Archive:May 12, 2015

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Chancery Court Holds that Compensation Paid to Non-Employee Directors Pursuant to Shareholder-Approved Plan Must Be Reviewed Under Entire Fairness Standard

Chancery Court Holds that Compensation Paid to Non-Employee Directors Pursuant to Shareholder-Approved Plan Must Be Reviewed Under Entire Fairness Standard

By David Bernstein and Priya Chadha

In Calma v. Templeton, C.A. No. 9579-CB (Del. Ch. April 30, 2015) (Bouchard, C.), the Delaware Chancery Court held that Citrix System, Inc’s (“Citrix”) payment of compensation to non-employee directors under a shareholder-approved compensation plan must be reviewed under the entire fairness standard because the shareholders’ omnibus approval of a plan covering several different types of beneficiaries did not constitute ratification of the amount of compensation to be paid to non-employee directors.

In 2005, Citrix shareholders approved an equity compensation plan (the “Plan”) for beneficiaries such as directors, officers, employees, consultants, and advisors.  The plan did not specify the amount of compensation that non-employee directors could receive, instead only providing a limit of 1 million restricted stock units (“RSUs”) for any beneficiary’s annual compensation.  Based on the company’s share price at the time the suit was filed, 1 million RSUs would be worth over $55 million.

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