## Facts

- Stockholders brought a derivative action on behalf of a Delaware corporation against directors and officers, focusing on directors who served on the board’s Compensation Committee.
- The complaint challenged four option grants allegedly timed shortly before the release of favorable, material information, creating immediate gains once the information became public (“spring-loaded” options).
- The governing, stockholder-approved incentive plan granted the Compensation Committee broad authority to issue equity awards; incentive stock options could not be priced below fair market value on the grant date.
- After an earlier dismissal ruling allowed the spring-loading count to proceed against Compensation Committee directors, those directors asserted the plan also permitted “non-qualified” options that could be granted at any price.
- The directors contended the four challenged grants were non-qualified options and thus authorized under the plan.
- Plaintiffs alleged that public disclosures described the grants as priced at the stock price on the grant date and did not clearly disclose that non-qualified options were used or that the timing exploited nonpublic information.

## Issues

1. Whether the plan’s authorization of non-qualified options “at any price,” and defendants’ characterization of the challenged grants as non-qualified, required judgment on the pleadings against the spring-loading fiduciary-duty claim.
2. Whether plaintiffs adequately pled that the Compensation Committee directors breached fiduciary duties of loyalty and good faith by using material nonpublic information to time grants and by failing to provide candid disclosure to stockholders.

## Decision

- The Court of Chancery denied the Compensation Committee directors’ Rule 12(c) motion for judgment on the pleadings.
- The court held that plan-based authority to issue non-qualified options did not, at the pleadings stage, foreclose a fiduciary-duty claim premised on spring-loading and inadequate disclosure.
- The case proceeded because plaintiffs’ allegations, if proven, could show disloyalty or bad faith despite technical compliance with plan terms.

## Legal Principles

- Compliance with a stockholder-approved compensation plan does not automatically insulate directors from fiduciary-duty review when option grants are alleged to be timed using material nonpublic information.
- Spring-loading may support a claim for breach of the duty of loyalty and/or lack of good faith when directors exploit inside information and do not provide full and fair disclosure of the timing practice and its economic effect.
- On a Rule 12(c) motion, the court accepts well-pled allegations as true and denies judgment if plaintiffs could recover under any reasonably conceivable set of circumstances susceptible of proof.
- Where disclosures characterize options as granted at the market price without clearly revealing the role of imminent positive nonpublic information or the nature of the options granted, the alleged lack of candor can be material to the fiduciary analysis.

## Conclusion

The court refused to end the derivative spring-loading claim on the pleadings, holding that the asserted availability of non-qualified options under the plan did not negate plausible allegations that directors disloyally used inside information and failed to make candid disclosures to stockholders about the option-grant timing and structure.


In re Tyson Foods, Inc. (Tyson II), 2007 WL 2351071 (Del. Ch. Aug. 15, 2007)