On behalf of John McDuff, Attorney at Law
Boots & Coots Inc., an oil well firefighting company, is currently being purchased by Halliburton for more than $240 million. The imminent sale has inspired several lawsuits, with shareholders contending that the company is being sold for an amount below its worth in one, and that the deal will wrongly enrich some Boots & Coots officials in another.
The most recent suit alleges that some company officials were granted restricted stock at $1.88 per share on March 1, less than two months before the company was sold. Halliburton has indicated that the company may be purchased for up to $3 per share, making the stock grants instantly worth a large sum since the officials can sell their stock as soon as the company is sold. Herbert Silverberg, the shareholder bringing the suit, is able to do so based on his ownership interest in the company. Therefore, Silverberg is not so much bringing the suit on his own behalf but on behalf of the company.
When a director makes a decision for a company, such as granting restricted stock to company officials, it must be done in good faith and with the best interests of the corporation in mind. If the director has a personal interest in a particular decision made for the company, the appearance of impropriety may bring about scrutiny from the shareholders or, as in this case, the courts.
If Silverberg can prove that the stock offering was made to unjustly enrich Boots & Coots officials, the court may order the stock grant to be rescinded. Additionally, in this type of case, a court may hold a director personally liable to shareholders if it is proven that the director acted in bad faith, although proving such behavior is extremely difficult. In the most extreme cases, the government can bring criminal charges against directors who act in bad faith, but that does not appear likely in this case.