Litigation relating to Stock Awards
2018.10.18 Eve of Vesting Termination - Equity Intervenes? Following a stock purchase, an executive of the target company indicated his desire to leave when his employment agreement was scheduled to expire. The purchaser responded by terminating his employment one month beforehand, thereby preventing the executive from vesting in $425,000 of LTI benefits. In Sellers v. Minerals Technologies, the 5th Circuit set forth two reasons for deciding in the CEO's favor. The first reflected a contract law analysis, namely: the employment agreement included a 30-day notice provision which, when applied to the executive's facts, delayed the effective date of his termination until after he had vested in the right to collect the LTI benefits. The second reason seems to reflect an equitable consideration. Here is the court's reasoning:
Read literally, this seems to say that a service-based vesting schedule can be deemed satisfied when an employer frustrates vesting through a without cause termination. While that seems wrong on cold contract grounds, it seems to reflect the court's sense of equity and justice on the facts before it. Overall, employers should be extremely careful when pursuing, structuring, and implementing executive terminations at or near vesting events. Further case references appear below under "Eve of Vesting Terminations" but the list there is merely representative. The 5th Circuit’s decision is not an aberration: equity does seem to tip the scales of justice in cases of this kind.
2018.10.04 From Law360: "Nikko Execs' $50M Suit Against CEO To Stay In US. -- A New York federal court on Thursday denied a bid by Nikko Asset Management Co. Ltd. to dismiss a suit alleging the company and its CEO defrauded senior executives and other employees out of $50 million by manipulating an employee stock-option plan, finding that the company has enough contact with the U.S. to warrant jurisdiction."
2017.02.07 Stock Award Web Process Works: Non-compete Enforced. As a general matter, employers “win” when they seek to enforce stock plan terms that have been fairly disclosed -- and accepted -- by award recipients. ADP recently had such a victory. In a case decided under New Jersey Law, the 3rd Circuit upheld the granting of a preliminary injunction against two former employees who had joined a competitor in violation of restrictive covenants set forth in their stock awards. The former employees argued that ADP’s web-based system for issuing stock awards did not adequately alert them to the consequences of the stock awards they accepted. They lost because . . . continued at New Jersey Law.
2017.01.21 Equity Awards - ISO Tax Claims from Shortened Vesting Schedule . . . Employers often assume that they will avoid litigation when acting in what they believe will be the best interests of their employees. For instance, shortening a vesting schedule from 4 years to 6 months would seem favorable to stock option holders. Until they sue. That's what Uber faces from a complaint alleging that the shorter schedule deprived them of the tax benefits available for incentive stock options.
Deference to Committee Decisions
Employment Terminations on Eve of Vesting
ERISA Claims re Stock Awards
Forfeitures through Claims Releases
Merger-related Cashouts of Stock Options
In business transactions, the parties generally address the target company's stock awards in a manner that honors the contractual rights of employees. Costly lessons come, however, when deal terms run afoul of the change-in-control provisions within the target's stock award plan and/or award agreements.
Options: Post-employment Exercise
Options expiring during Black-out Period
Valuation of Employer Stock
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