                                                                                                                           Opinions of the United
2001 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-27-2001

Werner v. Werner
Precedential or Non-Precedential:

Docket 99-3715




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Recommended Citation
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Filed September 27, 2001

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 99-3715

ELIZABETH WERNER; JEFFREY R. ACKERMAN;
MATTHEW W. WEISS, a minor, by his parent, Elizabeth
Werner; TIMOTHY F. BURKE, JR., in his capacities as
executor of the Estate of Anne L. Werner and as trustee
of trusts created under the last will and testament of
Anne L. Werner, deceased; JEFFREY R. ACKERMAN, in
his capacity as trustee under Agreement of Trust for the
benefit of Elizabeth Werner, dated December 18, 1967;
EDWARD A. POLLACK, all of the aforementioned plaintiffs
individually and derivatively on behalf of WERNER
HOLDING CO. (PA), INC., and, individually but not
derivatively; ESTATE OF LEO L. WERNER, deceased, and
trusts created under the last will and testament of Leo L.
Werner by and through their individual beneficiaries,
Elizabeth Werner, Jeffrey Ackerman and Matthew Weiss,

Appellants

v.

ERIC J. WERNER; RICHARD L. WERNER; ROBERT I.
WERNER; DONALD M. WERNER; HOWARD L. SOLOT;
CRAIG R. WERNER; MARC L. WERNER; MICHAEL J.
SOLOT; BRUCE D. WERNER; MICHAEL E. WERNER;
BARBARA SCHWARTZ; MARSHA KARP; SHIRLEY W.
RAUCH; GAIL RAUCH BLACKMAN; GAIL RAUCH
BLACKMAN, as custodian for Heather Blackman;
HEATHER BLACKMAN; MARLENE T. KRANE; MARLENE
T. KRANE, as custodian for Jason S. Krane; JASON S.
KRANE; DEBRA A. ROTHMAN; DEBRA A. ROTHMAN, as
custodian for Kevin Matthew Rothman, for Joshua Jay
Rothman and for Jordana Rothman; KEVIN MATTHEW
ROTHMAN; JOSHUA JAY ROTHMAN; JORDANA
ROTHMAN; NOEL BERK-RAUCH; NOEL BERK-RAUCH, as
custodian for Hannah Berk-Rauch and for Eli Berk-
Rauch; HANNAH BERK-RAUCH; ELI BERK-RAUCH;
MINDY ALTER; MINDY ALTER, as custodian for Razie
Devora Alter; RAZIE DEVORA ALTER; ELISE W. FROST;
ELISE W. FROST, as custodian for Marc William Frost,
for Joshua Herbert Frost and for Rachel Anne Frost;
MARC WILLIAM FROST; JOSHUA HERBERT FROST;
RACHEL ANNE FROST; RONALD E. WERNER; MARC L.
WERNER, as custodian for Ashley Elizabeth Werner and
for Jeffrey A. Werner; ASHLEY ELIZABETH WERNER;
JEFFREY A. WERNER; BEVERLY WERNER RYAN;
BEVERLY WERNER RYAN, as custodian for Shannon
Rose Ryan and for Erin Joy Ryan; SHANNON ROSE
RYAN; ERIN JOY RYAN; RONI S. ROSATI; RONI S.
ROSATI, as custodian for Ryan G. Rosati and for
Richmond J. Rosati; RYAN G. ROSATI; RICHMOND J.
ROSATI; CRAIG R. WERNER, as custodian for Kurt J.
Werner and for Kyle Werner; KURT J. WERNER; KYLE
WERNER, BRUCE D. WERNER, HOWARD L. SOLOT and
ERIC J. WERNER, in their capacity as Trustees for
Werner Family Trust; WERNER HOLDING CO. (PA), INC.,
a Pennsylvania corporation,

Appellees

On Appeal From the United States District Court
for the Western District of Pennsylvania
D.C. No.: 98-cv-00503
District Judge: Hon. Robert J. Cindrich

Argued: May 1, 2001

Before: MANSMANN, NYGAARD and ROSENN,
Circuit Judges.

(Filed: September 27, 2001)

                               2
Richard W. Gladstone, II (Argued)
Jill M. Szafranski
Lauren E. Lindh
Eckert Seamans Cherin &
 Mellott, LLC
Pittsburgh, PA 15219

 Counsel for Appellants

James S. Larrimer
Marcus & Shapira
301 Grant Street One
Oxford Centre, 35th Floor
Pittsburgh, PA 15219

Robert E. Zimet (Argued)
Skadden Arps Slate Meagher &
 Flom LLP
Four Times Square
New York, NY 10036

Mitchell A. Karlan
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166

James J. Restivo
Reed Smith Shaw & McClay LLP
435 Sixth Avenue
Pittsburgh, PA 15219

Larry K. Elliot
Cohen & Grigsby, P.C.
2900 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222

 Counsel for Appellees

                          3
OPINION OF THE COURT

ROSENN, Circuit Judge.

The primary issue in this appeal raises important
questions pertaining to the failure to disclose material
corporate information as required by federal securities law
in a corporation's repurchase of its capital stock. The
Werner Company ("the Company"), founded by three
brothers, was the largest manufacturer and marketer of
ladders and other climbing products in the United States.
The plaintiffs are the Anne Werner Estate, the Elizabeth
Werner Trust, and other members of the Werner family and
their representatives who, at all relevant times, were
minority shareholders of the Company. The ten individual
defendants ("the Management Defendants") are also
members of the Werner family and were officers of the
Werner Company at all times relevant to this action. 1

In 1996, the Company redeemed shares held by two of
the plaintiffs, the Anne Werner Estate and the Elizabeth
Werner Trust, by purchase. The plaintiffs claim that, at the
time of those redemptions, the Management Defendants
fraudulently concealed from them material information
which caused them to sell their shares at a price much
lower than they would have accepted had they been fully
informed.

The plaintiffs filed suit in the United States District Court
for the Western District of Pennsylvania, alleging violations
of Section 10(b) of the Securities Exchange Act of 1934,2
Rule 10b-5,3 promulgated thereunder, and numerous state
laws. The District Court dismissed the twenty count
complaint, as amended, in its entirety for failure to state a
_________________________________________________________________

1. The Management Defendants have been, at all times relevant to this
action, shareholders and officers of the Company. They are Richard L.
Werner, Robert I. Werner, Donald M. Werner, Howard L. Solot, Craig R.
Werner, Eric J. Werner, Marc L. Werner, Michael E. Werner, Michael J.
Solot, and Bruce D. Werner.

2. 15 U.S.C. S 78j(b).

3. 17 C.F.R. S 240.10b-5.

                               4
claim on which relief could be granted. It also dismissed the
pendent state law claims for lack of subject matter
jurisdiction. The plaintiffs timely appealed only on Counts
One and Two. We will affirm in part and vacate in part.

I.

To understand the issues on appeal, some background
information on the Werner Company is necessary. In 1945
three brothers, R.D. Werner, Leo Werner, and Herbert
Werner went into the ladder business and gave their
company the family name. Over the years, the Company
became extremely successful. Until November of 1997,
when most of the Company was sold to a group of outside
investors, all of the Company's stock was owned by
members of the Werner family.

A. The Restricted Stock Plan

In 1992, the Company adopted a "Restricted Stock Plan."
The proclaimed purpose of the plan was to give senior
management officials an incentive to stay with the
Company. It allowed the Board of Directors to award
Restricted Class B Shares to certain individuals who were
identified in the disclosure documents as "key employees"
and "key executives." The disclosure documents did not
reveal that only the ten management defendants would
benefit from the Plan.

Under the Restricted Stock Plan, the recipients of the
shares were not permitted to sell them until the earliest of:
1) seven years from the date of the award; 2) attainment of
age 65; 3) death; or 4) permanent disability. The plan also
provided the Company with a right of first refusal to
acquire any awarded shares an employee wished to sell.
Pursuant to that right, the Company could acquire the
shares an employee wished to sell for an amount equal to
the fair market value of the shares at the time of the sale
minus the fair market value of the shares on the date of
their award. The Plan was first disclosed to the
shareholders in the 1991 Annual Report. A letter
accompanying that report also alerted the shareholders to
the existence of the plan, explaining its purpose and stating
that it was "more restrictive and less generous" than "many

                               5
such plans." As of that time, no shares had yet been issued
under the Plan.

In Count One of their amended complaint, the plaintiffs
assert that the existence and details of the Restricted Stock
Plan were not adequately disclosed to them. The District
Court dismissed this claim, holding that the 1991 annual
report and the letter accompanying it, as well as the annual
reports for 1992-1994, provided adequate disclosure of the
plan.

B. The Redemptions and the Sale of the Company in
       1997

In 1996 the Anne Werner Estate and the Elizabeth
Werner Trust each sought to have the Company redeem
some of its shares. Plaintiff Timothy Burke, in his capacity
as executor of the Anne Werner Estate, communicated with
the Company about the possibility of redeeming some of the
estate's stock. By a letter written by Eric Werner on
December 27, 1996 ("the Redemption Letter"), the Company
agreed to repurchase the stock at approximately $1000 per
share, a price determined by Management Planning Inc.
("MPI"), an independent valuation firm, in its most recent
appraisal of the Company's stock ("the MPI appraisal"). The
MPI appraisal discounted the value of the plaintiffs'
minority interests in the Company based on the
assumption that the Company would continue to remain in
the Werner family. The Redemption Letter disclosed that
the Company "was continuing to investigate the possibility
that it . . . or someone else may offer to purchase shares
from one or more shareholders . . . in the future at prices
which cannot be determined at this time, but which may be
less than or in excess of any price you may offer or accept."

On December 30, 1996, the Anne Werner Estate sold its
shares under the conditions set forth in the Redemption
Letter. The Elizabeth Werner Trust sold its shares in
January 1997 under the same conditions.

On October 8, 1997, the Company signed a
Recapitalization Agreement with a group of outside
investors known collectively as Investcorp. This agreement,
which was approved by 96% of the Werner Company
shareholders, amounted to a sale of most of the Company.

                               6
Under the Agreement, the Company agreed to: 1) redeem
approximately 86% of the outstanding stock held by non-
management shareholders and 81% of the stock held by
management shareholders; 2) reclassify its remaining
outstanding stock; and 3) issue additional stock to
Investcorp in return for $123 million. In the redemptions
following the Recapitalization Agreement, each shareholder
received nearly $2500 per share redeemed.

Count One of the plaintiffs' amended complaint alleges
that, at the time of the acquisitions from the Anne Werner
Estate and the Elizabeth Werner Trust, the Management
Defendants were seriously considering a sale of the
Company and fraudulently concealed that information from
the plaintiffs. They claim that this omission caused them to
sell their shares at a price much lower than what they
would have accepted had they been informed of the
contemplated sale.

The District Court held that these allegations, as stated
in the amended complaint, failed to state a claim on which
relief could be granted. The crux of its holding was that the
plaintiffs failed to allege that the decision to pursue a sale
of the company had been made by December of 1996.
Rather, the complaint alleges that, in 1996, the Board of
Directors had begun to consider various "strategic
alternatives," which included:

       an initial public offering or a private placement of
       shares of Werner Co.'s capital stock, the incurrence of
       additional debt, the establishment of an employee
       stock ownership plan, a leveraged recapitalization or
       share repurchase, joint ventures with strategic or
       financial partners to partially divest various operations
       and the sale of Werner Co. or parts thereof.

(Compl. at P 133). The District Court held that the initial
consideration of these strategic alternatives was immaterial
as a matter of law. It stated

       No case . . . has, to the court's knowledge, found a
       potential sale material to a securities transaction
       where, as here, the company: (1) was considering
       offering itself for sale; (2) was considering other
       alternatives to a sale; (3) had not identified a specific

                                7
       buyer; (4) had not retained a financial advisor for the
       purposes of exploring a sale; and (5) had not conducted
       any discussions, preliminary or otherwise, with a
       potential buyer or buyers.

(Op. at 11). Because it believed the allegations in the
complaint to be insufficient to support a finding that the
alleged misrepresentations and omissions were material to
the plaintiffs' decisions to sell their shares, the District
Court dismissed the case for failure to state a claim on
which relief could be granted.

C. The Proxy Statement

In October of 1997, the Werner Company sent a proxy
statement to each shareholder explaining the details of the
proposed recapitalization. The statement clearly informed
shareholders that management was going to amend the
Restricted Stock Plan prior to the Recapitalization to delete
the right of first refusal contained therein. It did not
quantify the benefit that the deletion of the right of first
refusal would confer upon the management defendants.
The plaintiffs asserted that this omission constituted a
violation of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5. The District Court dismissed this
claim, holding the omission was immaterial as a matter of
law.

II.

We begin with the portion of Count One dealing with the
redemptions by the Company of the shares held by the
Anne Werner Estate and the Elizabeth Werner Trust. The
plaintiffs allege that the Management Defendants violated
Section 10(b) and Rule 10b-5 by failing to inform them,
prior to the redemptions, that the Company was
considering offering itself for sale. Section 10(b) of the
Securities Exchange Act makes it illegal to

       use or employ, in connection with the purchase or sale
       of any security . . . any manipulative or deceptive
       device or contrivance in contravention of such rules
       and regulations as the Commission may prescribe as
       necessary or appropriate for the protection of investors.

                                8
15 U.S.C. S 78j(b). Rule 10b-5, promulgated under Section
10(b), makes it unlawful to:

       make any untrue statement of a material fact or omit
       to state a material fact necessary in order to make the
       statements made, in the light of the circumstances
       under which they were made, not misleading . . . in
       connection with the purchase or sale of any security.

17 C.F.R. S 240.10b-5(b).

The District Court dismissed Count I in its entirety,
holding that the plaintiffs' amended complaint failed to
allege a material misrepresentation. On appeal, in their
reply brief, appellants have alleged the recent discovery of
evidence consisting of Werner Company meeting minutes
found in a related action in the New York Supreme Court
captioned Pollack v. Bonte (New York Supreme Court Index
No. 98/13606). Appellants assert that the minutes reveal a
plan by the Board of Directors of the Werner Company as
early as February 1996 to sell the corporation. Appellants
also assert that the minutes show that the Company
retained Goldman Sachs to advise the Board as to the
feasibility of pursuing various financing transactions, and
that Goldman Sachs greatly assisted the Board of Directors
in deciding that a sale transaction was in the best interests
of the Company. Appellants allege that those corporate
minutes provide sufficient evidence of material
misrepresentation to survive the motion to dismiss.
Appellants ask this court to judicially notice the contents of
the newly discovered evidence and to vacate the District
Court's dismissal. In the alternative, they move in their
reply brief for leave to amend their complaint to enable
them to present the newly discovered evidence before the
District Court.

The appellees correctly assert that, in most cases, a
"court of appeals may not consider material or purported
evidence which was not brought upon the record in the trial
court." United States ex rel Bradshaw v. Aldredge, 432 F.2d
1248, 1259 (3d Cir. 1970). However, appeals courts may
take judicial notice of filings or developments in related
proceedings which take place after the judgment appealed
from. See Federal Deposit Insurance Co. v. Richard A. Rubin

                               9
& Co., 12 F.3d 1270, 1284 (3d Cir. 1993); Landy v. Federal
Deposit Insurance Co., 486 F.2d 139, 150 (3d Cir. 1973).

A court may take judicial notice of an adjudicative fact if
that fact is not subject to reasonable dispute. See Fed. R.
Evid. 201(b).4 A judicially noticed fact must either be
generally known within the jurisdiction of the trial court, or
be capable of accurate and ready determination by resort to
sources whose accuracy cannot reasonably be questioned.
See id.; see also In re Warfarin Sodium Antitrust Litig., 214
F.3d 395, 398 (3d Cir. 2000); Kramer v. Time Warner, Inc.,
937 F.2d 767, 774 (2nd cir. 1991); 1 Weinstein's Fed. Evid.
S 201.12[1](2nd ed. 2001)("While judicial notice based on
general knowledge reflects the traditional approach . . .
notice of verifiable facts is a more modern development . . .
consistent with the approach of the Uniform Rules of
Evidence.)

We will not judicially notice the truth of the contents of
the meeting minutes. The minutes were filed in a separate
action involving separate parties, in a different court, in a
different state. Taking judicial notice of the truth of the
contents of a filing from a related action could reach, and
perhaps breach, the boundaries of proper judicial notice.
See United States v. Jones, 29 F.3d 1549, 1553 (11th Cir
1994)(stating that the effect of judicially noticing a fact is to
preclude the opposing party from introducing contrary
evidence and essentially direct a verdict against him as to
the noticed fact). See also, Liberty Mutual Insurance Co. v.
Rotches Pork Packers Inc., 969 F.2d 1384, 1388 (2d Cir.
1992). We will neither notice nor consider the substance of
the Board minutes in adjudicating this appeal.

Judicially noticing the existence and the filing of the
corporate minutes is a different matter. Appellants' counsel
represent to us that subsequent to filing their opening brief,
_________________________________________________________________

4. Fed. R. Evid. 201(b) states:

       A judicially noticed fact must be one not subject to reasonable
       dispute in that it is either (1) generally known within the
territorial
       jurisdiction of the trial court or (2) capable of accurate and
ready
       determination by resort to sources whose accuracy cannot
       reasonably be questioned.

                                  10
they "discovered two documents produced by the Werner
Company in a related action" pending in the New York
Supreme Court between Pollack, an appellant herein, and
the Bontes, other Company minority shareholders. They
assert that the documents consist of June 13, 1997 Werner
Company Board meeting minutes referring to the Board's
February 27, 1996, decision "to consummate a sale
transaction" and a Goldman Sachs 1996 list of Potential
Financial Buyers for the Werner Company. Appellants
allege that they have been denied access to these
documents in this action and also in related state actions.
They further assert that the June 1997 Board minutes will
confirm that since 1996, Goldman Sachs had performed
various valuations of the Werner Company's stock, which
will conclusively prove that the Appellees "intentionally
misrepresented the value of the Appellants' shares at the
time of Appellants' stock redemption."

The determination of whether the Werner Company
produced the meeting minutes during discovery in the New
York action is capable of accurate and ready determination
by resort to sources whose accuracy cannot reasonably be
questioned by the Werner Company itself, or by any of the
management defendants. In short, the Board meeting
minutes exist, certainly were produced by the Company in
the New York Supreme Court, and amply justify the late
effort by appellants to amend their complaint. We can and
will judicially notice the existence and filing of these
minutes under Fed. R. Evid. 201(b).5

Federal Rule of Civil Procedure 15(a) states that:

       A party may amend the party's pleading once as a
       matter of course at any time before a responsive
       pleading is served . . . . Otherwise a party may amend
_________________________________________________________________

5. The appellants attached a number of non-record documents to their
appellate briefs, causing the appellees to move to dismiss the appeal or,
in the alternative, to strike the appended material. Although there is
some authority that allows a court to dismiss an appeal for improper
augmentation of the record, see O'Keefe v. Sprout-Bauer, Inc., 970 F.2d
1244, 1259 (3d Cir. 1992), we decline to impose such an extreme
sanction in this case because we confine the documents to the motion
to amend.

                                11
       the party's pleading only by leave of court or by written
       consent of the adverse party; and leave shall be freely
       given when justice so requires.

(emphasis added). Rule 15 provides a flexible "basic policy
statement" allowing courts freely to allow parties to amend
their pleadings. 6 Wright, Miller, & Kane, Federal Practice &
Procedure S 1474 (2d ed. 1990). Courts of appeals may
grant a party leave to amend its compliant. See, e.g., Dunn
v. Trans World Airlines, Inc., 589 F.2d 408, 412 (9th Cir.
1978) (concerning amendment to allow pleadings to
conform to evidence adduced at trial under Fed. R. Civ.
Proc. 15(b)); 3 Moore's Federal Practice, P 15.14[4] (1999)
("After final judgment and on appeal, amendments may be
possible, but the pleader's burden increases. Subsequent
leave to amend will be granted "sparingly and only if justice
requires."). In the alternative, a court of appeals may
remand an action with instructions to allow a party to
amend a pleading. See, e.g., Moore v. Agency for Intern.
Dev., 994 F.2d 874 (D.C. Cir. 1993).

In Moore, the Court remanded a pro se plaintiff 's action
back to the District Court with instructions to allow the
plaintiff to plead facts sufficient to meet the heightened
pleading standard for Bivens actions. See Moore, 994 F.2d
at 877. In Pross v. Katz, 784 F.2d 455, 459-60 (2d Cir.
1986), the Court remanded an action so that the plaintiff
could amend his complaint to satisfy the heightened
pleading requirement for fraud. The Court's decision to
remand was based in large part on new information
provided to the Court for the first time at oral argument of
the appeal.

The liberal standard announced in Fed. R. Civ. Proc.
15(a) becomes less flexible after a final judgment is entered.
See Harris v. City of Auburn, 27 F.3d 1284, 1287 (7th Cir.
1994) ("[A]fter judgment has been entered . .. the party
making a [motion to amend a pleading] . . . had better
provide the [court] with a good reason to grant his
motion."); First Nat. Bank v. Continental Illinois Nat. Bank,
933 F.2d 466, 468 (7th Cir. 1991) ("[T]he presumption in
favor of liberality in granting motions to amend . .. is
reversed after judgment has been entered."); The Dartmouth
Review v. Dartmouth College, 889 F.2d 13, 22 (1st Cir.

                               12
1989) ("[A]s the case passes through various litigatory
stages, the pleader's burden [to obtain leave to amend]
grows progressively heavier. . . . [A]mendments will
sometimes be allowed, but such instances comprise the
long-odds exception, not the rule."). However, in The
Dartmouth Review, the Court implied that the surfacing of
"some new concept" making "workable an action previously
in the doldrums" was a ground for granting leave to amend
during the pendency of an appeal. See The Dartmouth
Review, 889 F.2d at 23 (citing Pross, 784 F.2d at 459-60).

Although we are reluctant to allow amendment of a
pleading at this stage of the proceedings, the plaintiffs were
precluded from engaging in discovery in the District Court.
Without discovery, plaintiffs had no way to obtain the
meeting minutes other than by happenstance. We will not
add to the strict discovery restrictions in the Private
Securities Litigation Reform Act ("PSLRA") by narrowly
construing Rule 15 in this case, even at this late stage in
the litigation. Given the high burdens the PSLRA placed on
plaintiffs, justice and fairness require that the plaintiffs
before us be allowed an opportunity to amend their
complaint to include allegations relating to the newly
discovered Board meeting minutes. Allowing the minutes
and related evidence to be introduced in the District Court
will not unduly prejudice the defendants; they have access
to the minutes and they presumably know about the
documents because they produced them in the first place.
The Company's production supports the minutes'
authenticity. Like all other evidentiary facts, any allegations
in the amendment will be subject to authentication, cross-
examination, and fact-finding in the District Court.

Construing plaintiffs' alternative request in their reply
brief as a motion for leave to amend their Amended
Complaint to aver facts consistent with recently discovered
evidence, we will vacate the order of the District Court
dismissing the action as to the Count I stock redemption
and remand the action to the District Court with directions
to allow the plaintiff to file a second amended complaint
based upon the existence of the aforesaid minutes.

                                13
III.

We now turn to the allegations in Count One dealing with
the Restricted Stock Plan. Appellants assert that they were
not adequately put on notice of the Plan's adoption because
the information regarding the Plan was "buried" in the
various disclosure documents. The District Court dismissed
this claim, holding that the Company adequately described
the Plan in the 1991 annual report and the letter
accompanying it. We agree.

Under the "buried facts" doctrine, a disclosure is deemed
inadequate if it is presented in a way that conceals or
obscures the information sought to be disclosed. The
doctrine applies when the fact in question is hidden in a
voluminous document or is disclosed in a piecemeal
fashion which prevents a reasonable shareholder from
realizing the "correlation and overall import of the various
facts interspersed throughout" the document. Kas v.
Financial General Bankshares, Inc., 796 F.2d 508, 516
(D.C. Cir. 1986). Having reviewed the relevant documents,
we believe that the adoption and the details of the
Restricted Stock Plan were adequately disclosed.

The adoption of the Plan was first revealed in a letter
dated April 28, 1992, which was sent to all shareholders
along with the 1991 annual report. The letter stated:

       An appropriate program to insure the retention, long-
       term financial reward and motivation of key executives
       is an important element in any business but even more
       critical in a family business. For several years this
       concern has been expressed by many shareholders and
       discussed by the Board of Directors. Several outside
       consultants have addressed this matter and the
       Directors authorized the establishment of a program in
       March 1990. The Restricted Stock Plan is designed as
       a "Pay for Performance" program which is keyed to
       future increases in the value of the Company's
       common stock values. The Plan is quite similar to
       many such plans used by listed companies but it is
       more restrictive and less generous.

A more detailed description of the Plan was set forth in the
1991 annual report at Note 1, entitled "subsequent events."

                               14
The relevant section of the report, which accompanied the
above-quoted letter, stated:

       In March 1992, a Restricted Stock Plan was
       established whereby the Board of Directors may grant
       awards of Restricted Class B Shares to certain key
       employees of the Company. The Plan restricts the sale
       of these shares by the employee until the earlier of
       seven years of service from the date of the award,
       attainment of age 65, death, or permanent disability. If
       the employee terminates employment prior to the
       completion of the seven years of service, then such
       shares are forfeited.

       The Plan provides the Company a permanent right of
       first refusal to acquire any awarded shares an
       employee wishes to sell. The Company would acquire
       the shares from the employee for an amount equal to
       the fair market value of the shares at the time of sale
       less the fair market value of the shares at the date of
       their award. To date no awards have been granted.

In addition, each annual report from 1992 through 1994
published details concerning the Restricted Stock Plan,
including the number of shares issued during the relevant
time period. This information was printed in a single
section entitled "NOTE D -- CAPITAL STOCK AND PER
SHARE DATA."

The cases that have applied the buried facts doctrine
have addressed situations where the manner of disclosure
disguised or seriously distorted important information. See,
e.g., Blanchette v. Providence & Worcester Co., 428 F.Supp.
347, 353 (D.Del. 1977)(prospectus stated at the outset that
acceptance of the proposed tender offer would leave
shareholders with "similar" voting rights, but information
on the penultimate page indicated that acceptance of the
offer would substantially dilute those rights); National Home
Products Inc. v. Gray, 416 F.Supp. 1293, 1215-16 (D.Del.
1976)(information regarding litigation between company
and its former president inadequately disclosed because it
was "segmented into three different parts each presented in
a different place in the documents provided shareholders");
Kohn v. American Metal Cimax, Inc., 322 F.Supp. 1331,

                               15
1362-63 (E.D. Pa. 1971)(200 page statement explaining
proposed merger buried crucial information regarding the
Directors' conflicts of interests and the investment advisors'
lack of independence in appendices near the end of the
document, but placed advisor's opinion that the transaction
was fair on page 2 in bold-face type). Here, on the other
hand, the Restricted Stock Plan was prominently addressed
in a contiguous section of the letter accompanying the 1991
annual report, as well as in the report itself and in
subsequent annual reports. Accordingly, we hold that the
buried facts doctrine does not apply.

Appellants also assert, for the first time on appeal, that
the descriptions of the Restricted Stock Plan were
misleading because they describe the Plan's beneficiaries as
"key executives" and "key employees" rather than disclosing
that the Plan would only benefit the ten management
defendants. Appellants claim that, had they known that the
Plan was limited to the management defendants, they
would have realized that the shares issued thereunder had
been issued for less than fair consideration, giving rise to a
cause of action for the wrongful dilution of their shares.
These allegations do not state a claim under the federal
securities laws.

Claims grounded in breach of fiduciary duty or improper
management are not actionable under Section 10(b) or Rule
10b-5. See In re Craftmatic Securities Litigation, 890 F.2d
628, 638-39 (3d Cir. 1990)(citations omitted). Moreover, "a
plaintiff may not `bootstrap' a claim of breach of fiduciary
duty into a federal securities claim by alleging that
directors failed to disclose the breach of fiduciary duty."
Kas, 796 F.2d at 513. Accord, Lewis v. Chrysler Corp., 949
F.2d 644, 652 (3d Cir. 1991).

Appellants claim that the description of the Plan's
beneficiaries that appeared in the disclosure documents
was materially misleading because it failed to expose the
management defendants' breach of state law duties."When
the incremental value of disclosure is solely to place
potential investors on notice that management is culpable
of a breach of faith or incompetence, the failure to disclose
does not violate the securities laws." Craftmatic, 890 F.2d at
640. Accord, Lewis, 949 F.2d at 652 (management's failure

                               16
to disclose self-serving motive for resisting corporate
takeover was not actionable under federal securities laws).
Accordingly, we dismiss this claim without prejudice to
Appellants' right to file an action in the state court.

IV.

Finally, we consider the allegations Appellants put forth
in Count Two of their amended complaint. This Count
concerns information that the management defendants
allegedly omitted from the 1997 proxy statement describing
the proposed buy-out by Investcorp. The proxy statement
explained that, prior to the redemption of management's
Restricted Stock, the Restricted Stock Plan would be
amended to delete the Company's right of first refusal. The
proxy statement failed to quantify the benefit that the
deletion of the right of first refusal would confer upon the
management defendants.

Appellants argue that the management defendants
violated Rule 10b-5 by failing to disclose in the proxy
statement the amount of money that would inure to them
as a result of the deletion of the right of first refusal. The
District Court dismissed this claim, holding that the
omission was immaterial as a matter of law. We affirm the
dismissal of this Count because the shareholders had
access to the information necessary to calculate the extent
to which management benefitted by deleting the right of
first refusal.

The right of first refusal was described in detail in the
1991 annual report. The report explained that, if a
beneficiary of the Restricted Stock Plan wished to sell his or
her shares, the Company had the right to repurchase the
shares for an amount equal to the fair market value of the
shares at the time of sale minus the fair market value on
the date of their award. By deleting the right of first refusal,
management was able to redeem their shares for their full
value. Thus, a reasonable shareholder should have realized
that management would get a higher price for their shares
by deleting the right of first refusal.

Moreover, the shareholders had access to all of the
information necessary to calculate the exact amount of the

                                17
benefit management incurred by deleting the right of first
refusal. A shareholder who was interested in such
information only had to look to the 1993 and 1994 annual
reports to determine how many shares were issued each
year pursuant to the Restricted Stock Plan.6 Using those
same reports, shareholders could determine the
approximate fair market value ("FMV") of Restricted shares
at the date of issuance.7 Shareholders could employ the
following equation to compute the amount of money the
management defendants would have gotten for their shares
had the right of first refusal been exercised:

       [(FMV 1997 - FMV in 1993) x number of shares issued
       in 1993] + [(FMV 1997 - FMV 1994) x number of
       shares issued in 1994]

Interested shareholders could then compare the amount
yielded by the above equation to the $66 million the
management defendants would actually receive in the
Recapitalization as proposed.

The shareholders' ability to compute the extent to which
management benefitted from deleting the right of first
refusal demonstrates that the omission of this information
from the proxy statement was not material. See Ash, 525
F.2d at 219 (omission of exact difference between old and
new pension levels in proxy was not material when proxy
supplied shareholders with information necessary to
perform the calculation themselves); Kahn v. Wein, 842
F.Supp. 667, 675 (E.D.N.Y. 1994)(finding no material
omission in letter to shareholders when attached financial
statements contained information "from which the
reasonable investor could perform the simple mathematical
calculations necessary to determine the present and future
values of the proposed transaction to both parties"); Mesh
v. Bennett, 481 F.Supp. 904, 906 (S.D.N.Y. 1979)(holding
that proxy statement's failure to disclose cost of proposed
_________________________________________________________________

6. Proxy statements need not "duplicate the financial data furnished to
shareholders in the corporation's annual reports." Ash v. LFE Corp., 525
F.2d 215, 219 (3d Cir. 1975).

7. The annual reports state how many shares were repurchased by the
Company each year and at what cost, allowing shareholders to calculate
the cost per share.

                                18
modification to employee stock incentive plan was
immaterial because shareholders could have computed
such an estimate from the information provided).
Accordingly, we will affirm dismissal of Count Two of the
amended complaint.

V.

In conclusion, the District Court's dismissal of Count
Two and that portion of Count One dealing with the
Restricted Stock Plan will be affirmed. The District Court's
order dismissing that portion of Count One dealing with the
redemptions will be vacated and we will remand that
portion of the complaint to the District Court with
instructions to allow the plaintiffs to amend their complaint
in light of the June 13, 1997 Board minutes, and for such
further proceedings as are consistent with this opinion.

Costs will be taxed against the appellees.

                               19
NYGAARD, Circuit Judge, Dissenting in part.

I join those sections of the Majority opinion that affirm
the District Court's dismissal of the Appellant's complaint.
I disagree with the Majority's vacating and remanding the
redemption claim.

I. Judicial Notice1

For the first time in this litigation, the Appellant's reply
brief asserts that Werner Company corporate minutes exist,
which, they allege, were uncovered during discovery in
another action in New York, and, obviously, long after the
District Court dismissed this cause on a 12 (b) (6) motion.
I would not reverse the District Court on this basis.

First, judicially noticing these corporate minutes does
nothing to change the standards and analysis the District
Court used in reviewing the complaint pursuant to F ED. R.
CIV. P. 12(b)(6). All the majority has by this device is the
allegation that some corporate minutes were transcribed
and filed by the Werner Company after a Board of Director's
meeting. I can well suppose that this was done numerous
times -- indeed, probably after every Board of Director's
meeting. This act is irrelevant to the determination of
whether the District Court properly dismissed this claim
based solely upon the pleadings.2

Second, judicial notice is premised on the concept that
certain facts exist that a court may accept as true without
requiring additional proof from the opposing parties. See
General Electric Capital Corp. v. Lease Resolution Corp., 128
F.3d 1074, 1081 (7th Cir. 1997). Put another way, judicial
notice is an adjudicative device courts may use to
substitute the acceptance of a universal truth for the
conventional method of introducing evidence. Id . The
_________________________________________________________________

1. Judicial notice is one of the oldest doctrines of the common law,
traceable to the ancient maxim, "manifesta non indigent probatione."
("That which is known need not be proved.")

2. The Majority asserts that the plaintiffs "were precluded from engaging
in discovery in the District Court." Discovery is immaterial. This is not
a summary judgment. It is a FED. R. C IV. P. 12 (b) (6) dismissal, and
must be decided solely on the pleadings.

                               20
employment of this device, therefore, demands caution, and
courts should strictly adhere to the criteria established by
the Federal Rules of Evidence before taking notice of
pertinent facts.

Federal Rule of Evidence 201 empowers a court to take
judicial notice of an adjudicative fact if that fact is "not
subject to reasonable dispute." (emphasis added). The
corporate minutes discovered after the case had been
dismissed by the District Court are not "adjudicative facts."
An adjudicative fact is one "not subject to reasonable
dispute in that it is either (1) generally known . .. or (2)
capable of accurate and ready determination through
unquestionably reliable sources." See F ED. R. EVID. 201(b);
In re Warfarin Sodium Antitrust Litigation, 214 F.3d 395,
398 (3d Cir. 2000); United States v. Carr, 25 F.3d 1194,
1202 n. 3 (3d Cir. 1994). In my view, these corporate
minutes (and whatever they mean) relied on by the Majority
do not fit within the criteria of Rule 201(b).

Third, before any court takes judicial notice of a fact, we
should permit both parties an opportunity to be heard on
the question of whether judicial notice is proper. F ED. R.
EVID. 201(e). Fundamental fairness requires that before
taking judicial notice of these minutes, we should have
given the Appellee an opportunity to challenge the propriety
of doing so. An issue raised in a reply brief and oral
argument do not suffice. See eg. USA v. Damato , 554 F.2d
1371, 1373 n. 9, 10 (5th Cir. 1977). When an appellate
court desires to augment the record by new evidence, not
offered in the trial court, the court should afford the parties
a hearing on whether judicial notice should be taken, an
opportunity to examine the new evidence and comment
thereon, and the opportunity to offer any new evidence to
rebut the same. USA v. Doss, 564 F.2d 265, 285 n. 5 (6th
Cir. 1977).

II. New Evidence Presented in a Reply Brief

Equally as troubling to me as the Majority's judicially
noticing evidence discovered during the appellate process to
reverse the District Court, is the fact that the issues
emanating from these corporate minutes were raised for the

                               21
first time in the Appellant's reply brief. The Rules of
Appellate Procedure contain no provision allowing for new
issues to be presented on appeal, let alone in a reply brief.
A reply brief is like rebuttal -- an opportunity for the
appellant to "reply" to arguments of the appellee, not to
raise a new issue at a time when the appellee cannot
respond. That is unfair. The Rules of Civil Procedure,
however, do provide a remedy specifically written for this
eventuality. If a party discovers new evidence after
judgment is entered, the appropriate procedure for that
party is to request a stay from us, and move in the District
Court for relief from its judgment under FED. R. CIV. P.
60(b). This permits a party to present new evidence while
maintaining the integrity of the trial and review processes
of our respective courts, and places the initial analysis of
that evidence, its admissibility, and its significance, within
the jurisdiction of the District Court where it belongs. Cf.
Standard Oil Co. v. United States, 429 U.S. 17, 39, 97 S.Ct.
31, 50 (1976) (appellate leave not required for District Court
to rule on Rule 60(b) motion).3 Rule 60(b) is the method for
accommodating new concerns created by new evidence.
This process, and not an expansion of the appellate court's
powers, should be used when new evidence is discovered
following a judgment in a district court.

Our jurisprudence is likewise clear. We stated in United
States ex rel. Bradshaw v. Aldredge, 432 F.2d 1248, 1259
(3rd Cir. 1970), "It is, of course, black letter law the United
States Court of Appeals may not consider material or
purported evidence which was not brought upon the record
in the trial court." (Emphasis added); see also Sewak v.
INS, 900 F2d 667, 673 (3d Cir. 1970) ("As an appellate
court we do not take testimony, hear evidence or determine
disputed facts. . . ."). In this Circuit, improper
augmentation of the record "is not to be condoned, and can
constitute an adequate basis for dismissing an entire
appeal." O'Keefe v. Sprout-Bauer, Inc., 970 F2d 1244, 1259
_________________________________________________________________

3. Even where the application of Rule 60(b) is barred by its one-year
statute of limitations, it is inappropriate for an appellate court to
remand
the case to the district court to consider new evidence absent
extraordinary circumstances. See Goland v. CIA , 607 F.3d 339, 370-71
(D.C. Cir. 1978).

                               22
(3d Cir. 1980). As we said in Fassett v. Delta Kappa
Epsilon, 807 F.2d. 1150, 1165 (3d Cir. 1986), cert. denied,
481 U.S. 1070, 107 S. Ct. 2463, (1987), "[T]he only proper
function of a court of appeals is to review the decision
below on the basis of the record that was before the District
Court." (emphasis added.)

III. Conclusion

In summary, I dissent for three reasons. First, I believe
the Majority's use of judicial notice is improper. Second,
because this issue was raised for the first time in the
Appellant's reply brief, I would not consider it. Third, the
Rules of Civil Procedure specifically provide the appropriate
procedural pathway, which evidently appellant's counsel
failed to follow. I would affirm the District Court in all
respects.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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