Delaware Court Issues Ruling in Spring-Loading Case

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On Tuesday, Chancellor Chandler of the Delaware Court of Chancery issued his second decision in as many days regarding stock options. In re Tyson Foods, Inc. Consolidated Shareholders Litigation, No. 1106-N

(Del. Ch. Feb. 6, 2007). His earlier opinion — Ryan v. Gifford, No. 221- N (Del. Ch. Feb. 6, 2007) — denied a motion to dismiss allegations regarding stock option backdating. His new decision denies a motion to dismiss claims of alleged option 'spring-loading.' Taken together, these two decisions have important implications for the many

option cases now wending their way through the courts.

The new decision arises from several compensation arrangements, including stock options, afforded

to senior executives at Tyson Foods. The plaintiffs alleged that four stock option awards made to senior executives were 'spring-loaded' — that is, granted 'days before Tyson would issue press releases that were very likely to drive stock prices higher.' In denying a motion to dismiss these

allegations, the court concluded that spring-loading, if done intentionally, 'involves an indirect deception' and constitutes a breach of the duty of good faith: 'A director who intentionally uses inside knowledge not available to shareholders in order to enrich employees while avoiding shareholderimposed requirements cannot, in my opinion, be said to be acting loyally and in good faith as a

fiduciary.'

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