Opinion ID: 203210
Heading Depth: 2
Heading Rank: 2

Heading: Applicability of First Marblehead

Text: We addressed the law of Delaware as it applies to the timely exercise of stock option, plans in First Marblehead. There, Gregory House, pursuant to a board-approved plan, had to exercise his ISOs within three months of resigning from First Marblehead Corporation. Id. at 3. Although House allowed the three month period to lapse, he sought to exercise his options several years later. Id. at 4. First Marblehead sought a declaratory judgment that House's ISOs had expired three months after his resignation and House filed a cross-complaint alleging that he should be permitted to exercise his options on contractual and equitable grounds. Id. After House lost at summary judgment, he appealed to us. Id. at 5. In rejecting his contractual and equitable claims, [6] we noted that, pursuant to Delaware law, every corporation may create and issue . . . rights or options . . . such rights or options to be evidenced by or in such instrument or instruments as shall be approved by the board of directors. Del.Code Ann. tit. 8, § 157(a); see First Marblehead, 473 F.3d at 6. We added that Delaware courts have observed that the issuance of corporate stock pursuant to a written board-approved plan is an act of fundamental legal significance having a direct bearing upon questions of corporate governance, control and the capital structure of the enterprise. The law properly requires certainty in such matters. First Marblehead, 473 F.3d at 6 (quoting STAAR Surgical Co. v. Waggoner, 588 A.2d 1130, 1136 (Del.1991)). Relatedly, the strict enforcement of a boardapproved stock issuance plan serves the important policy of preserving] the board's broad authority over the corporation and . . . protect[ing] the certainty of investors' expectations regarding stock. Id. (quoting Grimes v. Alteon, Inc., 804 A.2d 256, 258 (Del.2002)). Therefore, Delaware courts have denied claims for equitable relief even in situations when that might generate an inequitable result because of the importance of strict adherence to statutory requirements regarding the issuance of stock. Id. (quoting Liebermann v. Frangiosa, 844 A.2d 992, 1004 (Del.Ch.2002)). Here, the Stock Option Plan provides for a Personnel Committee with the authority to award ISOs and NQSOs to employees of Gillette and its subsidiaries. In limited circumstances set forth in the Stock Option Plan, the Personnel Committee can extend the period in which an optionee may exercise his options. [7] However, the period within which a retired employee can exercise his NQSOs is not subject to an extension by the Personnel Committee. The Stock Option Plan provides without exception that retired employees with NQSOs have three years from the date of termination to exercise their options. For all of the reasons cited in First Marblehead, this option period must be strictly enforced. [8] Requiring Gillette to allow a deviation from the terms of the Stock Option Plan would undermine the board's authority over the issuance of stocks, thereby creating unpredictability for investors in contravention of Delaware law. Moreover, it would limit the Personnel Committee's ability to allocate stock options to employees. Under the Stock Option Plan, the reserved shares become subject to future grants when stock options expire. If the deadlines for exercising stock options were not strictly enforced, the Personnel Committee would not know how many shares were available for grant. Mariasch argues that First Marblehead does not apply to his claims because the Stock Option Plan does not include a fixed option period that must be strictly enforced. To support this odd notion, he cites the word may in the clause which says that options exercisable at the time of the termination, may be exercised within the period shown below (emphasis added). In his view, the word may means that the Personnel Committee had the right to extend the three-year period for the exercise of NQSOs by retired employees. [9] This argument is unpersuasive. The word may does not make the length of the option period permissive. Rather, that word simply gave Mariasch the choice during the three-year period to exercise his options. Mariasch had no contractual right under Delaware law to exercise his NQSOs after the three years lapsed.