March 14, 2008
Introducing eDelaware
If you’re a Delaware junkie, you need to check out this new – and free – resource that Potter Anderson & Corroon has developed: eDelaware™. It allows you to download all of the essential Delaware business statutes directly to your BlackBerry’s memory – and in addition to providing you with 24/7 access to a “carry” copy of the Delaware business statutes, it also provides brief summaries of recent key Delaware cases. Your BlackBerry will automatically update when there are new case summaries or changes to the Delaware statutes.
In this podcast, Scott Waxman of Potter Anderson (and the architect of eDelaware™) explains why – and how to – use eDelaware™, including:
– What is eDelaware™?
– What are the goals of eDelaware™?
– What is the process to subscribe for eDelaware™?
– What happens if I get a new BlackBerry and I want eDelaware™ on my new BlackBerry?
– Is eDelaware™ available for wireless devices other than BlackBerry?
– Are any enhancements on the horizon for eDelaware™?
– What type of information does Potter Anderson keep about subscribers?
– Have there been any surprises since you launched the service?
Another Delaware Bullet-Dodging Case
Recently, VC Lamb of the Delaware Court of Chancery rejected a motion to dismiss a derivative complaint challenging option grants made pursuant to stockholder-approved option plans in Weiss v. Swanson et al., C.A. No. 2828 (Del. Ch. Mar. 7, 2008). Here is a case summary from Potter Anderson:
The plaintiff alleged in his complaint that stock option grants made by the board of Linear Technology Corporation (“Linear”) were strategically timed in order to take advantage of stock prices favorable to the defendants: when the Company anticipated issuing favorable quarterly earnings releases, the director defendants “spring-loaded” the options by granting them just before they were released, and when the releases contained negative information, options were granted just after the release of the information – “bullet-dodging.”
In its decision, the Court rejected the defendants’ motion to dismiss for demand excusal and for failure to state a claim upon which relief may be granted. The Court also rejected the claim that plaintiff’s complaint was barred by the statute of limitations. The Court first addressed whether the plaintiff was obligated to make a pre-suit demand on the board under Delaware Court of Chancery Rule 23.1. The Court found that the plaintiff alleged particularized facts sufficient to raise reasonable doubt under both prongs of Aronson v. Lewis.
First, plaintiff raised reasonable doubt that the decisions authorizing the option grants and failing to disclose the grants to Linear’s stockholders were a valid exercise of the board’s business judgment. Plaintiff’s particularized claims sufficiently alleged that the director defendants had access to the quarterly earnings releases before they became public and knew that the releases materially affected Linear’s stock price, that the releases actually did affect the stock price, and that, in 22 out of 28 option grants made in conjunction with quarterly earnings releases, the option grants were approved before positive releases or after negative releases. The complaint further alleged that the director defendants had failed to disclose this information to Linear’s stockholders.
Second, plaintiff raised reasonable doubt that the directors were disinterested and independent. Citing Conrad v. Blank, the Court found that the board was interested and demand was excused because the directors received the challenged options and thus “they have a strong financial incentive to maintain the status quo by not authorizing any corrective action that would devalue their current holdings or cause them to disgorge improperly obtained profits.” The Court next addressed the defendants’ motion to dismiss for failure to state a claim. The Court rejected this motion, finding that because the plaintiff had alleged particularized facts sufficient to prove demand futility under the second prong of Aronson, he had rebutted the business judgment rule for the purposes of surviving a motion to dismiss. The Court further found that the plaintiff had stated claims for breach of fiduciary duty, for unjust enrichment, and for waste.
Finally, the Court rejected the argument that the complaint was barred by the statute of limitations because the statute was tolled by the fraudulent concealment by the defendants of the spring-loading and bullet-dodging plan, and because it was equitably tolled.
March-April Issue: Deal Lawyers Print Newsletter
This March-April issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– 2008: The Year of the Activist Hedge Fund
– How to Settle Insurgencies and Secure Stockholder Votes Without Creating New Exposures
– Engagement Letters: Their Role in Limiting Investment Banker Liability
– The Obligations of Financial Advisors – New Decision Upholds Contractual and Other Limitations
– Buyers Beware: Tennessee Chancery Court Tries to Get Genesco to The Finish Line
– Items to Consider When Negotiating a MAC Claim
Try a 2008 no-risk trial to get a non-blurred version of this issue for free.
Spring Break ’08: Heading out on a week vaca and thought I would leave you with this funny clip from Sarah Silverman regarding her, ahem, “relationship” with Matt Damon. More than a bit profane – but hilarious. And here is the follow-up clip…
– Broc Romanek