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.
The opinion of the court was delivered by: Sloviter, Circuit Judge
Submitted Under Third Circuit LAR 34.1(a) July 11, 2006
Before: SLOVITER, McKEE and RENDELL, Circuit Judges.
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 appeals.*fn1
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 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).
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 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.
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, ...