The opinion of the court was delivered by: STERLING JOHNSON, JR.
Plaintiff Joel Gerber, on his own behalf and on behalf of all other similarly situated, commenced this class action against Defendants Computer Associates International, Inc., LWB Merge, Inc., Charles B. Wang, Anthony Wang, Sanjay Kumar (collectively "Computer Associates") and Jack M. Berdy for violation for various securities regulation. Computer Associates moves pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss Counts I and II of the Complaint. Defendant Jack M. Berdy also moves pursuant to dismiss Counts I and II as against him for failure to state a claim. For the reasons set forth below, Computer Associates motion is granted in part and denied in part. Defendant Jack Berdy's motion is granted.
For the purpose of deciding this motion, the Court takes all the allegations contained in the Complaint to be true. On August 16, 1991, Defendant Computer Associates ("Computer Associates") and On-Line announced that Computer Associates had made an offer which had been agreed to by management of On-Line to purchase all outstanding shares of On-Line for $ 15.75 in cash. The offer was said to be conditioned on the approval of the Boards of Directors of both On-Line and Computer Associates. On or about August 21, 1991, defendant Jack Berdy ("Berdy") on behalf of himself and On-Line and defendant Anthony Wang ("Wang"), on behalf of Computer Associates and LWB, simultaneously executed two agreements--an Agreement and Plan of Merger ("Tender/Merger Agreement") and a Stock Purchase and Non-Competition Agreement ("Berdy Agreement"). The Tender Merger Agreement provided for Computer Associates to cause LWB to effect the tender offer for all outstanding shares of On-Line at $ 15.75 per share. The Berdy Agreement provided that Computer Associates will cause LWB to pay $ 15.75 per share to purchase of Berdy's 1,607,266 shares of On-Line and to Pay Berdy $ 5,000,000 and transfer three vehicles owned by On-Line in exchange for Berdy's agreement not to compete with On-Line or Computer Associates for five years. Plaintiffs allege that the Tender/Merger Agreement and the Berdy Agreement were integral parts of a single plan for the acquisition of On-Line by Computer Associates.
The terms of the tender offer were set forth in an "Offer to Purchase" dated August 22, 1991 and in a Form 1429, dated August 23, 1991. The Tender/Merger Agreement states that the tender offer is conditioned upon a minimum of 2,451,286 shares being validly tendered and not withdrawn and a series of other conditions.
Plaintiffs allege that the $ 5,000,000 payment to Berdy represents higher, additional consideration to be paid by Computer Associates to Berdy. As a full-time medical student, Berdy's studies will occupy him fully and preclude him from competing against Computer Associates and On-Line. Computer Associates obtained non-competition agreement from the other On-Line senior officials. With the exception of single two year non competition agreement, all the other agreements were for one year and all at far lower rates than Computer Associates agreed to pay Berdy for his non-competition. Plaintiffs allege that a five year non competition agreement is "absurd on its face" because the computer business develops and changes so rapidly that Berdy's knowledge of On-Line's business and his competitive threat will be nullified over time.
A. Rule 12(b)(6) Standard
The Court will examine the Plaintiff's claims under Rule 12(b)(6). "The court's function on a Rule 12(b)(6) motion is not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Festa v. Local 3 International Brotherhood of Electrical Workers, 905 F.2d 35, 37 (2d Cir. 1990). The court must accept the facts as alleged in the complaint as true. Easton v. Sundram, 947 F.2d 1011, 1014-15 (2d Cir. 1991). A motion to dismiss must be denied "unless it appears beyond a doubt that the plaintiff can prove no set or facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974) (citing Conley v. Gibson, 355 U.S. 41, 45-6, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)).
B. Computer Associates' Motion to Dismiss
1. Claims under Section 14(d)(7) and SEC Rule 14d-10
Plaintiffs contend that the Berdy Agreement violated Section 14(d)(7) of the Securities and Exchange Act of 1934 and Securities and Exchange Commission ("SEC") Rule 14d-10 by giving Berdy $ 3.00 more per share than the other shareholders. Section 14(d)(7) provides:
Where any person varies the terms of a tender offer or request or invitation for tenders before the expiration thereof by increasing the consideration offered to holders of such securities, such person shall pay the increased consideration to each security holder whose securities are taken up and paid for pursuant to the tender offer or request or invitation for tenders whether or not such securities ...