Wednesday, April 26, 2017

Complaint seeks to enjoin vote on amending Intel incentive plan

By Rodney F. Tonkovic, J.D.

An Intel shareholder is seeking to block a management proposal to issue 33 million new shares under a benefit plan. The complaint, filed in the district court in Manhattan, seeks an injunction to stop shareholders from voting on the proposal in the semiconductor chip maker's 2017 Proxy Statement at Intel's annual shareholder meeting scheduled for May 18, 2017. As grounds for the injunction, the shareholder alleged that Intel has failed to comply with the SEC's disclosure requirements for proxy statements (Freedman v. Intel Corporation, April 21, 2017).

Incentive plan amendments. Intel's Management Proposal 4 asks shareholders to approve the amendment and restatement of the company's 2006 Equity Incentive Plan. Under the proposal, Intel would add 33 million new shares for awards under the Plan and extend its term to June 30, 2020.

Missing disclosures. According to the complaint, Intel's 2017 Proxy Statement fails to report how many participants are in the plan and why they are receiving these awards. Under Exchange Act Rules 14a-3(a) and 14a-101, the complaint asserts, a proxy statement soliciting a vote on a plan under which compensation may be paid must contain information required by Item 10(a)(1) of Schedule 14A, including the class and number of persons eligible to participate and the basis for their participation. The complaint asks the court to enjoin the vote unless and until Intel furnishes a supplemental proxy statement making the required disclosures.

Specifically, instead of providing approximate numbers, the complaint says, the proposal states that equity awards are granted "broadly among [Intel's] employees" and that the eligible participants include all full-time and part-time employees. Nowhere, the complaint declares, does the proxy statement disclose the number of full-time and part-time employees and those legally eligible to participate. The proxy statement also fails to enumerate the number of French employees who will participate as the result of changes in French tax law mentioned in the proposal.

The complaint traces the issue back to 2015, when a similar amendment to and extension of the 2006 Plan was voted on. The proposal contained similarly nonspecific language, and, the complaint argues, was consequently not effectively extended, expiring instead on June 30, 2016. Intel knows better, the complaint remarks, because a 2013 proxy statement amending the Plan provided the exact number of participants.

The complaint urges that the shareholder plaintiff will be injured as a result of Intel's actions and that he has no adequate remedy at law. If the vote is not enjoined, the shareholder will be forced to vote based on incomplete information. Moreover, the 33 million stock awards granted under the proposal will vest immediately and unwinding them will be impossible.

The case is No. 1:17-cv-02884.

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