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1
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MEMORANDUM OPINION
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EXTRACTED KEY WORDS
PLAN SHAREHOLDERS STOCK OPTION DIRECTORS WASTE DEFENDANTS COURT FIDUCIARY DUTY FACTS BREACH LOYALTY STOCKHOLDERS PROXY STATEMENT DELAWARE ADMINISTERING COMPENSATION MATERIALS BUSINESS JUDGMENT RULE COMPLAINT TRANSACTION AMENDMENT OPTION GRANTS ALLEGATIONS STOCK PRICE LITIGATION DISCLOSURE VIOLATIONS BLACK-SCHOLES MODEL CORPORATE ASSETS BLACK-SCHOLES OPTION |
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
IN RE 3COM CORPORATION )
SHAREHOLDERS LITIGATION ) CA. NO. 16721
Submitted: July 27, 1999
Decided: October 25, 1999
MEMORANDUM OPINION
Norman M. Monhait of Rosenthal Monhait Gross & Goddess, Wilmington,
Delaware. OF COUNSEL: A. Arnold Gershon, New York, New York; Wechsler
Harwood Halebian & Feffer, New York, New York. Attorneys for Plaintiffs.
Bruce M. Stargatt and James P. Hughes, Jr. of Young Conaway Stargatt & Taylor,
Wilmington, Delaware. OF COUNSEL: Boris Feldman and Keith E. Eggleton of
Wilson Sonsini Goodrich & Rosati, Palo Alto, California; Lowell E; Sachnoff and
Sarah R. Wolff of Sachnoff & Sweaver, Chicago, Illinois. Attorneys for
Defendants.
STEELE, V.C.
Issues Presented
ISSUE 1
Do a corporation's directors commit waste and breach their fiduciary duty of
loyalty when they receive stock options approved under a plan endorsed in
advance by shareholder vote?
No. Decisions of directors who administer a stockholder approved director
stock option plan are entitled to the protection of the business judgment rule, and,
in the absence of waste, a total failure of consideration, they do not breach their
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2
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LETTER TO V.C. STEELE
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EXTRACTED KEY WORDS
PROXY STATEMENTS PLAN DISCLOSURE STOCK OPTION ESQUIRE STEELE CHANCERY FIRST TIME DIRECTORS EXHIBIT GRANT CONDITIONS SET PLAINTIFFS ABANDON GERSHON HONORABLE MYRON COURT ALLEGATIONS RATIFICATION NONQUALIFIED STOCK AGREEMENT LANGUAGE HERFETO COMPLIANCE ABILITY MODIFY CONSISTENT EFFECTIVE RATIFICATION DEFENSE PROCEDURAL STAGE |
ROSENTHAL, MONHAIT, GROSS 63 GODDESS, P. A.
ATTORNEYS Al- LAW
SUITE 1401, MELLON BANK CENTER
JOSEPH A. ROSENTHAL P . 0 B O X 1 0 7 0
NORMAN M. MONHAIT W I L M I N G T O N , D E L A W A R E 10899-1070
KEVIN GROSS T E L E P H O N E (302) 6 5 6 - 4 4 3 3
JEFFREY S. GODDESS F A C S I M I L E ( 3 0 2 ) 6 5 8 . 7 5 6 7
CARMELLA P KEENER
E D W A R D B . R O S E N T H A L
July I, 1999
The Honorable Myron T. Steele
Court of Chancery
417 South State Street
Dover, Delaware 1990 I
Re: In Re 3Com Corporation Shareh~olders Litigation
Del. Ch., Consolidated Civil Acti'on No. 16721-NC
Dear Vice Chancellor Steele:
I write in response to Mr. Hughes' letter to the Court dated June
1999, in whicih he advises that defendants are willing to forego oral argument on
their motion t,o dismiss and rest on the papers that have been filed.
On behalf of plaintiffs, we too believe oral argument is
provided we may submit this short response to the defendants' reply brief.
At pages 9-10 of ,the reply brief, defendants contend that
raised, improperly for the first time in their answering brief, new allegations of
defects in disclosure in all the proxy statements concerning the description of the
Directors' Plan and the discussion, in the 1998 proxy statement, of the federai tax
consequences. To the contrary, we did not make new disclosure allegations.
Rather, we sought only to rebut defendants' contention that they can rely on
stockholder ratification of the Directors' Plan.
In this connection, defendants seek to establish that all the proxy
statements correctly describe the Directors' Plan by submitting Exhibit G with their
reply brief. This document appears to be a stock option grant that predates the
1998 proxy statement. This is the first time we have seen it. It was unavailable
from the Securities and Exchange Commission. Defendants argue that its terms
and provisions are incorporated into the description in the proxy statements. They
quote, at page `10 of the reply brief, from the Plan: ""[a]11 Options shall be subject
to the terms and conditions set forth in the b-m of Nonqualified Stock Option
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3
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DEFENDANTS REPLY BRIEF IN SUPPORT OF MOTION TO DISMISS
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EXTRACTED KEY WORDS
COURT DEL STOCK OPTION PLAINTIFFS MOTION STOCK OPTION PLAN DISMISS SHAREHOLDERS OPTION GRANTS MEM PROXY COMPLAINT WASTE DIRECTORS FACTS COMPENSATION ALLEGATIONS DEFENDANTS JAMES BLACK-SCHOLES MODEL DISCLOSURE BUSINESS JUDGMENT SACHNOFF SARAH CONNECTION STOCK PRICE SHAREHOLDER RATIFICATION BUSINESS JUDGMENT RULE AMENDMENTS TRANSACTION OPPOSITION |
IN THE COURT OF CHANCERY OF THE STATE OF DEL
IN AND FOR NEW CASTLE COUNTY
------------------------------------------------------------x
IN RE 3COM CORPORATION : CONSOLIDATED
SHAREHOLDERS LITIGATION : C. A. No. 16721NC
------------------------------------------------------------x
DEFENDANTS' REPLY BRIEF IN SUPPORT OF THEIR MOTION TO DISMISS
YOUNG, CONAWAY, STARGATT & TAYLOR, LLP
Bruce M. Stargatt
James P. Hughes, Jr.
11 th Floor, Rodney Square North
P.O. Box 391
Wilmington, DE 19899-0391
(302) 571-6600
Attorneys for Defendants James L. Barksdale,
Eric A. Benhamou, Gordon A. Campbell,
James E. Cowie, Phillip C. Kantz, Casey G. Cowell, David
W. Dorman, Jean-Louis Gassee, Paul G. Yovovich,
William F. Zuendt, and 3COM Corporation
Of Counsel:
Boris Feldman
Keith E. Eggleton
Catherine H. Winterburn
WILSON SONSINI GOODRICH & ROSATI
650 Page Mill Road
Palo, Alto, CA 94304
(650) 493-9300
Attorneys for Defendants James L. Barksdale,
Eric A. Benhamou, Gordon A. Campbell,
James E. Cowie, Phillip C. Kantz, David W.
Dorman, Jean-Louis Gassee, Paul G. Yovovich,
and William F. Zuendt
WF'3: M:\DOCS3WJBL\154D'LEADU41367-1
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4
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PLAINTIFFS BRIEF IN OPPOSITION TO MOTION TO DISMISS
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EXTRACTED KEY WORDS
DEFENDANTS COMPLAINT DEL COURT MOTION PLAINTIFFS GRANTS BLACK-SCHOLES OPTION PRICING RATIFICATION DISMISS PROXY STATEMENT INDIVIDUAL DEFENDANTS PLAN STOCKHOLDERS FIDUCIARY DUTY DIRECTORS COMPLAINT ALLEGES SHAREHOLDERS ALLEGATIONS BOARD SERVICE SELF-SERVING APPLE COMPUTER FASB OPTION HOLDER AFFIRMATIVE DEFENSE FEFFER LLP ENLARGE EXPONENTIAL TECHNOLOSV SMSA LIMITED PARTNERSHIP |
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE //
IN AND FOR NEW CASTLE COUNTY
------ ----------------------------------x
IN RE 3COM CORPORATION SHAREHOLDERS : CONSOLIDATED
LITIGATION : CIVIL ACTIONNO. 16721
----------------------------------------x
PLAINTIFFS' BRIEF IN OPPOSITION
TO DEFENDANTS' MOTION TO DISMISS
ROSENTHAL MONHAIT GROSS & GODDESS,
P.A.
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiffs
OF COUNSEL:
A. ARNOLD GERSHON, P.C.
295 Madison Avenue
New York, NY 10017
WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
488 Madison Avenue
New York, NY 10022 -_ . . . I
. .
April 9, 1999
TABLE OF CONTENTS
Pase
TABLE OF CITATIONS ii
NATURE AND STAGE OF THE PROCEEDINGS 1
STATEMENT OF FACTS 5
ARGUMENT 7
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