Opinion ID: 692029
Heading Depth: 1
Heading Rank: 4

Heading: The Sheinberg Payment

Text: 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 Sheinberg options and that it had agreed to give Sheinberg cash payments if the transaction went forward, measured by the difference between the transaction price and the $50 option price. Id. at 31-32. Martin Lipton, counsel for MCA, Wasserman, and Sheinberg in this transaction, told the Board that Sheinberg's payment would amount to $21 million and that, as further consideration for Matsushita's promise to pay him this sum, Sheinberg would be required to waive his right to severance pay in the event Matsushita acquired MCA and to agree to five years of continued employment. Id. at 33. The Stock Awards Plan Committee approved the arrangements Wasserman proposed for Sheinberg, subject to the Board's approval of the proposed merger agreement. Id. at 68. Plaintiffs argue that the Sheinberg payment was entirely conditional upon the success of the tender offer. If the tender offer did not succeed, it is undisputed that Sheinberg would not have received the $21 million. Matsushita points to no evidence in the record indicating that the grant of options to Sheinberg was anything more than hypothetical in the event that the tender offer did not succeed. At the MCA Board meeting, according to the minutes, Wasserman stated that if the merger did not occur, he would present the arrangements to the Board for approval and implementation as stock-based awards. Id. at 32. From this record a trier of fact could infer that Wasserman's statement was merely a declaration of future intention, not a binding commitment to give Sheinberg stock options regardless of the outcome of the tender offer. Plaintiffs also point to the absence of any evidence even suggesting that Sheinberg might be in line for an award of stock options before November 25, 1990, the eve of the tender offer. Moreover, they cite the deposition testimony of MCA's financial advisor, Felix Rohatyn, that he could not recollect any discussions of a stock option award to Sheinberg until Wasserman brought up the matter at the November 25 Board Meeting. ER 357 Exhibit A at 32. Plaintiffs also argue that Matsushita's account of the Sheinberg payment is internally inconsistent. If Matsushita is correct that Sheinberg owned--prior to the day the tender offer was announced--options for 1,000,000 shares of MCA stock, each with an exercise price of $50 per share, it is unclear why Matsushita would claim that the Sheinberg payment was also made in consideration of an agreement to amend his employment contract. The $21 million is ostensibly derived from the difference between the $50 exercise price and the $71 tender price, multiplied by the 1,000,000 option shares. We hold that plaintiffs' circumstantial evidence gives rise to a disputed issue of material fact and therefore precludes summary judgment for Matsushita on the claim that the $21 million payment to Sheinberg violated Rule 14d-10. A trier of fact could decide, on the evidence cited by plaintiffs, not to credit Matsushita's explanation for the Sheinberg payment. Matsushita argues, without controverting any of plaintiffs' evidence, that the Sheinberg payment did not violate Rule 14d-10 because (1) the Sheinberg payment was made after Matsushita accepted the tendered MCA shares, and (2) the payment was made by MCA, not Matsushita. We rejected Matsushita's timing argument in the context of the Wasserman transaction, see Part II, supra, and the fact that Matsushita repeats the argument in defending the Sheinberg payment only brings into sharp relief its lack of merit. Moreover, Matsushita's assertion that MCA rather than Matsushita paid Sheinberg 21 begs the question. The central issue regarding the legality of the Sheinberg payment, after all, is whether it constitutes incentive compensation that MCA wanted to give Sheinberg independently of the Matsushita deal, or a premium that Matsushita wanted to give Sheinberg as an inducement to support the tender offer and tender his own shares. The mere fact that MCA cut Sheinberg's $21 million check just before it was formally merged into Matsushita may be a relevant fact, but it does not establish as a matter of law that the $21 million Sheinberg payment did not violate Rule 14d-10. Because Matsushita's liability under Rule 14d-10 for the Sheinberg payment turns on disputed questions of material fact, we vacate the summary judgment for Matsushita on this claim and remand for further proceedings. See Fed.R.Civ.P. 56(c).