A Stinson blog gives a timely reminder to be careful in your proxy disclosures when seeking shareholder approval of your equity incentive plan. In Pascal v. Czerwinski, the shareholder plaintiffs claimed that the company’s proxy statement failed to disclose that the company’s directors could grant awards to themselves under the plan as compensation for past efforts to take the company public.
Here’s an excerpt from the blog (also check out the chapter on “Plan Disclosure When Seeking Shareholder Action” in our Executive Compensation Disclosure Treatise):
The defendants argued the 2019 Proxy did disclose both intentions: the proxy provided that the EIP was meant to “attract, retain and reward the best available persons for positions of substantial responsibility and to recognize significant contributions made by such individuals to the Company’s success.”
The Court found that the 2019 Proxy did not explicitly mention the possibility of retrospective payment for the go-public conversion. However, the 2019 Proxy did set out that the company might issue awards in part for past accomplishments. And, given that “awards for past accomplishments” encompasses “retrospective payment for the conversion,” the Court did not find it reasonably conceivable that stockholders would have found the difference between the two to be material.
It’s a good reminder at this time of year to think carefully about disclosures when asking for approval of equity compensation plans.
-Liz Dunshee, CompensationStandards.com January 14, 2021
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