Opinion ID: 36872
Heading Depth: 3
Heading Rank: 1

Heading: The Dell-Rodriguez Relationship and the Underlying Contracts

Text: 3 In 1991, Dell hired Rodriguez as the managing director and chief executive officer of Dell's operations in Spain. The parties executed an employment contract that entitled Rodriguez to severance benefits if Dell should terminate his employment without cause. 1 During the course of Rodriguez's employment, Dell issued stock options to him under various stock option agreements (SOAs). 4 In 1992, Dell granted Rodriguez a special restricted SOA, called the Penny Share Agreement (PSA). Unlike other traditional fair-market-value SOAs that Dell granted to Rodriguez, the PSA entitled Rodriguez to purchase Dell stock for 1¢ per share, regardless of the market price of the stock at the time he exercised the option. The PSA specified that after Rodriguez's options vested and he exercised them, Dell would withhold 60% of the exercised shares for a period of two years; only at the end of this two year period would Rodriguez receive the stock certificates for those shares. Further, a claw-back termination provision required Rodriguez to return any profits realized from the PSA if he breached his employment agreement or violated specified provisions of the PSA. 2 5 On February 12, 1998, Rodriguez and Dell executed a four-page Separation Agreement that specified the terms and conditions of Rodriguez's termination and severance from employment by Dell. Part A of the Separation Agreement, titled Stock Option Agreements, set out Rodriguez's amended rights regarding (1) the Penny Share Agreement, (2) a June 1994 SOA, and (3) his deferred bonus stock. In Part B of the Separation Agreement, titled Transition Arrangements, Dell agreed to retain Rodriguez as an unpaid honorary consultant through June 30, 1999. Although the Separation Agreement immediately relieved Rodriguez of his management duties, his formal resignation was not to become effective until June 30, 1998, at which time his one-year role as honorary consultant would commence. This time frame was adopted to allow additional stock options to vest under the PSA and under one of Rodriguez's other fair-market-value SOAs. 6 As honorary consultant, Rodriguez was to promote and develop Dell's positive image in the Spanish market; in particular, and as reasonably requested by Dell from time to time, [Rodriguez would] help enhance specific customer relationships. Under the Sole Discretion Clause, however, Dell retained the discretion to terminate Rodriguez under particular circumstances: 7 3) Dell may terminate these Transition Agreements with immediate effect: — 8
9 (ii) if Dell has determined, in Dell's sole discretion, that your conduct is creating, or has created, a negative impact on Dell or on Dell's reputation in the Spanish market and Dell has provided you with written notice of such negative impact. 10 If Dell should terminate the Transition Agreements, it could withhold stock to which Rodriguez would otherwise have been entitled: 11 4) Dell has the right to withhold any stock which would otherwise be released to you as set out in (A) above, in the event of termination pursuant to 3) above. 12 At the time that the parties executed the Separation Agreement, Rodriguez was unaware that Dell had commenced an internal investigation into the operations in Spain. 13