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Business Associations Keyed to LoPucki, 2nd Ed.
Freedman v. Adams
Citation:
58 A.3d 414 (2013)Facts
Susan Freedman, a stockholder of XTO Energy Inc., filed a derivative action alleging that the board committed waste by failing to adopt a Section 162(m) plan that would have made executive bonus payments tax deductible. From 2004-2007, XTO paid executive bonuses totaling more than $130 million, which were not tax deductible. Freedman claimed this resulted in approximately $40 million in unnecessary tax payments. The board was aware of the potential tax benefits but explicitly stated in proxy statements that it did not want its compensation decisions to be “constrained” by Section 162(m) requirements. After the lawsuit was filed, XTO’s board approved a Section 162(m) plan, which was subsequently approved by stockholders, but the plan was never used because XTO merged with Exxon shortly thereafter.
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