Court Opinion

ID: 9394791
Source: CourtListenerOpinion
Date Created: 2023-05-16 15:03:22.382074+00
Date Added: 2024-06-11T17:19:02.844152
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

VMWARE, INC.,                                )
                                             )
                 Plaintiff,                  )
                                             )
     v.                                      ) C.A. No. 2022-0820-PAF
                                             )
MICHAEL J. WOOD,                             )
                                             )
                Defendant.                   )

                        MEMORANDUM OPINION

                     Date Submitted: February 17, 2023
                       Date Decided: May 16, 2023

Elena C. Norman, Elisabeth S. Bradley, YOUNG CONAWAY STARGATT &
TAYLOR, LLP, Wilmington, Delaware; Arturo J. González, Shaelyn K. Dawson,
Camille Framroze, Meredith L. Angueira, MORRISON & FOERSTER LLP, San
Francisco, California; Attorneys for Plaintiff VMware, Inc.

Kasey H. DeSantis, Nathan D. Barillo, FOX ROTHSCHILD LLP, Wilmington,
Delaware; Neil A. Capobianco, FOX ROTHSCHILD LLP, New York, New York;
Attorneys for Defendant Michael J. Wood.

FIORAVANTI, Vice Chancellor
      A former employee of VMware, Inc. (“VMware” or the “Company”)

contends that he is owed shares of VMware common stock following his resignation

from the Company. The former employee claims that when VMware acquired his

former employer, Velocloud Networks, Inc. (“Velocloud”), in a 2017 merger,

VMware was required to substitute unvested shares of VMware stock in exchange

for his unvested restricted shares of Velocloud stock and to either repurchase or

deliver the shares upon his termination from the Company. After the former

employee (the defendant and counterclaim plaintiff here) resigned from VMware,

the Company did not repurchase the shares and did not deliver VMware stock

certificates to him.

      The former employee initially commenced litigation in California. The

California court stayed that action, having accepted the Company’s argument that

the claims must be litigated in Delaware.      Thereafter, the Company filed its

complaint in this action against its former employee, seeking a declaratory judgment

that his unvested Velocloud shares were canceled in the merger and that VMware

owes him no additional consideration relating to those shares. The former employee

has filed counterclaims seeking an order requiring VMware to issue a certificate for

3,086 shares of VMware common stock and related relief.

      The Company has moved to dismiss the former employee’s counterclaims and

for summary judgment on its declaratory judgment claim. The former employee has
moved for partial summary judgment on his claims for breach of contract and

specific performance. Under the plain and unambiguous terms of the contracts at

issue, the former employee’s shares of unvested Velocloud stock were canceled in

the merger in exchange for a stream of 17 monthly cash payments. VMware’s

obligation to make those payments ended when the former employee resigned from

his employment with VMware after receiving only eight of those payments.

Therefore, the court grants the Company’s motions and denies the former

employee’s motion.

I.       BACKGROUND1

         A.     Velocloud Issues a Stock Option to the Defendant.

         Before it was acquired by VMware in 2017, Velocloud was a privately held

startup technology company.2 Velocloud hired Defendant Michael J. Wood as its

Vice President of Marketing on May 11, 2015.3 In connection with his hiring at

Velocloud, Wood was given the opportunity to acquire equity in Velocloud under

its Amended and Restated 2012 Stock Plan (the “Plan”).4

1
 The facts are derived from the pleadings and documents integral thereto. Dkts. 1, 13.
Exhibits attached the Complaint are cited as “Ex.”
2
    Compl. ¶ 16; Answer ¶ 16.
3
    Compl. ¶ 20; Answer ¶ 20.
4
    Dkt. 42 (“Plan”).

                                          2
          On June 30, 2015, Velocloud awarded Wood an option to acquire 230,000

shares of Velocloud common stock. The award is documented in a “Stock Option

Agreement—Early Exercise” between Wood and Velocloud (the “Option

Agreement”).5 At the time of the Option Agreement, the shares underlying the

option were unvested.6 The Option Agreement provided that the shares would vest

over a five-year period.7

          The Option Agreement contained an early exercise feature, allowing Wood to

exercise the option and acquire shares before they vested.8 Wood took advantage of

the early exercise feature, and on October 1, 2015, exercised the option to purchase

208,330 shares of Velocloud common stock, none of which were vested.9

          Wood executed several documents in connection with his October 1, 2015

option exercise. The first is an exercise notice (the “Exercise Notice”).10 The

Exercise Notice reflects that Wood exercised his option to purchase 208,330

shares.11 The Exercise Notice confirms that the underlying shares would contain

legends indicating that the shares were restricted and had not been registered under

5
    Compl. ¶ 21; Answer ¶ 21; Ex. C at Ex. 1 (“Option Agreement”).
6
    Compl. ¶ 23; Answer ¶ 23.
7
    Option Agreement § I.
8
    Id. § II(2).
9
    Compl. ¶¶ 22–23; Answer ¶¶ 22–23.
10
     Option Agreement at Ex. A (“Exercise Notice”).
11
     Id. § 1.

                                            3
the Securities Act of 1933 (the “Securities Act”).12 Second, Wood executed an

Investment Representation Statement, which again acknowledged that the 208,330

shares he was purchasing were restricted securities under the Securities Act.13

          Third, Wood executed a restricted stock purchase agreement for his 208,330

shares (the “RSPA”).14 The RSPA provided that if Wood’s employment with

Velocloud was terminated, “the Company shall have the right and option for ninety

(90) days from such date to purchase from Purchaser . . . all of [Wood’s] Unvested

Shares as of the date of such termination at the price paid by the Purchaser for such

Shares (the ‘Repurchase Option’).”15 “If the Company does not elect to exercise the

Repurchase Option . . . by giving the requisite notice within ninety (90) days

following the termination, the Repurchase Option shall terminate.”16 The RSPA

defines “Unvested Shares” as “208,330 of those of shares of Common Stock which

have not become vested under the vesting schedule set forth in the Option

Agreement.”17

12
     Id. § 7(a).
13
     Option Agreement at Ex. B.
14
     Option Agreement at Ex. C-1 (“RSPA”).
15
     Id. § 1(a).
16
     Id. § 1(d).
17
     Id. at 1.

                                             4
          Wood also executed an assignment (the “Assignment”)18 and joint escrow

instructions (“Escrow Instructions”).19 Those documents essentially assign Wood’s

restricted shares to the Company so as to facilitate the Company’s ability to exercise

its Repurchase Option of Wood’s unvested shares under the terms of the RSPA. The

Escrow Instructions provide in pertinent part that “[w]ithin one hundred and twenty

(120) days after cessation of [Wood’s] continuous employment by or services to the

Company . . . [the Company] shall deliver to [Wood] a certificate or certificates

representing the aggregate number of shares held or issued pursuant to the

Agreement and not purchased by the Company . . . pursuant to exercise of the

Company’s repurchase option.”20

          B.    VMware Acquires Velocloud.

          On November 1, 2017, Velocloud entered into a Merger Agreement with

VMware (the “Merger Agreement”), under which Velocloud agreed to be acquired

by VMware, a publicly traded company, in an all-cash deal.21 On November 5, 2017,

Wood entered into an employment agreement with VMware, effective upon the

closing of the merger.22 The merger closed on December 12, 2017, resulting in

18
     Option Agreement at Ex. C-2 (“Assignment”).
19
     Option Agreement at Ex. C-3 (“Escrow Instructions”).
20
     Id. § 4.
21
     Compl. ¶ 25; Answer ¶ 25; Ex. A (“Merger Agreement”).
22
     Ex. E.

                                             5
Velocloud becoming a wholly owned subsidiary of VMware. The treatment of

Wood’s Velocloud equity and stock option in the merger is central to the claims in

this case.

         Immediately prior to the merger, Wood held three types of equity securities

in Velocloud. First, Wood continued to hold an unexercised option to purchase the

remaining 21,670 shares of Velocloud common stock under the 2015 Option

Agreement. Next, Wood held shares of common stock in Velocloud pursuant to the

October 2015 exercise of his option. Of the 208,330 shares of common stock that

he had purchased in October 2015, 148,541 shares had vested and 59,789 shares

remained unvested.

         The Merger Agreement explained how Velocloud securities would be treated

in the merger.

               1.     Unexercised Options
         Section 1.6(a) of the Merger Agreement addressed the treatment of

unexercised Velocloud stock options. Vested, in-the-money options would be

canceled in exchange for a cash payment.23 Wood did not hold any such option.

         Under Section 1.6(a)(2), any portion of any Velocloud option that was

unvested and exercisable at a per share price less than the per share merger

consideration (approximately $11.74) would be converted into an option to purchase

23
     Merger Agreement § 1.6(a)(1).

                                          6
a proportional number of shares in VMware common stock.24 In accordance with

Section 1.6(a)(2), on November 8, 2017 (before the closing of the merger), Wood

and Velocloud entered into an Option Consent and Substituted Option Agreement

(the “Substituted Option Agreement”).25

          Consistent with the Merger Agreement, the Substituted Option Agreement

distinguished between the treatment of vested and unvested portions of Velocloud

options in the merger. Portions of any in-the-money option that had vested would

be converted into the right to receive cash, based on a specified formula.26 The

treatment of any portion of an unvested Velocloud option would depend on the

option holder’s status after the closing of the merger. If the option holder continued

on as an employee or service provider of VMware or its subsidiaries (including

Velocloud), VMware would “substitute an option to purchase shares of [VMware]

Common Stock (a ‘Substitute Option’).”27 The Substituted Option Agreement

provided that “[e]ach Substitute Option will contain the same material terms and

conditions as were applicable to such [Velocloud] Option as of immediately prior to

24
   Id. § 1.6(a)(2) (“Parent shall . . . substitute the portion of any Company Option that was
unvested immediately prior to the Effective Time, has been issued to a Continuing
Employee and is exercisable for an exercise price less than the Per Share Consideration . .
. with an option to acquire, on the same material terms and conditions as were applicable
to such Rollover Option as of immediately prior to such substitution by Parent.”).
25
     Ex. C at Ex. 2 (“Substituted Option Agreement”).
26
     Id. at 2–3.
27
     Id. at 3–4.

                                             7
such substitution” subject to certain exceptions not implicated here.28 Under the

Substituted Option Agreement, Wood received a new option to purchase 2,110

shares of VMware common stock in exchange for relinquishing his rights to the

21,670 remaining unvested Velocloud shares underlying the 2015 Option

Agreement. The VMware shares underlying the substituted option vest on the same

schedule as contained in Wood’s 2015 Option Agreement.29                  Wood has not

attempted to exercise his option in VMware, and there is no dispute between the

parties about the treatment of this portion of Wood’s Velocloud securities.

                 2.   Vested Common Stock

           Under Section 1.4 of the Merger Agreement, nearly all vested shares of

Velocloud common stock30 would be canceled and would be converted into the right

to receive $11.73952 per share.31 On December 11, 2017, Wood executed a Letter

of Transmittal providing for the surrender of his vested shares of Velocloud stock

28
     Id. at 4.
29
     Id.
30
  There are certain exceptions as to stock held by VMware and its affiliates, which are not
pertinent here.
31
   Merger Agreement § 1.4(c) (“Each share of Company Capital Stock (other than the
Canceled Shares, shares of Company Restricted Stock and Dissenting Shares) issued and
outstanding immediately prior to the Effective Time will be converted into the right to
receive . . . an amount of cash (without interest) equal to the Per Share Consideration.”).
“Company Restricted Stock” is defined as unvested Velocloud common stock. Id. § 1.8 at
90.

                                            8
and payment for those shares in the merger.32 In the Letter of Transmittal, Wood

agreed that he “shall be bound by the provisions of the Merger Agreement.”33

Following consummation of the merger, Wood received $1,743,799.59 in cash in

exchange for his 148,541 vested shares in Velocloud.34 There is no dispute between

the parties about the treatment of this portion of Wood’s Velocloud securities.

                3.       Unvested Common Stock
         Section 1.6(b) of the Merger Agreement addresses the treatment of unvested

shares of Velocloud common stock.             The pertinent subsection for continuing

employees, like Wood, is Section 1.6(b)(1). It provides:

         [E]ach holder of Company Restricted Stock that is a Continuing
         Employee (each a “Continuing Restricted Stock Holder”) will enter
         into an installment agreement in the form attached hereto as exhibit G
         (the “Restricted Stock Installment Agreement”), pursuant to which,
         contingent upon the consummation of the Merger, each share of
         Company Restricted Stock issued and outstanding immediately prior to
         the Effective Time held by such Continuing Restricted Stock Holder
         will automatically be canceled and will cease to exist, and such
         Continuing Restricted Stock Holder will cease to have any rights with
         respect thereto, except the right to receive, on the condition that such
         holder enters into the Restricted Stock Installment Agreement, an
         amount (without interest) per share of Company Restricted Stock equal
         to the Per Share [Merger] Consideration, such amount to be payable in
         accordance with the terms and conditions of such holder’s Restricted
         Stock Installment Agreement.35

32
     Compl. ¶ 36; Answer ¶ 36; Dkt. 25 at Ex. 8.
33
     Dkt. 25 at Ex. 8.
34
     Compl. ¶ 43; Answer ¶ 43.
35
     Merger Agreement § 1.6(b)(1).

                                              9
         Pursuant to Section 1.6(b)(1), Wood entered into a Restricted Stock

Installment Agreement (the “RSI”) with VMware on December 12, 2017.36 Wood’s

RSI provided for 17 monthly payments of $41,287.88, beginning on January 1, 2018

and ending on May 1, 2019, which tracked the vesting schedule in the original

Option Agreement.37

         Section 1(b) of the RSI, titled “Termination” provides:

         Parent’s obligation to make future installment payments under this
         Section 1 will automatically terminate on the date on which Holder’s
         Continuous Service terminates (the “Service Termination Date”), and
         Holder will automatically forfeit any unpaid portion (other than
         amounts that are earned and past due) of the Restricted Stock
         Installment Consideration (such unpaid portion other than amounts past
         due, the “Forfeited Amount”), except that Parent will pay to Holder
         promptly after such Service Termination Date an amount equal to the
         (i) (A) the Forfeited Amount divided by (B) the Per Share
         Consideration, multiplied by (ii) the purchase price per share that
         Holder paid for the shares of the Company Restricted Stock that
         correspond to the Forfeited Amount.38
         Beginning in January 2018, Wood began to receive monthly cash payments

of $41,287.88 pursuant to the RSI.39 On August 13, 2018, Wood voluntarily

resigned from VMware.40 Thereafter, VMware stopped sending monthly payments

36
     Ex. B (“RSI”).
37
     Id. at Ex. A.
38
     RSI § 1(b).
39
     Compl. ¶ 45; Answer ¶ 45.
40
     Compl. ¶ 46; Answer ¶ 46.

                                           10
to Wood. In December 2018, VMware sent Wood $15,193.44, which it contends is

the amount owed to him under the formula in Section 1(b)(i) and (ii) of the RSI.41

         C.        California Action
         On December 13, 2021, Wood filed an action against VMware in the Superior

Court of the State of California, County of Santa Clara (the “California Action”).42

The California Action asserted a variety of claims against VMware, including for

breach of contract and specific performance. Wood alleged that VMware owed him

3,086 shares of VMware Class A common stock because it failed to exercise its

Repurchase Option under the RSPA following the termination of Wood’s

employment.43 VMware moved to stay or dismiss the California Action, arguing

that Wood was required to litigate his claims in Delaware under the exclusive forum

provisions in the Merger Agreement and RSI.44 The California court concluded that

that “any claim that [Wood] may have as to unvested shares in Velocloud common

stock can only be brought under the Merger Agreement and Restricted Stock

41
     Compl. ¶ 46; Answer ¶ 46.
42
     Compl. ¶ 47; Answer ¶ 47; Ex. C.
43
     Ex. C ¶¶ 15–16, 21.
44
     Ex. D at 2.

                                         11
Installment Agreement.”45 The court stayed the California Action until this action

is concluded.46

           D.    Procedural History
           On September 16, 2022, VMware filed its verified complaint in this action.47

VMware seeks an order declaring that Wood is not entitled to recover any further

consideration for his unvested shares of Velocloud common stock. On October 24,

2022, Wood answered the complaint and asserted seven counterclaims against

VMware.48 Wood’s counterclaims include claims for breach of contract, breach of

the implied covenant of good faith and fair dealing, promissory estoppel, specific

performance, violations of the California labor code, unfair competition, and

conversion. Wood argues that, based on his calculations, he is entitled to 3,086

shares of VMware common stock due to VMware’s failure to exercise its

Repurchase Option in the RSPA, which Wood argues is incorporated into the RSI.

Each of Wood’s counterclaims turns on the question of whether Wood is entitled to

VMware stock.

45
     Id.
46
     Id. at 3.
47
     Dkt. 1.
48
     Dkt. 13.

                                            12
         Wood has moved for partial summary judgment on his breach of contract and

specific performance claims.49         VMware has moved to dismiss Wood’s

counterclaims and seeks summary judgment on its declaratory judgment claim.50

The court heard argument on February 16, 2023, and received additional materials

from the parties on February 17.

II.      ANALYSIS
         A.     The Standards of Review
         Under Court of Chancery Rule 12(b)(6), a complaint may be dismissed for

failure to state a claim if the claimant “could not recover under any reasonably

conceivable set of circumstances susceptible of proof.” Central Mortg. Co. v.

Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011). Under

Court of Chancery Rule 56, summary judgment is appropriate when “there is no

genuine issue as to any material fact and . . . the moving party is entitled to judgment

as a matter of law.” Ct. Ch. R. 56.

         All three pending motions concern the same question: Is Wood entitled to

3,086 shares of VMware common stock? Thus, the court is called upon to construe

the parties’ contracts.

49
     Dkt. 14.
50
     Dkts. 18, 23–25.

                                          13
      The correct construction of a contract is a question of law. Exelon Generation

Acqs., LLC v. Deere & Co., 176 A.3d 1262, 1266–67 (Del. 2017). “Delaware law

adheres to the objective theory of contracts, i.e., a contract’s construction should be

that which would be understood by an objective, reasonable third party.” Osborn ex

rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010). The court will construe the

contract as a whole and attempt to give effect to all of its provisions. Sunline Com.

Carriers, Inc. v. CITGO Petrol. Corp., 206 A.3d 836, 836 (Del. 2019). “Contract

terms themselves will be controlling when they establish the parties’ common

meaning so that a reasonable person in the position of either party would have no

expectations inconsistent with the contract language.”         Eagle Indus., Inc. v.

DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997). Where, as here, the

case turns on the interpretation of a contract, dismissal or summary judgment is

appropriate only if the contract in question is unambiguous. Vanderbilt Income &

Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d 609, 613 (Del.

1996); GMG Cap. Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 783

(Del. 2012). “A contract is not rendered ambiguous simply because the parties do

not agree upon its proper construction. Rather, a contract is ambiguous only when

the provisions in controversy are reasonably or fairly susceptible of different

interpretations or may have two or more different meanings.” Rhone-Poulenc Basic

Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992).

                                          14
         B.     Wood’s Theory Ignores the Unambiguous Language of the
                Agreements.
         Wood’s legal theory is cobbled together from provisions in several different

agreements spanning several years. To begin the analysis, it is helpful to recap what

Wood held before the merger and what he received in the transaction.

         Immediately prior to the merger, Wood held three types of securities in

Velocloud: vested common stock, unvested common stock, and a stock option. In

the merger, Wood’s vested common stock was cashed out for approximately $1.7

million, and his unexercised option to purchase 21,670 shares of Velocloud common

stock was replaced with an option to purchase 2,110 shares of VMware common

stock.51 There is no dispute about that. The subject of Wood’s claim is the 59,789

shares of Velocloud common stock that Wood purchased in October 2015 which had

not yet vested as of the effective date of the merger.             Wood makes several

inconsistent arguments as to how those unvested shares were or should have been

treated in the merger.

         Wood’s theory goes as follows: First, he claims that those 59,789 unvested

shares of Velocloud restricted stock were converted into an option to purchase

unvested VMware shares pursuant to the Substituted Option Agreement, using the

51
     There is no allegation that this option has been exercised.

                                               15
exchange ratio therein.52 Second, Wood asserts that the stream of monthly payments

under the RSI “represented the ongoing monthly vesting and payout of Mr. Wood’s

previously unvested VMware options that had been substituted for Mr. Wood’s

unvested early-exercised VeloCloud options.”53 Third, after receiving eight monthly

payments under the RSI, Wood resigned from VMware, forgoing the remaining 9

months of installment payments. Wood then takes the total amount of that forgone

payment stream and converts it into an equivalent number of VMware options, based

on the conversion ratio in the Substituted Option Agreement.54 Wood calculates this

to be 3,086 VMware shares.55

          Next, Wood contends that the 3,086 shares were subject to Velocloud’s

Repurchase Option contained in the RSPA. If Velocloud did not exercise its right

to repurchase the Wood’s unvested shares within 90 days from the date that his

employment terminated, Velocloud would be obliged to deliver to Wood a share

52
     Def.’s Opening Br. 6, 8.
53
     Id. at 8.
54
     Counterclaim Compl. ¶ 28.
55
   Wood applies the exchange ratio to his 59,789 unvested shares of Velocloud stock and
concludes that he was owed 5,822 shares of VMware common stock. He then reduces that
figure by accounting for the eight months of RSI payments that he received, which adjusts
the number of shares he demands to 3,086. See Counterclaim Compl. ¶ 28; Def.’s Opening
Br. 9.

                                           16
certificate for each of Wood’s unvested shares.56 Wood argues that, but virtue of the

merger, VMware assumed that obligation through the Substituted Option

Agreement.        Thus, Wood claims entitlement to “3,086 unrestricted VMware

shares.”57

         Wood’s theory is flawed in several respects. First and fundamentally, it

conflates options with stock. Throughout his Counterclaim Complaint and briefs,

Wood refers to the 59,789 unvested shares of Velocloud stock that he owned

immediately before the closing of the merger as early exercised unvested options.58

In doing so, he seeks to have his unvested stock treated the same as his unvested

options under the Substituted Option Agreement, while still possessing the right to

a repurchase or delivery of shares under the RSPA and Escrow Instructions. The

court cannot accept Wood’s tortured reading of the agreements and ignore their plain

and unambiguous terms. See AT&T Corp. v. Lillis, 953 A.2d 241, 252 (Del. 2008)

(“Courts will not torture contractual terms to impart ambiguity where ordinary

meaning leaves no room for uncertainty.”).

56
  Id. The Repurchase Option is contained in the RSPA. RSPA § 1. The obligation to
deliver shares in the event the Repurchase Option is not timely exercised is contained in
the Escrow Instructions. Escrow Instructions § 4.
57
     Counterclaim Compl. ¶ 32.
58
     See, e.g., Def.’s Opp’n Br. 10; Counterclaim Compl. ¶ 28.

                                             17
          The Substituted Option Agreement provided for the substitution of VMware

options for Velocloud options. It states: “Each Substitute Option will contain the

same material terms and conditions as were applicable to such [Velocloud] Option

as of immediately prior to such substitution.”59 The Substituted Option Agreement

covers Wood’s unexercised options, not his unvested stock. A stock option is “[a]n

option to buy or sell a specific quantity of stock at a designated price for a specified

period regardless of shifts in market value during the period.” Stock Option, Black’s

Law Dictionary (11th ed. 2019). “Options are not shares.” Fox v. CDX Hldgs., Inc.,

2015 WL 4571398, at *35 (Del. Ch. July 28, 2015), aff’d, 141 A.3d 1037 (Del.

2016). Once Wood exercised his option to purchase 208,330 shares of unvested

Velocloud common stock in October 2015, no option remained outstanding as to

those shares. The Plan confirms this. “Exercising an Option in any manner will

decrease the number of shares thereafter available . . . for sale under the Option, by

the number of Shares as to which the Option is exercised.”60 Wood’s 59,789

unvested shares of Velocloud stock were no longer eligible for purchase under the

Option Agreement because he had already exercised and purchased the shares in

2015. Wood was not entitled to a substitute option for those shares because the

scope of the Substituted Option Agreement is confined to “the treatment of

59
     Substituted Option Agreement at 4.
60
     Plan § 6(f)(i).

                                          18
outstanding options to purchase shares of the Company’s common stock.”61 The

Substituted Option Agreement did not affect the treatment of Wood’s 59,789

unvested shares of Velocloud common stock.62

         VMware was also not required to either repurchase or deliver Wood’s

unvested shares under the Repurchase Option and Escrow Instructions. Wood’s

unvested Velocloud stock was canceled in the merger in exchange for a payment

stream under the RSI. The RSI provides that “[f]or each share of Company

Restricted [i.e., unvested] Stock held by Holder [i.e., Wood], Holder will become

eligible to receive an amount (without interest) equal to the Per Share

Consideration.”63 Under the terms of the agreement, Wood agreed to surrender his

unvested Velocloud stock in exchange for a stream of cash to be paid in monthly

installments. In Wood’s case, those monthly installments were $41,287.88 from

January 1, 2018 through May 1, 2019.64 The agreement states that VMware’s

“obligation to make future installment payments . . . will automatically terminate on

the date on which Holder’s Continuous Service terminates (the ‘Service Termination

61
   Substituted Option Agreement at 1 (emphasis added); see also id. at 5 (“I agree to the
treatment of my Company Options as described in this consent and agreement.”).
62
   As noted earlier, Wood’s outstanding option to purchase 21,670 Velocloud shares was
eligible for substitute options under the Substituted Option Agreement. Under that
agreement, Wood received a substituted option to purchase 2,110 shares of VMware stock.
There is no claim in this case about that option.
63
     RSI at 1.
64
     Id. at Ex. A.

                                           19
Date’), and Holder will automatically forfeit any unpaid portion . . . of the Restricted

Stock Installment Consideration.”65 The RSI’s unambiguous terms provide that

Wood’s unvested Velocloud shares would be canceled in exchange for a right to

receive regular cash payments that would be terminated if Wood stopped working

for VMware before all payments were made. Section 1.6(b)(1) of the Merger

Agreement, to which Wood expressly agreed to be bound,66 confirms this result:

         [E]ach share of Company Restricted [i.e., unvested Velocloud] Stock
         issued and outstanding immediately prior to the Effective Time held by
         such Continuing Restricted Stock Holder will automatically be
         canceled and will cease to exist, and such Continuing Restricted Stock
         Holder will cease to have any rights with respect thereto, except the
         right to receive, on the condition that such holder enters into the
         Restricted Stock Installment Agreement, an amount (without interest)
         per share of Company Restricted Stock equal to the Per Share
         Consideration, such amount to be payable in accordance with the terms
         and conditions of such holder’s Restricted Stock Installment
         Agreement.67

         Wood argues, however, that the RSI does not eliminate VMware’s obligation

to either repurchase or deliver his unvested shares under the Repurchase Option and

Escrow Instructions. Rather, Wood contends that these obligations were preserved

under the integration clause in the RSI. This argument fails.

65
     RSI § 1(b).
66
     Dkt. 25 at Ex. 8 § 5.
67
     Merger Agreement § 1.6(b)(1).

                                          20
         The RSI’s integration clause states that it, “together with the Merger

Agreement and the other Transaction Agreements, constitutes the entire agreement

of the parties with respect to the subject matter of this agreement and supersedes all

prior and contemporaneous agreements . . . between the parties.”68 The 2015 RSPA

and Escrow Instructions are not among the documents within the defined term

“Transaction Agreements.” Although the Substituted Option Agreement is among

the Transaction Documents,69 it pertains only to “the treatment of outstanding

options to purchase shares,” not previously purchased stock.70 Even if there were

any conflict between the RSPA and the RSI, the RSI would control. “Delaware

recognizes that where a new, later contract between the parties covers the same

subject matter as an earlier contract, the new contract supersedes and controls that

issue, if the two agreements conflict.”         Cabela’s LLC v. Wellman, 2018 WL

5309954, at *4 (Del. Ch. Oct. 26, 2018) (citing Country Life Homes, Inc. v. Shaffer,

2007 WL 333075, at *5 (Del. Ch. Jan. 31, 2007)). Thus, the RSI and the enumerated

Transaction Agreements control the treatment of Wood’s unvested Velocloud stock

in the merger, not the RSPA and Escrow Instructions.

68
     RSI § 5(e).
69
     See Merger Agreement, Ex. A-2 (“Joinder Agreement”); Counterclaim Compl. ¶ 22.
70
     Substituted Option Agreement at 1.

                                           21
          Wood argues that VMware could not “cancel a right to equity that Mr. Wood

obtained when he received his stock option grant on June 30, 2015.”71 But Wood

offers no legal support for this argument and ignores that he voluntarily executed the

RSI on December 12, 2017. That agreement, which incorporates the Merger

Agreement, provided for the cancelation of Wood’s unvested Velocloud shares in

exchange for a stream of cash payments.

          Finally, Wood argues that if the terms under the RSI are substituted for

Wood’s rights under the Option Agreement and RSPA, then the RSI is not supported

by any consideration.72 This argument lacks merit. In order for a contract to be

valid, the parties must exchange legal consideration. Osborn ex rel. Osborn v. Kemp,

991 A.2d 1153, 1158 (Del. 2010). “Consideration for a contract can consist of either

a benefit to the promiser or a detriment to the promisee.” First Mortg. Co. of Pa. v.

Fed. Leasing Corp., 456 A.2d 794, 795–96 (Del. 1982) (citations omitted). “[I]f the

promisee parts with something at the promisor’s request, it is immaterial whether

the promisor receives anything.” Id. at 796 (citing 1 Williston on Contracts § 113

(3d ed. 1979)).

          Consideration requires that each party to a contract convey a benefit or
          incur a legal detriment, such that the exchange is “bargained for.” If
          this requirement is met, there is no additional requirement of

71
     Def.’s Opp’n Br. 4.
72
     Id. at 7.

                                            22
         equivalence in the values exchanged because we limit our inquiry into
         consideration to its existence and not whether it is fair or adequate.
Cox Commc’ns, Inc. v. T-Mobile US, Inc., 273 A.3d 752, 764 (Del. 2022) (internal

citations omitted).

         Wood agreed to the cancellation of his unvested Velocloud shares in exchange

for a stream of cash payments governed by the terms of the RSI. This bargained-for

exchange serves as legal consideration for the RSI.

         Wood’s reliance on Cigna Health & Life Ins. Co. v. Audax Health Sols., Inc.,

107 A.3d 1082, 1091 (Del. Ch. 2014), is misplaced. In Cigna Health, a stockholder

refused to agree to a release as a condition to the payment of merger consideration.

The release did not appear in the merger agreement and, instead, was contained in a

letter of transmittal delivered to stockholders after the closing of a merger. The court

held the release was unenforceable due to a lack of consideration. Id. The court

reasoned that “the Release Obligation [wa]s a new obligation Defendants seek to

impose on Cigna post-closing, and . . . nothing new [was] provided to Cigna beyond

the merger consideration to which it became entitled when the Merger was

consummated and its shares were canceled.” Id.

         Cigna Health is inapposite. Wood’s entry into the RSI was a condition to

VMware’s consummation of the merger,73 and Wood entered into the RSI before the

73
     RSI at 1.

                                          23
merger was consummated. Wood freely exchanged any right he had to the unvested,

restricted, and illiquid Velocloud shares for the new right to the payment stream in

the RSI. In doing so, he also avoided transaction costs associated with any future

sale of that stock. See Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 2000 WL

1476663, at *15 (Del. Ch. Sept. 27, 2000) (recognizing that an offer may benefit

unitholders with small blocks of equity when it offers them liquidity without the

obligation to pay brokerage fees); Applebaum v. Avaya, Inc., 805 A.2d 209, 216

(Del. Ch. 2002) (noting that the fact that “[t]he cash payment made for shares will

not be reduced to reflect transaction costs which, in a regular sale, would amount to

a significant portion of the total proceeds of sale” supports an argument of fair price).

      Wood’s argument against the enforceability of the RSI also fails because he

accepted eight months of cash payments under its terms. Having accepted the

benefits of the RSI, he cannot now claim it is unenforceable due to a lack of

consideration. See In re Mobilactive Media, LLC, 2013 WL 297950, at *14 (Del.

Ch. Jan. 25, 2013) (“By continuing to accept the benefits of the contract, however,

Silverback essentially admitted to its validity, and is estopped from arguing

voidability.”); DeMarie v. Neff, 2005 WL 89403, at *5 (Del. Ch. Jan. 15, 2005)

(“[T]he nonbreaching party may not, on the one hand, preserve or accept the benefits

of a contract, while on the other hand, assert that contract is void and

unenforceable.”). The RSI is supported by consideration and is enforceable.

                                           24
         Under the plain language of the RSI and Merger Agreement, Wood is not

entitled to 3,086 shares of VMware common stock. In entering into the RSI and

binding himself to the Merger Agreement, Wood accepted that his unvested

Velocloud stock would be canceled and that he would be entitled to a monthly cash

payment that would be terminated if Wood ceased his employment with VMware.

As such, Plaintiff’s motion for summary judgment on its claim for declaratory

judgment is granted, and Defendant’s motion for partial summary judgment as to his

breach of contract and specific performance claims is denied.

         C.    Motion to Dismiss

         Wood has asserted counterclaims for breach of contract, breach of the implied

covenant of good faith and fair dealing, promissory estoppel, specific performance,

violations of the California labor code, unfair competition, and conversion. VMware

has moved to dismiss each of Wood’s seven counterclaims for failure to state a

claim.

         Count I, the breach of contract claim, alleges that VMware breached the RSPA

and Substituted Option Agreement by failing to deliver to Wood 3,086 shares of

VMware common stock. Count II alleges that VMware’s failure to deliver the stock

“was wrongful, in bad faith, arbitrary and unfair, and therefore breached the

covenant of good faith and fair dealing.”74 Count III alleges in the alternative that if

74
     Counterclaim Compl. ¶ 43.

                                           25
the contractual agreement “regarding the equity grant is found to be invalid,

VMware is nevertheless liable under the doctrine of promissory estoppel.”75 Count

IV seeks specific performance requiring VMware to deliver 3,086 shares of VMware

common stock to Wood. Count V alleges that VMware violated the California labor

code because the VMware stock to which Wood claims entitlement constituted

wages. Count VI contends that VMware’s actions and conduct constitute unlawful,

unfair, and fraudulent business practices because VMware has been deprived Wood

of property and benefits (i.e., VMware stock) that Wood believes he was owed.

Count VII is a claim for conversion of the VMware stock to which Wood claims

entitlement.

          Each of Wood’s counterclaims rises or falls on the question of Wood’s

entitlement to VMware stock. Wood does not argue otherwise. As discussed above,

under the unambiguous language of the contracts at issue in this case, Wood is not

entitled to receive any shares of common stock in VMware. Therefore, each of his

seven counterclaims must be dismissed.

III.      CONCLUSION

          Plaintiff’s motion for summary judgment is granted, and Defendant’s motion

for partial summary judgment is denied. Plaintiff’s motion to dismiss Wood’s

counterclaims is granted in its entirety.

75
     Id. ¶ 48.

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