Corporations Keyed to Klein
Brehm v. Eisner
Facts
Disney’s CEO, Michael Eisner, wanted to hire a personal friend, Ovitz, to the position of president. Ovitz had no prior experience for that position but was sought after by other companies because of his other successes in the entertainment business. Eisner personally and exclusively negotiated an employment agreement with Ovitz. The 5-year agreement gave Ovitz a $1 million annual base pay plus stock options that accrued annually (“A” options) or came due if Ovitz finished the term of employment under the agreement (“B” options). There was a non-fault termination clause (termination not based of gross negligence or malfeasance) that would pay Ovitz $10 million plus $7.5 million for every year remaining in the agreement. 3 million A options would also immediately vest. This agreement was reviewed and endorsed by a corporate compensation expert who later said that no one actually calculated out the compensation that Ovitz would get if there was a non-fault termination. The Board then approved the contract. Ovitz put in about unremarkable year with Walt Disney and then negotiated a non-fault termination that paid him over $38 million, a higher amount than what he could have made by working through the entire contract. This payout prompted Plaintiffs to file this action, claiming the directors breached their fiduciary duty and committed waste.
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