Opinion ID: 557198
Heading Depth: 2
Heading Rank: 2

Heading: The Incentive Package

Text: 44 Mendell also alleged that Greenberg and AEA had come to an agreement prior to the merger regarding an incentive package Greenberg would receive after the merger, and that the proxy statement falsely represented that no such agreement had been reached. The proxy statement read, in pertinent part: 45 Mr. Greenberg presently has an employment contract with the Company providing for his employment as President and Chief Executive Officer until July, 1988 ... at a base salary of $200,000 per year plus a bonus based on the Company's net earnings.... The contract will remain in effect after the [Merger]. It is also anticipated that following the consummation of the Merger, additional incentive arrangements may be established for Mr. Greenberg and other key employees which may consist of employment agreements, stock appreciation rights, performance related awards or other types of compensation. It is not expected that the exact nature and details of these arrangements will be determined until several months after the [Merger]. 46 On March 10, 1981, two months after the merger, AEA first proposed a Management Incentive Plan, that provided a new incentive plan for the company's management, including Greenberg. This proposal was rejected and further negotiations ensued. On May 26, 1981 AEA presented a second proposal that was accepted; part C of this proposal covered Greenberg exclusively. It increased his base salary $50,000, altered the formula by which his annual bonus would be determined, and allowed him to purchase the just discussed 8,000 shares of LH Investors stock. 47 Greenberg admitted that prior to the merger he discussed with AEA his concern that the remaining management of Loehmann's receive some type of incentive plan after the merger and that compensation and other benefits would be certainly not less than what [they] got prior to the merger. Mendell insists that this admission, the fact that an initial draft of the proxy statement which read that Greenberg will receive additional incentive arrangements was revised to read that Greenberg may receive such additional arrangements, and the fact that AEA prepared a memorandum in November 1980 estimating a cost of $3,304,000 annually for an incentive plan for Loehmann's management, provides sufficient proof to create a genuine issue of material fact. We disagree. 48 Even assuming that the proof submitted may have been sufficient to raise the question of whether AEA and Greenberg had agreed prior to the merger that certain additional incentives would definitely follow its consummation, the proxy statement adequately revealed the probability of this occurrence to the shareholders. While it is true that the proxy statement used the word may rather than will, a reasonable investor would still have been on notice that additional incentives were most likely and should have been anticipated. This is not a case where the additional incentives were so exorbitant that a reasonable investor would have been shocked upon learning of them. Other than the purchase of 8,000 shares of LH Investors stock for $100 per share, Greenberg's additional incentives amounted to a pay raise of 25 percent and an alteration in the formula for computing his annual bonuses to exclude--in determining the company's adjusted earnings--the debt the company had incurred in connection with the merger. 49 Thus, the proxy statement adequately gave notice of AEA's and Greenberg's intentions to make a modest adjustment to Greenberg's compensation, and any omission of an actual agreement as to the exact terms of Greenberg's compensation would not have significantly altered the 'total mix' of information made available. TSC Indus., 426 U.S. at 449, 96 S.Ct. at 2132. This claim was therefore properly dismissed. IV Defendants' Cross-Appeal 50 Defendants cross-appeal from the denial of their motion for sanctions against plaintiff under Fed.R.Civ.P. 11, and from that part of the district court's order in Mendell I that denied defendants' motion to dismiss the amended complaint for failure to state a claim for relief, to the extent the order merged into the judgment in Mendell II. We agree with the district court that even as to those claims properly dismissed by summary judgment, plaintiff's arguments were not so lacking in a colorable basis that Rule 11 sanctions are warranted. Mendell II, 715 F.Supp. at 90. In light of our decision to remand the case to the district court for trial, defendants' appeal of the order in Mendell I is moot.