Lawrence Epstein, and Walter Minton v. McA Inc. Matsushita Acquisition Corporation Matsushita Electric Industrial Co., Ltd. Matsushita Holding Corporation Lew Wasserman Sidney J. Sheinberg, Lawrence Epstein John Linder Jane Rockford, as Trustee of the Michael J. Rockford Trust Maurice Karlin Ruth Karlin Beth Ann Karlin Bert P. Karlin v. McA Inc. Matsushita Acquisition Corporation Matsushita Electric Industrial Co., Ltd. Matsushita Holding Corporation Lew Wasserman Sidney J. Sheinberg

In 1990, Matsushita Electrical Co. Ltd. ("Matsushita") acquired MCA, Inc. ("MCA") for $6.1 billion. The acquisition was accomplished through a tender offer of $71 per share of MCA common stock.¹

Lew Wasserman, MCA's chairman and chief executive officer at the time, owned 4,953,927 shares of MCA common stock worth $351,728,817 at the tender price of $71 per share. His cost basis was 3cents per share. Rather than tender his shares at the tender offer price, Wasserman entered into a separate agreement with Matsushita, known as the "Capital Contribution and Loan Agreement," pursuant to which Wasserman exchanged his shares for preferred stock in a wholly-owned Matsushita subsidiary called "MEA Holdings."² Matsushita agreed to fund MEA Holdings by contributing 106% of the tender price multiplied by the number of MCA shares Wasserman exchanged. The MEA Holdings preferred stock Wasserman received pays a dividend of 8.75% annually, is secured by letters of credit, and is redeemable upon the death of either Wasserman or his wife, but in no event earlier than five years from the date of the exchange. Wasserman was 77 at the time. It is not disputed that the transaction was designed to be a tax-free exchange of Wasserman's MCA stock under Internal Revenue Code Sec. 351(a), 26 U.S.C. Sec. 351(a) (1994).³

Sidney Sheinberg, MCA's chief operating officer at the time of Matsushita's tender offer, owned approximately 1,179,635 shares of MCA common stock. He tendered these shares pursuant to Matsushita's $71 per share offer and received in exchange consideration worth approximately $83,754,085. Two days after Matsushita accepted all tendered shares, Sheinberg received an additional $21 million in cash, ostensibly in exchange for unexercised MCA stock options.

These consolidated appeals arise out of actions brought in the United States District Court for the Central District of California by former MCA shareholders⁴ who tendered their shares for the $71 tender price. They claim that Matsushita violated SEC Rule 14d-10, 17 C.F.R. Sec. 240.14d-10 (1994), by treating Wasserman and Sheinberg differently from other shareholders in the tender offer. Rule 14d-10, known as the "all-holder, best-price" rule, requires bidders to treat all shareholders on equal terms.⁵

The district court denied plaintiffs' motion for summary judgment on their claim that Matsushita's agreement to pay Wasserman consideration that was different from the $71 per share tender offer violated Rule 14d-10, and later granted Matsushita's motion for summary judgment on this claim.⁶ We reverse, instruct the district court to grant plaintiffs' motion for partial summary judgment, and remand for further proceedings to determine the amount of damages, if any, that plaintiffs are entitled to recover as a result of the Wasserman transaction.

The district court granted Matsushita's motion for summary judgment on all of plaintiffs' claims. As noted above, with respect to plaintiffs' claim that the Wasserman transaction violated Rule 14d-10, we reverse. With respect to plaintiffs' claim that the Sheinberg payment violated Rule 14d-10, we vacate and remand for further proceedings to determine whether the $21 million Sheinberg payment was in fact a premium paid to encourage Sheinberg to tender his shares.⁷

We also reverse the district court's orders denying the Epstein plaintiffs' motions for class certification and leave to amend their complaint.

During the pendency of these consolidated appeals, the Delaware Court of Chancery entered a judgment approving the settlement of a state class action that released all claims arising out of Matsushita's tender offer for MCA stock, including the Williams Act claims raised in the Epstein class action. Matsushita argues that the settlement of the Delaware class action precludes the federal claims raised in the Epstein action. We disagree and hold that the settlement of the Delaware class action does not preclude the Epstein class action.

I. Private Right of Action under Section 14(d)(7)

The SEC's statutory authority to promulgate Rule 14d-10 derives from sections 14(d)(6) and 14(d)(7) of the 1968 Williams Act Amendments to the Securities Exchange Act of 1934. 15 U.S.C. Sec. 78n(d)(6), (7) (1981).⁸ Matsushita⁹ makes the threshold argument that it cannot be sued by MCA shareholders for violating Rule 14d-10 because Congress did not intend sections 14(d)(6) and 14(d)(7) to be privately enforceable.¹⁰ In advancing this argument, Matsushita asks us to create a conflict with the Second and Third Circuits, both of which have held that Congress intended to create a private right of action under section 14(d)(7). See Polaroid Corp. v. Disney, 862 F.2d 987, 996 (3d Cir.1988); Field v. Trump, 850 F.2d 938, 946 (2d Cir.1988), cert. denied, 489 U.S. 1012, 109 S.Ct. 1122, 103 L.Ed.2d 185 (1989); cf. Pryor v. United States Steel Corp., 794 F.2d 52, 57-58 (2d Cir.) (holding that section 14(d)(6) also contains a private right of action), cert. denied, 479 U.S. 954, 107 S.Ct. 445, 93 L.Ed.2d 393 (1986). We find the reasoning of the Second and Third Circuits to be persuasive.

In Field and Pryor, the Second Circuit applied the traditional four-factor Cort v. Ash test in deciding whether, in enacting sections 14(d)(6) and 14(d)(7), "Congress intended to create ... by implication ... a private cause of action." Pryor, 794 F.2d at 57 (quoting Touche Ross & Co. v. Redington, 442 U.S. 560, 575, 99 S.Ct. 2479, 2488-89, 61 L.Ed.2d 82 (1979)). In holding that Congress did intend to create a private right of action the Second Circuit reasoned, first, that both 14(d)(6) and 14(d)(7) "identif[y] [their] beneficiaries and, unlike the bulk of federal securities regulation, confer[ ] a substantive right on those beneficiaries." Pryor, 794 F.2d at 57 (cited in Field, 850 F.2d at 946). Second, the court found that a private damages remedy was totally consistent with the statutory purpose of protecting injured investors and provided a particularly effective means of enforcing sections 14(d)(6) and 14(d)(7). Field, 850 F.2d at 946; Pryor, 794 F.2d at 56, 58. Finally, the Second Circuit noted that these claims are not those "traditionally relegated to state law." Field, 850 F.2d at 946; Pryor, 794 F.2d at 58.

In Polaroid, the Third Circuit relied on Pryor and Field, but added that the " 'contemporary legal context' informing what Congress perceived itself to be doing when it acted," supported an inference that Congress intended to create a private remedy for violations of section 14(d)(7). Polaroid, 862 F.2d at 995 (quoting Cannon v. Univ. of Chicago, 441 U.S. 677, 698-99, 99 S.Ct. 1946, 1958-59, 60 L.Ed.2d 560 (1979)). In 1968, when the Williams Act was enacted, various lower federal courts had construed section 10(b) of the 1934 Act as providing a private cause of action, and the Supreme Court, in J.I. Case v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964), had announced a liberal policy toward inferring private rights of action for securities law violations generally. See Polaroid, 862 F.2d at 995-96. Because Congress enacted the Williams Act in this context, "it is reasonable to conclude that Congress passed the Williams Act with an understanding that courts would construe the Act as creating private remedies that would enforce the provisions of the Act effectively." Id. at 996.

Matsushita argues that we should not follow Pryor, Field, and Polaroid because their rationale is inconsistent with our decision in In re Washington Pub. Power Supply Sys. Sec. Litig., 823 F.2d 1349 (9th Cir.1987) (en banc) (hereinafter "WPPSS" ). We reject this argument. In WPPSS, we held that section 17(a) of the Securities Act of 1933 did not create a private right of action, id. at 1358, but in doing so we hardly sounded the death knell for implied rights of action generally. Instead, like the Second and Third Circuits in Pryor, Field, and Polaroid, we applied the traditional four-factor Court v. Ash test, emphasizing two prongs in particular: whether there is an implicit indication, in the statute's language, legislative history, or structure, of legislative intent to create a private remedy, and whether such an implication would be consistent with the underlying legislative scheme.¹¹ Id. at 1353. Like the Third Circuit, further, we focused on the context in which the statute was enacted. See id. at 1357 (looking to "contemporary legal context prevailing at the time of any comprehensive reexamination of or significant amendment to" the securities laws in evaluating whether Congress intended to create private right of action under section 17(a) of the 1933 Act). In WPPSS we not only found no evidence whatsoever of congressional intent to create a private right of action under section 17(a), but we also indicated that creating an implied private right of action would frustrate the purposes of the legislative scheme. Id. at 1355-56. In Pryor, Field, and Polaroid, just the opposite was true.

While we stated in WPPSS that we "will not engraft a remedy on a statute, no matter how salutary, that Congress did not intend to provide," id. at 1353 (quoting California v. Sierra Club, 451 U.S. 287, 297, 101 S.Ct. 1775, 1781, 68 L.Ed.2d 101 (1981)), we made equally clear that "a private remedy may be inferred from the plain language of the statute, the statutory structure, or some other source." Id. The principal difference between this case and WPPSS is the clarity of the statutory language. In WPPSS, the statute at issue, section 17(a) of the 1933 Act, states that "[i]t shall be unlawful for any person in the offer or sale of any securities ... (1) to employ any device, scheme, or artifice to defraud, or (2) to obtain money or property by means of any untrue statement of a material fact...." 15 U.S.C. Sec. 77(q)(a) (1981). Section 14(d)(7), in contrast, specifically endows shareholders with the right to receive any increased consideration offered to other shareholders. It states that whenever any person "varies the terms of a tender offer" by "increasing the consideration offered" to some security holders, "such person shall pay the increased consideration to each security holder whose securities are taken up and paid for pursuant to the tender offer...." (emphasis added). This language, of course, constitutes far more than the "general censure of fraudulent practices" we found insufficient to create an implied right of action in WPPSS, 823 F.2d at 1353. Instead, it is "legislation with an unmistakable focus on the benefitted class." Id. at 1354.

The structure of section 14(d)(7) also points to Congress' intent to give shareholders the right to sue. If shareholders were not permitted to sue for damages for violations of section 14(d)(7), there would be no way, once a violation has occurred, to enforce the express statutory command that a bidder "shall pay to each security holder" any increased consideration paid to any other security holder.¹² Under section 21(d)(1) of the 1934 Act, the SEC's authority to enforce the provisions of the 1934 Act is limited to bringing injunctive actions.

Finally, the legal context of section 14(d)(7) of the 1968 Williams Act differed markedly from that of section 17(a) of the 1933 Act. It was not until 1964 that the Supreme Court announced the implied right of action doctrine in J.I. Case v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964). Thus, at the time of passage of the Williams Act, the Court's implied right of action jurisprudence gave Congress reason to think it need not decide the private right of action question itself.

Matsushita also urges us not to follow Pryor, Field, and Polaroid on the ground that these cases are inconsistent with the implied cause of action jurisprudence of the Supreme Court as it exists today. As Matsushita would have us read the Supreme Court's cases, a private right of action would not be recognized unless Congress explicitly created one. For example, Matsushita asserts that the Supreme Court would not interpret section 14(d)(7) as creating a damages remedy for MCA shareholders because Congress did not say explicitly that all "security holders shall have the right to receive" any increased consideration offered to select shareholders. Wasserman Brief at 56.

Matsushita's argument that there has been a recent sea change in the Court's implied right of action jurisprudence is based on wishful thinking, not case law.¹³ The argument is essentially the same one advanced by Justice Scalia in his concurring opinion in Thompson v. Thompson, 484 U.S. 174, 188, 108 S.Ct. 513, 520-21, 98 L.Ed.2d 512 (1988) (Scalia, J., concurring in the judgment), where he urged his colleagues to "get out of the business of implied private rights of action altogether." Id. at 192, 108 S.Ct. at 522-23. The problem is that no other justice of the Court has yet to endorse the "get out of the business" approach to implied causes of action. To the contrary, the Court has only recently reaffirmed the vitality of the Cort v. Ash test--which the Second and Third Circuits applied in holding that section 14(d)(7) is privately enforceable--as an aid in "determin[ing] 'whether Congress intended to create the private remedy asserted' for the violation of statutory rights." Wilder v. Virginia Hospital Assn., 496 U.S. 498, 508 n. 9, 110 S.Ct. 2510, 2517 n. 9, 110 L.Ed.2d 455 (1990) (quoting Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 15-16, 100 S.Ct. 242, 245-46, 62 L.Ed.2d 146 (1979)); Suter v. Artist M., 503 U.S. 347, 363-64, 112 S.Ct. 1360, 1370, 118 L.Ed.2d 1 (1992) (applying "the familiar test of Cort v. Ash " in concluding that Congress did not intend to make a private remedy available to enforce the Adoption Assistance and Child Welfare Act). Indeed, in Thompson v. Thompson, the case in which Justice Scalia called for an end to implied private rights of action, the eight members of the Court who comprised the majority stated that the existence of a private right of action does not require "evidence that Members of Congress, in enacting the statute, actually had in mind the creation of a private cause of action." Thompson, 484 U.S. at 179, 108 S.Ct. at 516. Rather, the Court reaffirmed its long-standing view that "as an implied cause of action doctrine suggests," Congress' "intent may appear implicitly in the language or structure of the statute, or in the circumstances of its enactment." Id. (internal citation and quotation omitted).¹⁴

We therefore reject Matsushita's argument that the rationale of Pryor, Field, and Polaroid is inconsistent with Supreme Court implied private right of action jurisprudence as it exists today.¹⁵ Like the Second and Third Circuits, we believe that the statutory language--that a bidder "shall pay the increased consideration" to a shareholder who was paid less than another shareholder--is more than adequate under existing Supreme Court case law to support a finding of congressional intent to create a private right of action for violations of section 14(d)(7).

In sum, we hold that in enacting section 14(d)(7) of the Williams Act, Congress intended to provide a damage remedy as a means of enforcing its command that every security holder who tenders his shares be paid any "increased consideration" offered to others.

II. The Wasserman Transaction

Captioned the "Equal treatment of securities holders," Rule 14d-10 prohibits a bidder from making a tender offer that is not open to all shareholders or that is made to shareholders at varying prices.¹⁶ The gist of plaintiffs' claims is that Matsushita violated the antidiscrimination requirements of the Rule by paying Wasserman and Sheinberg premiums pursuant to the tender offer.

Negotiations between Matsushita and MCA began in August 1990, when a representative of Matsushita telephoned MCA's financial advisor to express interest in acquiring MCA. During the course of the talks, Matsushita stressed that it wanted Wasserman and Sheinberg to commit their shares to Matsushita in advance of the friendly takeover and to remain in MCA's employment for five years. On the morning of November 26, 1990, Matsushita and Wasserman entered into the Capital Contribution and Loan Agreement, pursuant to which Wasserman agreed to exchange his MCA shares for preferred stock in a subsidiary Matsushita would create called "MEA Holdings."

Performance of the Capital Contribution and Loan Agreement was conditioned on the tender offer in several respects. First, neither Matsushita nor Wasserman was obligated to perform the Agreement if any of the conditions of the tender offer were not satisfied. See Capital Contribution and Loan Agreement Sec. 7(c), ER 357 Exhibit S at 12. If, for example, Matsushita did not acquire 50% of MCA's common stock as a result of the tender offer, the Wasserman deal would be off. Second, the timing of performance was tied to the tender offer. The Wasserman exchange was scheduled to take place "immediately following the time at which shares of MCA Common Stock are accepted for payment pursuant to and in accordance with the terms of the offer...." Id. Sec. 2(a), ER 357 Exhibit S at 4. Third, the amount of cash Matsushita was required to contribute in order to fund MEA Holdings was dependent upon the tender price, with Matsushita agreeing to contribute to MEA Holdings 106% of the "highest price paid ... for any shares of MCA Common Stock pursuant to the [tender] offer." Id. at Sec. 1(c), ER 357 Exhibit S at 2. Finally, the redemption value of Wasserman's preferred stock was set as the tender price. Id. Thus if Matsushita increased the tender price at the last minute in response to a competitive bid for MCA, Matsushita would have been required to increase both its funding of MEA Holdings and the amount paid upon the redemption of the Wasserman preferred stock.

Moments after signing the Capital Contribution and Loan agreement, Matsushita and MCA announced the $71 per share tender offer. Shareholders were given from the time of the announcement until 12:01 a.m. on December 29, 1990 to tender their shares. The owners of 91% of MCA's common stock did so, and at 12:05 a.m., Matsushita accepted all tendered shares for payment. At 1:25 a.m., Matsushita exchanged Wasserman's shares for MEA Holdings preferred stock pursuant to the Capital Contribution and Loan Agreement. MCA was merged into Matsushita as a wholly owned subsidiary on January 3, 1991.

Whether the Wasserman transaction violated Rule 14d-10 depends upon whether Wasserman received greater consideration than other MCA shareholders "during such tender offer," Rule 14d-10(a)(2), or whether he received a type of consideration not offered to other MCA shareholders "in a tender offer." Rule 14d-10(c).¹⁷

Matsushita argues that the Wasserman transaction falls outside the Rule's ambit because it closed after the tender offer period expired. The tender offer period, Matsushita contends, ended when it accepted the tendered MCA shares for payment--at 12:05 a.m. on December 29, 1990, one hour and 20 minutes before Wasserman's shares were exchanged. In Matsushita's view, liability under Rule 14d-10 boils down to a pure question of timing: the Rule is simply a "mechanical provision" concerned with "payments to shareholders of a target corporation only during a specifically-defined tender offer period." Brief of Matsushita at 23 (emphasis in original). Outside that period, Matsushita insists, "Rule 14d-10 is without effect" because the Rule "is engaged (or not engaged) depending upon when payment is made." Id. at 23, 35 (emphasis in original).

Although Matsushita argues that Rule 14d-10 is designed to operate only during a "specifically-defined tender offer period," neither the phrase "tender offer period" nor a specific time frame is to be found in the Rule's text. To be sure, section (a)(2) of the Rule prohibits paying one security holder more than another "during such tender offer." But the term "tender offer," as used in the federal securities laws, has never been interpreted to denote a rigid period of time. On the contrary, in order to prevent bidders from circumventing the Williams Act's requirements, Congress, the SEC, and the courts have steadfastly refused to give the term a fixed definition. Instead, we have held that "[t]o serve the purposes of the Williams Act, there is a need for flexibility in fashioning a definition of a tender offer." SEC v. Carter Hawley Hale Stores, Inc., 760 F.2d 945, 950 (9th Cir.1985).

Even if the language of Rule 14d-10(a)(2) were to provide a measure of support for Matsushita's timing argument, Matsushita would still be unable to account for the language of Rule 14d-10(c), which prohibits a bidder from "offer[ing] ... more than one type of consideration in a tender offer" if shareholders are not permitted to choose between the different types of consideration offered. (Emphasis added). Section (c)(1) makes no mention of payment and no mention of timing. Instead, Rule 14d-10(c)(1) prohibits a bidder such as Matsushita from offering a shareholder, such as Wasserman, not only consideration of greater value than that offered to other shareholders, but also consideration that is different from that offered to other shareholders. It endows each shareholder with the "equal right to elect among each of the types of consideration offered," regardless of when actual payment is made.

The administrative history of Rule 14d-10 underscores how strained Matsushita's timing argument is. It suggests anything but the notion that the SEC intended the Rule to be a mechanical provision concerned not with discriminatory tender offers, but with the timing of payment to favored shareholders. In promulgating Rule 14d-10, the SEC emphasized the need for "equality of treatment among all shareholders who tender their shares." Id., 1985 WL 61507, 1985 SEC LEXIS 1175 at * 15 (quoting S.Rep. No. 550, 90th Cong., 1st Sess. 10 (1967)). It further characterized Rule 14d-10 as a substantive provision necessary to achieve the "investor protection purposes of the [1934] Exchange Act" and the Williams Act. SEC Release No. 34-22198, 1985 WL 61507, 1985 SEC LEXIS 1175 at * 2 (July 1, 1985). At no point in its discussion of the Rule's purposes did the SEC suggest that the Rule's sole focus is the timing of payments.

Matsushita implicitly acknowledges that Rule 14d-10 does not contain a rigid time frame of its own when it urges us to read Rule 14d-10 as incorporating, sub silentio, the time frame set out in Rule 10b-13, which prohibits side purchases "from the time [a] tender offer or exchange offer is publicly announced or otherwise made known ... [to security holders] until the expiration of the period ... during which securities tendered pursuant to such tender offer or exchange offer may by the terms of such offer be accepted or rejected." Matsushita justifies fusing elements of two separate regulations by asserting that "for purposes of the Williams Act and the SEC Rules promulgated thereunder," Rule 10b-13 defines the time period of a tender offer. Brief of Matsushita at 24.

Matsushita offers no authority for incorporating Rule 10b-13's time frame into Rule 14d-10. In promulgating the all-holders, best-price Rule in 1986, the SEC gave no hint that its new regulation would be governed by Rule 10b-13's time clock. Nor does the Williams Act fully incorporate Rule 10b-13's timing provisions. Rule 10b-13 prohibits bidders from making side deals during a fixed period of time; it does not purport to serve as a general definition of when a tender offer begins and ends. In fact, in Rule 14d-2, the SEC rejected the notion that Rule 10b-13 timing determines when tender offers start for purposes of section 14(d)(7) and the rules promulgated thereunder.¹⁸

We therefore reject Matsushita's timing argument. Indeed, if adopted, it would drain Rule 14d-10 of all its force. Under Matsushita's reading, even the most blatantly discriminatory tender offer--in which large shareholders were paid twice as much as small shareholders--would fall outside Rule 14d-10's prohibition, so long as the bidder waited a few seconds after it accepted all of the tendered shares before paying the favored shareholders. Rule 14d-10's equality requirements, which "expressly preclude bidders from discriminating among holders of the class of securities that is the subject of the offer, either by exclusion from the offer or by payment of different consideration," SEC Release No. 34-23421, 1986 WL 71340, 1986 SEC LEXIS 1179 at * 10 (July 11, 1986), cannot be so easily circumvented.

An inquiry more in keeping with the language and purposes of Rule 14d-10 focuses not on when Wasserman was paid, but on whether the Wasserman transaction was an integral part of Matsushita's tender offer. If it was, Matsushita violated Rule 14d-10 because it paid him, pursuant to the tender offer, different, and perhaps more valuable consideration than it offered to other shareholders.¹⁹

Matsushita contends that the Wasserman transaction cannot be deemed a part of the tender offer because it was merely a private exchange of stock, structured to take place after the tender offer finished. But Matsushita's assumption that the Wasserman transaction was private, rather than a part of the tender offer, begs the question. In Field v. Trump, 850 F.2d at 944, the Second Circuit held that "[w]hether [an] acquisition of shares in a corporation is part of the tender offer for purposes of the Act cannot be determined by rubber-stamping the label used by the acquiror." To hold otherwise, the court stated, would render "virtually all of the provisions of the Williams Act, including its filing and disclosure requirements," subject to evasion "simply by an offeror's announcement that offers to purchase ... stock were private purchases." Id. Thus, the court observed that because the Williams Act and its implementing regulations do not define the term "tender offer," "[c]ourts faced with the question of whether purchases of a corporation's shares are privately negotiated or are part of a tender offer have applied a functional test that scrutinizes such purchases in the context of various salient characteristics of tender offers and the purposes of the Williams Act." Id. at 943-44. See also SEC Release No. 34-22198, 1985 WL 61507, 1985 SEC LEXIS 1175, at * 7 (July 1, 1985) ("[T]he fact that ... different consideration is offered to different holders of the same class of securities, does not mean that a tender offer has not been made under the Williams Act. Rather, if such a transaction is found to be a tender offer, then the tender offer would not have been made in compliance with the all-holders requirement").

Because the terms of the Wasserman Capital Contribution and Loan Agreement were in several material respects conditioned on the terms of the public tender offer, we can only conclude that the Wasserman transaction was an integral part of the offer and subject to Rule 14d-10's requirements. Two facts compel this conclusion: first, the redemption value of Wasserman's preferred stock incorporated the tender offer price by reference, and second, the Capital Contribution and Loan Agreement was conditioned on the tender offer's success. If the tender offer failed, Wasserman would have remained the owner of his MCA stock. This is precisely the arrangement Matsushita made with its shareholders through its public tender offer: if an insufficient number of shares were tendered, each shareholder too would have retained ownership of her MCA stock. The deal Matsushita made with Wasserman thus differed from the tender offer in only one material respect--the type (and possibly the value) of consideration provided. Rule 14d-10(c)(1) forbids just such a transaction.

To be sure, the fact that a private purchase of stock and a public tender offer are both part of a single plan of acquisition does not, by itself, render the purchase a part of a tender offer for purposes of Rule 14d-10. Rule 14d-10 does not prohibit transactions entered into or effected before, or after, a tender offer--provided that all material terms of the transaction stand independent of the tender offer. Thus a bidder who purchases shares from a particular shareholder before a tender offer begins does not violate Rule 14d-10. See, e.g., Kahn v. Virginia Retirement Systems, 13 F.3d 110 (4th Cir.1993) (bidder's unconditional private purchase of target's shares two days before tender offer was formally announced did not violate section 14(d)(7) and Rule 14d-10), cert. denied, --- U.S. ----, 114 S.Ct. 1834, 128 L.Ed.2d 462 (1994).

If, in advance of the tender offer, Wasserman had become unconditionally obligated to exchange his MCA shares, the transaction would not have violated Rule 14d-10, even if Matsushita believed that acquiring Wasserman's shares was a first step in acquiring MCA. In such a case, both Wasserman and Matsushita would have assumed the burdens of their agreement despite the risk that an anticipated tender offer would fail, or command a different price. But such a course was not followed. Matsushita sought to acquire MCA without purchasing the holdings of individual shareholders block by block and accordingly subjecting itself to the risk that it would end up with a huge investment in MCA stock, but without control. The tender offer device is designed to avoid this risk, but only if holders of the same security are offered precisely the same consideration.

Matsushita argues, in the alternative, that the summary judgment should be affirmed because plaintiffs cannot prove that they suffered injury from the Wasserman deal. This argument, however, confuses the question of whether Matsushita complied with Rule 14d-10 with the question whether plaintiffs may recover damages. By paying Wasserman consideration that it failed to offer to other shareholders, Matsushita violated Rule 14d-10(c)(1). It remains to be determined on remand whether the preferred stock Wasserman received had a value greater than $326,959,182, the value of his 4,953,927 shares at the cash tender price of $66 per share.²⁰

Accordingly, we reverse the summary judgment in favor of Matsushita on plaintiffs' claim that the Wasserman transaction violated Rule 14d-10, reverse the district court's order denying plaintiffs' motion for partial summary judgment that the Wasserman transaction did violate Rule 14d-10, and remand for further proceedings on the question whether the consideration Wasserman received in exchange for his MCA stock had a greater value than what plaintiffs' received and, if so, how much greater.

III. The Sheinberg Payment

Unlike Wasserman, Sheinberg tendered his MCA shares for the $71 per share tender price. Pursuant to an amended employment agreement executed shortly before the tender offer was announced on November 26, 1990, MCA agreed, with Matsushita's approval, to pay Sheinberg $21 million if the tender offer succeeded. Two days after Matsushita accepted all tendered MCA shares, Sheinberg received the promised payment.

The parties dispute the purpose of the Sheinberg payment. Plaintiffs contend that it constituted a covert premium of $17.80 per share designed to induce Sheinberg to tender his shares. Matsushita contends that the payment was instead designed both to cash out stock options that MCA had given Sheinberg because of his performance as its chief operating officer and to compensate Sheinberg for agreeing to amend his employment contract with MCA.

According to the minutes of the MCA Board of Director's meeting of November 25, 1990, the day before the tender offer was announced, Wasserman explained that before discussions with Matsushita began, he had intended to grant Sheinberg options for 1,000,000 shares of MCA stock. ER 357 Exhibit D. He stated, according to the minutes, that when merger negotiations began, "there had been a freeze put on further stock option grants," and he was therefore unable to propose the Sheinberg options at the next meeting. Id. at 31. According to the minutes, Wasserman said he believed that it would be unfair to deprive Sheinberg of his legitimate expectations simply because the tender offer was nearly finalized. Id. He recommended that the options be granted at an exercise price of $50 per share. Id.

Wasserman also told the Board that Matsushita had approved of the S