Lewis v. Vogelstein
Delaware Court of Chancery
699 A.2d 327 (Del. Ch. 1997)
In 1996, Mattel's board adopted an outside-director compensation plan granting a one-time 15,000-share option grant plus additional grants upon reelection, which shareholders approved at the annual meeting. Harry Lewis (plaintiff), a shareholder, sued Mattel and its directors (defendants) derivatively, alleging the directors breached their duty of candor by not disclosing the options' estimated value, and breached their duty of loyalty because the option grants were self-dealing requiring proof of entire fairness. The defendants moved to dismiss for failure to state a claim.
Whether corporate shareholders may ratify the act of the board in adopting a director compensation plan granting outside directors stock options.