On June 2, 2014, Cheniere Energy, Inc. announced that it had postponed its 2014 Annual Meeting of Stockholders, which had been scheduled to be held on June 12, due to a lawsuit filed four days earlier against Cheniere’s officers and directors. The lawsuit (Jones v. Souki, et al., Delaware Court of Chancery) alleges deficiencies in the Cheniere Stock Plan and the proxy statement disclosures concerning the plan. Whether or not the courts ultimately find any merit in the plaintiffs’ claims, this is an extremely negative development in the recent surge of litigation against officers and directors over stock plans and disclosures. It is the first time (of which I am aware) the plaintiffs’ lawyers have succeeded in forcing a company to postpone its annual shareholders meeting.
The complaint alleges that most of these awards should never have been granted because the majority of Cheniere’s stockholders did not approve the increases to the 2011 Plan share reserve that supposedly support them. The complaint does not allege that the awards were excessive or wasteful as a legal matter, but attempts to draw attention to the issue nonetheless by emphasizing the amount of the stock awards early and often, presumably to elicit the court’s sympathy, as we have seen in other recent cases.
"While these awards were excessive when made, this Complaint does not allege that they were wasteful simply because they were extraordinary and, in large part, unprecedented. Instead, this Complaint alleges that most of these awards should never have been granted because the majority of Cheniere’s stockholders did not approve the increases to the 2011 Plan share reserve that supposedly support them. As of April 15, 2014, the Compensation Committee has thus far granted 27,197,536 shares under the 2011 Plan to the Executive Defendants and other employees and consultants of Cheniere. However, 17,197,536 of these shares, should not have been awarded since Cheniere’s stockholders did not approve them." [Emphasis in the original]
The complaint also alleges that the demand requirement of shareholder litigation is excused because the directors receive compensation from the same stock plan as the officers, which is the subject of the litigation. This is another new strategy/claim that some courts have accepted recently and which we have written about previously.