Udoff v. Zipf
Decision Date | 29 March 1978 |
Citation | 404 N.Y.S.2d 332,44 N.Y.2d 117,375 N.E.2d 392 |
Parties | , 375 N.E.2d 392 Rose UDOFF, on behalf of herself as a Shareholder of Babcock and Wilcox Company, and on behalf of all others similarly situated, Appellant, v. George C. ZIPF et al., Respondents, et al., Defendants. |
Court | New York Court of Appeals Court of Appeals |
We conclude that plaintiff's contention that the board of directors' reduction of the exercise price of outstanding stock options was improper cannot be resolved on defendants' present motions for summary judgment.
On the recommendation of the Board of Directors of The Babcock & Wilcox Company, a stock option plan was approved at the annual meeting of shareholders held on April 26, 1972. The objective of the plan was to authorize the board to grant eligible employees options to purchase shares of company stock. For present purposes the significant provision of the plan was the following: In February, 1973 the corporation acquired 500,000 shares of its own common stock at a price of $24.267 for the purpose of meeting option calls. Pursuant to the plan, in December, 1972, January, 1973 and April, 1974 the board of directors granted options for 238,900 shares of the corporate stock at exercise prices of $23.75 $26.625, the then market prices of the stock.
Paralleling the decline in stock market prices generally, the corporate stock dropped sharply to a low of 11 7/8 on October 3, 1974. At the October 31, 1974 meeting of the board, the directors reduced the exercise price of the outstanding options to the then market price of $13.625.
Appellant alleges two causes of action: first, that in reducing the exercise price of the outstanding options the directors failed to exercise due care and diligence in conducting the corporate affairs and wasted corporate assets, thereby breaching their fiduciary responsibilities to the corporation and its shareholders; second, that, because such reduction indisputably resulted in a material increase in the cost of the plan to the corporation, under applicable New Jersey law shareholder approval was required for the reduction, and concededly no such approval was obtained. We address these two causes of action in reverse order.
Plaintiff predicates her second cause of action on the provisions of a statute of the State of New Jersey, the State in which the corporation was organized: "Unless otherwise provided in the plan, the board may amend * * * any plan * * * provided that (a) any amendment made by the board to a plan which was approved by the shareholders * * * shall be submitted to the shareholders for approval, unless the...
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