Business Associations Keyed to Hamilton
Brehm v. Eisner
Facts
Disney hired Ovitz as its president although he lacked experience managing a diversified public company. He was a friend of Eisner (Defendant), Disney’s Chairman, who alone negotiated Ovitz’s Employment Agreement with Disney, which was approved by Disney’s Board of Directors (Defendant). The initial term of the agreement was five years and required Ovitz to devote himself and his best efforts exclusively to the Company full time. In return he received a base salary of $1 million, a discretionary bonus, and options to purchase 5 million shares of Disney’s common stock. Certain options would vest immediately upon termination. According to the Agreement, Ovitz’s employment could end by his contract not being renewed in five years; Disney’s terminating him for good cause before the five-year expiration; or if Ovitz resigned voluntarily. Non-fault termination would entitle Ovitz to the present value of his remaining salary payments through September 2000, a $20 million severance payment, an additional $7.5 million for each fiscal year remaining under the agreement, and the immediate vesting of the first $3 million stock options. Soon after Ovitz began to work problems arose, and Brehm (Plaintiff) claims that these problems were sufficient to let Orvitz go for cause. Eisner (Defendant) and Ovitz, however, agreed to arrange for Ovitz to leave Disney on the non-fault basis provided in the Agreement, a New Disney Board (Defendant) approved his decision. Plaintiff alleges that the Old Disney Board (Defendant) approved his decision. Plaintiff alleges that the Old Disney Board of Directors (Defendant) breached its fiduciary duty by approving the wasteful Agreement; that the New Disney Board (Defendant) breached its fiduciary duty by agreeing to a non-fault termination of the Agreement, and that the Directors (Defendant) were not disinterested and independent. Plaintiff claimed that the Old Disney Board (Defendant) failed to properly inform itself regarding the total costs and incentives of the Agreement, especially the severance package. The Board (Defendant) had relied on a corporate compensation expert in connection with its decision to approve the Agreement. However, the expert had not quantified for the Board (Defendant) the maximum payout to Ovitz under the non-fault termination scenario. The expert later stated that he should have done so at the time. Brehm (Plaintiff) also alleges the Board with waste in that the severance package was over $140 million when Disney really owed Ovitz nothing as he either resigned or could have been fired for cause.
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