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In re Tyson Food, Inc. (Tyson I)

Court of Chancery of Delaware
919 A.2d 563 (2007)


The shareholders of Tyson Foods, Inc. approved a stock incentive plan in 2001. The plan gave the Compensation Committee complete discretion to issue stock options and other incentives to employees, officers, and directors of the company, provided that the option price was no lower than the fair market value of the stock on the day of the grant. Eric Mayer and other Tyson shareholders (plaintiffs) filed a derivative action against eighteen directors and officers, among others, in 2005. They alleged that on four specific occasions, the Compensation Committee improperly awarded spring-loaded options to directors and officers. A spring-loaded option is a stock option that is granted shortly before the company releases information expected to increase the price of the stock and therefore the value of the option. The dissident shareholders alleged that the spring-loaded options here were in violation of the committee members’ duty of loyalty because they contravened the restrictions in the stock incentive plan. The directors moved to dismiss the complaint, arguing that the committee members were disinterested and independent directors and are therefore protected by the business judgment rule.

Rule of Law


Holding and Reasoning (Chandler, J.)

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