The shareholders of Maxim Integrated Products, Inc. (Maxim) approved a stock option plan which permitted the board to grant options but required that they be priced no lower than the market price of Maxim’s stock on the day of the grant. Between 1998 and 2003, Maxim granted options on numerous occasions to John Gifford (defendant), Maxim’s founder, chairman, and chief executive officer. An analysis by Merrill Lynch found that with regard to nine of these option grants, the timing was suspiciously favorable to Gifford. The days chosen to grant the options coincided with either the lowest stock price of the month or year. The report concluded that either the directors of Maxim were extraordinarily effective at selecting dates, or they had back-dated options to dates favorable to Gifford. Walter Ryan (plaintiff) filed a derivative action based on the Merrill Lynch report, alleging that Gifford and the other directors of Maxim (defendants) had breached their duty of loyalty to Maxim by back-dating options, which violated the clear terms of the shareholder-approved stock option plan. The complaint further alleged that the directors had made fraudulent disclosures indicating that they had complied with the stock option plan. The directors moved to dismiss the case for failure to state a claim, arguing that the allegations failed to rebut the business judgment rule.