In re Walt Disney Company Derivative Litigation (Disney II)

Disney's compensation committee approved executive Michael Ovitz's employment contract after receiving only a bare summary noting he'd get 5,000,000 stock options worth roughly $80-100 million, without the committee ever calculating the options' actual value or any director asking follow-up questions; the board simply let CEO Michael Eisner, Ovitz's close friend, negotiate the specific terms. The contract's non-fault termination clause was structured so it became more valuable to Ovitz the sooner he left — guaranteeing remaining salary, a $7.5 million yearly bonus for the contract's remaining term, a $10 million termination fee, and immediate vesting of his stock options. When Ovitz's performance proved unsatisfying and he wanted out, Eisner granted a non-fault termination worth over $38 million cash and $3 million in stock options (a present value around $140 million); the new board played no role in that decision but also refused to explore alternatives or delay it. Shareholders (plaintiffs) sued the old and new boards (defendants) for breaching their duty of care, and the defendants invoked Disney's charter exculpatory provision (under section 102(b)(7)) to move to dismiss.