2006 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-24-2006

Seinfeld v. Becherer

Precedential or Non-Precedential: Precedential

Docket No. 05-1321

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2006

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2006 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"Seinfeld v. Becherer" (2006). 2006 Decisions. Paper 500.

http://digitalcommons.law.villanova.edu/thirdcircuit_2006/500
PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 05-1321

 

FRANK DAVID SEINFELD,

 Appellant

v.

HANS W. BECHERER; GORDON M. BETHUNE; JAIME

CHICO PARDO;

ANN M. FUDGE; JAMES J. HOWARD; BRUCE KARATZ;

RUSSELL E. PALMER; IVAN G. SEIDENBERG;

MARSHALL N. CARTER; DAVID M. COTE;

ROBERT P. LUCIANO; JOHN R. STAFFORD;

MICHAEL W. WRIGHT; HONEYWELL INTERNATIONAL,

INC.

 

On Appeal from the United States District Court

for the District of New Jersey

(D.C. No. 03-cv-05225)

District Judge: Honorable Katharine S. Hayden

 

Submitted Under Third Circuit LAR 34.1(a)

July 11, 2006

Before: SLOVITER, McKEE and RENDELL, Circuit Judges

(Filed August 24, 2006)

 

A. Arnold Gershon

Ballon, Stoll, Bader & Nadler

New York, NY 10018

Attorney for Appellant
2

Christopher P. Malloy

Skadden, Arps, Slate, Meagher & Flom

New York, NY 10036

Attorney for Appellees Hans W. Becherer, Gordon

M. Bethune, Jaime Chico Pardo, Ann M. Fudge,

James J. Howard, Bruce Karatz, Russell E. Palmer,

Ivan G. Seidenberg, Marshall N. Carter, David M.

Cote, Robert P. Luciano, John R. Stafford, Michael

D. Wright

Anthony M. Gruppuso

Gibbons, Del Deo, Dolan, Griffinger & Vecchione

Newark, NJ 07102-5497

Yosef J. Riemer

Kirkland & Ellis

New York, NY 10022

Attorneys for Appellee Honeywell International, Inc.

 

OPINION OF THE COURT

 

SLOVITER, Circuit Judge.

Appellant, Frank David Seinfeld (“Seinfeld”), who is

allegedly a shareholder of Honeywell International, Inc.

(“Honeywell”), brought this derivative suit contending that the

corporation failed to make certain required disclosures in a

proxy statement that solicited shareholder approval for a new

stock option plan. Seinfeld alleged that Honeywell failed

adequately to disclose the number of shares of stock available

for award under its plan, and failed to estimate the plan’s cost. 

The District Court held that Seinfeld failed to state a claim upon

which relief could be granted and dismissed the suit. Seinfeld
1

 The District Court had jurisdiction under 15 U.S.C. §

78aa. This court has appellate jurisdiction under 28 U.S.C. § 1291.

The grant of a motion to dismiss is reviewed de novo. In re NAHC

Sec. Litig., 306 F.3d 1314, 1322 (3d Cir. 2002). We accept as true

the factual allegations in the Amended Complaint and will affirm

only if it is certain that Seinfeld would be able to prove no set of

facts that would entitle him to relief. See Ransom v. Marrazzo, 848

F.2d 398, 401 (3d Cir. 1988). The text of the Proxy Statement,

which Seinfeld invoked in his Amended Complaint and which the

defendants attached to the motion to dismiss, is properly

considered in reviewing the Rule 12(b)(6) motion. See In re

Donald J. Trump Casino Sec. Litig.–Taj Mahal Litig., 7 F.3d 357,

368 n.9 (3d Cir. 1993).

3

appeals.1

I.

Seinfeld filed this suit in November 2003 against

Honeywell and the thirteen members of its Board of Directors. 

In his Amended Complaint, Seinfeld claimed that a March 17,

2003, Proxy Statement (the “Proxy Statement”), which

Honeywell filed with the Securities and Exchange Commission

(“SEC”) in anticipation of its April 28, 2003, shareholders’

meeting, failed to comply with § 14(a) of the Securities

Exchange Act of 1934, 15 U.S.C. § 78n(a), and regulations

promulgated thereunder.

The Proxy Statement solicited and obtained shareholder

approval for Honeywell’s 2003 Stock Incentive Plan (the “2003

Plan”), as a replacement for a 1993 employee awards plan that

was set to expire. Thousands of Honeywell employees are

eligible to receive awards under the 2003 Plan in the form of

stock options, stock appreciation rights, performance awards,

restricted units, restricted stock, and other stock-based awards. 

A Management Development Compensation Committee (the

“Committee”), consisting of six members of Honeywell’s Board

of Directors, administers the 2003 Plan.

Under its 1993 awards plan, Honeywell was permitted to
4

make annual grants of shares of common stock equal to 1.5% of

its issued shares, including reacquired shares and any shares that

were available for award in prior years but not granted. The

2003 Plan marked a “significant change” in determining the

number of shares available for award “in recognition of

shareowners’ legitimate interest in not having their relative

ownership in Honeywell materially impacted by Awards granted

under the Plan.” App. at 100. The Proxy Statement stated:

[The 2003 Plan] provides for a maximum of

33,888,057 Shares to be issued as Awards, which

is the number of Shares remaining available for

future grants under the 1993 Employees Plan as of

January 1, 2003, reduced by the number of Shares

related to Awards made under the 1993 Employees

Plan from that date to April 25, 2003, the date on

which the 1993 Employees Plan terminates,

subject to adjustment as provided under the terms

of [the 2003 Plan] (see ‘Adjustments’ and ‘Shares

Available for Issuance’, below).

App. at 100.

Under the heading “SHARES AVAILABLE FOR

ISSUANCE,” the Proxy Statement again explained that 33.8

million was the maximum number of shares to be issued, subject

to possible adjustment. App. at 105. The shares available for

issuance were stated to include shares from Honeywell’s prioryear plans that had expired, or were forfeited, cancelled or

settled in cash, on or after January 1, 2003. Moreover,

Shares issuable under the 2003 [Plan] may consist

of authorized but unissued Shares or Shares held in

Honeywell’s treasury. In determining the number

of Shares that remain available under the Plan

(including Shares originally authorized under the

1993 Employees Plan), only Awards payable in

shares will be counted. If an Award under the Plan

or any Prior Plan is terminated on or after January

1, 2003, by expiration, forfeiture, cancellation or

for any other reason without issuance of Shares, or
5

is settled in cash in lieu of Shares, the Shares

underlying such Award will be available for future

Awards under the 2003 [Plan]. Also, if Shares are

tendered or withheld on or after January 1, 2003,

in payment of all or part of the Exercise Price of a

Stock Option, or in satisfaction of tax withholding

obligations, these Shares will be available for

future Awards under the 2003 [Plan]. In addition,

Shares may be reacquired under the Plan with cash

tendered in payment of the Exercise Price of a

Stock Option or with moneys attributable to the tax

deduction enjoyed by Honeywell upon the exercise

of disqualifying disposition of Stock Options. The

Committee may also grant Shares under the Plan in

connection with the assumption, conversion or

substitution of Awards as a result of the acquisition

of another company by Honeywell or a

combination of Honeywell with another company.

App. at 106.

Under the heading “ADJUSTMENTS,” the Proxy

Statement disclosed that the maximum number of shares

available for issuance under the 2003 Plan:

may be adjusted by the Committee, in its

discretion, if the Committee determines that,

because of any stock split, reverse stock split,

dividend or other distribution (whether in the form

of cash, Shares, other securities or other property),

extraordinary cash dividend, recapitalization,

merger, consolidation, split-up, spin-off,

reorganization, combination, repurchase or

exchange of Shares or other securities, the exercise

of stock purchase rights, issuance of warrants or

other rights to purchase Shares or other securities,

or similar corporate transaction or event, such

adjustment is required to prevent dilution or

enlargement of the benefits or potential benefits

intended to be made available under the Plan.
6

App. at 106.

The Proxy Statement added that “[t]he aggregate annual

amount of Awards to be granted under the 2003 [] Plan is not

expected by the Committee to be materially different than the

aggregate annual amount of Awards granted under the 1993

Employees Plan.” App. at 108. Honeywell attached the

complete text of the 2003 Plan as Exhibit A to the Proxy

Statement. As of the date of the Proxy Statement, the

Committee had made no awards under the 2003 Plan.

Seinfeld alleged in his Amended Complaint that the

Proxy Statement was inadequate because it failed to disclose the

number of Honeywell shares “underlying” the grants of stock

options and other awards under the 2003 Plan. App. at 40. 

Although the Proxy Statement indicated that 33.8 million shares

was the maximum to be issued, Seinfeld asserted that the

possible adjustments to that number permit a much greater

allowance of awards. Because a reasonable investor allegedly

would not understand that the number of shares awarded could

exceed 33.8 million, Seinfeld claimed that the defendants

negligently issued the Proxy Statement. He also claimed that the

Proxy Statement was false and misleading insofar as it failed to

disclose the cost of the 2003 Plan.

The defendants moved to dismiss the Amended

Complaint for (1) failure to make a demand upon the Board of

Directors before filing suit, (2) failure to satisfy the heightened

pleading requirements of the Private Securities Litigation

Reform Act, 15 U.S.C. § 78u-4 et seq. (“PSLRA”), and (3)

failure to state a claim upon which relief can be granted. The

District Court granted the motion to dismiss under Federal Rule

of Civil Procedure 12(b)(6). The Court explained that it need

not decide whether Seinfeld’s claims are subject to the PSLRA’s

heightened pleading standard because Seinfeld failed to state a

claim under the federal securities laws even under the notice

pleading standard of Rule 8(a)(2).

II.

Section 14(a) of the Securities Exchange Act of 1934

makes it unlawful to solicit a proxy “in contravention of such
7

rules and regulations as the [SEC] may prescribe as necessary or

appropriate in the public interest.” 15 U.S.C. § 78n(a). Rule

14a-9, which the SEC promulgated under § 14(a), provides that

no proxy statement shall contain “any statement which, at the

time and in the light of the circumstances under which it is made,

is false or misleading with respect to any material fact, or which

omits to state any material fact necessary in order to make the

statements therein not false or misleading . . . .” 17 C.F.R. §

240.14a-9(a).

“Section 14(a) seeks to prevent management or others

from obtaining authorization for corporate actions by means of

deceptive or inadequate disclosures in proxy solicitations.” 

Shaev v. Saper, 320 F.3d 373, 379 (3d Cir. 2003) (citations

omitted). The “omission of information from a proxy statement

will violate [§ 14(a) and Rule 14a-9] if either the SEC

regulations specifically require disclosure of the omitted

information in a proxy statement, or the omission makes other

statements in the proxy statement materially false or

misleading.” Resnik v. Swartz, 303 F.3d 147, 151 (2d Cir.

2002). “An omitted fact is material if there is a substantial

likelihood that a reasonable shareholder would consider it

important in deciding how to vote.” TSC Indus., Inc. v.

Northway, Inc., 426 U.S. 438, 449 (1976).

In addition to Rule 14a-9, Seinfeld relies upon SEC Rule

14a-101, i.e., “Schedule 14A,” which specifies the information

required in a proxy statement. 17 C.F.R. § 240.14a-101. We

have stated that, “[a]lthough not determinative, Schedule 14A is

persuasive authority as to the required scope of disclosure in

proxy materials[.]” Gen. Elec. Co. v. Cathcart, 980 F.2d 927,

937 (3d Cir. 1992).

Seinfeld relies in particular upon Item 10 of Schedule

14A, which states with respect to cash and noncash

compensation plans:

If action is to be taken with respect to any plan

pursuant to which cash or noncash compensation

may be paid or distributed, furnish the following

information:
2

 Despite the same surname, the plaintiffs in Bartz and Gray

are not the same individual as the plaintiff in the present suit. We

have no information as to whether or how the ubiquitous Seinfeld

plaintiffs are related.

8

. . . .

[(a)](2)(i) In the tabular format specified below,

disclose the benefits or amounts that will be

received by or allocated to each of the following

under the plan being acted upon, if such benefits or

amounts are determinable[.]

. . . .

[(b)](2)(i) With respect to any specific grant of or

any plan containing options, warrants or rights

submitted for security holder action, state:

(A) The title and amount of securities underlying

such options, warrants or rights[.]

17 C.F.R. § 240.14a-101 (emphasis added).

III.

Initially, we note that Seinfeld’s counsel has represented

numerous plaintiffs in challenges to proxy statements on

essentially the same grounds as presented here, including the

following cases: Seinfeld v. Gray, 404 F.3d 645 (2d Cir. 2005),

cert. denied, 126 S. Ct. 1464 (2006); Seinfeld v. Bartz, 322 F.3d

693 (9th Cir. 2003);2

 Resnick v. Swartz, 303 F.3d 147 (2d Cir.

2002); Shaev v. Hampel, No. 99 Civ. 10578(RMB), 2002 WL

31413805 (S.D.N.Y. Oct. 25, 2002), aff’d, 74 Fed. Appx. 154

(2d Cir. 2003); In re 3Com Corp., No. C.A. 16721, 1999 WL

1009210 (Del. Ch. Oct. 25, 1999); Cohen v. Calloway, 246

A.D.2d 473 (N.Y. App. Div. 1998); Lewis v. Vogelstein, 699

A.2d 327 (Del. Ch. 1997). Counsel have been singularly

unsuccessful in their effort to change the law on proxy

solicitations, particularly as to the valuation of stock options.
3

 Item 20 of Schedule 14A provides:

If action is to be taken on any matter not specifically

referred to in this Schedule 14A, describe briefly the

substance of each such matter in substantially the same

degree of detail as is required by Items 5 to 19, inclusive, of

this Schedule, and, with respect to investment companies

registered under the Investment Company Act of 1940, Item

22 of this Schedule.

9

(a) Disclosure of the amount of shares available for award

under the 2003 Plan

Seinfeld contends that Rule 14a-9 and Schedule 14A

(Items 10(b)(2)(i)(A) and 20) required Honeywell to disclose the

total number of shares underlying the stock-based awards

available under the 2003 Plan, and that Honeywell’s

representation of 33.8 million shares was false and misleading. 

The District Court held that the Proxy Statement did not violate

Rule 14a-9, as Honeywell prominently displayed the maximum

number of shares available and the circumstances under which

that number could increase. The District Court observed that

there was no allegation that more specific estimates could have

been calculated or that estimates about the increased number of

shares would have been helpful. Providing a more specific

prediction as to the number of shares available would require

knowledge of several variables, including the preferences of

shareholders who received awards under prior plans to forfeit,

cancel or exercise their stock-based benefits. The District Court

cited the practical difficulties in gathering such information and

concluded that requiring it would result in an avalanche of trivia

that would serve only to confuse shareholders and burden the

soliciting corporation.

The District Court also rejected Seinfeld’s reliance upon

Item 10(b)(2)(i)(A) of Schedule 14A, holding, inter alia, that

disclosure of the number of available shares and the

circumstances under which that number could increase satisfied

Schedule 14A’s requirements. As to Seinfeld’s reliance on Item

20,3

 the District Court noted that it appears to be a catchall
17 C.F.R. § 240.14a-101.

10

provision, and because the Proxy Statement satisfied Item

10(b)(2)(i)(A), any claimed violation of Item 20 was moot.

We fully agree with the District Court’s analysis. 

Seinfeld contends on appeal that the plain language of Item

10(b)(2)(i)(A) required disclosure of the amount of securities

“underlying” the stock options, not the number of “issuable”

shares. Appellant’s Br. at 24. He argues that shares underlying

an option are not “‘issued’ shares,” and only when those shares

are transferred can they be considered issued. Id. at 26. As

such, he contends, stock underlying an employee option is

unissued, and for options that are settled in cash, no shares will

ever issue. He further claims that, because Item 10(b)(2)(i)(A)

addresses only stock options, Item 20 fills in the gap and

requires disclosure of the number of underlying shares for

awards other than stock options, such as stock appreciation

rights, restricted stock, and other stock-based awards.

Seinfeld’s reading of Item 10(b)(2)(i)(A) is misguided. 

That section requires disclosure of the “title and amount of

securities underlying [ ] options.” 17 C.F.R. § 240.14a-101. In

Gray, the Court of Appeals for the Second Circuit considered

this language and concluded that “Item 10 plainly requires the

disclosure of those securities that could be issued to satisfy [the

company]’s obligation to deliver shares under the Plan when an

option-holder exercises options.” 404 F.3d at 649 (emphasis

added). The court explained that “we cannot conclude that, in

stating its general option disclosure requirement, the regulation

used the term ‘amount of securities underlying . . . options,’ . . .

to mean ‘amount of options.’” Id. (citation omitted). We agree,

as there is simply no indication in the SEC’s regulations that

disclosure of the amount of securities “underlying” employee

options warrants a statement beyond disclosure of the shares

available for issuance.

In the same case, the Second Circuit rejected the

plaintiff’s challenge to the Item 10 disclosure, noting that
11

the proxy statement informs investors that “[t]he

aggregate number of shares of [company] stock

available for issuance under the 2003 Plan will not

exceed 30 million.” The proxy statement further

explains that this number may be increased by

three million shares if [the company] acquires

another company. The Plan itself is attached to the

proxy statement, and contains similar language.

This disclosure adequately informs investors of the

amount of securities that could be issued to satisfy

[the company]’s obligation to deliver shares under

the Plan when an option-holder exercises options.

404 F.3d at 649. Similarly, the district court in Shaev rejected

the shareholder-plaintiff’s Item 10 challenge where the proxy

statement advised that in addition to the 14 million shares

available for award, the total number could be increased (1) by

replacing shares available under a prior plan, (2) by the company

repurchasing shares in the market and designating them as

available under the plan, or (3) by substituting company shares

for those held by an employee of an acquired company. Shaev,

2002 WL 31413805, at *7.

Here, the Proxy Statement similarly informed

shareholders that the maximum number of shares to be issued

was 33,888,057, but that this number could increase under

specified circumstances, including where shares relating to

awards under a prior plan were forfeited, cancelled, or settled in

cash on or after January 1, 2003, certain shares were reacquired,

or shares were made available as a result of the acquisition of or

combination with another company. Honeywell prominently

displayed this information in the Proxy Statement and attached

the full 2003 Plan thereto. Like the District Court, we reject

Seinfeld’s contention that this disclosure was confusing to the

reader. Cf. Shaev, 2002 WL 31413805, at *8 (“No reasonable

shareholder reading the entirety of the Proxy Statement would

have believed that the Plan was authorizing only 14 million

shares.”).

Seinfeld claims that disclosing the 33.8 million figure as

the maximum number of shares available for award understated
12

the burden of the 2003 Plan and thus was materially false or

misleading in violation of Rule 14a-9. Seinfeld complains that

the number of shares devoted to the 2003 Plan could increase

with no limit, particularly because shares underlying options that

are settled in cash become available for future awards. As we

have noted, however, Schedule 14A did not require Honeywell

to speculate as to the number of shares that might become

available for award based on the contingencies specified in the

Proxy Statement. Nor would such speculation have provided

information that its shareholders would have found material, as

there is no indication that Honeywell could have predicted

accurately whether, or to what extent, the number of shares

would exceed the 33.8 million maximum.

Seinfeld cites the Proxy Statement’s disclosure that “[t]he

aggregate annual amount of Awards to be granted under the

2003 [Plan] is not expected by the Committee to be materially

different than the aggregate amount of Awards granted under the

1993 Employees Plan.” App. at 108. He contends that this

statement reveals that Honeywell must have known the exact

number of shares underlying the 2003 Plan when it filed the

Proxy Statement. Seinfeld concedes, however, that there is

nothing per se false or misleading in the Proxy Statement’s

comparison to the 1993 plan, and we fail to see how that

comparison undermines the information disclosed. Honeywell

merely stated that aggregate annual awards under the 2003 Plan

are not expected to be materially different than past awards. 

Given the stated circumstances under which the maximum

number of shares available for issuance could increase under the

2003 Plan, a reasonable reader of the Proxy Statement could not

interpret Honeywell’s expectation as an indication that it knew,

and yet withheld, information as to the exact number of options

to be granted.

Seinfeld also relies upon the Financial Accounting

Standards Board’s (“FASB”) Statement No. 123. Seinfeld

contends that this Statement provides that the economic

consequences of granting options are best accounted for at the

time of the grant, not at the time of the option’s exercise. He

concedes that FASB Statement No. 123 concerns the reporting

of employee stock options in a company’s financial statement for
13

purposes of arriving at reported earnings. He argues,

nevertheless, that because Honeywell measures the cost to grant

stock options as a pro forma expense against income, the number

of underlying shares determines the pro forma cost to

Honeywell.

Two Courts of Appeals have rejected Seinfeld’s

contention. The Ninth Circuit has aptly observed that “‘[t]here

are salient differences . . . between financial statement disclosure

of an estimated value of stock options under a plan and

disclosure for the purpose of shareholder ratification of adoption

of the plan.’” Bartz, 322 F.3d at 697 (quoting Lewis, 699 A.2d

at 332). In Resnick, the Second Circuit similarly noted that

while FASB Statement No. 123 recommends recognizing

“options’ grant-date value as part of compensation expense” in

financial statements, it “does not purport to address the

requirements for reporting proposed compensation in a proxy

statement.” 303 F.3d at 153; see also Gray, 404 F.3d at 649-50

(“It remains true that technical accounting standards governing

the appropriate timing for recognition of revenues and costs

simply do not change the SEC’s straightforward regulations,

including those laid out in Item 10, governing proxy statement

disclosure.”); Bartz, 322 F.3d at 697 (observing that “FASB

Statement No. 123 is not pertinent”). As these courts have

adequately explained, Seinfeld’s attempt to import the

requirements for an accurate report of earnings in a financial

statement into the required disclosures for a proxy solicitation

under SEC regulations must be rejected.

In short, the District Court did not err in holding that

Seinfeld failed to state a claim regarding disclosure of the shares

available for award under the 2003 Plan.

(b) Failure to disclose the cost of the 2003 Plan

Seinfeld argues that Honeywell improperly omitted a

statement of the cost of the stock options to be awarded under

the 2003 Plan. He claims that this information was required both

by the duty to disclose material information under Rule 14a-9

and by Schedule 14A, Item 10(a)(2)(i).
4

 “Black-Scholes” is a widely accepted formula for

calculating the value of a stock option. “The essential factors the

formula takes into account driving the value of an option to

purchase common stock are: (1) the stock price on the date of

valuation; (2) the exercise price at which the option holder can

purchase the stock; (3) the amount of time over which the option

will be valid and outstanding; (4) the volatility of the underlying

common stock; and (5) the risk-free rate of interest rates at the time

the option is being valued.” Mathias v. Jacobs, 238 F. Supp. 2d

556, 574 n.12 (S.D.N.Y. 2002).

14

The District Court held that, with respect to materiality, a

valuation of stock options, such as under the Black-Scholes

model, is “soft” information, and courts have uniformly held that

such information is not a material component of a proxy

statement seeking approval of a compensation plan.4

 App. at 16-

17 (citing Lewis, 699 A.2d at 333). The Court concluded that

because a Black-Scholes calculation based on speculation would

yield unreliable information, shareholders would find such

information unhelpful. The Court also rejected Seinfeld’s

reliance upon Item 10(a)(2)(i), which expressly requires

disclosure of compensation amounts only if such benefits or

amounts are “determinable.” It observed that nothing in Item

10(a)(2)(i) requires a valuation of stock options under a newly

adopted plan where benefits under the plan have yet to be

allocated.

Both the Second and Ninth Circuits have rejected the

arguments that Seinfeld raises with regard to the valuation of

stock options, and we take this opportunity to join those courts. 

In Bartz, the plaintiff-shareholder challenged a proxy statement

seeking approval of an amendment to a program for awarding

options to outside directors. 322 F.3d at 697. The plaintiff

argued that the proxy statement was misleading because it did

not include a Black-Scholes valuation and instead merely

disclosed that the company paid each director an annual retainer

and granted the directors stock options. The Ninth Circuit

observed that while Black-Scholes is one of several

well-established and reliable methods used to value options,

there was no support in the SEC regulations for plaintiff’s
15

argument that use of Black-Scholes was required in valuing

options for purposes of a proxy statement. Id. (“We conclude

that SEC regulations do not require the use of the Black-Scholes

valuation and that the proxy statement is not materially false and

misleading.”); accord Resnik, 303 F.3d at 155 (“If appellant

believes that Black-Scholes value disclosure should be

mandatory whenever shareholders' approval is sought for a

proposed option grant, his remedy is to advocate a change in the

regulations before the Commission.”).

Seinfeld argues that Bartz and Resnick were wrongly

decided because they conflict with the goal of protecting the

shareholders’ vote through vigorous enforcement of the full

disclosure requirements of § 14(a) and the SEC’s regulations. In

that light, he maintains that Item 10(a) of Schedule 14A required

disclosure of the cost of the 2003 Plan. Item 10(a), however,

expressly requires disclosure only if plan costs are

“determinable.” Honeywell had made no awards at the time it

filed the Proxy Statement, and it could not have known if

employees would meet the performance targets to attain the

proposed awards. At best, Honeywell could have disclosed an

estimate of potential cost, which, it correctly maintains, it was

not required to do. As the District Court observed, a BlackScholes valuation based on speculation would have produced

unreliable information, and, thus, one was not required under

Rule 14a-9.

Seinfeld again relies upon FASB Statement No. 123, as

well as FASB Statement No. 148, which amends Statement No.

123, because those statements require Honeywell to report the

cost of its options on future financial statements if options are

awarded under the 2003 Plan. As we have noted, however, the

FASB standards apply to reporting for financial statements, not

proxy solicitation. The FASB standards concern the disclosure

of historical data and are simply inapplicable to a projection of

cost for a stock option plan in which no awards have been made.

We conclude that SEC regulations did not require

Honeywell to measure the cost of its stock-option plan by means

of an option-pricing model like Black-Scholes, and the failure to

provide such an estimation did not render the Proxy Statement
5

 In light of our holding, we need not reach Honeywell’s

arguments that dismissal of the Amended Complaint was warranted

because Seinfeld did not make a demand upon the Board of

Directors before filing suit and because the complaint failed to

satisfy the heightened pleading requirements of the PSLRA.

16

false or misleading. The District Court did not err, therefore, in

holding that Seinfeld failed to state a claim upon which relief

can be granted.5

IV.

For the reasons stated, we will affirm the District Court’s

judgment.