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Chancery Dismisses Stockholder’s Claim that Directors Provided Materially-Deficient Notice of their Intent to Use Equity Bonus Plan to Reward Past Performance

Pascal v. Czerwinski, C.A. No. 2020-0320-SG (Del. Ch. Dec. 16, 2020)

This decision concerned a motion to dismiss a stockholder’s direct claim that Director-Defendants breached their duties by providing a materially-deficient proxy statement advocating adoption of an equity incentive plan (“EIP”) that ultimately allowed Defendants to award themselves bonuses. As a result of the alleged deficiencies, Plaintiffs sought invalidation of the entire EIP.

The Court granted Defendants’ motion to dismiss. At base, Plaintiffs asserted that the materials did not provide notice that the Defendants could or would award themselves bonuses for past work. The Court recognized the common law duty of directors seeking stockholder action to provide all material information in their control to stockholders. But, quoting prior precedent, the Court noted that information is “material” only if “there is a substantial likelihood that it significantly alter[s] the ‘total mix’ of information made available” to voting stockholders. It does not stretch so far as to capture any information that a stockholder might find interesting or helpful.

Here, the Defendants informed the stockholders of “the amount of stock available for incentive awards, the anticipated recipients, the maximum limits on individual awards, and the goals of the program.” Other language in the materials also reasonably indicated that the awards would be based in part on past performance. Consequently, the further disclosures advocated by Plaintiffs would not have been material to a reasonable voting stockholder, and the absence of those further disclosures was not a basis to invalidate the entire EIP.

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