The opinion of the court was delivered by: SWEET
This case arises out of a corporate merger that was, at the time of its occurrence in the summer of 1981, the largest corporate takeover in history. Caleb & Co. and Unit & Co., ("Caleb"), as representatives of a class of tendering shareholders, allege that defendants E.I. DuPont de Nemours and Co., ("DuPont"), First Jersey National Bank, ("First Jersey"), and Conoco, ("Conoco"), in structuring and carrying out the merger, violated section 14(e), Rule 14e-1(c), Section 10(b), and Rule 10(b)-5 of the Securities Exchange Act of 1934 by intentionally delaying payments due tendering shareholders and not revealing an intention to delay these payments. DuPont and First Jersey have brought this motion pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss for failure to state a claim. The motion is denied in part and granted in part, and the alleged period of delay is determined to commence from the date of termination of the tender, August 17, 1981, rather than the date of acceptance of the shares, August 5, 1984.
For the purposes of this motion, the material allegations as contained in Caleb's complaint are taken as admitted. See Walker Process Equip. v. Food Mach. & Chem. Corp., 382 U.S. 172, 86 S. Ct. 347, 15 L. Ed. 2d 247 (1965). In determining the legal sufficiency of the claims stated, the exhibits annexed to the complaint are considered as well. Fed.R.Civ.P. 10(c).
On July 15, 1981, DuPont issued its prospectus (Exhibit C of the complaint) to all Conoco shareholders, including Caleb, offering them a choice of $95 cash or 1.7 DuPont shares for every Conoco share tendered in accordance with the offer. Two weeks later, because DuPont's tender offer was hotly contested by two other bidders, Joseph E. Seagram & Sons, Inc. and Mobil Oil Corporation, DuPont increased the number of shares it would accept for cash, and on August 4, DuPont increased its cash offer to $98.00 per share, prompting Mobil to increase its offer to $120.00 per share.
Midnight, Tuesday, August 4 was the termination of the withdrawal period for Conoco shareholders who had tendered to DuPont and was also the expiration of the waiting period applicable to DuPont's tender offer under the Hart-Scott-Rodino Act. Consequently, August 5 was the first date upon which DuPont could accept shares tendered pursuant to its cash offer and bind itself contractually to purchase tendered shares. The prospectus stated that the termination date of the tender offer was August 17, unless extended, and defined the method of acceptance of shares as follows:
Upon the terms and subject to the conditions of the Offer, the exchange of DuPont Shares or cash for Conoco Shares validly tendered and not withdrawn will be made as promptly as practicable after the latest of
(i) the tender of such Conoco Shares,
(ii) 12:00 Midnight, New York City Time, on August 4, 1981,
(iii) approval by the Du Pont stockholders of the proposal to amend the certificate of Incorporation of Du Pont to increase the authorized number of DuPont Shares and to approve the issuance of Du Pont Shares in connection with the acquisition of Conoco, at a meeting called for August 17, 1981.
(iv) the expiration of the waiting period applicable to the Offer under the HSR Act in connection with the Purchaser's acquisition of the Conoco Shares or
(v) with respect to any Conoco Shares not theretofore accepted for exchange, the expiration of any withdrawal period resulting from the commencement of a tender offer for Conoco Shares by another bidder.
Notwithstanding clause (iii) above, the Purchaser reserves the right (but shall not be obligated) to accept Conoco Shares in exchange for cash prior to Du Pont stockholder approval. If the Purchaser exercises such right and Du Pont stockholder approval is not obtained, Du Pont Shares will not be issued to tendering stockholders and the Merger will not occur. . . . (emphasis added)
Pursuant to the underlined portion of the provision, DuPont announced in its August 6 supplement to the prospectus that: "[T]he purchaser has accepted for exchange for cash pursuant to the offer, all Conoco shares validly tendered with an election for cash prior to 12:00 midnight, New York City time on Monday, August 3, 1981 and not withdrawn."
Caleb alleges, and DuPont concedes, that as of August 5, DuPont was therefore contractually committed to purchase for cash at least 38.7 million shares at $98.00 per share. Although DuPont had initially announced that only 37.3 million shares was tendered for cash prior to August 3, and that 1.4 million additional shares could therefore be tendered for cash, DuPont later conceded that as of August 3, in excess of 38.7 million shares had been tendered for cash, and no share tendered for cash to DuPont on or after August 4 would be accepted by DuPont.
On August 4, the day before DuPont formally accepted the shares tendered for cash, DuPont and First Jersey amended the July 15 Exchange Agent Agreement between them. According to Caleb the amendment was designed to delay payments due Conoco shareholders who had tendered for cash.The complaint states that each tendering shareholder was required, in the letter of transmittal, which was part of DuPont's offer, to appoint First Jersey as: "the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the said Exchange Agent also acts as agent of the Purchaser) . . . to deliver certificates for such [tendered] Conoco shares . . . upon receipt by the Exchange Agent, as agent of the undersigned . . . of cash at the price per share specified . . ." According to the terms of the letter of transmittal, after First Jersey received cash for the tendered shares, it would issue its "check in payment . . . payable to the . . . undersigned."
Caleb alleges that changes in the amended Exchange agreement were designed to permit delays in this initial plan for payment. Under the original Exchange Agent Agreement, First Jersey was required, upon ...