Delaware Court of Chancery
699 A.2d 327 (Del. Ch. 1997)
In 1996, Mattel, Inc. (Mattel) adopted a compensation plan for the company’s directors including an option grant. Under the plan, outside directors were entitled to a one-time option grant of 15,000 shares. In addition, the directors were eligible for additional option grants on reelection. The plan was then presented to the company’s shareholders at the annual meeting for a vote. The shareholders approved the plan. Harry Lewis (plaintiff) brought a shareholders’ suit in the Court of Chancery of Delaware against Mattel and its directors (defendants). Lewis argued that the directors had violated the duty of candor by failing to disclose the estimated value of the stock options. Lewis further asserted that the directors breached the duty of loyalty, because the option grants represented self-dealing and thus had to be proven entirely fair to the corporation. The defendants moved to dismiss the complaint for failure to state a claim.
Rule of Law
Holding and Reasoning (Allen, J.)
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