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Delaware’s Supreme Court limits the business judgment protections for stockholder-approved equity incentive awards.

January 19, 2018
In re Investors Bancorp, Inc. Stockholder Litigation, 2017 Del. LEXIS 517 (Del. 2017)

Stockholders of Investors Bancorp, Inc. sued 10 non-employee board members and two key officers, challenging their receipt of equity incentive awards under a discretionary 2015 Equity Incentive Plan. Although approved by shareholder vote at the 2015 annual meeting, the plan left it to the discretion of the directors to allocate up to 30% of all option or restricted stock shares available as awards to themselves; thus, the shareholders did not ratify the specific awards to each officer and director.  The trial court dismissed the stockholder complaint, holding that because the plan was ratified by a vote of the shareholders, the awards were protected by the business judgment rule.  In the unanimous opinion of the Delaware Supreme Court, the trial court ruling was reversed and remanded for further proceedings.  In so ruling, the Supreme Court concluded that, because the directors retained discretion over the awards under the plan, the shareholders did not ratify each award and the fairness of the awards was subject to challenge.


Case Law Alerts, 1st Quarter, January 2018

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