Opinion ID: 2172812
Heading Depth: 1
Heading Rank: 1

Heading: validity of the options

Text: The evidence was presented partly by oral testimony and partly by depositions and exhibits. There were no significant disputes as to the basic facts. We have examined the record and have reviewed the inferences drawn therefrom by the Vice-Chancellor; we find no adequate reason to disagree with his conclusions. The law pertaining to validity of stock options was summarized by this Court in Beard v. Elster, 39 Del.Ch. 153, 160 A.2d 731, wherein the Court clarified its prior rulings in Kerbs v. California Eastern Airways, 33 Del.Ch. 69, 90 A.2d 652, 34 A.L.R. 2d 839, and Gottlieb v. Heyden Chemical Corp., 33 Del.Ch. 82, 90 A.2d 660. The fundamental requirements as stated in Beard are these: (1) all stock option plans must be tested against the requirement that they contain conditions, or that surrounding circumstances are such, that the corporation may reasonably expect to receive the contemplated benefit from the grant of the options; (2) there must be a reasonable relationship between the value of the benefits passing to the corporation and the value of the options granted. The Vice-Chancellor took the position that this case is unique in the field of stock options because the corporation was not a going concern which needed the continued services of key men, but was a corporation which had come to a stand-still, which had a malodorous reputation, whose assets could be realized and the corporation rehabilitated only by working out some plan of merger or association in which its tax loss carryover could be lodged. He found that, as of June, 1960, the adoption of the option plan was deemed necessary to retain the services of the Board members, some of whom had already threatened to resign, whose good reputations had served to improve the corporate image, and whose continued service would lead prospective associates of Bellanca to deal with confidence. He further found that an additional objective was to provide added incentive to the accomplishment of the one important task which called for directors' services. He accordingly held that there was consideration for the options and that, as of June, 1960, there was reasonable assurance that the contemplated benefit would be received. Finally, he concluded that the value of these benefits bore a reasonable relationship to the value of the options granted. Appellant contends that the options were invalid, notwithstanding stockholders' approval, because the corporation received no (or very little) consideration for them, and that they thus constituted gifts of corporate assets. It argues also that the value of the options and the equality of their division among the appellees had no reasonable relationship to any benefits anticipated or received by the corporation, or to the individual competence or contribution of the optionees. Finally, it contends that, if the options are regarded as retroactive compensation for past services, they cannot be justified because the corporation received no lawful benefit in exchange for them. We agree with the Vice-Chancellor that, under all the circumstances of the particular case, the corporation could be reasonably expected to receive the contemplated benefits from the grant of the options. The fact is that these individuals did the job they were employed to do and remained with the corporation until that object was accomplished. Although the original resolution required continued service as a condition for exercise of the options, that requirement was eliminated shortly before the agreement was made with the Olson brothers, and was brought about because that agreement was about to be made. This change did not, in our opinion, render the options invalid because the Olson transaction was in fact the attainment of the object which these appellees set out to accomplish. We are of the opinion, also, that the relationship between the value of the benefits passing to the corporation and the value of the options granted is a matter as to which reasonable men, fully informed, could well differ in opinion. In that situation, the Court must approve the plan. See Beard v. Elster, supra.