The following is not meant to be legal advice.
On February 6, 2007, in In re Tyson Foods, Inc. Consol. Shareholder Litig., No. 1106-N (Del. Ch. Feb. 6, 2007), Delaware Chancellor Chandler denied defendants' motion to dismiss.
In re Tyson Foods, Inc. Consol. Shareholder Litig. Involved facts relating to Tyson's board breaching its fiduciary duties by granting spring-loaded stock options to insiders. Spring loaded options are those options granted shortly before the announcement of positive news that increased the company's stock price.
Plaintiffs adequately alleged Tyson's directors approved grants while in possession of material non-public information with the intent to circumvent otherwise valid shareholder-approved restrictions upon the exercise price of the options.
The court found that the alleged conduct was not protected by the business judgment rule. The demand element in a derivative suit was excused.
The case suggests all backdated options involve a fundamental lie where directors who approve an option dissemble the date on which the grant was actually made. Spring-loading implicates a subtle deception when there is often little or no basis for concluding that the timing of a grant and market-moving information involves any deception.
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