-----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, Hby3JaxhxfeK0t0GEtwnXO0ZSMaZF1gzo/Evu19IhUrQOv0EKIb1l2y4EwGZcSS+ XecLm8GedOE9jldsCRp5SA== 0001047469-98-007795.txt : 19980227 0001047469-98-007795.hdr.sgml : 19980227 ACCESSION NUMBER: 0001047469-98-007795 CONFORMED SUBMISSION TYPE: SC 14D1/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19980226 SROS: NASD GROUP MEMBERS: CAI COMPUTER SERVICES CORP. GROUP MEMBERS: COMPUTER ASSOCIATES INTERNATIONAL INC 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 14D1/A SEC ACT: SEC FILE NUMBER: 005-06907 FILM NUMBER: 98550595 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 ASSOCIATES INTERNATIONAL INC CENTRAL INDEX KEY: 0000356028 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 132857434 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 14D1/A BUSINESS ADDRESS: STREET 1: ONE COMPUTER ASSOCIATES PLAZA CITY: ISLANDIA STATE: NY ZIP: 11788 BUSINESS PHONE: 5163425224 SC 14D1/A 1 SCHEDULE 14D1/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 5 TO SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 COMPUTER SCIENCES CORPORATION (Name of Subject Company) ------------------------------ CAI COMPUTER SERVICES CORP. COMPUTER ASSOCIATES INTERNATIONAL, INC. (Bidder) COMMON STOCK, PAR VALUE $1.00 PER SHARE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS (Title of Class of Securities) 20536310-4 (CUSIP Number of Class of Securities) SANJAY KUMAR PRESIDENT AND CHIEF OPERATING OFFICER C/O COMPUTER ASSOCIATES INTERNATIONAL, INC. ONE COMPUTER ASSOCIATES PLAZA ISLANDIA, NEW YORK 11788-7000 TELEPHONE: (516) 342-5224 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Bidder) ------------------------------ COPIES TO: SCOTT F. SMITH, ESQ. HOWARD, DARBY & LEVIN 1330 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 TELEPHONE: (212) 841-1000 ------------------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Statement amends and supplements the Tender Offer Statement on Schedule 14D-1 filed with the Securities and Exchange Commission on February 17, 1998, as amended (the "Schedule 14D-1"), relating to the offer by CAI Computer Services Corp., a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Computer Associates International, Inc., a Delaware corporation ("Computer Associates"), to purchase all outstanding shares of Common Stock, par value $1.00 per Share, of Computer Sciences Corporation, a Nevada corporation, together with (unless and until the Purchaser declares that the Rights Condition has been satisfied) the Series A Junior Participating Preferred Stock Purchase Rights associated therewith, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated February 17, 1998 (the "Offer to Purchase"), and in the related Letter of Transmittal, at a purchase price of $108 per Share (and associated Right) net to the tendering stockholder in cash, without interest thereon. Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the Offer to Purchase and the Schedule 14D-1. ITEM 10. ADDITIONAL INFORMATION. Item 10(e) is hereby supplemented as follows: On February 25, 1998, Computer Associates filed with the United States District Court for the District of Nevada a Brief in Reply to Computer Sciences Response to the Court's February 18 Order and in Support of Computer Associates' Motion for Expedited Declaration and on the Merits of the Relief Requested in the supplemental and amended complaint. A copy of the Brief is attached hereto as Exhibit (g)(4) and is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (g)(4) Brief in Reply to Computer Sciences Response to the Court's February 18 Order and in Support of Computer Associates' Motion for Expedited Declaration and on the Merits of the Relief Requested filed with the United States with the United States District Court for the District of Nevada February 25, 1998.
SIGNATURE After due inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: February 26, 1998 CAI COMPUTER SERVICES CORP. By /s/ PETER SCHWARTZ ----------------------------------------- Name: Peter Schwartz Title: Vice President and Treasurer COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ PETER SCHWARTZ ----------------------------------------- Name: Peter Schwartz Title: Senior Vice President and Chief Financial Officer 2 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT NAME - ----------- ----------------------------------------------------------------------------------------------------- (g)(4) Brief in Reply to Computer Sciences Response to the Court's February 18 Order and in Support of Computer Associates' Motion for Expedited Declaration and on the Merits of the Relief Requested filed with the United States with the United States District Court for the District of Nevada February 25, 1998.
3 EX-99.(G)(4) 2 PLAINTIFF'S RESPONSE Exhibit (g)(4) SCHRECK MORRIS STEVE MORRIS 1200 Bank of America Plaza 300 South Fourth Street Las Vegas, Nevada 89101 (702) 474-9400 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. UNITED STATES DISTRICT COURT DISTRICT OF NEVADA COMPUTER ASSOCIATES ) INTERNATIONAL, INC., ) ) Plaintiff, ) ) v. ) ) CV-S-98-00278-LDG (RLH) COMPUTER SCIENCES ) CORPORATION, IRVING W. BAILEY, ) HOWARD P. ALLEN, JAMES R. MELLOR, ) WILLIAM P. RUTLEDGE, WARREN ) MCFARLAN, THOMAS A. MCDONNELL, ) RICHARD C. LAWTON, LEON J. LEVEL, ) WILLIAM R. HOOVER and ) VAN B. HONEYCUTT, ) ) Defendants. ) ) - --------------------------------------------- ) COMPUTER ASSOCIATES' REPLY TO COMPUTER SCIENCES RESPONSE TO THE COURT'S FEBRUARY 18 ORDER AND IN SUPPORT OF COMPUTER ASSOCIATES' MOTION FOR EXPEDITED DECLARATION AND ON THE MERITS OF THE RELIEF REQUESTED TABLE OF CONTENTS PAGE Table of Contents........................................................i-ii Table of Authorities...................................................iii-iv Introduction................................................................1 Statement of Facts..........................................................4 Argument....................................................................8 Point I By Adopting the Bylaw Amendments, the CSC Directors Violated Their Fiduciary Duties to the Shareholders......................................10 A. The Primary Purpose of the Board's Bylaw Amendments Is To Disenfranchise the CSC Shareholders...................................10 B. Nevada's "Other Constituencies" Statute Does Not Authorize the Unreasonable Defensive Measures Taken by the CSC Board....................18 Point II The Board Did Not Have the Power to Remove the Shareholders' Right to Amend the Bylaws..............19 Point III The Board Did Not Have the Power To Revoke The Shareholders' Right to Remove Directors.........................................22 Point IV The Proposals Contained In The Proxy Solicitation Are Consistent With The Bylaws And Nevada Law....................................23 A. Nevada Law and the Bylaws Should be Interpreted Consistently With the Paramount Role of the Shareholder Franchise in Corporate Governance......23 -i- B. Under the Nevada Director Removal Statute, Two-Thirds of the CSC Shareholders May Remove Two-Thirds of the Directors.................24 C. Vacancies On the Board May Be Filled By the Written Consent of the Shareholder........................................25 D. CSC Lacks Statutory Authority To Set the Record Date for Computer Associates' Solicitations......................................26 E. The Bylaws Require Written Consent of a Majority of Shareholders to Amend the Bylaws.............................................26 F. The Annual Meeting Must Be Held On August 10, 1998....................................27 Conclusion.................................................................28 -ii- TABLE OF AUTHORITIES CASE PAGE AETNA LIFE INS. CO. V. HAWORTH, 300 U.S. 227 (1937).......................................................9 APRAHAMIAN V. HBO & CO., 531 A.2d 1204 (Del. Ch. 1987)............................................n.6 BLASIUS INDUS., INC. V. ATLAS CORP. 564 A.2d 651 (Del. Ch. 1988)..........................................passim CENTAUR PARTNERS V. NATIONAL INTERGROUP, INC., 582 A.2d 923 (Del. 1990)................................................n.7 CENTRAL MONTANA ELEC. POWER COOP., INC. V. BONNEVILLE POWER ADMIN., 840 F. 2d 1472 (9th Cir. 1988)...........................................10 EDGAR V. MITE, 457 U.S. 624 (1982).......................................................3 FRANTZ MANUF. CO. V. EAC INDUS., 501 A.2d 401 (Del. 1985)................................................n.9 HILTON HOTELS CORP. V. ITT CORP., 978 F. Supp. 1342 (D. Nev. 1997).....................................passim HILTON HOTELS CORP. V. ITT CORP., 962 F. Supp. 1309 (D. Nev. 1997)........................................28 IBS FIN. CORP. V. SEIDMAN & ASSOCS., L.L.C, No. 97-5056, 1998 WL 52292 (3d Cir. Feb. 11, 1998)......................16 ICN PHARMACEUTICALS, INC. V. KHAN, 2 F.3d 484 (2d Cir. 1993)................................................3 MARYLAND CAS. CO. V. PACIFIC COAL & OIL CO., 312 U.S. 270 (1941).......................................................9 PACKER V. YAMPOL No. 8432, 1986 WL 4748 (Del. Ch. Apr. 18, 1986)...........................17 ROVEN V. COTTER, 547 A.2d 603 (Del. Ch. 1988).............................................21 -iii- SCHNELL V. CHRIS-CRAFT INDUS., INC., 285 A.2d 437 (Del. 1971)................................................n.9 SHOEN V. AMERCO, 885 F. Supp. 1332 (D. Nev. 1994)..........................11-17, n.4, 13-14 STROUD V. GRACE., 606 A.2d 75 (Del. 1992).................................................n.4 UNITRIN INC. V. AMERICAN GEN. CORP., 651 A.2d 1361 (Del. 1995)...............................................n.4 UNOCAL CORP. V. MESA PETROLEUM CO., 493 A.2d 946 (Del. 1985)................................................n.4 STATUTES Nev. Rev. Stat. Sec. 78.120(2).............................................n.7 Nev. Rev. Stat. Sec. 78.138.............................................15, 18 Nev. Rev. Stat. Sec. 78.335(1)(b).......................................22, 23 Nev. Rev. Stat. Sec. 78.390(1)..............................................23 28 U.S.C. Sec. 2201.........................................................19 Fed. R. Civ. P. 57..........................................................10 OTHER AUTHORITIES Legislative History 91-4 A.B. 655 of the 66th Session of the Nevada Legislative, 1991 (Minutes of Assembly Committee on Judiciary; May 21, 1991)19 Legislative History 93-3, A.B. 387 of the 67th Session of the Nevada Legislature ...................................................n.10 -iv- This reply is necessary to address the points raised in Computer Sciences Corporation's ("CSC") "Response" of February 23, which go well beyond the issues raised in Computer Associates International, Inc.'s ("Computer Associates") motion to expedite declaratory relief. CSC's response asserts there is nothing for the Court to declare judgment on because the day after this suit was filed -- and on the same day the Court's order directing CSC to file a response was entered and served -- the CSC Board met and restructured CSC's Bylaws to entrench the Board and current management by eliminating its shareholders' rights to consider CA's tender offer and matters related thereto and this Court's authority to enforce those rights. These amendments to CSC's Bylaws are void under the Bylaws, Nevada law, and prior decisions of this Court. INTRODUCTION Just four months ago, in HILTON HOTELS CORP. V. ITT, this Court struck down the efforts of ITT management to deprive its shareholders of their basic right to decide whether to accept Hilton's tender offer. As the Court noted, "even if an action is normally permissible, and the board adopts it in good faith, a board cannot undertake such action if the primary purpose is to disenfranchise the shareholders in light of a proxy contest." HILTON HOTELS CORP. V. ITT, 978 F. Supp. 1342, 1348-49 (D. -1- Nev. 1997). Last week, the CSC Board of Directors directly violated this holding. The day after Computer Associates announced its $9 billion tender offer and proxy contest, the CSC Board met and gutted CSC's Bylaws, stripping away the basic franchise rights of its shareholders. In particular, the Board unilaterally revoked its shareholders' rights to remove directors, call meetings, act by consent, or make bylaw amendments - precisely the bylaws that Computer Associates relied upon in commencing its proxy campaign and this lawsuit. Two of these amendments are invalid even without HILTON, because the Board lacked the power to adopt them under Nevada statutes and CSC's Bylaws. CSC attempts to rationalize these actions by claiming that it merely "adopted measures designed to give it more time to consider the offer, and make a proper, well-informed recommendation to its shareholders." CSC Response at 10. The facts give the lie to this explanation: The CSC Board has already considered - and publicly rejected - Computer Associates' offer. It has refused to negotiate or even to explore whether another, higher offer is available. Indeed, the Board has stated that "any effort to combine [CSC] and Computer Associates would not make business sense," and has engaged in baseless attacks on Computer Associates -2- and its principals. The Board's stated reasons are a pretext for its real agenda, to kill this deal. The Board needs no more time, since it has already rejected the Offer. Further, its bylaw changes allow the Board to delay any shareholder vote by OVER ONE YEAR, a time period designed to preclude any transaction. CF. HILTON, 978 F. Supp. at 1348 ("ITT shareholders will have no choice but to accept the Comprehensive Plan and a majority of ITT's incumbent board members for another year."). The Board betrays its agenda by purporting to embrace "expedited consideration" for one of Computer Associates' claims, and then proposing a four-month delay while it subjects Computer Associates to extraordinary discovery - over 20 depositions and the production of warehouses of documents on unrelated transactions completed years ago. CSC argues that Computer Associates' application for expedited treatment on its Bylaws claims has been rendered moot by the Board's Bylaw amendments. The Board's illegal actions cannot moot Computer Associates' claims. To the contrary, CSC's unprecedented and illegal effort to bulldoze away its shareholders' rights underscores the urgent need for resolution of these issues. As the United States Supreme Court has noted, "delay can seriously impede a tender offer," permanently tilting the -3- playing field against the tender offer because it provides incumbent management with a powerful tool to combat tender offers, perhaps to the detriment of the stockholders who will not have an offer before them during this period. These consequences are precisely what Congress determined should be avoided . . . . EDGAR V. MITE, 457 U.S. 624, 635, 637 (1982). ICN PHARMACEUTICALS, INC. V. KHAN, 2 F.3d 484, 492 (2d Cir. 1993) ("Time is of the essence in these contests, and delay can be a potent weapon favoring incumbent management."). Computer Associates asks that the Court restore CSC shareholders' clear rights under HILTON to exercise their franchise. The relief is needed now: CSC management knows all too well that delay is their only defense to the deal, and therefore seeks to stall as long as possible the determination by the shareholders or by the Court. The resolution of these legal issues need not be delayed: No discovery is needed to resolve the bylaw issues raised in Computer Associates' original complaint, which the precedents of this Court and the courts of Delaware dispositively resolve. Nor is any discovery needed to declare that CSC's bylaw amendments are plainly unlawful, as alleged in Computer Associates' Supplemental and Amended Complaint. CSC shareholders should not be stripped of their right to -4- decide. STATEMENT OF FACTS(1) On February 17, 1998, Computer Associates set out to replace the CSC Board of Directors by straightforward and democratic means. It publicly filed a preliminary consent solicitation with the SEC, commenced a tender offer (the "Offer"), and filed a complaint with this Court, seeking to clarify exactly what percentage of voting shares was needed to replace CSC's directors. Computer Associates asked this Court to interpret the CSC ________________________ (1) CSC's Response seeks to smear Computer Associates with accusations of misconduct, including misrepresentations to the SEC, false statements to the press, threatening statements to CSC's CEO, and undefined "unseemly" conduct. CSC Response at 2-4. The claims are false. In the same vein, CSC's misleading comment ("supported" by mostly outdated news articles) that Computer Associates will mistreat CSC customers and employees after a merger is also false. CSC Response at 4 & n.2. As CSC knows, Computer Associates has stated that no CSC jobs will be cut as a result of the merger, a promise that Computer Associates has made and kept before. SEE Fortune, July 21, 1997 (Cheyenne Software structure and employees kept intact after acquisition by Computer Associates); PC Week Online, Oct. 7, 1996 ("CA scores points with users on no-layoff announcement"). CSC also pulls out-of-context quotes from a highly selective sampling of articles, all apparently intended to lessen the Courts opinion of Computer Associates. CSC Response at 4, n.2. We can just as easily counter with positive articles about Computer Associates or with press critical about CSC. SEE, E.G., Fortune, July 21, 1997 (Computer Associates' customers, polled by consulting analyst, either "thrilled" with customer support or believe it has improved); New York Times, February 4, 1997 (industry analysts agree that "kinder, gentler" Computer Associates is focused on customer satisfaction); USA Today, Sept. 2, 1997 (boy reunited with mother after twelve years because of $350,000 computer system donated by CEO of Computer Associates to National Center for Missing and Exploited Children); Computerworld, May 19, 1997 (large corporate customer cancels contract with CSC because of dissatisfaction with CSCs performance). This campaign is relevant, if at all, to CSC shareholders. It serves no purpose here. -5- Bylaws and to declare, INTER ALIA, that: (a) A MAJORITY of the outstanding voting shares are sufficient to amend the Bylaws by written consent; (b) TWO-THIRDS of the outstanding voting shares, acting by consent, are sufficient to remove at least a majority of the directors; and (c) A MAJORITY of the outstanding voting shares are sufficient to fill vacancies caused by removal of directors by written consent. Computer Associates also explained that (i) if it failed to receive written consent to replace a majority of directors, it would attempt to call a special meeting on this question, and (ii) if it failed to remove sufficient directors by a special meeting, it would seek to replace them at the annual meeting. The complaint sought a declaration that the Bylaws required CSC to hold its annual meeting on August 10, 1998.(2) The next day, February 18, CSC's Board gutted CSC's corporate governance structure. Without seeking shareholder comment or approval, the CSC Board marched methodically through its Bylaws, amending each bylaw that Computer Associates relied upon in seeking ___________________ (2) The background and specific details of the Offer already have been described in Computer Associates' initial Brief in Support of Motion for Expedited Declaration, dated February 17, -6- shareholder approval (the "Bylaw Amendments"). The Board's clear purpose was to prevent the CSC shareholders from voting on Computer Associates' proposals, and to render Computer Associates' consent solicitation and this lawsuit useless. Specifically, the CSC Board's Bylaws Amendments: - Virtually eliminated the right of shareholders to initiate and enact bylaw amendments, by increasing the percentage of shareholders required from a majority to 90%, an extreme supermajority level that, for all practical purposes, is impossible to achieve. (Article VIII, Section 1); - Virtually eliminated the right of shareholders to remove directors through written consent, by increasing the percentage of shareholders required from two-thirds to 90% (Article III, Section 2); - Eliminated the shareholders' right to call a special meeting of shareholders for any purpose, except as provided by Nevada law; - Enacted an employee severance plan under which the current CEO may, in his discretion, give away millions of dollars of company money to as many as 150 employees _____________ 1998 (the "Initial Brief"). -7- only if Computer Associates acquires CSC; and - Eliminated the requirement (observed throughout CSC's existence) to hold its annual shareholders meeting on the second Monday in August, giving the Board complete discretion to decide when the annual meeting will occur and enabling it to delay the meeting for at least a year (Article II, Section 2). The day after it overhauled the Company's Bylaws, the CSC Board announced its rejection of Computer Associates' offer. In a February 19 conference call with members of the investment community, Van Honeycutt, CSC's Chief Executive Officer, referred to Computer Associates' offer as "low ball," "a ridiculous number," and "a joke." In a letter sent to the CEO of Computer Associates the same day, Honeycutt asserted that "ANY effort to combine Computer Sciences and Computer Associates does not make business sense."(3) (Emphasis added.) In the meantime, CSC shareholders have had no say on whether to sell their company. Without the Court's intervention to restore the Bylaws, they will have none. ARGUMENT _________________ (3) CSC February 19, 1998 press release (attached as Exhibit 4 to the Supplemental and Amended Complaint). -8- The shareholders' right to vote "underlies the concept of corporate democracy." HILTON HOTELS V. ITT CORP., 978 F. Supp. 1342, 1347 (D. Nev. 1997). Interference with the shareholder franchise is especially serious. It is not be left to the Board's business judgment, precisely because it undercuts a primary justification for allowing directors to rely upon their business judgment in almost every other context. ID. at 1351. The Bylaw Amendments dramatically restrict the shareholder franchise, virtually eliminating the power of CSC shareholders to remove directors, call shareholder meetings, act by consent, or amend the Bylaws. The purpose of the Board's amendments is as transparent as their effect: to entrench management at the expense of the shareholder franchise. Because these amendments were adopted for "the primary purpose . . . to disenfranchise the shareholders in light of a proxy contest," HILTON, 978 F. Supp. at 1349 (citing BLASIUS INDUS., INC. V. ATLAS CORP., 564 A.2d 651, 652 (Del. Ch. 1988)), and because there is "no compelling justification" (HILTON, 978 F. Supp. at 1351) to block the shareholder franchise, the amendments constitute a clear breach of the Board's fiduciary duty under Nevada law and this Court's precedents. The CSC Board's assault on shareholder democracy makes -9- expedited review essential. The Bylaw Amendments, if allowed to stand, will preclude any meaningful exercise of the shareholder franchise and effectively kill the tender offer. SEE MARYLAND CAS. CO. V. PACIFIC COAL & OIL CO., 312 U.S. 270, 273 (1941); AETNA LIFE INS. CO. V. HAWORTH, 300 U.S. 227, 241 (1937). The Declaratory Judgment Act, 28 U.S.C. Sec. 2201, authorizes federal courts to make prospective declarations regarding "the rights and other legal relations of any interested party," and both the Act itself and Federal Rule of Civil Procedure 57 permit the Court to grant expedited review of such an action. SEE CENTRAL MONTANA ELEC. POWER COOP., INC. V. BONNEVILLE POWER ADMIN., 840 F.2d 1472, 1475 & n.1 (9th Cir. 1988); Fed. R. Civ. P. 57 (allowing courts to "order a speedy hearing of an action for a declaratory judgment"). Point I BY ADOPTING THE BYLAW AMENDMENTS, THE CSC DIRECTORS VIOLATED THEIR FIDUCIARY DUTIES TO SHAREHOLDERS. A. THE PRIMARY PURPOSE OF THE BOARD'S BYLAW AMENDMENTS IS TO DISENFRANCHISE THE CSC SHAREHOLDERS. In HILTON, this Court held that Board actions that have the "primary purpose of interfer[ing] with [the] shareholder franchise" are highly suspect under Nevada law and must be struck down unless accompanied by a "compelling justification": [E]ven if an action is normally permissible, and -10- the board adopts it in good faith and with proper care, a board cannot undertake such action if the primary purpose is to disenfranchise the shareholders in light of a proxy contest. 978 F. Supp. at 1348-49.(4) The reason is that "[i]nterference with shareholder voting" undermines the essence of corporate democracy, and destroys the balance of power between shareholders and directors. SHOEN, 885 F. Supp. at 1340-41. It is precisely because shareholders exert control over directors that courts normally give a great deal of deference to the Board's decisions on the day-to-day affairs of the company. ID. at 1340. But to protect this ______________________ (4) When a Board adopts defensive measures "in response to a perceived threat to corporate policy and effectiveness that touches upon issues of control," the heightened scrutiny of UNOCAL CORP. V. MESA PETROLEUM CO., 493 A.2d 946 (Del. 1985), applies. UNITRIN INC. V. AMERICAN GEN. CORP., 651 A.2d 1361, 1372 n.9 (Del. 1995) (internal quotation marks omitted); HILTON, 978 F. Supp. at 1347. That test requires the Board to show that it had reasonable grounds for believing that such a threat existed, and that its defensive measures were reasonable in relation to the threat. HILTON, 978 F. Supp. at 1347. When these defensive measures interfere with the shareholder franchise, both the BLASIUS and UNOCAL doctrines are implicated. SEE HILTON, 978 F. Supp. at 1346; STROUD V. GRACE, 606 A.2d 75, 92 n.3 (Del. 1992). Whatever doctrinal label is applied, the test in this situation is the same: "A boards unilateral decision to adopt a defensive measure touching upon issues of control that purposefully disenfranchises its shareholders . . . cannot be sustained without a compelling justification." HILTON, 978 F. Supp. at 1346; (quoting STROUD, 606 A.2d at 92, n.3). Because the CSC Boards actions affect stockholder voting rights and the allocation of power between directors and stockholders, we analyze these actions under BLASIUS, as the HILTON and SHOEN courts did. HILTON, 978 F. Supp. -11- dynamic, courts cannot defer to Board efforts that interfere with the free exercise of the franchise: [I]nterference with shareholder voting is an especially serious matter, not to be left to the directors' business judgment, precisely because it undercuts a primary justification for allowing directors to rely on their judgment in almost every other context. Put another way, "the ordinary considerations to which the business judgment rule originally responded are simply not present in the shareholder voting context," because when a board interferes with shareholder voting it interferes with the very "allocation, between shareholders as a class and the board, of effective power with respect to governance of the corporation." ID. at 1340-41 (citations omitted) (quoting BLASIUS, 564 A.2d at 659, 660). SEE ALSO HILTON, 978 F. Supp. at 1347 ("This Court fully endorses the reasoning in SHOEN and BLASIUS regarding the importance of shareholder franchise to the entire scheme of corporate governance."). To determine the board's "primary purpose," HILTON relied on "circumstantial evidence," because "a board would likely never concede that its primary purpose was to entrench itself." HILTON, 978 F. Supp. at 1349. The factors applied by the HILTON court, as relevant here, are (1) the timing of the Boards actions; (2) the effect on shareholders of the actions; (3) whether the same directors that took the actions are the ones entrenched by the actions; (4) the benefits to the corporation of the actions; and (5) the __________________ at 1348-50, 1351; SHOEN, 885 F. Supp. at 1340-42. -12- Board's stated purpose for the actions. The details of the Bylaw Amendments and the circumstances of their enactment demonstrate that the Board's primary purpose and effect was to interfere with the free exercise of the shareholder franchise. Because the Board's Bylaw amendments - all enacted on February 18, 1998 in a coordinated response to Computer Associates' actions the day before - are "inextricably related," the Court need only find that a substantial portion of the amendments violate BLASIUS in order to strike down the entire set of amendments. HILTON, 978 F. Supp at 1350. Factor 1. TRANSPARENT TIMING. One day after Computer Associates made public its consent solicitation and Offer, the CSC Board met and substantially eliminated the ability of CSC shareholders to amend the bylaws, to remove CSC directors, to act by written consent, and to call special meetings. Because of the timing of these changes, CSC's purpose is apparent: to manipulate the corporate election machinery to defeat Computer Associates' consent solicitation. Factor 2. HARMFUL EFFECT ON CSC SHAREHOLDERS. The negative effect on the shareholders' voting rights is dramatic. On February 17, the day Computer Associates' preliminary consent solicitation and Offer were made public, CSC shareholders had the following voting rights: -13- (a) a majority of shareholders could amend the Bylaws by written consent; (b) two-thirds of the shareholders could remove a sufficient number of directors to designate a majority of the Board; and (c) a majority of shareholders could call a special meeting. One day later, all of these voting rights were gone. After the Board's Bylaw Amendments, shareholders need the votes of 90% of the outstanding shares to amend the Bylaws, to remove directors, and to take any action by written consent. CSC claims that by increasing the requirements for shareholder actions to 90%, it merely "tightened, but did not eliminate" the possibility of shareholder actions. CSC Response at 12.(5) But the new levels operate as a complete bar. As the affidavit of former SEC Commissioner and Chief Economist Charles C. Cox confirms, it will be impossible to clear this 90% hurdle as a practical matter, whether to amend the Bylaws, act by written consent, or remove the directors: A REQUIREMENT OF 90% APPROVAL OF THE VOTING POWER OF A CORPORATION SUCH AS CSC CANNOT BE ______________________ (5) CSC misleads the Court by repeatedly claiming that the amended version of Article VIII, Section 1 requires only an 80% supermajority to amend the Bylaws. SEE CSC Response at 11-12. As CSC surely knows, this is NOT what their own amended bylaw provides. The new Article VIII, Section 1 requires a 90% supermajority to amend the Bylaws, as the Bylaws attached to the declaration of CSC's attorney confirm. -14- MET FOR ANY PRACTICAL PURPOSE. Due to the wide distribution of ownership of CSC shares, and the fact that many shareholders do not vote under any circumstances, the CSC shareholders will be unable to garner 90% of the voting power of the corporation in support of any shareholder proposal even if the proposal has overwhelming shareholder support. ACTIONS PREDICATED ON APPROVAL OF 90% OF THE SHAREHOLDERS WILL BE NEVER BE TAKEN. Affidavit of Charles C. Cox, dated February 24, 1998, Para. 10 (emphasis added), filed herewith. SEE ALSO HILTON, 978 F. Supp. at 1344 (illegal ITT Plan increased to 80% the shareholder vote required to (i) remove directors without cause, (ii) repeal this 80% removal provision, and (iii) repeal classified board provision). The Bylaw Amendments also take away the shareholders' right to call a special meeting, and grant the Board complete discretion to set the annual meeting date. Even if two-thirds of CSC's shareholders believe that CSC should accept Computer Associates' offer and therefore want to replace CSC's Board now, the Board can refuse to schedule the annual meeting until February 1999, thus entrenching itself and resisting for a year this shareholder supermajority. CF. HILTON, 978 F. Supp. at 1348 ("At the very minimum, ITT shareholders will have no choice but to accept the Comprehensive Plan and a majority of ITT's incumbent board members for another year. Therefore, the Comprehensive Plan is preclusive."). -15- Factor 3. ENTRENCHMENT. The directors that enacted these Bylaw Amendments are the same directors that benefit from these actions. The amendments will ensure that they are insulated from shareholder democracy and will preserve their positions. Factor 4. NO CORPORATE BENEFIT. Interfering with the shareholder franchise confers no legitimate benefits on the corporation. SEE, E.G., HILTON, 978 F. Supp. at 1351 ("[N]othing in [Nev. Rev. Stat. Sec. 78.138] suggests that the interests of third parties are as important as the right of shareholder franchise."). Factor 5. CSC'S STATED REASONS. CSC argues that these bylaw amendments are "designed to give it time to consider the offer, and make a proper, well-informed recommendation to its shareholders." CSC Response at 10. This rationalization is disingenuous and hypocritical in light of the Board's decision - to reject the Offer out of hand. Moreover, the Board's decision - to permanently strip away the shareholder franchise in response to an already rejected offer - is so excessive that it belies its purported rationale. CSC shareholders do not need to be protected from themselves in deciding whether to replace their own representatives on the Board. Their rights to decide for themselves - rights that they had until February 18 - should be restored. -16- Courts have consistently found improper interference with the shareholder franchise in less egregious situations than the one presented here. The Third Circuit recently held that a board of directors violated BLASIUS by reducing the number of directors from seven to six, because the board's purpose was to prevent dissident shareholders from gaining two seats on the board. IBS FIN. CORP. V. SEIDMAN & ASSOCS., L.L.C., No. 97-5056, 1998 WL 52292, at *11 (3d Cir. Feb. 11, 1998). In SHOEN, the Board's acceleration of the annual meeting date affected a dissident shareholder's proxy solicitation efforts and was overturned. The court explained that this interference with the shareholder franchise was sufficient to trigger the BLASIUS standard: "[W]hile shareholders can still vote their shares freely, the range of choices available to them has been narrowed by the advancement of the meeting date and [the shareholder's] consequent inability to campaign." 885 F. Supp. at 1342. SEE ALSO PACKER V. YAMPOL, No. 8432, 1986 WL 4748, *14-15 (Del. Ch. Apr. 18, 1986) (invalidating issuance of preferred stock with "supervoting" features in response to proxy contest, since it dilutes voting power of existing shares and generally makes defeat of management more difficult).(6) ___________________ (6) In APRAHAMIAN V. HBO & CO., 531 A.2d 1204, 1206-07, 1208 (Del. Ch. 1987), the Board delayed the annual meeting, thereby changing the record date and invalidating proxies that dissident stockholders had already solicited. This presented the distinct possibility - but just a possibility - that the will of the majority would be defeated. The court held that because -17- As in HILTON, where the actions of ITT's Board "violate[d] the power relationship between ITT's board and ITT's shareholders," 978 F. Supp. at 1346, the actions of CSC's Board substantially skew the allocation of power between the shareholders and the Board. SEE ALSO Shoen, 885 F. Supp. at 1341 ("[W]hen a board interferes with shareholder voting it interferes with the very 'allocation, between shareholders as a class and the board, of effective power with respect to governance of the corporation.'") (quoting BLASIUS, 564 A.2d at 659, 660). Because there is no "compelling justification" for such serious infringement of shareholder voting rights, the Bylaw Amendments should be declared invalid. B. NEVADA'S "OTHER CONSTITUENCIES" STATUTE DOES NOT AUTHORIZE THE UNREASONABLE DEFENSIVE MEASURES TAKEN BY THE CSC BOARD. Section 78.138 provides that directors "may consider" the interests of other constituencies in resisting a change of control. Nev. Rev. Stat. Sec. 78.138(3), (4). CSC invokes the statute as a pretext to justify its actions. This Court has already made clear in HILTON that Section 78.138 cannot justify interference with the shareholder franchise: Other constituencies may be considered under that provision, but nothing in that statute suggests _____________________ fundamental rights were involved, this possibility was enough to justify strict review, and invalidated the Board's action: "[I]n the interests of corporate democracy, those in charge of the election machinery of a corporation must be held to the highest standard in providing for and conducting corporate elections." -18- that the interests of third parties are as important as the right of shareholder franchise. While the two interests are not exclusive, neither are they equal. THE RIGHT OF SHAREHOLDERS TO VOTE ON DIRECTORS AT AN ANNUAL MEETING IS A FUNDAMENTAL PRINCIPLE OF CORPORATE LAW, AND IT IS NOT OUTWEIGHED BY THE INTERESTS LISTED IN NRS SEC. 78.138. 978 F. Supp. at 1351 (Emphasis added.) Section 78.138 merely acknowledges that non-shareholder interests may be considered by the Board in deciding whether to oppose a tender offer. It does not authorize responses to such an offer that subvert the shareholder franchise. The legislative history of the statute confirms this. Contrary to CSC's suggestion, nothing in the legislative history evidences an intent that the statute could be used to limit the shareholder franchise as a means of increasing directors' ability to resist a potential change in control. To the contrary, the statute's principal drafter assured lawmakers that under NRS Sec. 78.138, shareholders would be protected by the same devices they had enjoyed for a long time. . . . [S]HAREHOLDERS HAD THE POWER TO VOTE OUT MANAGEMENT, and it was power that had not been used enough in the past. . . . In that respect the system was self-correcting and THE MECHANISMS WERE THERE FOR SHAREHOLDERS TO CONTROL MANAGEMENT IF THEY CHOSE TO DO SO. Legislative History 91-4 A.B. 655 of the 66th Session of the Nevada Legislature, 1991 (Minutes of Assembly Committee on Judiciary; May 21, -19- 1991, at 14 (Statement of John P. Fowler)) (emphasis added). The legislative intent behind the statute thus directly contradicts CSC's attempt to use the statute as a justification for its disenfranchisement of CSC's shareholders. The Court should declare all the Board's Bylaw Amendments to be invalid. Point II THE BOARD DID NOT HAVE THE POWER TO REMOVE THE SHAREHOLDERS' RIGHT TO AMEND THE BYLAWS. The CSC Board's actions to strip away its shareholders' right to amend the Bylaws not only violates HILTON's prohibition against interference with the shareholder franchise, but also exceeds the express limits placed upon the Board's authority under the Bylaws. Until February 18, the Bylaws explicitly subordinated the Board's power to amend them to the will of A MAJORITY of CSC's shareholders. The previous Article VIII of the Bylaws (titled "Amendments") reads as follows: 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 -20- SECTION 1 OF THIS ARTICLE VIII, Bylaws may be adopted, amended or repealed by the Board of Directors. (Emphasis added). The previous Article VIII is clear on its face and guaranteed to CSC shareholders that a majority can adopt, amend, or repeal a bylaw. The Board's right to amend the Bylaws is expressly subject to this right and cannot be taken away by the Board. This check on the power of CSC's Board is a fundamental, defining feature of CSC's corporate structure. Those who own CSC stock have the security of knowing that they hold the power to block directorial abuse by assembling a majority of their fellow shareholders, a power not enjoyed by shareholders of all companies.(7) If the CSC Board wishes to take away the majority's power to amend the Bylaws, it is obligated to get the approval of that very majority. Otherwise, the protection afforded by Article VIII is illusory and its terms meaningless. SEE ROVEN V. COTTER, 547 A.2d 603, 608 (Del. Ch. 1988) (unilateral attempts by directors to restrict that power "are contrary to basic principles of corporate democracy, and the expressed will of the majority").8 ____________________ (7) Indeed, Nevada law provides that the power of the Board of Directors of a Nevada corporation to dictate the corporation's bylaws is subordinated to the stockholders' power to do so. Nev. Rev. Stat. Sec. 78.120(2). Under this statute, bylaws adopted by the stockholders trump any voted by the Board. (8) Moreover, supermajority requirements are strongly disfavored by the law and therefore the authority to impose them must be clear. SEE CENTAUR PARTNERS V. NATIONAL INTERGROUP, INC., 582 A.2d 923, 927 (Del. 1990): [T]he rules of corporate democracy are based in large part -21- The CSC Board seeks to usurp any future vote of the shareholder majority, barring them from amending the Bylaws unless a 90% vote is achieved. CSC's amendment negates the explicit reservation of power to shareholders in the Bylaws, violates fundamental precepts of shareholder government, and is abusive.(9) Computer Associates respectfully requests that the CSC Board's amendment to Article VIII of the Bylaws be declared invalid. Point III THE BOARD DID NOT HAVE THE POWER TO REVOKE THE SHAREHOLDERS' RIGHT TO REMOVE DIRECTORS. One of the Board's Bylaw Amendments increases the ____________________ upon the principle that a majority of the votes cast at a stockholders meeting is sufficient to elect directors. . . . [A] charter or bylaw provision which purports to alter this provision must be 'positive, explicit, clear and readily understandable . . . .' This presumption is overcome only by a clear, unambiguous and unequivocal statement, in the charter or by-laws of a corporation, expressing the stockholders' desire that a specific percentage of votes be required. ID. at 927. SEE ALSO ID. ("There must be no doubt that the shareholders intended that a supermajority would be required."). Article VIII of the Bylaws, by contrast, is a clear statement that the Board does NOT have the power to enact this supermajority provision. (9) The 90% requirement for shareholder approval of bylaw amendments may also be struck down simply because it is unreasonable. "[B]ylaws must be reasonable in their application." FRANTZ MANUF. CO. V. EAC INDUS., 501 A.2d 401, 407 (Del. 1985) (citing SCHNELL V. CHRIS-CRAFT INDUS, INC., 285 A.2d 437 (Del. 1971)). Because less than 90% of outstanding shares actually cast votes in proxy contests, the Board's 90% requirement is effectively impossible to reach. SEE Affidavit of Charles C. Cox, Para.Para. 10-11, filed herewith. This bylaw is unreasonable and void. -22- shareholder percentage required to remove directors from two-thirds to 90%. Under the plain language of Nev. Rev. Stat. Sec. 78.335(1)(b), the Board lacks the power to make that change. The statute explicitly gives a corporation this right to increase its removal percentage above two-thirds, but THAT CHANGE CAN ONLY BE EFFECTIVE IF MADE TO THE ARTICLES OF INCORPORATION, not by a bylaw amendment: 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. Nev. Rev. Stat. Sec. 78.335(1)(b) (emphasis added). CSC argues that cumulative voting always requires 90% of the shareholders to remove directors, and that their bylaw amendment simply restates that requirement. This is a fundamental misunderstanding of cumulative voting. The purpose of cumulative voting is to protect the minority, not to disenfranchise the majority. As we explain in our Initial Brief and hereafter at Point IV B, below, two-thirds of the shareholders may remove two-thirds of the directors under cumulative voting. Because the Board's 90% amendment cannot be justified by the cumulative voting provision, it can only be accomplished through an amendment to the Articles of Incorporation, which requires a vote of shareholders. Nev. Rev. Stat. Sec. 78.390(1). The Court should therefore declare the Board's -23- amendment to Article III, Section 2 of the Bylaws invalid. Point IV THE PROPOSALS CONTAINED IN THE PROXY SOLICITATION ARE CONSISTENT WITH THE BYLAWS AND NEVADA LAW. CSC claims that, even if its Bylaw Amendments are illegal, Computer Associates' proxy contest is not permitted under the original Bylaws. Its reasoning is mistaken. A. NEVADA LAW AND THE CSC BYLAWS SHOULD BE INTERPRETED CONSISTENTLY WITH THE PARAMOUNT ROLE OF THE SHAREHOLDER FRANCHISE IN CORPORATE GOVERNANCE. CSC incorrectly asserts that anti-takeover policies are the "aims of Nevada law" that should guide the Court's analysis of its Bylaws. CSC Response at 15. To the contrary, "the importance of the shareholder franchise" and the fact that the directors' power over a corporation "is limited by the right of shareholders to vote for the members of the board" are the relevant Nevada policies. HILTON, 978 F. Supp. at 1347.(10) ______________________ (10) CSC's claim that Nevada corporate law embodies an exceptional "anti-takeover" bias is also contradicted by the Nevada Legislatures 1993 decision to amend the Nevada Business Combination Statutes by REDUCING restrictions on corporate combinations with major shareholders. Indeed, a spokesman for the drafters of the 1993 amendments told the Nevada Legislature that "the climate has changed" since the passage of the 1991 provisions, and that "major stockholders should be permitted to consummate major transactions with their corporations with FEWER RESTRICTIONS from the business combinations statutes." Legislative History 93-3, A.B. 387 of the 67th Session of the Nevada Legislature, Remarks of John P. Fowler, at 3 (emphasis added). The Legislature has never sought to give corporate boards -24- B. UNDER THE NEVADA DIRECTOR REMOVAL STATUTE, TWO-THIRDS OF THE CSC SHAREHOLDERS MAY REMOVE TWO-THIRDS OF THE DIRECTORS. CSC mischaracterizes Computer Associates' proposal regarding the removal of directors. The CSC Bylaws require approval of two-thirds of outstanding shares to remove a director. Under cumulative voting, which provides that removal requires the approval of "a sufficient number of shares to have prevented [a director's] election in the first instance," (Article II, Section 2), such a two-thirds majority could remove six of nine directors. If Computer Associates receives the support of 67% of the CSC shareholders to remove the current directors, it is possible that up to 33% of the shareholders would still support the current Board. At an election, if this one-third minority pooled their votes and used cumulative voting, they could elect three of CSC's nine directors. A two-thirds majority of the shareholders, if they pooled their votes, would be able to elect six of the nine directors. Computer Associates seeks only a declaration of this straightforward proposition, which is wholly consistent with relevant Nevada statutes, the Bylaws, and cumulative voting. C. VACANCIES ON THE BOARD MAY BE FILLED BY THE WRITTEN CONSENT OF THE SHAREHOLDERS. CSC acknowledges that its stockholders have the authority . . ______________________ CARTE BLANCHE to prevent takeovers -25- . to fill Board vacancies resulting from removals" (CSC Response at 17), but asserts that they may not do so by written consent. Its argument is that Article II, Section 10 of the Bylaws, which provides that action may be taken by consent of 75% of the shares, but exempts the election of directors, deprives even 100% of the shareholders of the right to appoint directors by consent. Unless otherwise provided in the Bylaws, Nevada statutes permit shareholders to accomplish by written consents what they could accomplish at a meeting, and by the same voting requirements in effect at the meeting. SEE Nev. Rev. Stat. Sec. 78.320. Article II, Section 10 of the Bylaws does not prohibit the election of directors by written consent, but exempts the subject of the election of directors from the general 75% requirement. Therefore, directors can be elected by written consent by the vote that would be required at a meeting. This is the only interpretation of the Bylaw that preserves the scheme of cumulative voting in the context of written consents. In arguing this point, CSC ignores that Computer Associates has asked the CSC shareholders to amend the Bylaws to make clearer their right to elect directors by written consent. The ambiguity in the exemption - which should be read as affirming that cumulative voting provisions of -26- Article II, Section 7, and not a 75% threshold apply to the election of directors by consent - is the reason Computer Associates seeks the Court's clarification. D. CSC LACKS STATUTORY AUTHORITY TO SET THE RECORD DATE FOR COMPUTER ASSOCIATES' SOLICITATIONS. CSC seeks to set the record date for the solicitation of written consents, but the power to do so was repealed by the legislature in 1991. The question before the Court is whether it should presume that the legislature acted purposefully, and intended to withdraw the Board's power to select the record date for a consent solicitation. E. THE BYLAWS REQUIRE WRITTEN CONSENT OF A MAJORITY OF SHAREHOLDERS TO AMEND THE BYLAWS. Article VIII, Section 1 could hardly be clearer on the right of a majority to amend the Bylaws by consent: "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." (Emphasis added). Notwithstanding this specific authorization, CSC argues that under the general provisions on written consent (Article II, Section 10), 75% of the voting power is required to amend the Bylaws by consent. -27- The general 75% consent requirement contained in Article II, Section 10 is not a limiting provision, but a catch-all authorization that only applies in the absence of a more specific provision concerning the percentage of shareholders needed to act by consent. SEE, E.G., Article II, Section 2 (providing that any director may be removed "by the vote or written consent of shareholders of the corporation representing not less than two-thirds" of the voting power). CSC's interpretation of Article II, Section 10 renders the words of Article VIII, Section 1 meaningless. Why would that Article have explicitly referred to the amendment of the bylaws by "written consent of a majority of the outstanding voting shares" if shareholder action by written consent required 75% of the voting power in all cases? CSC points to the provision permitting an exception "elsewhere in these Bylaws." What CSC seeks, however, is not an exception in a specific bylaw, but a nullification of the majority rule set forth in Article VIII, Section 1. F. THE ANNUAL MEETING MUST BE HELD ON AUGUST 10, 1998. CSC asserts that under the Bylaws, the Board has wide discretion to set the date of the annual meeting, relying on HILTON. But the HILTON court made clear that the ITT bylaws, unlike CSC's Bylaws, did not indicate a specific date for the annual meeting. HILTON HOTELS CORP. V. ITT -28- CORP., 962 F. Supp. 1309, 1310 (D. Nev. 1997). Computer Associates has proposed that CSC shareholders amend the Bylaws to clarify this obligation to hold the meeting in August. In response, on February 18, CSC amended the Bylaws to provide discretion to the Board to push the meeting back another six months. CSC maintains that it is protecting the shareholders from "a quick and ill considered vote," but its actions make clear that CSC seeks to delay the meeting and deprive CSC shareholders of their right to accept or reject the Offer. CONCLUSION For the foregoing reasons, Computer Associates respectfully requests that the Court promptly (a) declare the Bylaw Amendments invalid under Nevada law and HILTON, and unauthorized under Nevada statutes and CSC's Bylaws, and (b) grant the relief requested in Computer Associates' initial motion. -29- Dated: February 25, 1998 Respectfully submitted, SCHRECK MORRIS By: ______________________ STEVE MORRIS MATTHEW McCAUGHEY 1200 Bank of America Plaza 300 South Fourth Street Las Vegas, Nevada 89101 (702) 382-2101 HOWARD, DARBY & LEVIN C. WILLIAM PHILLIPS P. BENJAMIN DUKE 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. -30- 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: COMPUTER ASSOCIATES' REPLY TO COMPUTER SCIENCES RESPONSE TO THE COURT'S FEBRUARY 18 ORDER AND IN SUPPORT OF COMPUTER ASSOCIATES' MOTION FOR EXPEDITED DECLARATION AND ON THE MERITS OF THE RELIEF REQUESTED: 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 90071-3197 ATTORNEYS FOR DEFENDANT, COMPUTER SCIENCES CORP. -31- 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 ________ day of February, 1998. By: ___________________________________ An Employee of Schreck Morris -32- -----END PRIVACY-ENHANCED MESSAGE-----