Delaware Chancery Court
G&E filed a derivative lawsuit on behalf of a large public pension fund against Lone Star’s former CEO, Jamie Coulter, and six other Lone Star directors. The suit alleged that the defendants violated their fiduciary duties in connection with their approval of the company’s acquisition of CEI, one of Lone Star’s service providers, from Coulter, as well as their approvals of certain employment and compensation arrangements and option repricing programs. Before filing the suit, G&E had assisted the plaintiff in filing a demand for books and records pursuant to Section 220 of the Delaware General Corporation Law. The company’s response to that demand revealed the absence of any documentation that the Board of Directors ever scrutinized transactions between Lone Star and CEI, that the Board negotiated the purchase price for CEI, or that the Board analyzed or discussed the repricing programs. In August 2005, the Court approved a settlement negotiated by G&E whereby Lone Star agreed to a repricing of options granted to certain of its officers and directors, repayments from certain of the officers and directors related to option grants, and a $3 million payment from Lone Star’s director and officer insurance policy. Lone Star further acknowledged that the lawsuit was one of the significant factors considered in its adoption of certain corporate governance reforms.