Carl Icahn wants to replace Yahoo!'s board of directors so he can vaporize its employee retention plan and sell the company to Microsoft. But some litigious Yahoo! shareholders think he's got it slightly wrong.

In their ongoing lawsuit against Jerry Yang and company, two share-holding Detroit pension funds have argued that Yahoo!'s much-discussed severance package isn't just an impediment to a Microsoft merger. It's also an impediment, they say, to a Carl Icahn takeover.

Yahoo!'s severance package kicks in if two conditions are fulfilled. One: Control of Yahoo! changes hands. And two: an employee is fired or quits with "good reason."

In court papers filed late Monday with the Delware Court of the Chancery, the Police & Fire Retirement System of the City of Detroit and the General Retirement System of the City of Detroit insist that Condition Number One would be fulfilled if Icahn succeeds in replacing Yahoo!'s board of directors.

"If Icahn’s slate prevails, Yahoo shareholders will be funding huge cash severance and equity acceleration over the following two years for every employee who is either terminated or who resigns with 'good reason' as that phrase is loosely defined in the Severance Plans," the filing reads. "This discriminatory application of the Severance Plans coerces the stockholder vote."

In other words, it would prevent people from voting for Icahn's slate - and prevent a Microsoft merger. And all these pensions funds want is a Microsoft merger. Their suit clams that Yahoo!'s rejection of that $44.6bn Microsoft bid - and subsequent higher bids - was a "breach of fiduciary duties."

So, the Detroiters have called for a trial date before Yahoo!'s August 1 shareholders. And they've called on the court to vaporize the severance package. ®

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