## Facts

- Computer Associates International, Inc. (CA) pursued an acquisition of all outstanding shares of On-Line Software International, Inc. (On-Line).
- On August 16, 1991, CA publicly announced an agreement in principle to acquire On-Line’s stock for $15.75 per share, subject to approvals and definitive agreements.
- On August 21, 1991, CA and On-Line executed a merger agreement at $15.75 per share; that same day CA also executed a five-year non-competition agreement with On-Line’s CEO, Jack Berdy, providing a $5 million payment.
- On August 22, 1991, tender offer materials were disseminated to On-Line shareholders; shareholders tendered shares at $15.75 per share.
- The tender offer was scheduled to expire on September 20, 1991.
- On September 25, 1991, Berdy received the $5 million payment before other shareholders received payment for their tendered shares.
- A shareholder class, led by Joel Gerber, alleged the $5 million “non-compete” payment was actually additional consideration for Berdy’s shares, resulting in unequal consideration in violation of Exchange Act § 14(d), § 14(e), and SEC Rule 14d-10.

## Issues

1. Whether Rule 14d-10’s best-price rule applied to the August 21 non-competition agreement and the September 25 payment, given defendants’ claim that the tender offer period began on August 22 and ended before the payment.
2. Whether the evidence permitted a jury to find that the $5 million “non-compete” payment was, in substance, additional consideration for Berdy’s shares.
3. Whether CA and related participants could be held liable under the Williams Act framework for structuring an acquisition that provided unequal shareholder consideration.

## Decision

- The Second Circuit affirmed the judgment for Gerber and the shareholder class.
- The court upheld the jury’s finding that the $5 million payment, though labeled as non-compete consideration, functioned as additional consideration for Berdy’s tendered shares.
- The court rejected a strictly date-bounded view of the tender offer and concluded the acquisition steps, including the non-compete arrangement, were part of a single integrated transaction subject to Rule 14d-10.
- Because Berdy effectively received more than $15.75 per share, CA violated the best-price rule by not providing equivalent consideration to all tendering shareholders.

## Legal Principles

- Rule 14d-10 (the best-price rule) requires that consideration paid to any security holder “pursuant to” a tender offer be the highest consideration paid to any other security holder “during such tender offer,” ensuring equal treatment among tendering shareholders.
- In determining whether a payment is tender-offer consideration, courts examine economic substance and transactional function, not contractual labels (e.g., “non-compete”).
- For Williams Act purposes, the “tender offer” may be treated as an integrated acquisition process when multiple steps operate together to transfer control and set shareholder consideration.
- Side arrangements with insiders that operate as incremental share consideration can trigger best-price liability if not offered on equal terms to other tendering shareholders.

## Conclusion

The court affirmed liability where a separately documented non-compete payment to the target’s CEO was found to be additional stock consideration connected to an integrated tender-offer transaction, requiring equal treatment of all tendering shareholders under Rule 14d-10.


Gerber v. Computer Assocs. Int'l, Inc., 303 F.3d 126 (2d Cir. 2002)