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Note: Responding to the lawsuit reported in the article below, attorneys representing CA subsequently submitted a brief to the Delaware court in which they argued a position based more narrowly on the issue of whether shareholders can use a by-law amendment to modify a board's responsibility for approving a poison pill ("rights plan"), otherwise conceding the rights of shareholders to propose and vote on binding by-law amendments, as summarized in their introduction:


“...unless otherwise provided in the certificate of incorporation, boards have the exclusive right and power to adopt rights plans and to determine their terms and durations.  Although stockholders certainly have a right to amend by-laws under Section 109 of the DGCL, stockholders cannot exercise this right in an area that has been explicitly committed to the discretion of the board of directors, unless otherwise provided in the certificate of incorporation.”

(Lucian A. Bebchuk v. CA, Inc., C.A. No. 2145-N in the Court of Chancery for the State of Delaware, New Castle County, Defendant's Opening Pre-Hearing Brief dated May 26, 2006, pages 1-2; emphasis added.)

For the court's definitive clarification of the issues actually raised in this case, see


Shareholder files suit against CA
by Cheryl Meyer
Updated 05:32 PM EST, May-11-2006

  Lucian Bebchuk

Trouble continued to roil CA Inc. Thursday, May 11, as a prominent corporate governance expert brought a lawsuit against the struggling enterprise software company.

Harvard law professor Lucian Bebchuk is challenging CA in the Delaware Court of Chancery after the company attempted to dismiss a bylaw amendment he proposed to amend its anti-takeover provisions. Bebchuk, who owns 140 shares of CA stock, wants this proposal to come up for a shareholder vote at the company's annual meeting in August. But CA has said it should be excluded from the proxy because it is illegal.

"We have only recently received Mr. Bebchuk's lawsuit and have no comment on it," CA said in a statement. "As stated in our letter to the SEC dated April 21, 2006, we believe that the proposed by-law amendment would violate Delaware law."

Bebchuk's proposal would require a unanimous vote of the company's board of directors to adopt or extend any poison pill. Currently, CA needs only a majority of its 12-member board to pass a shareholder rights plan. Bebchuk also proposed to change the company bylaws to state that a poison pill should be reviewed every year. It also would require any extensions of more than one year to garner shareholder approval.

"I believe that poison pills adopted by the board of directors without ratification by stockholders can deny stockholders the ability to make their own decisions whether or not to accept a premium acquisition offer for their stock," Bebchuk said in his complaint.

Michael Barry, a partner at law firm Grant & Eisenhofer PA who is representing Bebchuk, said the professor's proposal is an appropriate way to put some power back in the hands of shareholders.

"For years, corporate lawyers who dominate the corporate board have expressed what we considered false consensus that directors somehow have the unfettered right to manage the affairs of the corporation as they see fit," he said. "When in truth, the directors' managerial discretion can be restricted by the company's bylaws."

Gary Lutin, an investment banker at Lutin & Co. and manager of an investor-sponsored, online public stockholder forum, said shareholders have the right to amend the bylaws.

"The thing that I think needs to be emphasized is it's the shareholders' rights to make this decision and management has no business trying to prevent them from exercising that right," he said. Bebchuk's lawsuit represents another potential blow against CA, which has been trying to put years of corporate governance and financial mismanagement issues behind it.

Recently the Amalgamated Bank's LongView Collective Investment Fund filed a resolution against CA, seeking to oust two directors, former U.S. Sen. Alfonse D'Amato and Hyperion Partners LP founder Lewis Ranieri, who were on the company's board when federal regulators started probing the company's accounting practices several years ago. CA has asked the U.S. Securities and Exchange Commission for permission to block the directors' removal.

Meanwhile, chief operating officer Jeff Clarke abruptly left CA in April to run a division of Cendant Corp., and executive vice president and chief technology officer Mark Barrenechea has announced his upcoming resignation. Barrenechea will join private equity firm Garnett & Helfrich Capital as a director.

In late April, former company CEO Sanjay Kumar and Stephen Richards, CA's top salesman, pleaded guilty to eight counts of securities fraud and obstruction of justice in Federal District Court in Brooklyn.

"The recent reports of executive departures and the confusion of accounting for sales commissions raise very serious questions about whether management has got things under control," Lutin says. "And more questions are raised, especially in this context, by management's refusing to provide information and trying to prevent shareholders from exercising their rights to vote."

Islandia, N.Y.-based CA also slashed its fourth-quarter profit forecast, saying its revenue guidance will miss its initial expectations. Total revenue for the March quarter will range from $940 million to $950 million, compared with CA's earlier guidance of $975 million to $1 billion. CA attributed the revenue shortfall to the speed of the accounting transition of revenue from recent acquisitions.

The software giant acquired Cybermation Inc., a Markham, Ontario-based provider of job-scheduling software, for $75 million in cash in April. In January, CA bought Control-F1 Corp., a privately held Calgary, Alberta-based developer of automated technology management software, for an undisclosed sum and Wily Technology Inc., a Brisbane, Calif., application software maker, for $375 million in cash.



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