Public companies have historically been able to solicit proxies for their annual meetings without the sort of litigation that typically accompanies the solicitation of votes for special meeting to approve a merger or acquisition. However it now appears that the landscape may be rapidly changing. A series of recent lawsuits have sought to enjoin annual meetings based on alleged deficiencies in the proxy statement disclosures for proposals to approve increases in equity plan reserves and advisory votes on executive compensation. The presence of these lawsuits will create challenges for many public companies as we approach the 2013 proxy season.
A new tactic creates new pressures for the proxy process
Plaintiffs have had limited success thus far
Earlier this year, a judge in Santa Clara County, California granted the plaintiffs’ motion for preliminary injunction and enjoined a vote on a proposal to increase the shares authorized under an equity incentive plan until the defendants provided additional disclosures. The company thereafter provided additional disclosure, the vote was ultimately held and the company settled the litigation. In a more recent decision, a different California court dismissed a similar case which alleged inadequate disclosure only in the context of the advisory vote on executive compensation, distinguishing that action from the earlier challenge to the vote seeking a potentially dilutive increase in the shares reserved under an equity compensation plan. There have been a number of settlements prior to a court decision in other similar cases.