Seinfeld v. Becherer

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit

8-24-2006

Seinfeld v. Becherer
Precedential or Non-Precedential: Precedential

Docket No. 05-1321

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 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
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

2
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

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
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 prior-
year 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

4
 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.

5
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

6
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:

7
 ....

[(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.

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) 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

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
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

17 C.F.R. § 240.14a-101.

10
 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

11
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

12
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).

13
 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

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
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 Black-
Scholes 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

15
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.

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