August 2, 2007
Delaware Chancery Court Addresses Cancellation Value of Stock Options in Mergers
A few weeks ago – in Lillis v. A T & T Corp., (Del. Chan. Ct., 7/20/07) – the Delaware Court of Chancery decided a case indicating that the ability to cancel out-of-the-money stock options without consideration depends entirely on the provisions of the governing stock option plan – and that less-than-clear language in such plans will not be interpreted against the interests of optionees. While the Court’s holding is based on its interpretation of specific language in the plan in the case, the opinion provides rare guidance on when underwater options may be cancelled – and awards damages to all optionees (including in-the-money holders), based on the “economic value” of the options determined by the Black-Scholes pricing model.
We have posted a copy of the opinion (and related memos) in our “M&A Litigation” Portal.