Inc. v. Time Inc., 571 A. 2d 1140, 1154 (Del. 1989) ("Directors are not obligated to abandon a deliberately conceived corporate plan for short-term shareholder profit unless there is clearly no basis to sustain the corporate strategy."). Meeting just eight days after receipt of the "bear hug" letter, and mere hours after CAI launched its full out assault on CSC and its shareholders, the CSC Board adopted measures designed to give it time to consider the offer, and make a proper, well-informed recommendation to its shareholders.(6) The CSC Board affected this result through revising some of its bylaws ("Revised Bylaws"). In doing so, the CSC Board embarked on a course that will maximize CSC shareholder value and, ultimately, permit the shareholders to reasonably consider all options before deciding on a resolution. In the takeover context, the question of who decides when and how an offer is taken to the shareholders is often crucial and disputed. The raider, fearful of other bidders or the ability of the target to gather itself and demonstrate its true and superior value as a stand- - ---------- (6) None of these measures "entrenched" the CSC Board as each board member will stand for election at the next CSC shareholder meeting. 10 16 alone entity, wishes to force the issue quickly on the target's shareholders, often proclaiming "sell now or lose your chance." The false sense of urgency is designed to force the shareholders into an ill-informed decision. As most raiders do, CAI advances the proposition that it may decide when and how the CSC shareholders will consider its offer and argues for a quick resolution with a low threshold necessary to remove impediments. Nevada law, as previously interpreted by this Court, however, clearly vests the decision as to timing and the manner of consideration in the CSC Board. See Hilton, 962 F. Supp. at 1311. This flows from the duty of the CSC Board both to consider the offer in a meaningful fashion as well as the duty to maximize shareholder value. These tasks cannot be performed without a thorough evaluative process, as CAI well knows, and the law does not permit the raider to force a hurried schedule which fits the raider's agenda. The amendment of bylaws in this type of context has long been recognized as a proper exercise of fiduciary duty by a board of directors, as long as such measures are neither preclusive nor coercive. See Unitrin, 651 A.2d at 1388 n.38 ("[D]epending upon the circumstances, the board may respond to a reasonably perceived threat by adopting individually or sometimes in combination: advance notice by-laws, supermajority voting provisions, shareholder rights plans, repurchase programs, etc."). Indeed, given the duties of care and loyalty, which clearly prevent the CSC board "from being a passive instrumentality in the face of a perceived threat to corporate control," see Gilbert v. El Paso. Co., 575 A.2d 1131 (Del. 1990), CSC's revision of some of its bylaws, in order to make a proper well-informed consideration of CAI's offer was a prudent reaction to CAI's threats. B. CSC HAS AMENDED ITS BYLAWS RELATING TO ACTION BY WRITTEN CONSENT. CAI's complaint seeks this Court's declaration that, pursuant to CSC's Bylaws, holders of a majority of CSC's shares can amend CSC's Bylaws by their written consent. Complaint paragraph 34. The Bylaws upon which CAI rely, Article VIII, Section 1 and Article II, Section 10, were amended by the CSC Board. Article VIII, Section 1 of the Bylaws now provides that: Bylaws may be adopted, amended or repealed by the affirmative vote of more than eighty percent (80%) of the outstanding voting shares of this corporation. 11 17 Revised Bylaws, Article VIII, Section 1 . The Revised Bylaw is clear that an eighty percent (80%) vote of stockholders is required to amend the Bylaws. Article II, Section 10 of the Bylaws was amended to read as follows: 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 ninety percent (90%) of the voting power. Revised Bylaws, Article II, Section 10. Thus holders of eighty percent (80%) of the outstanding stock may amend the Bylaws by a vote at a stockholders' meeting and holders of ninety percent (90%) of the stock may amend the Bylaws by written consent. Although section 78.320(2) of the Nevada Revised Statutes is clear that the Bylaws may entirely eliminate the ability of stockholders to act by written consent, the Bylaw amendment tightened, but did not eliminate the possibility of action by written consent of the stockholders. Section 78.320(l) is equally plain that the Bylaws may require a higher proportion than a simple majority for stockholder action by vote. CSC's amendment of Article VIII, Section 1 and Article II, Section 10 of its Bylaws are consistent with these powers. Accordingly, CAI's request on this subject is now moot. C. CSC HAS AMENDED ITS BYLAWS RELATING TO REMOVAL OF DIRECTORS. CAI asks this Court to declare "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." To the extent CA's argument is based on the language of the statute, it is simply wrong. Section 78.335(l) of the Nevada Revised Statutes could not be clearer. See infra Section V(B). In order to clarify application of the statue, the CSC Board amended Article III, Section 2 of the Bylaws to eliminate the recitation of the statute's two-thirds requirement for removing directors, which is applicable only to corporations that do not provide for cumulative voting in the election of directors. The Revised Bylaw is consistent with the statutory requirement for the removal of directors in a company with cumulative voting. 12 18 Accordingly, the Revised Bylaws now simply reinforce and restate the statutory requirement that a director elected through cumulative voting may only be removed by votes sufficient to have prevented his or her election in the first place -- here ninety percent of the outstanding shares (90%) plus one. D. CSC's BYLAWS CONCERNING THE SELECTION OF REPLACEMENT DIRECTORS. CAI seeks to be able to fill any CSC Board vacancies it creates (either through removal or expanding the CSC Board from nine to fifteen) with its nominees by written consent, without having to undergo the "inconvenience" of the democratic process. As noted previously, Section 78.320(2) of the Nevada Revised Statutes provides that the bylaws of a corporation may modify, or even eliminate the ability of stockholders to take action by written consent without a meeting. Also as noted above, the CSC Board amended Article II, Section 10 to provide that a ninety percent (90%) standard shall apply to action by written consent, instead of the seventy-five percent (75%) standard in the pre-amendment Bylaws. Both before and after such amendment, however, Article II, Section 10 prohibited the election of directors by written consent. CAI argues that a lower standard is required to elect directors by written consent than applies to any other action of stockholders by written consent. This argument is discussed infra Section V(E). The Revised Bylaws clearly recognize that it is in the interest of CSC and its stockholders that the directors are to be selected in an open forum, and not by a corporate raider secretly collecting written consents of a bare majority of the stock. The language of the old and Revised Bylaw could not be clearer. E. CALLING OF SPECIAL MEETING UNDER N.R.S. SECTION 78.3789. CAI argues that under section 78.3789 of the Nevada Revised Statutes, it has the power to call a special meeting of the stockholders of CSC. CSC's Board, however, has amended the Bylaws to "opt out" of the provisions of the "Acquisition of Controlling Interest" provisions of the Nevada General Corporation Law (including section 78.3789) as is permitted under Nevada law. Accordingly, CAI is without power to seek a special meeting under a statutory provision that no longer applies to CSC. 13 19 F. ANNUAL MEETING DATE. CAI also asks this Court to declare that "under its Bylaws, the CSC annual meeting must occur on August 10, 1998." CSC's last annual meeting was held in August 1997, just 7 months ago. While the bylaws in effect at the commencement of CAI's efforts committed the date of the annual meeting to the sound discretion of the CSC Board, the bylaws also included a "default" date in August of 1998, absent exercise of that discretion. The CSC Board amended Article II, Section 2 of the Bylaws on February 18, 1998 to remove the default date and unambiguously state that "Annual meetings of the stockholders shall be held at such time and date as the Board of Directors shall determine." Revised Bylaw Art. II, Section 2. Accordingly, the Bylaws contain no language tying the date of the annual meeting to any particular date. The power to set the date of an annual meeting is committed to the sound discretion of the Board. Section 78.330(l) of the Nevada Revised Statutes explicitly states that "Unless otherwise provided in the bylaws, the Board of Directors have the authority to set the date, time and place for the annual meeting of stockholders. V. CAI'S POSITIONS REGARDING CORPORATE GOVERNANCE HAVE NO MERIT EVEN UNDER THE PRIOR BYLAWS. CSC expects that CAI may challenge the February 18, 1998 action taken by the CSC Board (if it has not done so already) through the filing of an amended complaint seeking to overturn the measures adopted.(7) Even if CAI were able to reverse the Revised Bylaws (there is no basis for that result), CAI's tortured construction of CSC's former bylaws and Nevada corporate law cannot stand. - ---------- (7) Procedures for dealing with such an amended complaint are considered infra, Section IV. While CSC would not object, in principle, to advancing discovery on any amended complaint, it is simply premature to consider whether a hypothetical future amended complaint is deserving of such treatment. If and when such an amended complaint is filed, CSC will consider stipulating to expedited treatment in accord with local rules or, if appropriate, oppose such a request if not warranted. 14 20 A. NEVADA LAW AND CSC'S BYLAWS SHOULD BE INTERPRETED CONSISTENT WITH THE NEVADA LEGISLATURE'S DESIRE TO PROHIBIT HURRIED STRONG-ARM TRANSACTIONS THAT ONLY BENEFIT THE CORPORATE RAIDER. A single purpose lies at the core of each CAI request: to force a quick and uninformed vote by the CSC shareholders on CAI's proposal. Before proceeding with an analysis of the mechanics by which CAI seeks to accomplish this goal, the aims of Nevada law should first be considered to inform any decision that the Court reaches regarding the effect of Nevada law or the bylaws that it governs. In late 1989, the Nevada Secretary of State decided to take a hard look at Nevada corporate law and to revise it "in order to remain in the forefront of corporation activity throughout the country." Legislative History of 91-4 A.B. 655 of the 66th Session of the Nevada Legislature p. 75 (attaching Minutes of the Nevada State Legislature, Joint Senate and Assembly Committees on Judiciary p.2 (testimony of Attorney General Frankie Sue Del Papa)). To that end, Nevada employed the law firm of Vargas and Bartlett, under the guidance of corporate lawyer John Fowler, to study the then existing Nevada corporate law, evaluate it in many respects and then propose changes along with explanations of those changes. Id. As a result of this review, Vargas and Bartlett proposed adoption of the Nevada Business Combinations statute, Nev. Rev. Stat. Sections 78.411-78.444. The purpose of this statute was "to encourage those wishing to acquire corporations to negotiate with the board of directors of the corporation before attempting to do so" and to allow the directors "to consider the interests of employees, suppliers and their communities as well as the long-range prospects of the company when making corporate decisions." Testimony of John P. Fowler May 7, 1991, p.4-5. Thus, "[g]iven time permitted by the more measured approach required by the 'business combination' statute, the board of directors can then make calm and deliberate long-range decisions which Nevada corporations, and our economy as a whole, 15 21 most emphatically need." Id. (emphasis added).(8) With these comments in mind, the Nevada legislature proceeded to adopt the Nevada Business Combinations statute. While a more exhaustive discussion of the reasons that underlie the Nevada Corporate law will await another day, it is worth noting that CAI's lawsuit seeks to accomplish exactly what the Nevada legislature sought to avoid: a quick and ill considered rush to the shareholders with a hostile tender offer. B. NEVADA'S DIRECTOR REMOVAL STATUTE APPLIES TO CAI'S ATTEMPT TO UNSEAT CSC DIRECTORS. CAI states that it intends to remove the entire Board of Directors of CSC. CAI Brief at 12. Under Nevada General Corporation Law section 78.335(l), "[a]ny director may be removed from office by the vote of the stockholders representing two-thirds of the outstanding voting power." Nev. Rev. Stat. Section 78.335(l). However, there is an exception to the foregoing rule that exists for corporations which have cumulative voting -- such as CSC.(9) In such cases, no director may be removed "except upon the vote of stockholders owning sufficient shares to have prevented his election to office in the first instance." 10 Nev. Rev. Stat. Section 78.335(l)(a). The effect of this provision is to require ninety percent (90%) of the shareholders votes plus one to remove a director.(11) - ---------- (8) Indeed, the intent of Nevada law was put into focus by opponents of the statute ultimately adopted. In opposition to the Vargas and Bartlett authored revisions, Mark Goldstein wrote to the Nevada Legislature arguing that statutes that slow down the merger process "cause investors to shun stock. A stock purchaser may buy shares expecting to profit from the sale of the company. The company will not be sold and the stock purchaser will lose money. The purchaser will not buy shares in state with laws that discourage these types of profits. Legislative History of 91-4 A.B. 655 of the 66th Session of the Nevada Legislature p. 102. Notwithstanding Mr. Goldstein's admonition that the new law would "slow down" the merger process and deter buyers looking for a quick profit in Nevada companies, the Nevada legislature adopted the statute. (9) CSC's Articles of Incorporation provide for cumulative voting. CSC Articles, Article Fourth, "Cumulative Voting." (10) This provision is included almost verbatim in CSC's Bylaws. CSC Bylaws Art. III, Section 2. (11) The process of cumulative voting allows a shareholder to "accumulate" the number of votes he or she would be permitted to cast in favor of or against all directors, and instead vote them for or against a single director or in any manner he or she wishes. For example, [Footnote continued on next page] 16 22 CAI's proposal to remove directors from CSC's board must satisfy the cumulative-voting removal provision set forth in section 78.335(l)(a). The two-thirds voting standard for companies without cumulative voting set forth in section 78.335(l) does not apply. Undaunted by the plain language of the statute, CAI suggests that this provision should not be applied and asks this Court to judicially amend the director removal statute. This Court should decline CAI's invitation to substitute CAI's version of corporate wisdom for that of the Nevada Legislature. C VACANCIES ON THE BOARD OF DIRECTORS MAY NOT BE FILLED BY THE WRITTEN CONSENT OF THE STOCKHOLDERS. CAI requests a declaration that a majority of CSC's stockholders may fill vacancies on the CSC Board and that they may do so pursuant to an action by written consent. While it is true that CSC's stockholders have the authority, which they share with the remaining Board members, to fill Board vacancies resulting from removals, CAI's argument that the stockholders may fill such vacancies by written consent is clearly contradicted by the plain language of CSC's Bylaws. CAI's argument that stockholders may fill Board vacancies by written consent is based on its interpretation of Article II, Section 10 of CSC's Bylaws. Prior to its amendment, Article II, Section 10 provided that "[a]ny 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" (emphasis added). CAI strains to interpret this provision to mean that CSC's stockholders may take any action by written consent if at least 75% of the voting shares are obtained, except that to elect directors the written consent of only 50% of the voting shares is required. This interpretation of Article II, Section 10 ignores the plain meaning of the provision, which clearly carves out the election of directors from stockholder actions that can be taken by written consent. - ---------- [Footnote continued from previous page] under cumulative voting, a holder of one share of CSC stock in an election of nine directors could either (i) cast all nine votes for or against any one director; (ii) cast one vote for or against each of the nine directors; or (iii) split the nine votes among various directors in any way he or she chooses. 17 23 D. CSC HAS THE AUTHORITY TO SELECT THE RECORD DATE FOR CAI'S SOLICITATIONS. Prior to 1991, section 78.350(3) of the Nevada Revised Statutes granted statutory authority to a board to set the record date for solicitation of written consents. CAI claims that the Nevada legislature's repeal of subsection 3 of Section 78.350 "specifically removed [CSC's] power to set record dates for solicitations of written consents and agent designations." CAI Brief at 25. The absence of a specific statutory grant of authority, however, does not limit CSC's power to set record dates for solicitations. A respected treatise on Nevada corporation law specifically refers to section 78.350(3) and concludes that "In the absence of these statutory rules, the bylaws should make provision for the fixing of record dates. There appears no reason why the bylaws could not include substantially similar rules to the former statutory provisions." Keith P. Bishop, Nevada Corporation Law & Practice 119 (1994 Supp.). Thus, consistent with previous section 78.350(3), Article 5, Section 5(b)-(c) of CSC's bylaws validly empowers the board to set the record date for written consents and agent designations. See also Nev. Rev. Stat. Section 78.120 (stating that statutory provision act as limitation, not affirmative grants, on board of directors' power to administer the affairs of the corporation). E. CSC'S PRIOR BYLAWS REQUIRED WRITTEN CONSENT OF THREE FOURTHS OF ISSUED AND OUTSTANDING SHARES TO AMEND THE BYLAWS. Prior to amendment on February 18, 1998, amendment of the CSC Bylaws by written consent required written consent from the holders of at least three-fourths of the issued and outstanding shares of common stock. Article II Section 10 of the Old Bylaws provided that any action that stockholders could take at a meeting of the stockholders, except for the election of directors, "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." CAI incorrectly interprets this section as merely providing 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." CAI Brief at 15. In fact, this section provided no exceptions to the three-fourths requirement for any action by written consent (except for the election of directors, which can not 18 24 be done by written consent at all); therefore, this section governed all actions to be done by written consent. Article VIII Section 1 of the CSC Bylaws previously provided that the bylaws may be amended by the stockholders "by the affirmative vote or written consent of a majority of the outstanding voting shares of this corporation, except as otherwise provided . . . elsewhere in these Bylaws." This section, when read alone, might appear to allow amendments to the bylaws by written consent of the holders of only a majority of the outstanding shares; however, this section specifically limited the general power to amend by stating that other sections of the bylaws might provide different requirements that must instead be followed. Thus, this section is subordinate to, and must be read in conjunction with, any section of the bylaws that imposed different and controlling requirements, and, in this instance, Article II Section 10 of the bylaws is a section that imposed different and controlling requirements by requiring, without exception, that actions by written consent must be authorized by holders of three-fourths of the outstanding shares. F. THE CSC BOARD HAS THE RIGHT TO DETERMINE THE DATE OF THE ANNUAL MEETING. Nevada corporate law grants a board of directors the "authority to set the date, time and place for the annual meeting of stockholders." Nev. Rev. Stat. Section 78.330(l). Similarly, Art. II, Section 2, as amended, of CSC's bylaws states that "[a]nnual meetings of the stockholders shall be held at such time and dates as the Board of Directors shall determine. CAI asks this Court to ignore this plain language and to force the CSC Board to schedule an annual meeting in August. CAI arrives at its conclusion that an annual meeting must be held in August through yet another tortured interpretation of the superseded version of Art. II, Section 2 which provided in relevant part:(12) - ---------- (12) The current version of Art. II, Section 2 is clear that the Board has the authority to set the time and date for the annual meeting. It is not tied to any specific date. But even under the previous version of Art. II, Section 2, CSC's Board was the ultimate authority on when to hold an annual meeting. 19 25 [a]n annual meeting of the stockholders shall be held on the second Monday in August, if not a legal holiday, 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. (emphasis added). According to CAI, this bylaw purportedly means that CSC's Board only has the authority to schedule the date of the annual meeting in the limited instance when the second Monday in August is a legal holiday. (Complaint at paragraph 38). This argument is fanciful at best. CAI disregards basic rules of grammar. The language in Art. II, Section 2, "if not a legal holiday, and if a legal holiday, then on the next secular day following at 2:00 p.m.," is a series of dependent clauses occurring within a sentence. As such, it must always be set-off by commas when it interrupts the flow of the sentence. William Strunk Jr. & E.B. White, The Elements of Style 2 (3rd. ed. 1979). The comma after "2:00 p.m." indicates the end of the dependent clauses and the resumption of the main thought of the sentence. Id. The result is that an annual meeting can be held either in August or at such other time and date as the Board determines. The conclusion that the Board has the authority to set the date of the annual meeting is reinforced by the case law. See, e.g., Hilton Hotels Corp. v. ITT Corp., 962 F. Supp. 1309, 1310-11 (D. Nev. 1997), aff'd 116 F.3d 1485 (9th Cir. 1997). In Hilton, Hilton made a hostile tender offer and sought a preliminary injunction requiring the target, ITT Corp., to hold its annual meeting in May. ITT responded that it retained the discretion to set a later date, even if the decision to set the later date was in response to Hilton's tender offer. In denying Hilton's motion, the court noted that Nevada law did not require that ITT's annual meeting be conducted on a specific date. Id. at 1309. According to the court, section 78.345 requires only that an annual meeting occur not later than 18 months after the last annual meeting. Id. at 1310. Thus, Nevada's corporation law sets the outer limit of time that may pass between annual meetings, but it does not set the specific date the annual meeting must occur within this 18 month period.(13) That decision is - ---------- (13) CSC's Board has not yet scheduled a date and time for the annual meeting nor has 18 months passed since the last annual meeting. 20 26 left to the Bylaws and the Board of Directors of a corporation. Nev. Rev. Stat. Section 78.330(l). Here, even under the old version of Art. II, Section 2, it is clear that CSC's Board determines the date of the annual meeting and only if the Board does not exercise that discretion does August become the date for the meeting. VI. CONCLUSION For the foregoing reasons, CSC respectfully requests that this Court grant expedited treatment to the portions of the Complaint now on file that are not moot and enter an order: (1) granting expedited treatment of the SEC Filings Claims; (2) setting February 26, 1998 as the date for the filing of any amended complaint by CAI; (3) shortening the time periods applicable under Federal Rule of Civil Procedure 34; (4) setting March 6, 1998 as the date by which CAI will serve documents responsive to CAI's request; (5) granting CSC leave to notice in excess of ten depositions; and (6) setting a briefing schedule for CAI's motion. DATED: February ,1998. -------- WAYNE W. SMITH JOSEPH P. BUSCH, III DAVID A. BATTAGLIA THOMAS S. JONES ELIZABETH A. WARKE GIBSON, DUNN & CRUTCHER LLP C. STANLEY HUNTERTON TERRY JOHN CARE HUNTERTON & ASSOCIATES By: --------------------------------- Terry John Care Attorneys for Defendant COMPUTER SCIENCES CORPORATION 21 EX-99.(C)(11) 6 SUPPLEMENTAL AND AMENDED COMPLAINT 1 EXHIBIT (c)(11) SCHRECK MORRIS COPY STEVE MORRIS RECEIVED MATTHEW MCCAUGHEY AND FILED 1200 Bank of America Plaza Feb 23 1:08 PM '98 300 South Fourth Street Las Vegas, Nevada 89101 LANCE S. WILSON (702) 474-9400 CLERK HOWARD, DARBY & LEVIN By______________________ C. WILLIAM PHILLIPS DEPUTY 1330 Avenue of the Americas New York, New York 10019 (212) 941-1000 Attorneys for Plaintiff Computer Associates International Inc. UNITED STATES DISTRICT COURT DISTRICT OF NEVADA COMPUTER ASSOCIATES INTERNATIONAL, INC., Plaintiff, v. COMPUTER SCIENCES CORPORATION, CV-S-98-00278-LDG IRVING W. BAILEY, HOWARD P. ALLEN, JAMES R. MELLOR, WILLIAM P. RUTLEDGE, (RLH) WARREN MCFARLAN, THOMAS A. MCDONNELL, RICHARD C. LAWTON, LEON J. SUPPLEMENTAL LEVEL, WILLIAM R. HOOVER and AND AMENDED VAN B. HONEYCUTT, COMPLAINT Defendants. For its Supplemental and Amended Complaint, 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: 2 Nature of Action 1. On February 17, 1998, Computer Associates announced 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 more than $9 billion for the Company (the "'Tender Offer"). The $108 cash offer represents a significant premium to current and historical CSC prices and has been enthusiastically received by investors, who bought up the stock after the Tender Offer was announced. 2. On February 17, Computer Associates also filed preliminary materials with the Securities and Exchange Commission (the "SEC") to solicit written consents, agent designations and proxies (the "Proxy Solicitation"), among other purposes, to replace CSC's Board of Directors (the "Board"). In addition, Computer Associates commenced this lawsuit and moved the Court for an expedited declaration that the then-existing CSC Bylaws (the "Bylaws") permit CSC shareholders to replace the Board. These actions each provide a means for CSC shareholders to decide for themselves whether they want to accept Computer Associates' offer. 3. On February 18 - the day after Computer Associates announced and commenced the Tender Offer and the Proxy Solicitation - the CSC Board amended the Bylaws to change each and every Bylaw relied upon by Computer Associates in its Proxy Solicitation (the "Amendments"). In violation of the express term of the Bylaws, the Board even amended the requirements for shareholder-initiated amendments of the Bylaws. The next day, the Board rejected the Tender Offer but deliberately withheld information material to its shareholders in violation of the federal securities laws. -2- 3 4. By purporting to remake the Bylaws overnight, CSC seeks to deprive CSC shareholders of their rights to remove the Board by written consent, to amend the Bylaws, and to call a special shareholders' meeting. The overnight bylaw changes attempt to bar the very actions for which Computer Associates seeks shareholder approval in its Proxy Solicitation. The Board also amended the Bylaws to permit it, in its sole discretion, to delay the annual shareholders' meeting for another six months, until at least February 1999. In the event that Computer Associates overcomes these transparent entrenchment devices, the Board adopted rich severance packages for top management 5. The Board was fully aware of Computer Associates' Tender Offer and Proxy Solicitation materials and acted for the primary purpose of disenfranchising CSC shareholders to protect their own positions. The Amendments are unauthorized and illegal, in breach of the Bylaws, Nevada law and the directors' fiduciary duties. The Board has acted to entrench management at the expense of the shareholders' basic rights to remove them. The timing of the Amendments - immediately following the announcement of the Tender Offer and campaign to remove the Board - confirms the Board's purpose to entrench the directors and top management. The fact that CSC seeks to amend the Bylaws confirms the validity of Computer Associates' interpretation of the pre-amendment Bylaws in its campaign to replace the Board. 6. Computer Associates brings this action for emergency relief to redress the Board's wrongful and illegal conduct Computer Associates seeks emergency declaratory relief to void the Amendments to the Bylaws and to determine definitively the legality of its Proxy Solicitation. Computer Associates also seeks an injunction against the use of the -3- 4 "poison pill" and other anti-takeover measures, and any other actions taken for the primary purpose of entrenching CSC directors and management. Parties 7. 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 170,000 shares of CSC 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. 8. 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. 9. Defendants Irving W. Bailey, Howard P. Allen, James R. Mellor, William P. Rutledge, Warren McFarlan, Thomas A. McDonnell and Richard C. Lawton are Directors of CSC. 10. Defendant Leon J. Level is a Director of CSC and the Company's Chief Financial Officer and Vice President. 11. Defendant William R. Hoover is a Director of CSC and the Company's -4- 5 former President and Chief Executive Officer. 12. Defendant Van B. Honeycutt is the President and Chief Executive Officer of CSC, as well as the Chairman of the Company's Board of Directors. Jurisdiction and Venue 13. This Court has jurisdiction over this action pursuant to 28 U.S.C. Sections 1331 and 1332(a) and 15 U.S.C. Sections 78n(d) & (e) (Sections 14(d) & (e) of the Securities Exchange Act of 1934 ("the Exchange Act")). The amount in controversy is in excess of $75,000. 14. Venue is proper in this District under 28 U.S.C. Sections 1391(b) and (c). Background Computer Associates Offers $9 Billion in Cash for All CSC Common Stock. 15. In December 1997, Computer Associates contacted CSC's Chairman and Chief Executive Officer, defendant 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 declined to pursue such a combination. 16. 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 common stock. 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 discussions in December 1997. As the letter also noted: -5- 6 The combination of [Computer Associates'] 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). 17. On February 17, Computer Associates announced its commencement of a tender offer pursuant to which Computer Associates seeks to acquire all of the outstanding shares of CSC common stock at $108 per share, for a total value of more than $9 billion. The Tender Offer is a fully financed, all-cash offer, available to all CSC shareholders, for all outstanding shares. It is not "front-end loaded" or otherwise coercive in nature. The Tender Offer provides CSC shareholders with the opportunity to realize a substantial premium over the market price of their shares prior to the announcement of the Offer, and is clearly in the best interests of the shareholders. 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. Computer Associates intends, as soon as practicable following consummation of the Tender 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. 18. The Tender Offer is conditioned upon, inter alia, (a) valid tender of a -6- 7 majority of the outstanding shares of CSC common stock; (b) redemption, invalidation or inapplicability of the CSC "poison pill"; and (c) 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. 19. On the same day, Computer Associates filed preliminary solicitation materials with the SEC, pursuant to section 14(a) of the Exchange Act, 15 U.S.C. Section 78n(a), and Regulation 14A promulgated thereunder. The Proxy Solicitation materials solicit (a) consents from CSC shareholders to amend the Bylaws and to replace a majority of the CSC directors, and (b) agent designations from CSC shareholders to call a special shareholders meeting to take such actions. 20. The Tender Offer and second-step merger cannot be consummated unless the CSC Board - voluntarily or by direction of a court - removes or makes inapplicable CSC's anti-takeover devices, including its "poison pill" and the Business Combination Statute. The purpose of Computer Associates' Proxy Solicitation is to remove the Company's anti-takeover devices, such as its "poison pill", by removing a sufficient number of directors to designate a majority of the directors, who will enable the shareholders to decide whether to accept the Offer. To this end, Computer Associates seeks from CSC shareholders, inter alia: (a) the written consent of two-thirds of CSC shareholders to remove a sufficient number of directors to enable the shareholders to designate a majority of the Board; (b) the written consent of a majority of CSC shareholders to fill the -7- 8 vacancies of removed directors with designees who will allow the shareholders to decide for themselves whether to accept the Tender Offer; (c) agent designations to call a special meeting of shareholders for the purpose of removing directors, should Computer Associates fail to obtain sufficient written consents to replace a majority of directors; and (d) a resolution 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 shareholders will vote on all directors. 21. In this way, CSC shareholders can elect directors who will remove the impediments and allow the shareholders to decide for themselves whether to accept Computer Associates' Tender Offer. 22. 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 any discretion the Board arguably has 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; -8- 9 (b) to adopt a "Stockholder Protection Bylaw" requiring that, before any defensive action may be authorized by the Board - including to frustrate the stockholder franchise in deciding whether to accept the Tender Offer - such action must be approved (i) at a meeting of the Board attended by each director then in office, or (ii) by a vote of a majority of stockholders; and (c) with certain exceptions, to repeal any Bylaws adopted by the Board since February 1, 1998. 23. Computer Associates is simultaneously pursuing these alternative methods to enable CSC stockholders to decide whether to accept the Tender Offer at the earliest possible date. Thus, in the event that Computer Associates fails to remove and replace a sufficient number of directors by written consents, then Computer Associates will call a special stockholders meeting pursuant to Article II, Section 3. 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 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. Computer Associates Sues to Enforce the Bylaws. 24. Also on February 17, Computer Associates' filed and served a complaint seeking a declaration that Computer Associates' Proxy Solicitation is specifically authorized by the Bylaws and by applicable Nevada law. (The Bylaws are attached as Exhibit 3.) At the -9- 10 same time, Computer Associates filed and served a motion to expedite the declaratory judgment action, accompanied by a memorandum of law, asking the Court for a prompt determination that its campaign to replace the Board through written consents or at a special meeting was permitted by the Bylaws. 25. In particular, by its initial complaint, Computer Associates seeks declarations that: (a) 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; (b) 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 allow shareholders to designate a majority of the Board; (c) 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; (d) pursuant to Article III, Section 2 of the Bylaws and Section 78.335 of the Nevada Revised Statutes, a majority of CSC shareholders may fill Board vacancies by vote or written consent; (e) pursuant to Nevada Revised Statute 78.350, CSC does not have the authority to set the record date for determining shareholders entitled to give written consents and agent designations; (f) pursuant to Article II, Section 2 of the Bylaws, the upcoming annual -10- 11 meeting of the shareholders must be held on August 11, 1998, and may not be postponed by the CSC Board to a later date; and (g) Computer Associates' filings pursuant to Section 14(d)(1) of the Exchange Act comply with applicable federal law. 26. Computer Associates' initial complaint also sought injunctive relief. Among other actions, Computer Associates sought to prevent CSC from manipulating or otherwise subverting the process of corporate democracy by, for example, adopting amendments to the Bylaws that impair the CSC shareholders' existing rights to amend the Bylaws. Computer Associates also sought to enjoin CSC from any action to frustrate the shareholders' ability to call a special shareholders meeting or from other actions intended to interfere with the shareholder franchise or otherwise delay the annual meeting. CSC Snubs the Offer and SEC Disclosure Requirements. 27. CSC rejected the Offer on February 19, 1998. In a press release headlined "Computer Sciences Corporation Board Rejects Computer Associates' Unsolicited Acquisition Offer," CSC announced that the Board had unanimously rejected Computer Associates' "unsolicited acquisition offer" and that CSC would not enter into negotiations with Computer Associates. (The press release and accompanying letter are attached as Exhibit 4.) CSC vowed to "use every legal means necessary to defeat" the Offer. 28. The press release described and attached a letter dated February 19, 1998 from Mr. Honeycutt to Charles Wang, Chairman and Chief Executive Officer of Computer Associates (the "February 19 Letter"). In that letter, CSC claimed that Computer Associates' offer - whether at $108 or at $114, a price later discussed - was unfair and that any "effort to -11- 12 combine Computer Sciences and Computer Associates does not make business sense." (Emphasis added.) 29. In the February Letter, CSC purported to respond only to Computer Associates' earlier offers, and to reserve its response to the Tender Offer to a later date. But the text of the Letter, as well as accompanying statements by CSC executives, expose that pretense: The first subheading in the letter states, "Your Offer Does Not Represent Fair Value," and states various reasons why $114 per share is not a fair price for CSC. The second subheading proclaims "Combining CSC and CA Does Not Make Sense," and lists numerous reasons why, in the opinion of the CSC Board, there would be no strategic benefit to a merger between Computer Associates and CSC. The Board's purported reasoning is clearly aimed at Computer Associates' $108 Tender Offer as well. 30. CSC officials acknowledged as much: on February 18, a CSC spokesman was quoted as saying "that the tender offer document was under review, and while CSC has 10 business days to formally respond, 'You can look at the letter as a rejection of the whole idea or concept.'" In a February 19 conference call with members of the investment Community, Mr. Honeycutt referred to Computer Associates' offer as "low ball," "at a ridiculous number," and "a joke." 31. CSC has not filed a Schedule 14D-9 regarding Computer Associates' tender offer, as required by SEC regulations. By breaching its duties under the federal securities laws, CSC avoids disclosing its basis for rejecting the Tender Offer and whether it is in discussions with other interested acquirers. According to news reports, CSC has contacted International Business Machines Corp., AT&T Corp. and Electronic Data Systems -12- 13 Corp. in an attempt to find a "white-knight" bidder to ward off Computer Associates' Offer. CSC has disclosed none of this information, including the occurrence of such discussions, to the SEC or the investing public. The CSC Board Overhauls the Bylaws to Deny its Shareholders the Right to Choose. 32. The day after Computer Associates announced its Tender Offer and campaign to replace the Board - and the day after Computer Associates filed and served a memorandum of law explaining precisely the Bylaw authority for its course - the Board changed the Bylaws. The purpose and effect of the Amendments is to abolish the shareholders' rights to replace the directors, to call a special meeting of shareholders and to amend the Bylaws. (The Amended Bylaws are attached as Exhibit 5.) 33. Specifically, among other changes, the Board amended the Bylaws in the following ways: (a) Article VIII, Section 1, which allowed a majority of shareholders to adopt, amend or repeal bylaws by vote or written consent, was amended to require a vote or written consent of 90% of the Company's outstanding shares; (b) Article III, Section 2, which allowed two-thirds of the shareholders to remove a director, was amended to increase the number of votes required to 90% of the Company's outstanding stock; (c) Article III, Section 2 was further amended to eviscerate the power of a majority to remove the number of directors that it could elect and to -13- 14 require that to replace any directors requires the same percentage of shareholders as a vote to replace all of them; (d) Article II, Section 3, which allowed a majority of shareholders to request the Board to call a special meeting, was amended to eliminate the power of shareholders to call a special meeting unless the Company has not held a shareholder meeting in 18 months; and (e) Article II, Section 2, which provides that the annual meeting of CSC shareholders - at which all directors are elected - was to be held on the second Monday in August unless that date is a legal holiday, was amended to give the Board power to fix any date for a meeting within the 18 months following the prior annual meeting. 34. The Board has increased the voting and consent requirements for shareholder initiatives to a super-majority level - 90% - that is, for all practical purposes, impossible to achieve. By eliminating the shareholders' ability to call a special meeting and by effectively precluding shareholder action to remove the Board, the Board has insulated itself from the wishes of its shareholders. The Board also gave itself the discretion to delay any shareholders' meeting at which directors must face re-election, thus lengthening their terms and discouraging hostile suitors by the extended delay. First Claim for Relief (Declaratory Relief) 35. Computer Associates repeats and realleges each of the allegations set forth in paragraphs 1 through 34 as if fully set forth here. 36. Article VIII of the Bylaws provides: -14- 15 Section 1. Stockholder Amendments. Bylaws may be adopted, amended or repealed by the affirmative vote or written consent of a majority of the outstanding voting shares of this corporation, except as otherwise provided by the statutes of Nevada, the Articles of Incorporation or elsewhere in these Bylaws. Section 2. Amendments by Board of Directors. Subject to the right of stockholders as provided in Section 1 of this Article VIII, Bylaws may be adopted, amended or repealed by the Board of Directors. (Italics added.) 37. In violation of the plain language of Article VIII, the Amendments adopted by the Board of Directors purport to increase the number of shareholders needed to "adopt, amend or repeal" bylaws to holders of 90% of the outstanding shares. The power of the Board of Directors to amend the Bylaws is expressly subordinate to the power of a majority of shareholders to adopt, amend or repeal the Bylaws, as provided in Section 1. 38. The Board of Directors therefore did not have the authority to amend Article VIII, Section 1 to increase the number of shareholders required to adopt, amend or repeal the Bylaws. Computer Associates seeks a declaration that the Amendment adopted by the Board purporting to increase this number to 90% of the outstanding shares is therefore unauthorized, illegal and to be given no force or effect. Second Claim for Relief (Declaratory Relief) 39. Computer Associates repeats and realleges each of the allegations, set forth in paragraphs 1 through 38 as if fully set forth here. 40. Nevada Revised Statutes Section 78.335 provides that "[a]ny director -15- 16 may be removed from office by the vote of stockholders representing not less than two-thirds of the voting power" of the outstanding stock. The statute also provides that the articles of incorporation may require the concurrence of a greater percentage to remove a director. 41. The Board has amended Article III, Section 2 to require the vote of 90% of the outstanding shareholders to remove directors. The CSC articles of incorporation neither contain nor authorize any such requirement. 42. The Board of Directors therefore did not have the authority to amend Article III, Section 2 of the Bylaws to increase the number of shareholders required to remove directors. This change can only be accomplished by an amendment to the articles of incorporation. By purporting to amend the Bylaws to increase the requirement, the Board impermissibly seeks to evade the mandate of Nevada Revised Statute Section 78.390, which requires a shareholder vote to amend the articles of incorporation. 43. Computer Associates seeks a declaration that the Amendment adopted by the Board purporting to increase this number to 90% of the outstanding shares is therefore unauthorized, illegal and to be given no force or effect. Third Claim for Relief (Declaratory Relief) 44. Computer Associates repeats and realleges each of the allegations set forth in paragraphs 1 through 43 as if fully set forth here. 45. The Board of Directors enacted the Amendments in direct response to Computer Associates' Tender Offer, Proxy Solicitation and lawsuit. The Board of Directors adopted the Amendments for an improper purpose, to deprive its shareholders of a full and fair opportunity to decide for themselves whether to accept the substantial premium offered by -16- 17 Computer Associates. 46. The Amendments effectively preclude the CSC shareholders from the exercise of their franchise, by eliminating powers conferred upon them under the Bylaws or by increasing to 90% the number of shareholders needed to act, an impossible requirement. The Board also has usurped for itself the power to call shareholders meetings, limited only by the outer boundaries of Nevada law. 47. Defendants did not and do not have a compelling justification for the Amendments. Their adoption was in breach of Nevada law and the fiduciary duties owed by defendants to CSC shareholders. 48. Computer Associates seeks a declaration that the Amendments are illegal, null and void. Fourth Claim for Relief (Injunctive Relief) 49. Computer Associates repeats and realleges each of the allegations set forth in paragraphs 1 through 48 as if fully set forth here. 50. 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, without compelling justification. 51. CSC and the director defendants have already, since the filing of this lawsuit, acted illegally and adopted the Amendments, which seek unjustifiably to disenfranchise the CSC shareholders. 52. Any further efforts by CSC or the director defendants: (a) to amend the CSC Bylaws in any way that would impede the effective -17- 18 exercise of the stockholder franchise; (b) to materially delay the conduct of the 1998 CSC 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 similarly be illegal. 53. Computer Associates has no adequate remedy at law. Accordingly, Computer Associates requests that CSC and the director defendants be enjoined from taking any actions (1) to disenfranchise the CSC shareholders or (2) improperly frustrate Computer Associates' Tender Offer and Proxy Solicitation. Fifth Claim for Relief (Declaratory Relief) 54. Computer Associates repeats and realleges each of the allegations set forth in paragraphs 1 through 53 as if fully set forth here. 55. Computer Associates seeks a declaration that the Bylaws in effect on February 16, 1998, are still the operative bylaws of the Company. 56. As described in materials filed with the SEC, Computer Associates seeks written consents and proxies from the holders of two-thirds of the outstanding CSC voting shares to replace a sufficient number of CSC directors to designate a majority of the Board. Computer Associates also intends to solicit consents from CSC shareholders to amend the CSC Bylaws. Computer Associates seeks a declaration that it may amend the Bylaws by the vote or written consent of a majority of shareholders. 57. Nevada law is silent about the record date for actions by written consents or agent designations. -18- 19 58. Computer Associates seeks to increase the number of authorized directors to 15. Computer Associates also has proposed to CSC shareholders 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 fewest votes being the first to be removed. 59. Computer Associates also seeks a declaration that under the Bylaws and Nevada law, Computer Associates may proceed with its Proxy Solicitation outlined above. Specifically, Computer Associates seeks a declaration that: (a) the CSC shareholders may amend the Bylaws by the vote or written consent of a majority of stockholders (pursuant to Article VII, Section 1 of the Bylaws); (b) holders of two-thirds of the outstanding CSC voting shares have the power to remove a majority of the CSC directors by vote or written consent (pursuant to Article III, Section 2 of the Bylaws and Section 78.335 of the Nevada Revised Statutes); (c) the CSC shareholders may designate, by vote or written consent, directors to fill the vacancies of removed directors or additional seats on the Board (pursuant to Article II, Section 7 and Article III, Section 2 of the Bylaws and Section 78.335 of the Nevada Revised Statutes); (d) Nevada Revised Statutes Section 78.350 does not allow CSC to set the -19- 20 record date for determining shareholders entitled to give written consents and agent solicitations; (e) Computer Associates' shareholder resolution to the effect that, vacancies caused by the removal of directors should be filled, in the first instance, by the Board and then according to the votes at the last annual meeting, with the directors receiving the fewest votes being the first to be removed (pursuant to Article III, Section 2 of the Bylaws and Section 78.335 of the Nevada Revised statutes) is legal; and (f) a majority of the CSC shareholders may, by vote or written consent, repeal or amend any Bylaws adopted by the Board after February 1, 1998. Sixth Claim for Relief (Declaratory Judgment) 60. Computer Associates repeats and realleges each of the allegations set forth in 1 through 59 as if fully set forth here. 61. 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 shareholders. 62. Article II, Section 2 of the Bylaws provides, that "[a]nnual meetings of the shareholders shall be held on the second Monday in August, if not a legal holiday, 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. 63. Because August 10, 1998, is not a legal holiday, the CSC Board lacks the -20- 21 authority to alter the meeting date. Under the applicable Bylaw, 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 must be held on August 10, 1998. Seventh Claim for Relief (Injunctive Relief) 64. Computer Associates repeats and realleges each of the allegations set forth in paragraphs 1 through 63 as if fully set forth here. 65. 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 shareholders of the opportunity to sell their stock at a price substantially above the prevailing market rate. 66. CSC also has the anti-takeover protections of the Business Combination Statute. Under the Business Combination Statute, a third parry 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 Board in advance, the stockholder receives approval for the business combination from a majority of the disinterested shares, or the Tender Offer meets certain fair price criteria. The Business Combination Statute, if not rendered inapplicable or invalidated, may block the Tender Offer and deprive CSC shareholders the opportunity to sell their stock at a price substantially above the prevailing market rate. 67. The effect of then anti-takeover mechanisms is to frustrate and to impede the ability of CSC shareholders to decide for themselves whether to receive the -21- 22 benefits of the Offer and proposed second-step merger. These devices unreasonably and inequitably frustrate and impede the ability of Computer Associates to consummate the Tender Offer and merger proposal. The failure of CSC and its board to redeem the CSC "poison pill" and to adopt a resolution approving the Tender Offer for purposes of the Business Combination Statute constitutes a breach of their fiduciary duty and thus a violation of Nevada law. 68. Computer Associates has no adequate remedy at law. Accordingly, Computer Associates requests that defendants be enjoined to redeem the "poison pill" and to approve the Tender Offer for purposes of the Business Combination Statute. Eighth Claim For Relief (Injunctive Relief) 69. Computer Associates repeats and realleges each of the allegations set forth in paragraphs 1 through 68 as if fully set forth here. 70. By their press release and letter dated February 19, 1998, defendants. recommended that the CSC shareholders reject the Tender Offer. The CSC Board has stated that $108 (or even $114) is not a fair share price, and that it believes there are no strategic benefits to a combination with Computer Associates. 71. Defendants recommendation violates Section 14(d) of the Exchange Act and SEC Rule 14d-9, which sets forth detailed regulations governing a recommendation to stockholders by a target with respect to a tender offer. The Rule provides that any recommendation by a target concerning a tender offer must be made in a Schedule 14D-9, an SEC form, which must be both filed with the SEC and served on the offerer "as soon as practicable on the date" the recommendation is published. -22- 23 72. The Schedule 14D-9 lists the information that the target must disclose to its shareholders in connection with making a recommendation with respect to a tender offer. For example, Item Seven of the Schedule requires the target to list negotiations with respect to the tender offer, so that the shareholders may evaluate the Board's recommendation with the awareness of possible alternatives to the offer that the target is considering. This information enables the shareholders to compare the value of the tender offer to the value of alternative transactions. 73. Defendants have not filed a Schedule 14D-9, nor disclosed the information required thereby. CSC is in violation of Section 14(d) of the Exchange Act and SEC Rule 14d-9. 74. Computer Associates has no adequate remedy at law. Accordingly, Computer Associates seeks to enjoin defendants from further communications with CSC shareholders until such time as they have filed a Schedule 14D-9 with the SEC and disclosed the information required thereby. Ninth Claim for Relief (Declaratory Judgment) 75. Computer Associates repeats and realleges each of the allegations set forth in paragraphs 1 through 74 as if fully set forth here. 76. Section 14(d)(l) of the Exchange Act 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 -23- 24 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. 77. Section 14(e) of the Exchange Act makes it unlawful 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 .... 78. 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. 79. 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) Declaring that the Amendments are unauthorized, illegal and of -24- 25 no force and effect; (b) Declaring that the amendments to Article VIII, Section 1, which purport to require concurrence of 90% of the shareholders to adopt, amend or repeal a bylaw, are unauthorized, illegal and of no further force and effect; (c) Declaring that the amendments to Article III, Section 2, which purport to require concurrence of 90% of the shareholders to remove directors, are unauthorized, illegal and of no further force and effect; (d) Declaring that a majority of the shareholders may, by vote or written consent, repeal or amend any Bylaws adopted by the Board after February 1, 1998; (e) Enjoining CSC from amending the Bylaws to impede in any way the effective exercise of the stockholder franchise or to impede the Offer, including without limitation amendments that impair the CSC shareholders' existing rights to amend the bylaws and to call a special shareholders meeting; (f) Enjoining CSC from refusing to redeem CSC's "poison pill" or refusing to make the provisions of the Nevada Business Combination Statute inapplicable to the Tender Offer by declining to approve the Tender Offer, (g) 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; (h) 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 -25- 26 outstanding voting shares of CSC, to remove a sufficient number of directors to designate a majority of the Board; (i) 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; (j) Declaring that Article III, Section 2 of the Bylaws and Section 78.335 of the Nevada Revised Statutes permit a majority of CSC shareholders to fill vacancies of removed directors or additional seats on the board by written consent; (k) Declaring that Nevada Revised Statutes Section 78.350 does not allow CSC to set the record date for determining shareholders entitled to give written consents and agent solicitations; (l) Declaring that, under its Bylaws, the CSC annual meeting must occur on August 10, 1998; (m) Enjoining CSC and the director defendants from communicating with CSC shareholders in any way until a proper Schedule 14D-9 is filed with the SEC; (o) Declaring that Computer Associates' Schedule 14D-1 complies with applicable federal law; (p) Awarding Computer Associates its costs Of suit, including reasonable attorneys' fees; and -26- 27 (q) Granting Computer Associates such other and further relief as the Court may deem just and proper. DATED: February 23, 1998 SCHRECK MORRIS BY /s/ STEVE MORRIS ------------------------------------- STEVE MORRIS 1200 Bank of America Plaza 300 South Fourth Street Las Vegas, Nevada 89101 (702) 382-2101 -and- HOWARD, DARBY & LEVIN C. William PHILLIPS 1330 Avenue of the Americas New York, New York 10019 (212) 841-1000 Attorneys for Plaintiff Computer Associates International, Inc. -27- 28 CERTIFICATE OF SERVICE Pursuant to Fed.R.Civ.P. 5(b), I certify that I am an employee of SCHRECK MORRIS, and that on this day I deposited for overnight delivery via Federal Express and by Hand Delivery at Las Vegas, Nevada, a true copy of the following enclosed which postage was prepaid for overnight delivery: SUPPLEMENTAL AND AMENDED COMPLAINT WAYNE W. SMITH VIA FEDERAL EXPRESS JOSEPH P. BUSCH, III THOMAS S. JONES ELIZABETH A. WARKE GIBSON, DUNN & CRUTCHER, LLP 4 Park Plaza, Suite 1400 Irvine, CA 92614-8557 ATTORNEYS FOR DEFENDANT, COMPUTER SCIENCES CORP. DAVID A. BATTAGLIA VIA FEDERAL EXPRESS MICHELLE H. TREMAIN ROBYN C. CROWTHER GIBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue Los Angeles, CA 80071-3197 ATTORNEYS FOR DEFENDANT, COMPUTER SCIENCES CORP. C. STANLEY HUNTERTON HAND DELIVERY TERRY JOHN CARE HUNTERTON & ASSOCIATES 300 S. Fourth St., Ste. 1110 Las Vegas, NV 89101 ATTORNEYS FOR DEFENDANT, COMPUTER SCIENCES CORP DATED this 23rd day of February, 1998. By: /s/ Dana K. Provost -------------------------------------------- An Employee of Schreck Morrris -28- 29 EXHIBIT 1 30 [COMPUTER SCIENCE LOGO] Letter To Computer Sciences Corporation Computer Associates Extends Offer To Acquire CSC - -------------------------------------------------------------------------------- Computer Associates International Inc. ("CA") extended an offer to acquire Computer Sciences Corporation ("CSC") on February 10th, 1998. Below is a letter from Mr. Sanjay Kumar, President and Chief Operating Officer, CA, to Mr. Van Honeycutt, Chairman and CEO, CSC. See Also: [ ] Press Release: CA Makes Offer To Acquire CSC - -------------------------------------------------------------------------------- February 10, 1998 Mr. Van B. Honeycutt Chairman and CEO Computer Sciences Corporation 2100 East Grand Avenue El Segundo, CA 90245 Dear Van, Charles and I appreciate the significant time you have invested over the last few months in the discussions that we have had regarding the combination of Computer Associates International, Inc. ("CA") and Computer Sciences Corporation ("CSC"). However, we are disappointed that CA and CSC have not been able to come to a final resolution. Consequently, we are writing to offer to acquire CSC in a merger transaction in which your stockholders would receive $108 in cash for each share of CSC common stock. We believe our offer presents an extremely attractive opportunity for your stockholders, at a price which represents a premium of nearly 35% over the closing price of CSC's common stock on the day we commenced our discussions in mid-December. At that time, CSC's stock was trading close to its all-time high. The CA Board of Directors has unanimously approved this offer. Further, as I have previously informed you, CA has obtained the necessary financing commitments to consummate this transaction without delay. As we agreed, the combination of CA and CSC would create a world-class information technology 31 solutions provider with unparalleled depth in both software and services. 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 millenium. As we discussed at our meeting on February 5, and as confirmed by my letter of February 6: o We are in agreement on the need and manner of retaining key managers and employees. We would supply key managers and employees with employment agreements that will provide them with a strong incentive to remain with the combined company. o We are in agreement on providing stock option grants to key managers and employees. This will allow them to participate in the success of the combined company, and will further ensure continuity with respect to the combined company's commitment to our mutual clients. o We are in agreement that the CSC organization within the combined company will be on equal footing to CA's existing product organization. CA is committed to making sure that all of the members of the CSC organization are welcomed into the combined company with open arms. o We do not expect the combined company to need to reduce any headcount to achieve the synergies that a transaction of this size demands. Consequently, as in our last major acquisition of Cheyenne Software, we anticipate that all of the valuable CSC employees will be offered positions with the combined company. o Beyond the absolute level of staffing, we expect to maintain the current structure of CSC's organization with little change. As we discussed, it would make sense for the CA part of the combined company to take over CSC's product development efforts and for CSC, in turn, to take over CA's service commitments and efforts. The inherent synergies in this process will allow both the CA and CSC parts of the combined company to do what they do best. o We expect to staff new projects with both outside hiring and some redeployment of existing CA staff. This will allow the combined company to aggressively seek new services opportunities. As we have previously discussed, we have conducted an extensive analysis of CSC based on publicly available information. We believe that CA and CSC may be able to bridge some of our differences with respect to valuation if CA is given the opportunity to conduct limited due diligence on CSC's business and operations. With CSC's cooperation, our due diligence review can be accomplished within a week. Our offer is subject to the execution of a mutually satisfactory merger agreement containing customary terms and conditions. We believe that such an agreement can be negotiated while we are conducting our due diligence review of CSC. Our counsel has advised us that an acquisition of CSC by CA should not encounter regulatory delays. 32 We look forward to meeting with you to discuss our offer. We are hopeful your Board will conclude that your stockholders should not be denied the opportunity to consider our offer. We at CA are determined to take every appropriate action to pursue this transaction. In view of the importance of this matter, time is of the essence, and we await your prompt response. Sincerely, /s/ Sanjay Kumar Sanjay Kumar President and Chief Operating Officer - -------------------------------------------------------------------------------- Back to the press release ### 33 EXHIBIT 2 34 OPEN LETTER TO ALL COMPUTER SCIENCES CORPORATION EMPLOYEES ----------------------------------------------------------- February 11, 1998 To All CSC Employees, As you may have already heard, Computer Associates announced this morning its offer to acquire Computer Sciences Corporation in a merger transaction. We wanted to take a moment today to reassure you as to CA's intentions. We are well aware of the value of each and every CSC employee and will offer every employee a position in the combined company. Therefore, we will not have any layoffs as a result of a possible merger. In fact, we believe that CA is the best place to work for any IT professional--we were voted one of the "Best Places To Work" three years in a row by ComputerWorld and were recently named one of the 100 Best Companies in America for Working Mothers in 1997 by Working Mother magazine. It is our hope that this transaction will be concluded successfully and quickly, as we are anxious to welcome all CSC employees to the combined company. We would also like to take this opportunity to emphasize what we consider the truly exciting part about this announcement--the incredible potential that this merger holds for the clients, employees, and shareholders of CA and CSC. This is a great opportunity for both our organizations. A combined CA/CSC would radically change the services landscape by creating a truly unique entity in the IT marketplace today--the only vendor capable of offering platform-neutral products and services in an integrated, end-to-end fashion. CSC's expertise in the areas of management consulting, systems integration, and outsourcing make it a natural and complementary fit for an organization like CA, which has never really been in the services business but increasingly finds that it needs to be. Conversely, CA's years of experience in software development will add great value to CSC's product business. We remain convinced that this is a great deal for both companies, and we truly believe that the combination of CA and CSC would create a world-class IT solutions provider with unparalleled depth in both software and services. We look forward to having the opportunity to welcome each of you to the CA family. Very truly yours, 35 /s/ Charles B. Wang /s/ Sanjay Kumar Charles B. Wang Sanjay Kumar Chairman and Chief Executive Officer President and Chief Operating Officer ----------------------------------------------------------- Latest CSC Offer Information 36 EXHIBIT 3 37 BYLAWS OF COMPUTER SCIENCES CORPORATION As amended November 3, 1997 38 BYLAWS OF COMPUTER SCIENCES CORPORATION ARTICLE I OFFICES Section 1. Principal Office. The principal office of the corporation in the State of Nevada shall be in the City of Reno, County of Washoe. Section 2. Other Offices. The corporation may also have offices in such other places, both within and without the State of Nevada, as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Annual Meetings. Annual meetings of the stockholders shall be held at the office of the corporation in the City of El Segundo, State of California or at such other place, within or without the State of California, as shall be designated by the Board of Directors. Section 2. Date of Annual Meetings; Election of Directors. Annual meetings of the stockholders shall be held on the second Monday in August, if not a legal holiday, 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. At such annual meeting, the stockholders of the corporation shall elect a Board of Directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may be called by the Chairman of the Board, the Board of Directors, or by the president and shall be called by the president or secretary at the request in writing of a majority of the Board of Directors or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purposes of the proposed meeting and shall be directed to the Chairman of the Board, the president, the vice president, or the secretary by anyone entitled to call a special meeting of stockholders. Section 4. Notices of Meetings. Notices of meetings of the stockholders shall be in writing and signed by the president, a vice president, the 39 secretary, an assistant secretary, or by such other person or persons as the directors shall designate. Such notice shall state the purpose or purposes for which the meeting is called and the time when, and the place where, it is to be held. A copy of such notice shall be either delivered personally or shall be mailed, postage prepaid, to each stockholder of record entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before such meeting. If mailed, it shall be directed to the stockholder at his address as it appears upon the records of the corporation and upon such mailing of any such notice, the service thereof shall be complete, and the time of the notice shall begin to run from the date upon which such notice is deposited in the mail for transmission to such stockholder. If no such address appears on the books of the corporation and a stockholder has given no address for the purpose of notice, then notice shall be deemed to have been given to such stockholder if it is published at least once in a newspaper of general circulation in the county in which the principal executive office of the corporation is located. An affidavit of the mailing or publication of any such notice shall be prima facie evidence of the giving of such notice. Personal delivery of any such notice to any officer of a corporation or association, or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. If any notice addressed to the stockholder at the address of such stockholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that it is unable to deliver the notice to the stockholder at such address, all future notices shall be deemed to have been duly given to such stockholder, without further mailing, if the same shall be available for the stockholder upon written demand of the stockholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other stockholders. Section 5. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by the statutes of Nevada or by the Articles of Incorporation. Regardless of whether or not a quorum is present or represented at any annual or special meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present in person or represented by proxy, provided that when any stockholders' meeting is adjourned for more than forty-five (45) days, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally noticed. 2 40 Section 6. Vote Required. When a quorum is present or represented at any meeting, the holders of a majority of the stock present in person or represented by proxy and voting shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes of Nevada or of the Articles of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. The stockholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Section 7. Cumulative Voting. Except as otherwise provided in the Articles of Incorporation, every stockholder of record of the corporation shall be entitled at each meeting of the stockholders to one vote for each share of stock standing in his name on the books of the corporation. At all elections of directors of this corporation, each holder of shares of capital stock possessing voting power shall be entitled to as many votes as shall equal the number of his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for or any two or more of them, as he may see fit. The stockholders of this corporation and any proxyholders for such stockholders are entitled to exercise the right to cumulative voting at any meeting held for the election of directors if: (a) not less than forty-eight (48) hours before the time fixed for holding such meeting, if notice of the meeting has been given at least ten (10) days prior to the date of the meeting, and otherwise not less than twenty-four (24) hours before such time, a stockholder of this corporation has given notice in writing to the president or secretary of the corporation that he desires that the voting at such election of directors shall be cumulative; and (b) at such meeting, prior to the commencement of voting for the election of directors, an announcement of the giving of such notice has been made by the chairman or the secretary of the meeting or by or on behalf of the stockholder giving such notice. Notice to stockholders of the requirements of the preceding sentence shall be contained in the notice calling such meeting or in the proxy material accompanying such notice. Section 8. Conduct of Meetings. Subject to the requirements of the statutes of Nevada, and the express provisions of the Articles of Incorporation and these Bylaws, all annual and special meetings of stockholders shall be conducted in accordance with such rules and procedures as the Board of Directors may determine and, as to matters not governed by such rules and procedures, as the chairman of such meeting shall determine. The chairman of any annual or special meeting of stockholders shall be designated by the Board of Directors and, in the absence of any such designation, shall be the president of the corporation. Section 9. Proxies. At any meeting of the stockholders, any stockholder may be represented and vote by a proxy or proxies appointed by an instrument in writing. In the event that such instrument in writing shall 3 41 designate two or more persons to act as proxies, a majority of such persons present at the meeting, or, if only one shall be present, then that one shall have and may exercise all of the powers conferred by such written instrument upon all of the persons so designated unless the instrument shall otherwise provide. No such proxy shall be valid after the expiration of six (6) months from the date of its execution, unless coupled with an interest, or unless the person executing it specifies therein the length of time for which it is to continue in force, which in no case shall exceed seven (7) years from the date of its execution. Subject to the above, any proxy duly executed is not revoked and continues in full force and effect until (i) an instrument revoking it or duly executed proxy bearing a later date is filed with the secretary of the corporation or, (ii) the person executing the proxy attends such meeting and votes the shares subject to the proxy, or (iii) written notice of the death or incapacity of the maker of such proxy is received by the corporation before the vote pursuant thereto is counted. Section 10. Action by Written Consent. 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. Section 11. Inspectors of Election. In advance of any meeting of stockholders, the Board of Directors may appoint inspectors of election to act at such meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, then, unless other persons are appointed by the Board of Directors prior to the meeting, the chairman of any such meeting may, and on the request of any stockholder or a stockholder proxy shall, appoint inspectors of election (or persons to replace those who fail to appear or refuse to act) at the meeting. The number of inspectors shall not exceed three. The duties of such inspectors shall include: (a) determining the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; (b) receiving votes, ballots or consents; (c) hearing and determining all challenges and questions in any way arising in connection with the right to vote; (d) counting and tabulating all votes or consents and determining the result; and (e) taking such other action as may be proper to conduct the election or vote with fairness to all stockholders. In the determination of the validity and effect of proxies, the dates contained on the forms of proxy shall presumptively determine the order of execution of the proxies, regardless of the postmark dates on the envelopes in which they are mailed. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. 4 42 ARTICLE III DIRECTORS Section 1. Number of Directors. The exact number of directors which shall constitute the whole Board shall be nine (9), all of whom shall be at least 18 years of age. The authorized number of directors may from time to time be increased to not more than fifteen (15) or decreased to not less than three (3) by resolution of the directors of the corporation amending this section of the Bylaws. The directors shall be elected at the annual meeting of the stockholders, but if for any reason the directors are not elected at the annual meeting of the stockholders, they may be elected at any special meeting of the stockholders which is called and held for that purpose. Except as provided in Section 2 of this Article III, each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Vacancies. Vacancies, including those caused by (i) the death, removal, or resignation of directors, (ii) the failure of stockholders to elect directors at any annual meeting, and (iii) an increase in the number of directors, may be filled by a majority of the remaining directors though less than a quorum. When one or more directors shall give notice of his or their resignation to the Board, effective at a future date, the acceptance of such resignation shall not be necessary to make it effective. The Board shall have power to fill such vacancy or vacancies to take effect when such resignation or resignations shall become effective, each director so appointed to hold office during the remainder of the term of office of the resigning director or directors. The Board of Directors may remove any director for cause. Any director may be removed from office by the vote or written consent of stockholders of the corporation representing not less than two-thirds (2/3) of its issued and outstanding capital stock entitled to voting power. The provisions in the preceding sentence notwithstanding, no director of this corporation shall be removed from office under the provisions of this section except upon the vote or written consent of stockholders owning sufficient shares to have prevented his election to office in the first instance. Section 3. Authority. The business of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. Section 4. Meetings. The Board of Directors of the corporation may hold meetings, both regular and special, at such place, either within or without the State of Nevada, which has been designated by resolution of the Board of Directors. In the absence of such designation, meetings shall be held at the office of the corporation in the City of El Segundo, State of California. Section 5. First Meeting. The first meeting of the newly elected Board of Directors shall be held immediately following the annual meeting of the stockholders and no notice of such meeting to the newly elected directors shall be necessary in order legally to constitute a meeting, provided a quorum shall be present. 5 43 Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, or the president and shall be called by the president or secretary at the written request of two directors. Notice of the time and place of special meetings shall be given within 30 days to each director (a) personally or by telephone or telegraph, in each case at least three (3) days prior to the holding of the meeting, or (b) by mail, charges prepaid, addressed to him at his address as it is shown upon the records of the corporation or, if it is not so shown on such records and is not readily ascertainable, at the place at which the meetings of the directors are regularly held, at least three (3) days prior to the holding of the meeting. Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mails, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. Any notice, waiver of notice or consent to holding a meeting shall state the time, date and place of the meeting but need not specify the purpose of the meeting. Section 8. Quorum. Presence in person of a majority of the Board of Directors, at a meeting duly assembled, shall be necessary to constitute a quorum for the transaction of business and the act of a majority of the directors present and voting at any meeting, at which a quorum is then present, shall be the act of the Board of Directors, except as may be otherwise specifically provided by the statutes of Nevada or by the Articles of Incorporation. A meeting at which a quorum is initially present shall not continue to transact business in the absence of a quorum. Section 9. Action by Written Consent. Unless otherwise restricted by the Articles of Incorporation or by these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a written consent thereto is signed by all members of the Board. Such written consent shall be filed with the minutes of proceedings of the Board of Directors. Section 10. Telephonic Meetings. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, members of the Board of Directors or of any committee designated by the Board of Directors may participate in a meeting of the Board or committee by means of a conference telephone network or a similar communications method by which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to the preceding sentence constitutes presence in person at such meeting. 6 44 Section 11. Adjournment. A majority of the directors present at any meeting, whether or not a quorum is present, may adjourn any directors' meeting to another time, date and place. If any meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time, date and place shall be given, prior to the time of the adjourned meeting, to the directors who were not present at the time of adjournment. If any meeting is adjourned for less than twenty-four (24) hours, notice of any adjournment shall be given to absent directors, prior to the time of the adjourned meeting, unless the time, date and place is fixed at the meeting adjourned. Section 12. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees of the Board of Directors. Such committee or committees shall have such name or names, shall have such duties and shall exercise such powers as may be determined from time to time by the Board of Directors. Section 13. Committee Minutes. The committees shall keep regular minutes of their proceedings and report the same to the Board of Directors. Section 14. Compensation of Directors. The directors shall receive such compensation for their services as directors, and such additional compensation for their services as members of any committees of the Board of Directors, as may be authorized by the Board of Directors. Section 15. Mandatory Retirement of Directors. Notwithstanding anything to the contrary in these Bylaws, a director shall not serve beyond, and shall automatically retire at, the close of the first meeting of the Board of Directors held during the month in which such director shall become age 70; provided, however, that any person who was a director on December 6, 1996 and who was age 65 or older on such date may serve until, but shall automatically retire at, the close of the first meeting of the Board of Directors held during the month in which such director shall become age 72. If no meeting of the Board of Directors is held during such month, the director shall automatically retire as of the last day of such month. ARTICLE IV OFFICERS Section 1. Principal Officers. The officers of the corporation shall be elected by the Board of Directors and shall be a president, a secretary and a treasurer. A resident agent for the corporation in the State of Nevada shall be designated by the Board of Directors. Any person may hold two or more offices. 7 45 Section 2. Other Officers. The Board of Directors may also elect one or more vice presidents, assistant secretaries and assistant treasurers, and such other officers and agents, as it shall deem necessary. Section 3. Qualification and Removal. The officers of the corporation mentioned in Section 1 of this Article IV shall hold office until their successors are elected and qualify. Any such officer and any other officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Section 4. Resignation. Any officer may resign at any time by giving written notice to the corporation, without prejudice, however, to the rights, if any, of the corporation under any contract to which such officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. Powers and Duties; Execution of Contracts. Officers of this corporation shall have such powers and duties as may be determined by the Board of Directors. Unless otherwise specified by the Board of Directors, the president shall be the chief executive officer of the corporation. Contracts and other instruments in the normal course of business may be executed on behalf of the corporation by the president or any vice president of the corporation, or any other person authorized by resolution of the Board of Directors. ARTICLE V STOCK AND STOCKHOLDERS Section 1. Issuance. Every stockholder shall be issued a certificate representing the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the certificate shall contain a statement setting forth the office or agency of the corporation from which stockholders may obtain a copy of a statement or summary of the designations, preferences and relative or other special rights of the various classes of stock or series thereof and the qualifications, limitations or restrictions of such rights. The corporation shall furnish to its stockholders, upon request and without charge, a copy of such statement or summary. Section 2. Facsimile Signatures. Whenever any certificate is countersigned or otherwise authenticated by a transfer agent or transfer clerk, and by a registrar, then a facsimile of the signatures of the officers of the corporation may be printed or lithographed upon such certificate in lieu of the actual signatures. 8 46 In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation, before such certificates shall have been delivered by the corporation, such certificates may nevertheless be issued as though the person or persons who signed such certificates, had not ceased to be an officer of the corporation. Section 3. Lost Certificates. The Board of Directors may direct a new stock certificate to be issued in place of any certificate alleged to have been lost or destroyed, and may require the making of an affidavit of that fact by the person claiming the stock certificate to be lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent, require the owner of the lost or destroyed certificate to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. Section 4. Transfer of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed for transfer, it shall be the duty of the corporation to issue a new certificate, cancel the old certificate and record the transaction upon its books. Section 5. Record Date. The directors may fix a date not more than sixty (60) days prior to the holding of any meeting as the date as of which stockholders entitled to notice of and to vote at such meeting shall be determined; and only stockholders of record on such day shall be entitled to notice or to vote at such meeting. If no record date is fixed by the Board of Directors (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the sixtieth (60th) day preceding the day on which the meeting is held; (b) the record date for determining stockholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given; and (c) the record date for determining stockholders for any other purpose shall be the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such action, whichever is later. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. Section 6. Registered Stock. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the statutes of Nevada. 9 47 Section 7. Dividends. In the event a dividend is declared, the stock transfer books will not be closed but a record date will be fixed by the Board of Directors and only shareholders of record on that date shall be entitled to the dividend. ARTICLE VI INDEMNIFICATION Section 1. Indemnity of Directors, Officers and Agents. The corporation shall indemnify any director or officer and may, as authorized by the Board of Directors, indemnify any other employee or agent of the corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. Section 2. Derivative Actions. The corporation shall indemnify any director or officer and may, as authorized by the Board of Directors, indemnify any other employee or agent of the corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, but no indemnification shall be made in respect of any claim, 10 48 issue or matter as to which such person has been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. Section 3. Successful Defense. To the extent that a director or officer and, as authorized by the Board of Directors, any other employee or agent of the corporation has been successful on the merits or otherwise in defense of any action or proceeding mentioned in this Article VI or in defense of any claim issue or matter therein, he shall be indemnified by the corporation against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with such defense. Section 4. Determination of Entitlement to Indemnity. Any indemnification under this Article VI, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in this Article VI. Such determination shall be made (a) by the stockholders; (b) by the Board of Directors by majority vote of a quorum consisting of directors who were not parties to such act, suit or proceeding; (c) if such a quorum of disinterested directors so orders, by independent legal counsel in a written opinion; or (d) if such a quorum of disinterested directors cannot be obtained, by independent legal counsel in a written opinion. Section 5. Advancement of Expenses. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it is ultimately determined that he is entitled to be indemnified by the corporation as authorized in this section. Section 6. Persons Entitled to Indemnity. The indemnification provided by this Article VI: (a) does not exclude any rights to which a person seeking indemnification may be entitled under any statute of the State of Nevada, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office; and (b) shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7. Purchase of Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the 11 49 corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. ARTICLE VII GENERAL PROVISIONS Section 1. Exercise of Rights. All rights incident to any and all shares of another corporation or corporations standing in the name of this corporation may be exercised by such officer, agent or proxyholder as the Board of Directors may designate. In the absence of such designation, such rights may be exercised by the Chairman of the Board or the president of this corporation, or by any other person authorized to do so by the Chairman of the Board or the president of this corporation. Except as provided below, shares of this corporation owned by any subsidiary of this corporation shall not be entitled to vote on any matter. Shares of this corporation held by this corporation in a fiduciary capacity and shares of this corporation held in a fiduciary capacity by any subsidiary of this corporation, shall not be entitled to vote on any matter, except to the extent that the settler or beneficial owner possesses and exercises a right to vote or to give this corporation or such subsidiary binding instructions as to how to vote such shares. Solely for purposes of Section 1 of this Article VII, a "subsidiary" of this corporation shall mean a corporation, shares of which possessing more than fifty percent (50%) of the power to vote for the election of directors at the time determination of such voting power is made, are owned directly, or indirectly through one or more subsidiaries, by this corporation. Section 2. Interpretation. Unless the context of a Section of these Bylaws otherwise requires, the terms used in these Bylaws shall have the meanings provided in, and these Bylaws shall be construed in accordance with the Nevada statutes relating to private corporations, as found in Chapter 78 of the Nevada Revised Statutes or any subsequent statute. ARTICLE VIII AMENDMENTS Section 1. Stockholder Amendments. Bylaws may be adopted, amended or repealed by the affirmative vote or written consent of a majority of the outstanding voting shares of this corporation, except as otherwise provided by the statutes of Nevada, the Articles of Incorporation or elsewhere in these Bylaws. 12 50 Section 2. Amendments by Board of Directors. Subject to the right of stockholders as provided in Section 1 of this Article VIII, Bylaws may be adopted, amended or repealed by the Board of Directors. 13 EX-99.(C)(12) 7 COMPLAINT 1 EXHIBIT (c)(12) GIBSON, DUNN & CRUTCHER LLP WAYNE W. SMITH (Bar No. 054593) DAVID A. BATTAGLIA (Bar No. 130474) ORIGINAL FILED MICHELLE H. TREMAIN (Bar No. 187342) ROBYN C. CROWTHER (Bar No. 193840) 333 South Grand Avenue FEB 23 1998 Los Angeles, California 90071-3197 (213) 229-7000 SUPERIOR COURT Attorneys for Plaintiff COMPUTER SCIENCES CORPORATION SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES CENTRAL DISTRICT COMPUTER SCIENCES CASE NO. BC186394 CORPORATION, a Nevada corporation headquartered in Los Angeles County, COMPLAINT FOR: Plaintiff, (1) UNFAIR, UNLAWFUL, AND FRAUDULENT BUSINESS ACTS AND PRACTICES IN VIOLATION OF CALIFORNIA BUSINESS AND V. PROFESSIONS CODE SECTIONS 17200 ET SEQ., INCLUDING: (a) IMPROPER ATTEMPT TO BUY LOYALTY; COMPUTER ASSOCIATES (b) ATTEMPTED ECONOMIC DURESS; INTERNATIONAL, INC., a Delaware (c) FRAUD AND DECEIT; corporation; CHARLES B. WANG, (d) IMPROPER. INTENTIONAL an individual; SANJAY KUMAR, INTERFERENCE; an individual; CORPORATE DOES (e) UNFAIR BUSINESS ACTS. 1-50 and INDIVIDUAL DOES 51-100, inclusive, (2) ECONOMIC DURESS; Defendants. (3) INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE AND CONTRACTUAL RELATIONS; (4) CONSPIRACY. 1 2 Plaintiff COMPUTER SCIENCES CORPORATION ("CSC"), for its Complaint in this matter, avers and alleges, upon knowledge as to itself and upon information and belief as to all other matters, as follows: NATURE OF ACTION 1. Defendants Computer Associates International, Inc. ("Computer Associates"), Charles B. Wang ("Wang"), and Sanjay Kumar ("Kumar") (collectively "Defendants") have engaged, and continue to engage, in an unfair, unlawful and fraudulent scheme to attempt to acquire CSC at less than its value by employing wrongful and illegal means. They first attempted to buy the loyalty of CSC's senior executive in the hopes of acquiring CSC for $100 a share. They then threatened to damage CSC and its relationships with its employees and customers if CSC did not sell at a disadvantageous and unfair price and in a transaction which would be detrimental to the interests of CSC and its customers, employees, and stockholders. Then they commenced a continuing campaign of fraud and interference in order to continue to attempt to pressure CSC to sell the company on Defendants' terms. 2. Defendants are aware that if they are successful, they are able to acquire CSC at a price far less than its value. They also recognize that even if they fail, they will have damaged CSC just before launching a major competitive initiative against it. Either way, Defendants' misconduct is rewarded -- unless it is immediately halted by this Court. THE PARTIES COMPUTER SCIENCES CORPORATION 3. Complainant CSC is a Nevada corporation with its principal place of business located in Los Angeles County at 2100 E. Grand Avenue, El Segundo, California 90245. Its common stock is listed on the New York Stock Exchange under the symbol "CSC." CSC is in the business of providing clients with a wide range of professional services, including management consulting, information systems consulting, development and integration, outsourcing, and operations support. It has approximately 44,000 employees in nearly 600 offices worldwide. The Chairman of the Board, President, and Chief Executive Officer of CSC is Van B. Honeycutt ("Honeycutt") 2 3 4. CSC's robust financial condition includes a compound annual growth rate of 20.4 percent in revenue over the past five years, and a 26.3 percent compound annual increase in income before special items for the same period. CSC has had larger gains in market share and revenue than its primary competitor in fifteen of the last sixteen quarters. It has won or implemented $6.7 billion in large outsourcing contracts over the last twelve months. COMPUTER ASSOCIATES INTERNATIONAL, INC. 5. Defendant CAI is a Delaware corporation with its principal executive offices located at One Computer Associates Plaza, Islandia, New York 11780. Its common stock is listed on the New York Stock Exchange under the symbol "CA." CAI is in the business of developing, licensing and supporting computer software products, and has approximately 11,000 employees in 160 offices worldwide. Its corporate headquarters for California and Hawaii is located in Los Angeles County at 300 Corporate Pointe, 2nd Floor, Culver City, California 90230-7614. It has nine other regional offices in the State of California, including another office in Los Angeles County. 6. CAI has grown rapidly in recent years by acquiring software companies with a substantial installed product base and ongoing license revenues, ruthlessly reducing costs and employee headcount, writing off acquired research and development costs and good will, and drastically cutting back further product development. CAI's business strategy has made it a very controversial company in the software industry. CAI's tactics in dealing with clients have been similarly aggressive and questionable, and CAI is consistently involved in litigation with its clients. 7. CAI's reputation in connection with acquisitions is well known. In May 1995, in connection with the acquisition of Legent Corporation, Wang, Kumar and others promised that "CA's trying to do the right things" with regard to employees, that the acquisition represents an "acceleration of hiring," and prospects of firings were called "ridiculous rumors." CAI's actions differed from its representations. By one estimate, between 80 to 90 percent of Legent's 2,000 or so employees had left or been let go within a year of the transaction. In fact, in connection with the Legent acquisition, CAI represented in SEC filings that there were "no current 3 4 plans or proposals that would relate to, or result in, any other material change in the [target's] business, corporate structure, Board of Directors or management." In 1994, in connection with the ASK acquisition, Wang emphasized, "We're excited to have the opportunity to include the ASK people, products and clients in the CA family." Within days of the acquisition, 150 ASK employees were terminated and an additional 100 employees left because of CAI's demand that they enter into a stringent non-compete agreement extending long after employment ended, an agreement which is contrary to long-standing law and policy in California. Discussing potential layoffs in connection with the Cullinet acquisition, Wang stated that "some redundant jobs will be eliminated and those affected will be reassigned, if possible within CA. " Then the deal closed. "CA got rid of more than half of the company's 2,000 employees (many quit before they were fired)," according to Upside magazine. 8. The descriptions of Defendants' treatment of employees at companies it acquires are well publicized. "Within several days of a deal's closing, out come the long knives" (Fortune, 7/21/97); "hordes of personnel to the sword" (Computergram Intl. 1997); "it has acquired a reputation for extensive bloodletting after its purchases and a certain arrogance and aggression" (Software Futures, 1996). As succinctly stated in The Washington Post, "It's been tarred with such names as 'Darth Vader' or 'the Neutron Bomb' -- a weapon that leaves buildings standing, but with no one in them." As one ex-employee recalled, "It was the most humiliating experience of my life. Then they refused to pay off my expense account." (Fortune 7/21/97). Another emphasized, "I've been in the business for 15 years, and I've never seen anything like it." (Id.) As another example, CAI was found guilty of violating the Racketeer Influenced and Corrupt Organizations Act ("RICO") two years ago by a New York arbitration panel and was ordered to pay $12 million to former employees as a result of misconduct in connection with acquisition and valuation of Online Software. CAI subsequently lost the appeal. In fact, CAI has become so proficient at laying people off that it has actually developed its own software program for this purpose: "the merger acquisition program system" or "MAPS. " Manager rankings, personality profiles and other information are input into a CAI proprietary program and the computer tells CAI who should be fired. Wang refers to his management approach as "zero-based thinking." 4 5 9. CAI's negative reputation for service is well known and well publicized. "I've never seen one vendor with so many dissatisfied customers as CA seems to have" (Investor's Business Daily, 5/26/95); "I think CA's lack of finesse has cost them in the customer relations arena" (Los Angles Times, 9/13/93); "By the early 1990's, Computer Associates had become known for its ravenous appetite . . ., for jacking up maintenance costs ... and for pushing its many licensing contracts at the expense of good customer relations. It was not uncommon for the company to sue a client over relatively minor infractions" (New York Times, 2/4/97); "Some customers maintain a strict 'no CA' policy.... Many also claim that after CA acquires a company and lays off scores of people, customer service falls off' (Fortune, 7/21/97); "In a . survey of 50 major CA customers ... 75 percent rated its service as below average" (The Washington Post, 5/10/92). "[CAI], which is a huge provider of operating systems and other software to financial institutions, has a reputation for inflexible licensing policies that can complicate a bank's move to new providers of technology issues." (American Banker, 2/23/98). Computer Associates should be feeling uncomfortable because it has been treating a lot of customers like dirt -- particularly those it has gained through acquisition." (Information Week U.K. 2/20/98). CAI's terrible reputation is in sharp contrast to that of CSC: "In contrast, CSC is a customer advocate. As a services company, it has to treat customers with kid gloves to get repeat business" (Bloomberg, 2/12/98). THE INDIVIDUAL DEFENDANTS 10. Billionaire Defendant Charles B. Wang is the Chief Executive Officer, Chairman of the Board and a director of CAI. He has been a director since June 1976 and Chairman since April 1980. He also is one of three members of the Executive Committee of CAI. He owns approximately 5% of the stock of the company, although he expects to own substantially more in the near future. In 1995, Wang, Kumar and Russell M. Arntz (Executive Vice President of Research and Development), granted themselves 20.25 million shares of stock of CAI; 60%, 30% and 10% respectively. These shares are worth nearly a billion dollars, with an as yet untaken consequent charge to CAI's earnings. A portion of these shares currently are vested, and the 5 6 remainder appears likely to become vested if there is a combination, pursuant to the change in control provisions of CAI's 1995 Key Employee Ownership Plan ("Plan"). Regardless, they are expected to become vested by March 31, 2000, since CAI's stock price needs only exceed $38.82 for sixty days during the preceding twelve months for such vesting to occur. A number of Plan conditions which concern vesting have not been described, or have been described inconsistently, in CAI's public financial statements. Wang participated in a meeting and communications concerning the matters set forth in this Complaint in this judicial district. 11. Defendant Sanjay Kumar is the President, Chief Operating Officer and a director of CAI. He also is one of three members of the Executive Committee of CAI's Board. He joined CAI in 1987, and he served as Executive Vice President-Operations and Senior Vice President-Planning before being elected to his current positions effective January 1994. He also owns a significant amount of stock in CAI. Kumar participated in a meeting and communications concerning the matters set forth in this Complaint in this judicial district. GENERAL ALLEGATIONS 12. In effecting the wrongful actions herein alleged, each defendant was the agent or co-conspirator of each other defendant, and was acting in the course and scope of said agency or conspiracy. Defendants also ratified, approved and accepted all or part of the wrongful acts of their agents, employees and/or co-conspirators alleged herein. Moreover, at the time of the wrongful conduct alleged herein, Plaintiff was led to believe, either intentionally or with a lack of ordinary care, that each defendant was the agent, employer or co-conspirator of each other defendant, and that they were acting within the course and scope of said agency, employment or conspiracy in perpetrating the wrongful conduct alleged herein. In addition, Wang and Kumar were permitted by CAI to be in positions to commit the wrongful conduct alleged herein while appearing to act within the powers permitted to them by their corporate principal. 13. The true names and capacities of various other defendants, whether corporate, individual or otherwise, are at this time unknown to Plaintiff, but may include various subsidiaries and affiliates of CAI, as well as officers, directors, employees and agents of the 6 7 corporate defendant. Plaintiff will amend this Complaint if necessary when the true names, capacities and actions of Corporate Does 1-50 and Individual Does 51-100 become ascertained. On information and belief, each of said defendants is responsible in some manner for the events and injuries described herein and have caused damage to Plaintiff as described herein. 14. Representatives of Defendant CAI have been present frequently in this judicial district and have maintained substantial contacts in Los Angeles County and the State of California. CAI has two offices in this district and nine offices throughout California. The obligations and liabilities which are the subject of this action arose in this judicial district, and various of the wrongful acts of the Defendants alleged herein took place in the County of Los Angeles, State of California. Jurisdiction and venue are proper. FIRST CAUSE OF ACTION (UNFAIR, UNLAWFUL, AND FRAUDULENT BUSINESS PRACTICES) (BY PLAINTIFF CSC AGAINST ALL DEFENDANTS) 15. Plaintiff CSC incorporates by reference and realleges Paragraphs 1 through 14 as if set forth in full herein. 16. Defendants, and each of them, have engaged, are engaging, continue to engage in, and propose to continue to engage in, unlawful, unfair and fraudulent business acts and practices in violation of the California Unfair Business Practices Act, set forth at California Business and Professions Code section 17200 et seq. Specifically, Defendants, and each of them, were engaging, are engaging, and will continue to engage in a systematic and conspiratorial campaign of unfair, unlawful, and fraudulent acts and practices to attempt to coerce CSC and its directors to sell the company to CAI at a disadvantageous and unfair price and in a transaction which would be detrimental to the interests of CSC and its customers, employees, and stockholders. 17. In furtherance of Defendants' campaign, Defendants first attempted to buy the loyalty of Honeycutt, CSC's chief executive officer, to secure his support to sell CSC below its value, and thereby defraud CSC shareholders. When this failed, Defendants sought to coerce CSC to negotiate an acquisition on their terms by threatening to cause severe harm to CSC's business. 7 8 Defendants subsequently have followed through on their threats and are continuing their illegal coercive scheme. In Defendants' minds, there is no downside to this unlawful and unfair strategy. The worst CAI perceives may happen is that it does substantial harm to CSC's relationships with its customers and employees so that CAI will be in a better position to compete against CSC if it is unable to acquire CSC below its value -- competition which Wang promised if the deal is unsuccessful. In the process, Defendants are hoping to gain access to CSC's confidential financial information and trade secrets, which also would put it in a better position to compete against CSC. 18. Defendants' actions threaten severe damage to the business of CSC and the value of the shareholders' interests. Defendants' gross and persistent misconduct is precisely the type of behavior the California Unfair Business Practices Act was designed to address. 19. Therefore, as set forth more fully in the Prayer below, Plaintiff seeks to enjoin Defendants from engaging in, and continuing to engage in, unlawful, unfair and fraudulent business acts and practices, and all violations of California law; to enjoin Defendants from proceeding with their proposed acquisition of CSC and from any further acquisition of shares or any attempt to solicit the shareholders of CSC; to enjoin Defendants from attempting illegally to buy the loyalty of any of CSC's officers, directors, employees or representatives or from attempting to induce them to breach their fiduciary duties; to enjoin Defendants from attempting to coerce improperly CSC or its officers, directors, employees or representatives to sell CSC to CAI at a disadvantageous and unfair price and in a transaction which would be detrimental to the interests of CSC, its customers, employees, stockholders and the public interest; to enjoin Defendants from making false and fraudulent representations; to enjoin Defendants from communicating in any way, directly or indirectly, with CSC's customers and employees about any proposed transaction; and, to pay restitution to CSC in an amount to be determined at trial. (A) CAI'S FIRST STEP: IMPROPER ATTEMPT TO BUY LOYALTY 20. On December 18, 1997, Wang and Kumar came to CSC's corporate headquarters in El Segundo to meet with Honeycutt. The purpose of their meeting was unknown to Honeycutt. Kumar had called Honeycutt's assistant the day before and indicated that Wang and Kumar were interested in visiting CSC's offices, which is not surprising since is a vendor of 8 9 software to CSC. At the meeting, Wang began by stating, "Wouldn't it be great to be partners." Honeycutt, who had no idea what he was talking about, indicated that his company already had a license relationship whereby CSC had the ability to use CAI's software with many of its clients. Wang then explained that he envisioned a different partnership through a combination in which CAI purchased CSC. He stated that such a transaction would be a good strategy for CAI. 21. Honeycutt responded that he could see no advantage for CSC in such a relationship, an issue which Wang had neglected to address. Honeycutt stressed that CSC was not up for sale, and that he could not support any transaction based on the assertions Wang made. After some additional discussion, Wang asked Honeycutt if Wang and Kumar could meet privately for five minutes. Honeycutt stepped out of the meeting. 22. When Honeycutt returned, Wang did not seek to explain how a merger benefited CSC, nor did he present any business plan for the combined companies. Instead, Wang offered to pay Honeycutt personally more than $50 million. Wang promised that Honeycutt would receive guaranteed stock options worth at least $35 million (with any shortfall in market value being paid by CAI), as well as a guaranteed seven-year contract with an annual base income of no less than $2.5 million. Honeycutt objected to this attempt to buy his loyalty, and was interrupted by Wang. 23. Wang stated he wanted to consummate a merger transaction for $100 a share, which he and Kumar knew was far below the value of CSC. Indeed, on February 11, 1998, CAI made public an offer of $108 a share (which it knows is still less than the value of CSC). This price difference alone represents value to CSC shareholders of about $650 million. Further, on or about February 15, CAI's bankers stated on the telephone to a representative of CSC that CAI was prepared to pay $114 a share (which it also knows is less than the value of CSC) in a friendly transaction, pointedly emphasizing the potential harm to CSC's business that CAI would cause if CSC was not sold on CAI's terms. The $14 dollar price difference between $100 a share and $114 per share represents approximately $1.1 billion to CSC shareholders. 24. The conduct of Defendants was an intentional, unlawful and corrupt attempt to buy Honeycutt's support of a transaction that only benefited CAI at the expense of CSC and its 9 10 stockholders. Defendants' conduct is an express violation of numerous provisions of the California Penal Code governing commercial bribery (including the criminal statutes governing solicitation of others to Join in a bribery scheme). It is an unlawful, unfair, and fraudulent business act or practice within the meaning of the California Unfair Business Practices Act. (B) CAI STEP NO. 2: ATTEMPTED ECONOMIC DURESS 25. A second brief meeting was held on February 5, which Honeycutt attended based on the promise that Defendants were going to reveal their business plan for a combined entity, and therefore explain how the transaction benefited CSC. Defendants did not keep this promise. Instead, Defendants threatened to directly and wrongfully harm CSC if it refused to agree to a transaction on CAI's terms. They mentioned $98 a share. Given CAI's negative reputation and the nature and tone of Defendants' threats, CSC had a reasonable belief that CAI would attempt to do exactly as it threatened. CAI has in fact done so. 26. CAI's threats were echoed in a letter dated February 15, 1998, in which CAI stated that if a friendly transaction was not consummated promptly on CAI's terms, the consequence would be "an adverse impact to CSC's business and people." Kumar continued that "a reduced value of CSC" would result from CAI's actions. Statements to this effect also were made to the same CSC representative on or about that day, in which CAI noted that it independently had been in discussions with competitors of CSC which were excited about the prospect of CSC being damaged. 27. Defendants' attempts at improper economic duress were rebuffed by CSC. The interests of CSC and its shareholders, employees, and customers were paramount and would not be sacrificed because of CAI's threats of improper economic injury. That CAI has chosen to follow through on its statements has exacerbated its wrongful conduct. 28. Defendants' conduct is an express violation of numerous provisions of the California Penal Code governing economic extortion (including the criminal statutes governing solicitation of others to join in an extortion scheme). It is an unlawful, unfair and fraudulent business act or practice within the meaning of the California Unfair Business Practices Act. 10 11 (C) CAI STEP NO. 3: FRAUDULENT MISREPRESENTATIONS ABOUT NEGOTIATIONS AND THE PROSPECT FOR AN "AGREEMENT." 29. CAI was aware that an offer by it to acquire CSC would lack credibility in view of fundamental obstacles to a combination of its business methods and reputation with those of CSC. In an effort to overcome the skepticism with which a takeover offer by it was sure to be received, it embarked on a deliberate attempt to mischaracterize its two meetings with CSC's chief executive officer. CAI therefore deliberately and falsely published statements calculated to lead CSC's employees, customers, shareholders and the general public into believing that Honeycutt was in agreement with all aspects of the proposed acquisition, save only price. Defendants made these statements fully knowing that they were false when made. 30. On February 11, 1998, Defendants published a letter sent to CSC's chief executive officer dated the previous day. The letter from Kumar to Honeycutt contained numerous, deliberate material misrepresentations of fact. 31. First, the letter states that Honeycutt invested "significant time" in discussions "regarding the combination of" CAI and CSC, emphasizing that these "discussions" commenced in mid-December. In fact, the only communications between the parties on the subject were two brief meetings (and a few telephone calls to schedule the meetings) in which CAI expressed its strong desire to purchase CSC at a disadvantageous and unfair price, attempted to buy the loyalty of the chief executive officer of CSC, and threatened to damage CSC if Honeycutt refused to accede to CAI's proposals. 32. The mischaracterization of CAI's communications with Honeycutt continue in the February 10 letter: "As we agreed, the combination of CA and CSC would create a worldclass information technology solutions provider with unparalleled depth in both software and services. 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 providers that will lead our industry into the millennium. (Emphasis added). In fact, as Defendants well knew, there was never any such agreement. 11 12 Neither Honeycutt nor anybody else at CSC had "agreed" with any of these propositions and, in fact, Honeycutt strongly disagreed with them. As Defendants well knew, Mr. Honeycutt had made it clear again in no uncertain terms that he was not interested in the combination as proposed by Defendants, because the proposed price was not fair and the strategy was flawed. 33. Defendants' misrepresentations in the February 10 letter continue with the statement that the parties have reached "agreement" on the material terms of a combination of the two companies, with the sole exception of price. Indeed, these purported agreements are said to be "confirmed by my letter," suggesting that terms already have been incorporated into writing. No such agreements were ever reached, and Defendants acknowledged this at the February 5 meeting. - Defendants falsely stated in the February 10 letter, "We are in agreement on the need and manner of retaining key managers and employees." (Emphasis added). - Defendants falsely represented, "We are in agreement on providing stock option grants to key managers and employees." (Emphasis added). - Defendants falsely wrote, "We are in agreement that the CSC organization within the combined company will be on equal footing to CAI's existing product organization." - Further, Defendants falsely suggested that there was an agreement that the parties "do not expect the combined company to need to reduce any head count to achieve the synergies that a transaction of this size demands." - Defendants falsely suggested that discussions had occurred and agreement was reached on the structure and organization of a combined entity. "As we discussed, it would make sense for the CA part of the combined company to take over CSC's product development efforts and for CSC, in turn, to take over CA's service commitments and efforts." (Emphasis added.) 34. Defendants have continued to misrepresent and mischaracterize their communications with Mr. Honeycutt in numerous media and investor interviews and statements. For example, they stated on a conference call on February 11 to members of the press that CAI 12 13 and CSC had "significant agreement on most of the points" and that "we're simply disagreeing over value at this point." 35. Defendants' conduct was calculated to, did, and continues to cause substantial damage to CSC's relationships with customers, prospective customers, employees, prospective employees and shareholders. Material misstatements intentionally made by Defendants created and continue to create false expectations and fears on the part of such persons about the prospect of a business combination. By creating these false expectations and fears, Defendants intended to mislead customers, prospective customers, employees and the investment community into believing that the proposed transaction was commercially attractive, that agreement was close at hand, and that opposition to such a transaction would be pointless and futile. This conduct also was intended to coerce CSC to accept the offer, even though it is much less than the value of the company, rather than be subject to shareholder lawsuits if the price of the stock dropped. Defendants' fraudulent misrepresentations, in conjunction with their other misconduct, constitute an unlawful, unfair and fraudulent attempt to coerce CSC to sell the company at less than its value. 36. At the same time CAI claims that negotiations were proceeding and agreements were being reached, Wang, Charles P. McWade (Senior Vice President of Finance of CAI), and Russell M. Arntz (Executive Vice President of Research and Development), sold over $27 million of stock of CAI. These sales took place in late January and early February. Defendants well knew that the public announcement of a proposed transaction with CSC would cause a steep and sudden decline in the value of CAI stock as a result of the high cost of the transaction to CAI, the formidable obstacles to combining the two incompatible businesses, and the substantial long-term dilution of CAI's earnings per share that would result. Wang sold 150,000 shares of CAI stock at $49.13 per share, for $7.4 million on January 22, according to documents filed with the Securities and Exchange Commission ("SEC"). He sold another 150,000 shares at $48.06 per share for a total of $7.2 million on January 27. McWade sold 72,006 shares at $53.65 per share for a total of $3.9 million on January 30, 1998. Arntz stated in a Form 144 filing that he was going to sell 175,000 shares of CAI "ASAP" on February 2 for in excess of $9.4 million in total proceeds at the market price, and expressly represented to the SEC that he "does not have any 13 14 material adverse information in regard to the current and prospective operations of the issuer of the securities to be sold which has not been publicly disclosed" immediately above his signature. 37. Defendants' conduct was calculated to, did, and continues to cause substantial damage to CSC's relationships with employees, prospective employees, customers, prospective customers, and shareholders, and was calculated to interfere with CSC's ongoing business. By damaging these relationships, the value of CSC's business is reduced accordingly. Thus, by damaging CSC, CAI is attempting to bring that value down to its desired disadvantageous and unfair price range. And even if the transaction does not go forward, CAI will have damaged CSC through its improper conduct, just as CAI is entering into competition with CSC . Wang himself promised at the very first meeting with Honeycutt that if the proposed transaction did not go forward, CAI would become one of the primary competitors of CSC within five years. Defendants' "squeeze" tactics violate the California Unfair Business Practices Act. (D) CAI STEP NO. 4: FRAUDULENT MISREPRESENTATIONS ABOUT THE FEASIBILITY AND EFFECTS OF THE PROPOSED TRANSACTION 38. Defendants intentionally, fraudulently, and with reckless disregard made misstatements concerning the effects a combination would have on CSC and on the combined entity, and omitted substantial material information. They stated that Honeycutt was in agreement that "the combination of CA and CSC would create a world-class information technology solutions provider with unparalleled depth in both software and services." They represented that there would be "inherent synergies" in a combination of the two companies, and that these purported mutual synergies would result in an improved operating entity. They have emphasized the "incredible potential that this merger holds for the clients, employees, and shareholders" of CSC. They emphasized that "we believe we're offering a very fair value" to CSC shareholders, and that CSC people agree that a combination "is a tremendous opportunity for both companies." They stressed that customers "would also have many, many more opportunities in working with the combined company" and that the deal somehow "benefits clients." They have emphasized that nothing would "change dramatically in any reorganization." 14 15 39. Defendants made these statements fully knowing that they were false when made, or with reckless disregard for their accuracy, and also are aware that they are omitting substantial material information. Defendants are aware that the merger is not in CSC's best interests, and that any combination does not make business sense to CSC. Defendants also are aware that they are not offering to buy CSC at a full or fair value, but simply want to buy CSC for less than its value through the exercise of the wrongful means described herein. 40. Defendants are aware of and have failed to disclose the numerous adverse effects that the proposed business combination would have on CSC and its business. CSC's strong financial position, as reflected by its 'A' credit rating, is critical to its ability to secure the large, long-term outsourcing contracts that are a key to growth in CSC's information technology business. A combined CSC and CAI would be irresponsibly leveraged and thus have a much lower credit rating (possibly not even investment quality) and be at a distinct disadvantage in the competition for such business. As CAI is aware, this would adversely affect the financial performance of any combined enterprise. Second, CSC's ability to provide independent solutions is a threshold and important issue for customers which demand platform neutrality. CAI is well aware that this neutrality would be severely compromised if CSC were to be acquired by CAI and, as a result, CSC would lose substantial credibility in the marketplace. Third, more than 25 percent of CSC's total anticipated revenues for fiscal 1999 are derived from outsourcing contracts that contain change in control provisions which would allow customers who are concerned about such issues or any involvement with CAI to move to another services firm. Fourth, software critical to CSC's data centers and other operations is licensed to CSC under contracts that are terminable by the licensor if CAI acquires CSC. Fifth, CSC's substantial work for the federal government and related defense clearance issues present significant problems in the proposed combination. 41. Given its negative reputation in the computer industry and past predatory practices, CAI cannot reasonably expect that all the employees of CSC will remain with the company if CAI were to complete a merger transaction. On information and belief, based on CAI's past practices, CAI does not reasonably intend to retain all of CSC's employees after a merger transaction, despite express statements to the contrary by Wang and Kumar. In fact, CAI's 15 16 representations in this respect contradict themselves. In their press release discussing their offer on February 11, CAI states that it intends to retain "all of CSC's valuable employees" (emphasis added), whatever that means. Similarly, in the letter to Honeycutt dated February 10, Kumar states that "we anticipate that all of the valuable CSC employees will be offered positions with a combined company," and that CAI intends to retain "key managers and employees." (Emphasis added). Then, in a letter dated February 11 to all CSC employees, Defendants wrote that it "will offer every employee a position in the combined company," and then stated that same day to the press that "we're committed to retaining all of CSC's employees" -- representations which are inherently incredible. As Wang himself acknowledged in Upside, "Most companies lie [about retaining employees in an acquisition]. They have no intention of keeping two legal departments, two administrative staffs, two this and two that after an acquisition, but they want to be popular. They want to be loved." 42. On information and belief, Defendants also made misstatements to banks to obtain financing commitments, to rating agencies, to the press and to the public. They minimized the negative impact of the transaction on CAI's financial position and earnings, and the dilutive effect on their performance. This is particularly true in light of CAI's past and present accounting practices such as those reported by the Center for Financial Research and Analysis in a 1996 evaluation. On information and belief, Defendants also failed to describe accurately the effects of a billion dollar charge to CAI's income due to the shares granted to CAI's three top executives as referenced above. Defendants then used "financing commitments" and a potential credit rating for a combined company, acquired as a result of this misinformation, to assist in its attempt to acquire CSC for less than its value. 43. Defendants' goal in engaging in this fraudulent conduct was to acquire CSC at a disadvantageous and unfair price in a transaction which would be detrimental to the interests of CSC and its customers, employees, and stockholders. They desire to move as quickly as possible and to exert maximum and continuing pressure on CSC in this respect. Defendants, by means of their misrepresentations, also intend to cast doubt on the credibility and motives of CSC's board in 16 17 rejecting CAI's offer, and therefore irreparably damage its ability to communicate effectively with CSC's shareholders, customers, and employees concerning CAI's offer. (E) CAI STEP NO. 5: INTERFERENCE WITH EMPLOYMENT RELATIONSHIP 44. Defendant CAI is engaged in a campaign of communicating with CSC employees and stating to them that the transaction is imminent. This has led to ongoing interference with the conduct of CSC's business, and threatens to damage CSC's reputation in the eyes of its employees, many of whom would consider CAI an unacceptable employer. As one example, CAI representatives have come to CSC's offices unsolicited and told CSC employees that CAI was taking over the company and that CAI would be its new employer. 45. CAI representatives have sought to dissuade prospective employees from interviewing with CSC. At one job fair, a CAI representative told prospective applicants applying at CSC's booth not to sign up with "those guys" since "we are going to buy them anyway." Prospective recruits have been convinced not to interview with or and become employed at CSC because of CAI's misconduct. 46. CAI's actions have damaged, and continue to damage, CSC's positive relationship with its employees -- who constitute the single most important part of its service business. (F) CAI STEP NO. 6: INTERFERENCE WITH CUSTOMER RELATIONSHIPS 47. CAI also improperly has been contacting customers of CSC and stating that it is taking over the relationship with those customers because of the transaction. Understandably, CSC's customers have been extremely upset. Because of the false representations of CAI about an imminent transaction and prior "agreements," CSC's customer relationships and new business opportunities are threatened with disruption. 17 18 SECOND CAUSE OF ACTION (IMPROPER ECONOMIC DURESS) (BY PLAINTIFF CSC AGAINST ALL DEFENDANTS) 48. Plaintiff CSC incorporates by reference and realleges Paragraphs 1 through 47 as if set forth in full herein. 49. As set forth in detail above, the Defendants have acted intentionally and unlawfully in attempting to exert improper influence and pressure on CSC and its directors, officers, employees and stockholders, and have injured CSC in its ongoing business operations and its favorable reputation in the information technology services and financial communities. 50. As a direct, proximate and foreseeable result of the above-described misconduct, CSC has suffered and will continue to suffer a significant loss of its good name and reputation and damages to its ongoing business operations in excess of $50 million, the precise amount to be determined at trial. 51. The wrongful actions of the Defendants alleged herein were willful, wanton, malicious and oppressive, and thus Plaintiff is entitled to exemplary and punitive damages appropriate to punish and make an example of all Defendants. THIRD CAUSE OF ACTION (CONSPIRACY TO ENGAGE IN WRONGFUL CONDUCT) (BY PLAINTIFF CSC AGAINST ALL DEFENDANTS) 52. Plaintiff CSC incorporates by reference and realleges Paragraphs 1 through 51 as if set forth in full herein. 53. Defendants, and each of them, knowingly and willfully conspired and agreed with one another to engage in the wrongful conduct set forth above. Defendants furthered the conspiracy by acting in furtherance of the conspiracy, by lending cooperation, aid and encouragement to the other co-conspirators, and by ratifying, accepting and adopting the wrongful acts alleged herein. 18 19 54. The wrongful actions of the Defendants alleged herein were willful, wanton, malicious and oppressive, and thus Plaintiff is entitled to exemplary and punitive damages appropriate to punish and make an example of all Defendants. FOURTH CAUSE OF ACTION (INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE AND CONTRACTUAL RELATIONS) (BY PLAINTIFF CSC AGAINST ALL DEFENDANTS) 55. Plaintiff CSC incorporates by reference and realleges Paragraphs 1 through 54 as if set forth in full herein. 56. CSC has established long-term business relationships with its customers and employees for the provision of computer services. Plaintiff has an honorable and respected reputation in the information technology services industry and with its employees and customers for trustworthiness and for dealing in good faith with them. 57. As set forth in detail above, the Defendants have acted intentionally and unlawfully in attempting to interfere, and interfering, with CSC's contractual relationships with its customers and employees. As further set forth in detail above, the Defendants have acted intentionally and unlawfully in attempting to interfere, and interfering, with CSC's prospective economic relationships with current customers and employees, as well as prospective customers and employees. Such conduct was independently wrongful as alleged above. 58. Defendants have engaged in this conduct to exert improper influence and pressure in an attempt to acquire the company on CAI's terms at an unfair price. Defendants also intended to injure CSC's business as a potential competitor. 59. As a direct, proximate and foreseeable result of the above-described misconduct, CSC has suffered and will continue to suffer a significant loss of its good name and reputation and damages to its ongoing business operations in excess of $50 million, the precise amount to be determined at trial. 19 20 60. The wrongful actions of the Defendants alleged herein were willful, wanton, malicious and oppressive, and thus Plaintiff is entitled to exemplary and punitive damages appropriate to punish and make an example of all Defendants. PRAYER WHEREFORE, Plaintiff prays for judgment against the Defendants, as specified in each Cause of Action set forth above, as follows: FOR CAUSE OF ACTION ONE, that Defendants be preliminarily and permanently restrained and enjoined, and that CSC be paid restitution, as follows: (a) Enjoin Defendants from engaging in, and continuing to engage in, the unlawful, unfair and fraudulent business acts and practices set forth above; (b) Enjoin Defendants from engaging in, and continuing to engage in, any violations of California law as set forth above; (c) Based on Defendants' persistent and gross misconduct, enjoin them from proceeding with their proposed acquisition of CSC and from any further acquisition of shares or any attempt to solicit the shareholders of CSC; (d) Enjoin Defendants from attempting illegally to buy the loyalty of any of CSC's officers, directors, employees or representatives or from attempting to induce them to breach their fiduciary duties; (e) Enjoin Defendants from attempting to coerce improperly CSC or its officers, directors, employees or representatives to sell CSC to CAI at a disadvantageous and unfair price and in a transaction which would be detrimental to the interests of CSC, its customers, employees, stockholders and the public interest; 20 21 (f) Enjoin Defendants from making false and fraudulent representations to the public about any meetings or communications with any CSC representatives, including the false and fraudulent representations concerning the purported negotiations or "agreements;" (g) Require Defendants to issue statements to the public correcting the false and fraudulent representations to the public about meetings and communications with any CSC representatives, including the false or fraudulent representations concerning the purported negotiations or "agreements;" (h) Enjoin Defendants from making false and fraudulent representations to the public about the prospects of a combined company, as well as the minimal negative impact a combination would have on CAI's financial position and earnings, particularly in light of its past and present accounting practices; (i) Require Defendants to issue statements to the public correcting the false and fraudulent representations to the public about the prospects for the combined company, as well as the minimal negative impact a combination would have on CAI's financial position and earnings; (j) Enjoin Defendants from communicating in any way, directly or indirectly, with CSC's customers and employees about any proposed transaction; and, (k) Pay restitution to CSC in an amount to be determined at trial. FOR CAUSES OF ACTION TWO THROUGH FOUR, 1. For damages in excess of $50 million; 2. For interest thereon at the statutory rate; 3. For exemplary and punitive damages; 21 22 4. For reasonable attorneys' fees and expenses; 5. For costs of suit incurred herein; 6. For such other and further relief as this Court deems just and proper. DATED: February 23, 1998 GIBSON, DUNN & CRUTCHER LLP WAYNE W. SMITH DAVID A. BATTAGLIA MICHELLE H. TREMAIN ROBYN C. CROWTHER By: /s/ DAVID A. BATTAGLIA --------------------------- David A. BATTAGLIA Attorneys for Plaintiffs COMPUTER SCIENCES CORPORATION 22 23 - ------------------------------------------------------------------------------------------------------------------------------------ SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES - ------------------------------------------------------------------------------------------------------------------------------------ SHORT CASE TITLE CASE NUMBER Computer Sciences Corporation v. ---------------------------------------------------------------------------------- Computer Associates International, Inc. CERTIFICATE OF ASSIGNMENT ---------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ File this certificate with all cases presented for filing in all districts of the Los Angeles Superior Court. - ------------------------------------------------------------------------------------------------------------------------------------ [X] JURY TRIAL [ ] NON-JURY TRIAL [XX] TIME ESTIMATED FOR TRIAL 20 [ ]HOURS/[X] DAYS. The undersigned declares that the above entitled matter is filed for proceedings in the Central District of the Los Angeles Superior Court under Section 392 et seq., Code of Civil Procedure and Rule 2 (b), (c) and (d) of this court for the reasons checked below. The address of the accident, performance, party, detention, place of business, or other factor which qualifies this case for filing in the above designated district is as follows: - ------------------------------------------------------------------------------------------------------------------------------------ NAME: (INDICATE TITLE OR OTHER QUALIFYING FACTOR) ADDRESS: Computer Sciences Corporation 2100 East Grand Avenue - ----------------------------------------------------------------- CITY: STATE: ZIP CODE: El Segundo CA 90245 - ----------------------------------------------------------------------------------------------------------------------------------- CHECK ONLY ONE NATURE OF ACTION. - ----------------------------------------------------------------------------------------------------------------------------------- NATURE OF ACTION GROUND NATURE OF ACTION GROUND - ----------------------------------------------------------------------------------------------------------------------------------- [ ] A7100 Vehicle Accident Local Rule 2 sets forth the No. of Minors Involved:________ One or more of the party [ ] A7210 Med Malpractice provisions for mandatory filings [ ] A5520 Regular Dissolution litigants resides within [ ] A7200 Other Personal Inj. in the Central District and [ ] A5525 Summary Dissolution the district.** [ ] A7220 Product Liability optional filings in the Central [ ] A5530 Nullity [ ] A6050 Other Malpractice District or District other than [ ] A5510 Legal Separation (Not a requirement [ ] A6012 Collection/Note the Central District in [ ] A6135 Foreign Support for filing in Central [XX] A6040 Injunct. Relief "Los Angeles County." [ ] A6136 Foreign Custody District--Rule 2) [ ] A6030 Declar. Relief [ ] A6122 Domestic Violence [ ] A6170 Late Claim Relief If this is a Class Action, [ ] A6130 Family Law Complaint- [XX] A6000 Other Complaint mark this box: Other (Specify): Business Tort [ ] Class Action ---------------------------------------------------------------- - ---------------------------------------------------------------- No. of Minors Involved:________ Child resides or deceased [ ] A6011 Contract/Commercial Performance in the district is [ ] A6080 Paternity father's probate would be expressly provided for.** [ ] A6131 DA Paternity filed in the district.** - ---------------------------------------------------------------- (DA use only) [ ] A7300 Eminent Domain/ The property is located within [ ] A6133 DA Agreement Inverse Condemnation the district.** (DA use only) No. of Parcels____________ [ ] A6600 Habeas Corpus Family Child is held within the [ ] A6020 Landlord/Tenant (UD) Law district.** [ ] A6060 Real Property Rights ----------------------------------------------------------------- - ---------------------------------------------------------------- [ ] A6101 Agency Adoption Petitioner resides within [ ] A6140 Admin Award The administrative tribunal is [ ] A6102 Independent Adoption the district.** located within the district.** [ ] A6104 Stepparent Adoption or - ---------------------------------------------------------------- [ ] A6103 Adult Adoption Consent to out-of-state [ ] A6160 Abstract The judgment debtor holds [ ] A6106 Sole Custody Petition adoption, consentor resides [ ] A6141 Sister State property within the [ ] A6105 Abandonment within the district.** Judgment district.** ----------------------------------------------------------------- [ ] A6107 Confession of [ ] A6210 Probate Will-Letters Decedent resided within the Judgment Testamentary district.** - ---------------------------------------------------------------- [ ] A6211 Probate Will-Letters or [ ] A7221 Asbestos Pers. Inj. Must be filed in the Administration Decedent resided out of the [ ] A6070 Asbestos Prop. Dam. Central District. [ ] A6212 Letters of district, but held property [ ] A6137 RESL Initiating Administration within the district.** Petition [ ] A6213 Letters of Special or [ ] A6138 RESL Responding Administration Petitioner, conservatee or Petition [ ] A6214 Set Aside Sm. ward resides within this [ ] A6139 RESL Reg of Foreign Estate (6602 PC) district.** Support [ ] A6215 Spousal Property [ ] A6111 Minor's Contract [ ] A6216 Succession to Real [ ] A6190 Election Contest Property - ---------------------------------------------------------------- [ ] A6217 Summary [ ] A6110 Name Change One or more of the party Probate (7660 PC) [ ] A6121 Civil Harassment litigants resides within [ ] A6218 Real Prop. Sm. [ ] A6100 Other Petition the district.** Value (13200 PC) (Specify):___________________ [ ] A6230 Conservatorship P & E - ---------------------------------------------------------------- [ ] A6231 Conservatorship Person [ ] A6151 Mandamus* The defendant functions [ ] A6232 Conservatorship Estate [ ] A6152 Prohibition* wholly within the [ ] A6233 Medical Treatment [ ] A6150 Other Writ* district.** without Consent (Specify):___________________ [ ] A6240 Guardianship P & E [ ] A6241 Guardianship Person [ ] A6242 Guardianship Estate [ ] A6243 Spouse Lacks Capacity [ ] A6254 Trust Proceedings [ ] A6260 Comp. Minor's Claim [ ] A6180 Petition to Establish Fact of Birth, Death or Marriage. [ ] A6200 Probate Other (Specify):______________________ - ------------------------------------------------------------------------------------------------------------------------------------ I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct and this declaration was executed on February 23, 1998 at Los Angeles, California. /s/ David A. Battaglia - ------------------------------------ (SIGNATURE OF ATTORNEY/FILING PARTY) David A. Battaglia * Perogative writs concerning a Court of inferior jurisdiction shall be filed in Central District. **Rule 2 allows optional filing in Central District. THE COURT MAY IMPOSE SANCTIONS OR OTHER PENALTIES FOR FAILURE TO FILE IN THE PROPER DISTRICT 4 76C134 CERTIFICATE OF ASSIGNMENT RULE 2 LASCR
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