Court Opinion

ID: 8988709
Source: CourtListenerOpinion
Date Created: 2022-11-27 11:59:19.565938+00
Date Added: 2024-06-11T17:10:50.850040
License: Public Domain

CARDAMONE, Circuit Judge:
Sixty years ago in 1930 Charles Loeh-mann founded what later became a chain of women’s clothing stores offering customers high quality clothing at prices below those of many upscale department stores. When Mr. Loehmann who held the largest block of the company’s stock died in 1977, and his widow, Anita T. Loehmann, died three years later, their daughter, Anita Loehmann Stafford, became the fiduciary of the estates. She sought to sell the Loehmann family’s holdings. Divestment of the stock came by way of a merger in January 1981 with a subsidiary of defendant AEA Investors, Inc. (AEA).
Plaintiff Ira L. Mendell, a shareholder of Loehmann’s Inc. common stock at the time of its merger, thereafter brought an action under § 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 of the Securities and Exchange Commission alleging that shareholder approval of the merger was obtained by means of a materially misleading proxy statement issued on December 9, 1980. Most of the claims of misrepresentation were dismissed by the district court in Mendell v. Greenberg, 612 F.Supp. 1543 (S.D.N.Y.1985) (Mendell I), for failure to state a claim upon which relief could be granted. Plaintiff appeals the dismissal of one claim in Mendell I and two claims that the district court initially refused to dismiss in Mendell / — but subsequently dismissed in Mendell v. Greenberg, 715 F.Supp. 85 (S.D.N.Y.1989) (Mendell II).
When a corporation issues a proxy statement it must not contain any false or misleading statements respecting any material fact, or omit stating material facts necessary to make the statements in it not false or misleading. SEC Rule 14a-9(a), 17 C.F.R. § 240.14a-9(a). We deal on this appeal with both mandates. A proxy statement should honestly, openly and candidly state all the material facts, making no concealment of the purposes for the proposals it advocates. Unlike poker where a player must conceal his unexposed cards, the object of a proxy statement is to put all one’s cards on the table face-up. In this case only some of the cards were exposed; the others were concealed. Consequently, we affirm the judgment appealed from in part, and reverse and remand in part.
BACKGROUND
A. The Loehmann Family’s Decision to Sell Their Stock
Plaintiff first alleges that at the time of the AEA merger the Loehmann family sought a prompt sale of its Loehmann’s stock because it needed cash to pay estate taxes. Mendell believed that Anita Loeh-mann Stafford (Stafford) had a conflict of interest when she gave her support in the proxy statement to the proposed merger at a price of $31.30 a share. Mendell claims Stafford — as a representative and beneficiary of the largest shareholder of Loeh-mann’s and as a company director — had the ability to persuade the other directors and shareholders to approve the transaction. In making this allegation Mendell relied upon the following facts to indicate that family financial pressures rather than what was best for Loehmann’s was the paramount purpose in the recommendation of the merger proposal to the shareholders.
It was conceded by defendants that the taxes due upon the estates of Charles and Anita Loehmann exceeded their liquid assets by millions of dollars. To resolve the problem Stafford had two options: have the estate taxes paid over a 15-year period, with only the interest due for the first five years and the principal payable in subsequent ten annual installments, pursuant to I.R.C. § 6166 (1988), or sell off a substantial portion of Loehmann’s stock to raise funds.
Prior to the deaths of Charles and Anita Loehmann the family had considered selling its holdings. In the mid-1970s offers from three potential bidders, including AEA, had been considered, and though a sale was never consummated, negotiations had brought it close. In 1977 Anita Loeh-mann had retained Drexel Burnham, Lambert, Inc. (Drexel) to locate a purchaser because she was dissatisfied with corporate management. Drexel was unable to come *671up with an offer from the companies it contacted.
Later, Stafford called upon Drexel to find a purchaser, expressing an interest in selling the family holdings alone or in conjunction with a sale of the entire company. Stafford’s financial advisers had suggested that she diversify the estates’ assets, and that the family’s shares would command a higher price were they to be sold as a block. Stafford rather surprisingly stated that the advisers never told her that the stock had to be sold to raise funds for the estate taxes.
B. The Sale to AEA and the Proxy Statement
Stafford’s intention to sell the family’s holdings was disclosed in a Schedule 13D filing made with the SEC in May 1980. When AEA learned from Drexel that the Loehmann family was interested in selling, AEA entered into negotiations to purchase the entire company. No other offers surfaced. On September 25, 1980 a merger agreement in principle was approved by Loehmann’s Board of Directors and the December 9 proxy statement expressing the Board’s approval of the merger and recommending it to the stockholders of Loehmann’s described its terms.
Mendell’s appeal concerns alleged misstatements and' omissions in the proxy statement. He alleges that the proxy statement failed to inform the shareholders of the Loehmann family’s large estate tax liability, and that Stafford’s purpose in recommending the merger which, Mendell charges, offered shareholders a price for their stock well below its true value was to discharge this debt. Mendell asserts that a shareholder could reasonably have inferred from these facts that Loehmann’s was being sold because the Loehmann family needed to raise cash rather than because it was in the shareholders’ best interests.
Mendell’s second contention is somewhat connected to the first one. He states that the Loehmann family expected to realize a substantial savings in the amount of estate taxes due the Internal Revenue Service if it were able to pay the taxes immediately rather than on the deferred basis provided in § 6166 of the Internal Revenue Code. He asserts that had the family elected to pay the estate taxes on a deferred basis it would have obtained only an 8.1 percent blockage discount on the value of its stock, but if the taxes were paid in full immediately, a blockage discount of about 30 percent was available. According to Mendell, the higher discount amounted to a net after-tax savings of $1,135,000 or $2.46 per share of the estate’s stock. Such a substantial benefit accruing to the major shareholder of the company — one that did not accrue to any of the smaller shareholders — Mendell believes should have been disclosed in the proxy statement, particularly since Stafford’s recommendation to approve the merger may have influenced the decisions of the other shareholders.
Mendell’s last two challenges involve post-merger arrangements between AEA and defendant George Greenberg, Loeh-mann’s Chief Executive Officer. The proxy statement expressly stated that “[u]pon consummation of the Merger, Mr. Greenberg will continue as the President, Chief Executive Officer and a Director of the Company.” Mendell asserts that certain incentive arrangements given to Greenberg and other remaining managers of the company after the merger were part of a secret “handshake agreement” made between Greenberg and AEA prior to the merger and were not disclosed in the proxy statement. He avers that Greenberg’s post-merger purchase of stock in AEA’s subsidiary, LH Investors, Inc. (LH Investors), was also arranged prior to the merger and was contrary to an indication in the proxy statement that “[njeither Mr. Green-berg nor any other present director or officer of the Company owns beneficially or will acquire an equity or debt interest in AEA, LHI, Holdings or [LH] Investors.”
C. Procedural History
In Mendell I the district court dismissed most of Mendell’s claims as legally insufficient. It denied the motion to dismiss those claims relating to the Loehmann family’s need to raise cash to pay the estate *672taxes, and the alleged pre-merger agreements between Greenberg and AEA to provide an incentive package and stock to Greenberg after the merger. Relying on Rodman v. Grant Foundation, 608 F.2d 64 (2d Cir.1979). and SEC v. Parklane Hosiery Co., 558 F.2d 1083 (2d Cir.1977), the trial court reasoned that the personal motivation of the Loehmann family for recommending the merger was not required to be disclosed so long as all of the material facts regarding their interests were revealed. The trial judge could not say as a matter of law that the disclosure of the facts surrounding the family’s estate tax liability was not necessary to prevent the proxy statement from being misleading, and therefore, left that issue for a jury. 612 F.Supp. at 1553. In a subsequent opinion, the court granted plaintiff discovery of the true value of Loehmann’s stock at the time of the merger because “if the Loeh-mann family approved the merger at a price far below the true value of the stock, this might tend to establish that the Loeh-mann family was under economic pressure to get cash_” Mendell v. Greenberg, 113 F.R.D. 680, 682 (S.D.N.Y.1987).
With respect to the agreements between AEA and Greenberg, the district court agreed that failure to reveal them — assuming they actually existed — might be misleading, and that a jury would need to determine whether such omissions were material. Because Mendell had failed to set forth adequate facts to demonstrate the agreements’ existence, the district court granted him an opportunity to substantiate them through discovery. 612 F.Supp. at 1554.
In Mendell II the district court addressed Mendell’s surviving claims, again on a motion for summary judgment. After considering the evidence Mendell had acquired through discovery, it found insufficient evidence to create any genuine issue of material fact, and therefore dismissed all of Mendell’s remaining claims. Judge Sprizzo found that no reasonable jury could conclude that at the time of the merger the Loehmann family had an urgent need of cash to pay estate taxes because the deferral election under I.R.C. § 6166 was available. Moreover, he found that Mendell’s assertion that the Loehmann family had many incentives to sell all of its stock at once rather than piecemeal, including expectations of an estate tax windfall due to an increased blockage discount, “could not rationally support an inference that there was an urgent need for cash....” 715 F.Supp. at 87. The district court additionally held that regardless of whether there was in fact an urgent need for cash, there was no evidence showing that Stafford was ever informed of that need by her financial advisors. The court noted that defendants, on the other hand, presented affidavits and deposition testimony from Stafford and her advisers stating that she was never so informed. Thus, the trial court ruled that even had there been an urgent need for cash, no rational jury could find that Stafford was motivated by it to recommend the merger. Id.
The district court also re-examined Men-dell’s claim that the omission from the proxy statement of the substantial, blockage discount which the Loehmann family allegedly expected to realize from the sale of all of its stock was materially misleading. It concluded, as it had previously in Mendell I, that the law does not require proxy statements to reveal that particular shareholders may have differing tax benefits flowing from a proposed merger so long as those benefits did not flow directly from the merger itself, but instead, were incidental to it. Id. at 88.
As to Mendell’s claims of pre-merger agreements between Greenberg and AEA, the district court found that plaintiff had failed to present sufficient evidence to support a finding that there were any “so called ‘handshake’ agreements” between Greenberg and AEA regarding Green-berg’s post-merger incentive package and purchase of LH Investors stock. The court stated that the post-merger purchase of LH Investors stock was not itself sufficient to show that the proxy statement was misleading in representing that Greenberg would not acquire an equity or debt interest in LH Investors. Specifically, the trial court observed that AEA had a policy of *673offering stock incentives to the management of its companies, and that this favorable offering to Greenberg after the merger was just as consistent with AEA’s unilateral policy as with any inferred pre-merger agreement. It therefore held that plaintiffs burden of proof “cannot be sustained where there is no direct proof of a prior agreement and the only circumstantial proof of such an agreement is subsequent conduct consistent with what AEA had, pursuant to its regular policy, planned to do.” Id.
Regarding the alleged pre-merger agreement to give Greenberg and other management employees incentive packages, including salary raises, the court found that the proxy statement gave sufficient notice that such additional incentive arrangements were anticipated and that there was no evidence supporting Mendell’s contention that the precise details of the arrangements had been negotiated prior to the merger. Id. at 89. Finally, Judge Sprizzo denied defendants’ motion for sanctions under Rule 11. He found that although Men-dell’s claims were subject to dismissal on summary judgment, they were not so lacking in a colorable basis as to warrant sanctions. Id. at 90. Mendell appeals from the dismissal of his claims. Defendants cross-appeal from the refusal in Mendell I to dismiss and from the denial of Rule 11 sanctions in Mendell II.
DISCUSSION
We discuss the recommendation of merger, tax incentive, and handshake agreement claims, and then turn to the cross-appeal. Analysis begins with the statute and SEC Rules. Section 14(a) of the Securities Exchange Act of- 1934, 15 U.S.C. § 78n(a) (1988), prohibits the solicitation of proxies in violation of the rules and regulations of the Securities and Exchange Commission. Plaintiff’s claims rest on SEC Rule 14a-9(a), 17 C.F.R. § 240.14a-9(a) (1989), that provides:
No solicitation subject to this regulation shall be made by means of any proxy statement ... containing 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. ...
Liability under Rule 14a-9 requires the omission of a material fact which renders the proxy statement false or misleading. An omitted or concealed fact is material when “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, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976). If a reasonable shareholder would have viewed disclosure of an omitted fact as having “significantly altered the ‘total mix’ of information made available” then that fact is material. Id. Because materiality is a mixed question of law and fact, it is a question especially well suited for jury determination and summary judgment may be granted only when reasonable minds could not differ on the issue. Id. at 450, 96 S.Ct. at 2133; GAF Corp. v. Heyman, 724 F.2d 727, 737 (2d Cir.1983).
I Material Pacts Regarding Merger
In Mendell I the district court found that perhaps there was a genuine issue as to whether those facts regarding estate tax liability were material to a reasonable shareholder. See 612 F.Supp. at 1553. But in Mendell II, after considering the evidence derived from discovery, the district judge found that “no reasonable juror could conclude that [when the proxy statement was issued] the Loehmann family had an urgent need for cash to pay estate taxes” and that “regardless of whether or not in fact there was an urgent need for cash there is absolutely no evidence that Mrs. Stafford was ever told of such a need.” 715 F.Supp at 87.
The district court based this conclusion on the fact that the Loehmann family had the option of deferring estate taxes over a 15-year period under I.R.C. § 6166. It dismissed as irrelevant Mendell’s contentions that Stafford desired to sell the family’s stock in one block to prevent erosion of the *674family’s control over the company and to benefit from a larger blockage discount on the estate taxes.
It was error to dismiss plaintiffs claims regarding the merger. A proxy statement need not disclose the underlying motivations of a director or major shareholder so long as all the objective material facts relating to the transaction are disclosed. See Rodman, 608 F.2d at 71. The trial court {Mendell I) relied on our decision in Parklane Hosiery, which held that a principal shareholder’s personal indebtedness was the overriding purpose for initiating a going-private scheme and therefore constituted a material omission from a proxy statement. 558 F.2d at 1086, 1087-89. The concerns that led the district court to deny the motion to dismiss in Mendell I should have led it to the same result in Mendell II.
In Parklane, plaintiff, the Securities and Exchange Commission, charged that a proxy statement had material omissions. The contention was that defendant—the majority shareholder of a publicly held corporation facing large personal debts (like the Loehmann family)—chose to take the company private by repurchasing its publicly held stock. The proxy statement fully disclosed that going private would give defendant control of the company’s assets, earnings, and cash flow, and make it possible for him to combine the resources of the new private company with his own. Nonetheless, we held that “ ‘the overriding purpose’ for the going-private scheme was to enable [the defendant] to repay his personal indebtedness,” id. at 1086, and that the nondisclosure of the defendant’s large personal debts was a material omission from the proxy statement, id. at 1087-89.
Similarly, we think that the fact that the Loehmann family had incurred substantial estate tax liability is not so inconsequential as to allow summary judgment on the issue of materiality. Of this fact there is no mention or hint whatever in the proxy material submitted to the shareholders, yet a jury could conclude that “a reasonable shareholder would consider it important in deciding how to vote,” TSC Indus., Inc., 426 U.S. at 449, 96 S.Ct. at 2132; or, to put it another way, a jury could find that disclosure of this omitted fact would have “significantly altered the ‘total mix’ of information made available” to the shareholder. Id. A reasonable shareholder made aware of this liability could deduce that the Loehmann family desired a “quick sale” for estate tax purposes, not because this, or any sale would be in the best interests of the company or shareholders. Further, this information could lead the stockholder to infer that the majority stockholder’s urgent need for cash, coupled with the control such a stockholder is able to exercise over the affairs of the company, had caused the Board of Directors to endorse a sale below the stock’s value, the financial appraisal contained in the proxy statement notwithstanding. The appraisal is of course an important source of information for use both in valuing the stock and in deciding how to vote; but the reasonable shareholder is entitled to rely on factors in addition to the appraisal—the “total mix” of information—in making these decisions. Only when the proxy statement fully and fairly furnishes all the objective material facts as to enable a reasonably prudent stockholder to make an informed investment decision is the federal purpose in the securities laws served. See Data Probe Acquisition Corp. v. Datatab, Inc., 722 F.2d 1, 5-6 (2d Cir.1983); Parklane Hosiery, 558 F.2d at 1086, 1087-89; Lessler v. Little, 857 F.2d 866, 875-76 (1st Cir.1988).
Rodman v. Grant Foundation does not compel a contrary conclusion. In Rodman, plaintiff, trustee of the estate of the bankrupt W.T. Grant Company, charged that a proxy statement favoring a stock buy-back plan contained a material omission because the defendant directors’ “ ‘desire to entrench their control was the principal, if not the sole reason for the [stock] purchase program’ and ... this was not disclosed to the shareholders.” 608 F.2d at 70. In Rodman “the proposed actions of the company and their effect on stockholdings were fully disclosed.” Id. at 71. Based, therefore, on the fact that the *675directors’ alleged motivation for the proposal — their “obvious interest in corporate control” — would be apparent to any shareholder evaluating the proxy statement, we “[found] little merit in [the] argument that disclosure of the above-described motivation might have induced shareholders to vote against the [stock buy-back plan].” Id.
In this case, the fact that the Loehmann family had incurred substantial estate tax liability was not disclosed in the proxy statement; significantly, unlike Rodman, absent such disclosure, the Loehmann family’s interest in a “quick sale” of the company was not the type of “obvious interest” that all stockholders who received the proxy statement could be charged with inferring from reading the statement. This, fact was neither disclosed, nor inferable from what was disclosed, so the omitted information cannot be said to be non-material due to its obviousness. Moreover, as discussed above, a reasonable shareholder — fully informed of the majority share1 holder’s urgent need for cash — -could consider that fact important in valuing the stock, and the shareholder’s appraisal of the stock’s value is obviously “important in deciding how to vote.” TSC Indus., Inc., 426 U.S. at 449, 96 S.Ct. at 2132. We therefore hold that the motivation of a controlling shareholder for favoring a course proposed in a proxy statement must be disclosed when there is a substantial likelihood that its disclosure will have a significant bearing on a reasonable shareholder’s assessment of the recommended course of action. Applying that test, there was enough evidence here for a rational jury to reach the conclusion that the omitted information “might have induced shareholders to vote against the [merger],” Rodman, 608 F.2d at 71, making its omission a material one for securities law purposes. See Data Probe Acquisition v. Datatab, 722 F.2d 1, 5-6 (2d Cir.1983) (what is required to be disclosed is all material objective facts relating to the transaction).
Contrary to the district court’s conclusion, plaintiff need not allege that the immediate sale of the family’s stock was the only way by which the family could meet its tax obligations. Plaintiff acknowledges that Stafford had the option of deferring full payment of the estate taxes over a 15-year period under I.R.C. § 6166, but offers evidence to show that this option would have appeared financially undesirable compared to an immediate sale of the shares, even at a price below Stafford’s appraisal of the true value of Loehmann’s stock. This evidence included current interest rates — which it might be assumed Stafford had taken into account — and the history of the company’s cash dividends. Mendell posited the reasonable assumption that the family would have relied on this information to reach the conclusion that even on a deferred basis it might not be able to pay the estate taxes without having to sell off a portion of. its stock. Statements Stafford herself made to the IRS— as well as statements made by one of the estates' lawyers — indicate that the family was averse to selling off its stock piecemeal.
This evidence raises a genuine issue of material fact whether Stafford considered the deferral election so unacceptable that the need to raise cash to discharge this debt immediately became the overriding purpose for the merger. While it may be true that the deferral election was a feasible alternative, plaintiff has set forth sufficient facts to cast reasonable doubt on such an assumption. Consequently, resolution of this question should have been reserved for a jury. TSC Indus., 426 U.S. at 450, 96 S.Ct. at 2133; cf. Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.1985).
With respect to the alternative grounds relied upon — that plaintiff had failed to show that Stafford knew of any urgent need to raise cash — the district court’s assessment of plaintiff’s proof is clearly erroneous. One of the family’s estate lawyers, James Pressly, sent Stafford a letter dated October 22, 1980 — eight days prior to the Board of Directors’ approval of the merger and over a month before the proxy statement was issued — informing her that the estate was short about $1.5 million of liquid assets needed to pay the estate taxes. The letter also described the *676estate’s predicament in having to choose between taking the § 6166 election and thereby losing a “shot at a large [blockage] discount” on the stock or declining the deferral election, thereby irrevocably losing that method of payment in the event that the proposed merger were to “blow up.”
This letter makes it abundantly clear that Stafford knew prior to her vote as a director both that the estate had a shortage of liquid assets and that the consequences of using the deferral election were undesirable. At the least the letter creates a question of fact as to what Stafford knew when she voted for the merger. Further questions of fact exist regarding whether Stafford’s influence on the board of directors was so great that the merger proposal was adopted in order to allow the Loehmanns to raise needed cash. Hence, the district court’s grant of summary judgment in Mendell II dismissing plaintiff’s cause of action based on the purpose of the merger was in error. See id. at 1067 (“[A] complaint may not properly be dismissed pursuant to Rule 12(b)(6) (or even pursuant to Rule 56) on the ground that the alleged misstatements or omissions are not material unless they are so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.”).
II The Tax Incentive Claim
Mendell’s second claim — that the proxy statement should have disclosed that the Loehmann family expected to receive a substantial estate tax benefit from the merger due to an enhanced blockage discount — was properly dismissed by the district court in Mendell I. 612 F.Supp. at 1553 n. 13. Although we have not expressly ruled on whether proxy solicitations must reveal incidental tax benefits that a majority shareholder expects to receive from a proposed transaction, we agree with Judge Sprizzo’s reasoning that such benefits need not be disclosed. Expanding the requirements of SEC Rule 14a-9 to insist upon disclosure of incidental tax benefits— benefits that do not flow directly from the corporate transaction itself but rather from the individual shareholder’s personal tax situation-goes beyond the purposes of the Rule. See Lewis v. Dansker, 357 F.Supp. 636, 642 (S.D.N.Y.1973). The practical difficulties involved in computing speculative personal tax consequences — especially since those consequences depend upon indeterminate, often difficult to predict variables — precludes any requirement that potential incidental tax benefits need be disclosed. The cases Mendell relies on are distinguishable because they involved special benefits flowing directly from the corporate transaction, and not from incidental personal tax benefits. See Chris-Craft Indus., Inc. v. Piper Aircraft Corp., 480 F.2d 341, 353-54, 365-66 (2d Cir.), cert. denied, 414 U.S. 910, 94 S.Ct. 231, 38 L.Ed.2d 148 (1973); TBK Partners v. Shaw, 689 F.Supp. 693, 700-01 (W.D.Ky.1988); Valente v. PepsiCo., Inc., 454 F.Supp. 1228, 1245 (D.Del.1978).
Ordinarily, whether the failure to make such disclosure is material is a “mixed question of law and fact,” in which “the underlying objective facts ... are merely the starting point for the ultimate determi-nation_” TSC Indus. v. Northway, Inc., 426 U.S. 438, 450, 96 S.Ct. 2126, 2132-33, 48 L.Ed.2d 757 (1976). Summary judgment dismissing a claim alleging a material omission is granted only when to disagree on the materiality of the omission would be unreasonable. See id. at 450, 96 S.Ct. at 2133.
The facts of this case highlight the difficulties that might arise from a rule requiring disclosure in every case of personal tax benefits. After being informed of the potential for a large blockage discount from the sale of all of the family’s stock, Stafford retained the investment banking house of Allen & Co. for advice respecting the size of the discount. That firm rendered an opinion that the family’s block of shares was worth $6.9 million, or $14.95 per share. This amounted to a blockage discount of 28.2 percent. Allen & Co. did not give this valuation until January 31, 1981 — after the issuance of the proxy statement. In September 1981, the IRS initially indicated that it would grant only an 11.2 percent discount, and in March *6771982, it eventually determined the value of the stock to be $17.35, that afforded only a 16.6 percent discount. Such large discrepancies in valuing the blockage discount reveal the complexities of requiring such a disclosure in the proxy statement.
Here Stafford’s failure to disclose the personal tax consequences resulting to her from the merger were speculative in nature and may not be deemed a material omission. To hold otherwise would require that major shareholders include speculative predictions of their personal finances in a proxy statement that is more likely to confuse than enlighten other stockholders. Cf. TSC Indus., 426 U.S. at 448, 96 S.Ct. at 2132 (too low a standard of materiality could cause management "to bury the shareholders in an avalanche of trivial information”).
Ill The “Handshake Agreement” Claims
Mendell’s last two contentions on appeal concern benefits that Loehmann’s chief executive, George Greenberg, received from AEA after the merger. These claims do not simply allege omissions in the proxy statement, but assert instead, affirmative misrepresentations in that document. The first claim involves the sale of LH Investors stock on favorable terms to Greenberg after the merger; the second one, an incentive package Greenberg received from AEA for remaining as Chief Executive Officer of the merged company.
A. Acquisition of LH Investors Stock
The proxy statement recited that Neither Mr. Greenberg nor any other present director or officer of the Company owns beneficially or will acquire an equity or debt interest in AEA, LHI, Holdings or [LH] Investors.
LH Investors was an AEA subsidiary which in effect became the sole owner of Loehmann’s. Four months after the merger Greenberg was offered the opportunity to purchase stock in LH Investors on favorable terms, which he did. Mendell alleges that this purchase was contemplated and negotiated prior to the merger contrary to the above quoted passage of the proxy statement. The district court dismissed this contention in Mendell II for insufficient supporting evidence. It relied on the testimony of the president of AEA that it was the regular policy of the company to offer stock incentives to its management. It reasoned that the sale of stock to Green-berg was as consistent with this unilateral policy as with the allegation of a pre-merger arrangement. 715 F.Supp. at 88.
We think the district court failed to consider circumstantial evidence beyond the acquisition of LH Investors stock itself. Mendell submitted a memorandum dated October 16, 1980 prepared by Ronald Ko-minski, then a manager for Continental Illinois National Bank and Trust Company of Chicago, recommending that the bank approve a loan to AEA for the acquisition of Loehmann’s. Kominski stated in this memo that "[mjanagement, presently in place, will be retained and offered a 14% equity participation in the new corporation.” (emphasis deleted). Kominski testified in his deposition that this statement regarding equity participation most probably came from someone at AEA.
Another confidential memorandum dated November 1980 was prepared by AEA and entitled “Memorandum Relative to the Purchase of Loehmann’s, Inc.” It contained a table styled “Return on Investment Analysis,” which has columns of financial information relating to Loehmann’s. At the top of the table it says “15% Growth[,] Value in Year Five $ lOx Net Operating Income.” During discovery AEA produced for Men-dell a second table called “ ‘S’ 15% Growth Return on Investment Analysis.” Its heading stated “Value in Year Five $ lOx Assuming Interest of 1514% and $31/Share Price.” This second table also had columns of financial information under almost identical headings and containing almost identical figures as the first table. But in the second table for “S” company, there is a line that reads “S’s Mgmt $ 5%” under a column indicating percentages of stock. Mendell claims that “S” company was in reality Loehmann’s and that the “S” table shows that it was planned that Loehmann’s management would receive common stock *678equal to 5 percent of the capitalization of LH Investors.
When questioned about the table for “S” company at his deposition, Carl Hess, AEA’s president testified that he did not know which company it referred to, but that it did not refer to Loehmann’s. Hess was unable to explain why the two tables were nearly identical. Nor could he explain why AEA had produced the document in response to Mendell’s discovery request if it did not refer to Loehmann’s. A reasonable juror could disbelieve Hess’ testimony, find that the “S” table referred to Loehmann’s and that it indicated that AEA had planned prior to the merger to give Loehmann’s management, including Green-berg, shares of stock in LH Investors.
If Mendell is able to persuade a jury that AEA had in fact planned prior to issuance of the proxy statements to give Greenberg stock, and that Greenberg had negotiated the arrangement, then the statement that neither Greenberg nor any other officer “will acquire an equity ... interest in ... [LH] Investors, [Inc.]” was false and misleading under Rule 14a-9. Since a jury could reasonably infer that such an agreement took place in light of the table for “S” company and the testimony of Kominski, summary judgment dismissing the claimed failure to disclose the acquisition of LH Investors stock was improper. See Saxe v. E.F. Hutton & Co., 789 F.2d 105, 111 (2d Cir.1986); Hahn v. Breed, 606 F.Supp. 1557, 1559-61 (S.D.N.Y.1985).
B. The Incentive Package
Mendell also alleged that Green-berg 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:
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].
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.
Greenberg admitted that prior to the merger he discussed with AEA his concern that the remaining management of Loeh-mann’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 Green-berg “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.
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 fol*679low 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 ease 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.
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
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.
CONCLUSION
Accordingly, we reverse the grant of summary judgment dismissing plaintiff’s causes of action regarding the omission of facts regarding the merger in the proxy material and the purchase of LH Investors stock by defendant Greenberg after the merger. Both of these claims raise genuine issues of material fact and they are therefore remanded to the district court for trial. With respect to plaintiff’s other causes of action that were dismissed by the district court, and defendants’ cross-appeal on the denial of Rule 11 sanctions and from the district court’s order in Mendell I, the orders of the district court are affirmed.
Affirmed, in part, and reversed and remanded, in part.

. In view of the clearly established fact that the Loehmann family had little control over corporate management and had even considered conducting a proxy fight to oust it, my colleagues’s use of the phrase “such a stockholder is able to exercise" carries with it a misleading connotation that, I like to think, my colleagues did not intend.