Shaev v. Saper

320 F.3d 373 (2003)

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Shaev v. Saper

United States Court of Appeals for the Third Circuit
320 F.3d 373 (2003)

CS

Facts

In December 1999, the compensation committee (committee) of the board of directors of Datascope Corporation adopted a supplement (1999 supplement) to Datascope’s 1997 management-incentive plan (MIP) that enabled bonuses to be paid to Datascope’s CEO, Lawrence Saper (defendant) as well as other executives if certain goals were met during a performance period that ended in July 2000. In May 2000, the committee amended the 1999 supplement (2020 amendment) such that the bonus payable to Saper would increase from $2,225,000 to $3,285,714 if the performance goals established by the 1999 supplement were attained. In October 2000, Datascope sent its stockholders a proxy statement for its annual meeting of stockholders. The proxy statement solicited the stockholders’ approval of the MIP, as amended by the 2020 amendment, and said this approval was needed for the bonuses payable under the MIP to be deductible by Datascope under I.R.C. § 162(m). The proxy statement also said that if stockholders did not approve the MIP, the committee might grant Saper a bonus outside the MIP that would be partially nondeductible. The proxy statement omitted the material aspects of the 1999 supplement and made no mention of the original MIP from 1997. Datascope’s stockholders approved the MIP at the annual meeting. David Shaev, a Datascope stockholder, sued Saper and the other directors of Datascope (defendants) in a derivative action, alleging, among other things, that the proxy statement contained material misstatements and omissions in violation of § 14(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 14a-9 thereunder, including an incorrect statement that Saper’s bonus under the MIP would be deductible by Datascope if Datascope’s stockholders approved the MIP. Saper contended this statement was false because the way Saper’s bonus was administered did not meet the conditions for deductibility under I.R.C. § 162(m). Saper also argued that the failure to disclose in the proxy statement the material terms of the 1999 supplement and failure to even mention the original MIP from 1997 were material omissions because without this information, stockholders had no way of knowing that the committee increased Saper’s proposed bonus by more than $1 million when the committee adopted the 2020 amendment. The district court dismissed Shaev’s securities claim for failure to state a claim upon which relief could be granted. Shaev appealed.

Rule of Law

Issue

Holding and Reasoning (Rosenn, J.)

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