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Yahoo Must Give Bank Ex-Officer’s Records

(CN) - Yahoo must provide a group of shareholders with records about CEO Marissa Mayer's hiring and firing of an executive, the Delaware Chancery Court ruled.

Amalgamated Bank sued Yahoo in March 2015 in its capacity as trustee for the LongView LargeCap 500 Index Fund and 500 Index VEBA Fund. The bank demanded to inspect Yahoo's books and records relating to Mayer's hiring and firing of former COO Henrique de Castro.

Mayer joined Yahoo in 2012 after serving as a vice president at Google. That same year, 10 of the 11 seats on the company's board of directors changed hands.

Soon after Mayer's hiring, de Castro, who served as Google's president of media, mobile and platforms at the time, invited her to dinner. Mayer later talked to Yahoo's compensation committee about bringing on de Castro as her number-two executive.

De Castro signed a deal that called for him to keep his unvested equity awards if he were terminated without cause, but to forfeit them if he were fired with cause. The longer de Castro worked at Yahoo, the more of his equity awards would be vested.

Yahoo's compensation committee approved de Castro's offer letter after 30 minutes of discussion, but "when Mayer furnished the original offer letter to the committee, no one provided the directors with any materials that illustrated the consequences for different departure scenarios," Vice Chancellor J. Travis Laster wrote in a Feb. 2 ruling.

Mayer also adjusted the original offer to increase the percentage of equity awards that de Castro would receive in the event of an early termination. The aggregate target value of de Castro's package was $56 million.

Yahoo announced de Castro's hiring on Oct. 15, 2012. In a press release, Mayer touted de Castro's "proven success in structuring and scaling global organizations."

In his first year at Yahoo, de Castro made $39.2 million, even more money than Mayer made.

However, advertising revenue fell during every quarter of de Castro's tenure, and he clashed with Yahoo management. Mayer fired him after 14 months.

Later in 2014, Yahoo told its shareholders that it had fired de Castro without cause and therefore owed him almost $60 million.

As a stock owner, Amalgamated Bank demanded to see Yahoo's books and records to investigate "potential mismanagement, including mismanagement in connection with the payment of compensation to a corporation's officers and directors," according to court records.

Yahoo produced 677 pages of documents, including records from board and committee meetings about Castro's hiring and firing. After Yahoo denied Amalgamated's request for more documents, the bank sued.

Laster ruled last week that the bank had satisfied the ownership requirements of its request for books and records. Yahoo must therefore produce the requested documents within 30 days, he wrote.

"I need not and do not hold that the record developed to date establishes wrongdoing, nor even that it supports a claim for wrongdoing," Laster wrote. "It does, in my view, provide a 'credible basis from which the Court of Chancery can infer there is possible mismanagement that would warrant further investigation.'"

Laster also found "a credible basis to suspect possible breaches of fiduciary duty" by Mayer during the process of hiring de Castro.

In addition, Laster stated that the board of directors' involvement in de Castro's hiring "appears to have been tangential and episodic, and they seem to have accepted Mayer's statements uncritically."

Regarding de Castro's firing, Laster also found "a credible basis to suspect the possibility of wrongdoing by Mayer, the committee and the board."

"The issue at this stage turns on why Yahoo's fiduciaries agreed on a without-cause termination when a for-cause alternative was potentially available," Laster wrote. "Mayer decided initially to terminate de Castro and characterize it 'without cause.' Despite the financial implications, the committee did not question Mayer's decision. They do not appear to have asked any questions at all. Instead, they rubberstamped what Mayer had done through a quick email exchange of written consents."

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