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Shaev v. Saper

February 21, 2003

DAVID B. SHAEV, APPELLANT
v.
LAWRENCE SAPER; ALAN B. ABRAMSON; DAVID ALTSCHILLER; JOSEPH GRAYZEL, M.D.; GEORGE HELLER; ARNO NASH; DATASCOPE CORP.



Appeal from the United States District Court For the District of New Jersey D.C. No.: 01-CV-3744 (JAP) District Judge: Honorable Joel A. Pisano

Before: Sloviter, McKEE, and Rosenn, Circuit Judges.

The opinion of the court was delivered by: Rosenn, Circuit Judge

As amended February 26, 2003.

DAVID B. SHAEV, APPELLANT
v.
LAWRENCE SAPER; ALAN B. ABRAMSON; DAVID ALTSCHILLER; JOSEPH GRAYZEL, M.D.; GEORGE HELLER; ARNO NASH; DATASCOPE CORP.

Appeal from the United States District Court For the District of New Jersey D.C. No.: 01-CV-3744 (JAP) District Judge: Honorable Joel A. Pisano

A. Arnold Gershon, Esq. (Argued) Ballon, Stoll, Bader & Nadler 1450 Broadway, 14th Floor New York, NY 10018 Counsel for Appellant

Louis M. Solomon, Esq. (Argued) Andrew J. Levander, Esq. Swidler Berlin Shereff Friedman 405 Lexington Avenue The Chrysler Building New York, NY 10174 Counsel for Appellees

Before: Sloviter, McKEE, and Rosenn, Circuit Judges.

The opinion of the court was delivered by: Rosenn, Circuit Judge

PRECEDENTIAL

Argued: December 20, 2002

This case presents important questions pertaining to corporate governance and responsibility. They involve the application and alleged violations of Securities Exchange and Treasury Regulations with respect to shareholder proxy statements soliciting shareholder approval of executive incentive compensation plans. Datascope Corporation (Datascope or the Company), a corporation chartered under the laws of Delaware, has its principal place of business in Montvale, New Jersey, where it is engaged in the manufacture of complex cardiology, vascular, and other medical proprietary products. The Company's board of directors (Board) issued a proxy statement to its shareholders soliciting support for an amendment to its Management Incentive Plan (MIP) which determined the bonus compensation to be awarded to Datascope's president, Lawrence Saper.

Datascope shareholder David Shaev brought a derivative lawsuit under the Federal Securities Exchange Act of 1934 and applicable regulations alleging that the proxy statement made false and misleading statements regarding material facts. The District Court dismissed Shaev's claim on the pleadings and declined to exercise supplemental jurisdiction over Shaev's excessive compensation claim under Delaware law. Shaev timely appealed. We vacate and remand.

I.

For the purposes of defendants' motion to dismiss, we must accept as true Shaev's allegations in his complaint and make all reasonable inferences in his favor. Hayes v. Gross, 982 F.2d 104, 105-06 (3d Cir. 1992). The defendant's motion to dismiss automatically halted discovery. Thus, Shaev has not had the opportunity to substantiate some of his allegations.

Saper has been the Chief Executive Officer (CEO) and chairman of the Board of Datascope since 1964. Saper and his immediate family hold approximately 19% of Datascope's shares, which are traded on NASDAQ. As of July 1, 1996, Saper entered into an employment agreement with Datascope for a term of five years with an automatic extension, unless either party gave notice of an intent to terminate the contract. Saper receives an annual base salary with increases as determined by the Board or the Compensation Committee. On September 22, 1999, the Compensation Committee increased Saper's annual base salary to $1 million per year. Saper also became entitled to receive bonuses under various long-term and annual incentive compensation plans. On May 26, 1999, Saper received an immediately-exercisable option to purchase 70,000 shares of stock at an exercise price equal to the market price of the stock, expiring May 25, 2009. Using an option-pricing model, Shaev alleges that this option was worth $1,016,200. Additionally, the complaint alleges that Saper's annual lifetime retirement payments are worth approximately $1,406,400 per year and cost the company $10,000,000.

On December 7, 1999, Datascope adopted a supplemental Management Incentive Plan that provided for bonus payments to eligible executives. The payments were contingent on attainment of various corporate goals and some subjective criteria.*fn1 The December 7, 1999, supplement provides "the precise terms and provisions of the performance goals" to calculate Saper's bonus, based on Datascope's earnings per share measured before extraordinary and/or special items.

On May 16, 2000, the Board's Compensation Committee amended the 1999 supplement. The Board adopted the 2000 amendment for a nine-month performance period commencing October 1, 1999, and continuing through July 30, 2000. The performance goals for that nine-month performance period were adopted on December 7, 1999. However, as of December 7, 1999, the maximum Saper bonus was $2,225,000. In the May 16, 2000, amendment, the Board increased to $3,285,714 the amount of compensation that would be awarded to Saper if Datascope met the performance goals adopted five months earlier. The performance period ended approximately six weeks later.

Under the 2000 amendment, Saper could have received 83% of the increase in the earnings of the company at the high end of earnings per share. As a shareholder, Saper would also get 19% of the remaining 17% if dividends were ...


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