The Delaware Court of Chancery recently set forth, in Pfeiffer v. Leedle, C.A. No. 7831-VCP (Del. Ch. Nov. 8, 2013), a clear explanation of when, in connection with a derivative claim made on behalf of a Delaware corporation, presuit demand upon that corporation’s board of directors will be excused. The court held that the demand by the plaintiff in the case against the board of directors was excused. However, the court’s holding rests upon its conclusion that the board of directors clearly violated an unambiguous term of a stock option plan, a conclusion that might not be sound.
Background
In 2011 and 2012, the compensation committee of Healthways Inc., a Delaware corporation, granted Ben Leedle options to purchase shares of the company’s stock. The committee granted the Leedle options pursuant to the terms of the company’s 2007 stock incentive plan, issuing a total of 449,436 Leedle options in 2011 and a total of 285,000 Leedle options in 2012. Section 4 of the plan provides, in relevant part, that “no participant [under the plan] may receive … options … under the plan in any calendar year that, taken together, relate to more than 150,000 shares of [the company's common] stock.”
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