In re Tyson Foods, Inc. (Tyson II)
Court of Chancery of Delaware
2007 WL 2351071
As described in this court’s opinion in Tyson I, shareholders (plaintiffs) of Tyson Foods, Inc. filed a derivative action against numerous parties, including seven directors who sat on the company’s Compensation Committee (the directors) (defendants). The complaint alleged that the directors on four occasions granted spring-loaded stock options to company insiders as a means of circumventing the company’s stock incentive plan. The plan allegedly required stock options to be priced no lower than the market price of the stock on the day of the grant. The defendants’ motion to dismiss the complaint was denied as to the seven directors from the Compensation Committee. The directors then supplemented the record with information indicating that the shareholder-approved stock incentive plan in fact included two types of stock options: incentive options and non-qualified options. Incentive options could not be priced lower than market value on the day of grant, while non-qualified stock options could be granted at any price. The directors argued that the challenged spring-loaded options were non-qualified options and therefore were within the directors’ discretion to grant. Tyson Foods’ SEC filings made after the grants did not make it clear that non-qualified options were granted; the filings simply noted that options were granted at that day’s stock price. The directors moved for judgment on the pleadings.
Rule of Law
Holding and Reasoning (Chandler, J.)