The majority shareholder and president of Dunaway Drug Stores, Inc., William B.
ID: 443972 • Letter: T
Question
The majority shareholder and president of Dunaway Drug Stores, Inc., William B. Dunaway, was structuring and executing the sale of virtually all of the corporation’s assets to Eckerd Drug Co. While doing this, he negotiated a side noncompete agreement with Eckered, giving Dunaway $300,000 plus a company car in exchange for a covenant not to compete for three years. He simultaneously amended two corporate leases with Eckerd, thereby decreasing the value of the corporation’s leasehold estates. The board of directors approved the asset sale. Minority shareholders brought a derivative action against William Dunaway, claiming breach of his fiduciary duty in negotiating the undisclosed noncompete agreement, which did not require him to perform any service for buyer Eckerd Drug? Did William Dunaway make sufficient disclosure about all of the negotiations of the asset sale to Eckerd Drug? Did William Dunway violate any fiduciary Duty to the corporation? Decide. Substative response.
Explanation / Answer
Solution :
William B. Dunaway has entered into a " Non - compete agreement " with Eckerd Drug Co to not compete for 3 years . The Non compete agreement is meant to ensure that Dunaway Drug Stores, Inc will not compete with Eckerd Drug Co for three years after the sale of virtually all of the corporation’s assets to Eckerd Drug Co. The board of directors have approved the asset sale. However , William B. Dunaway simultaneously amended two corporate leases with Eckerd, thereby decreasing the value of the corporation’s leasehold estates. This action of William B. Dunaway can cause substantial loss to the shareholder of the firm as the company is now undervalued and the details of the decrease in the value of corporation’s leasehold estates dont appear to be disclosed to the minority shareholders . Therefore William Dunway appears to have violated fiduciary Duty to the corporation.
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