Sanders v. Wang

1999 WL 1044880 (1999)

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Nature of the Case

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Facts

P's board adopted the KESOP on May 25, 1995. The shareholders approved the Plan at an Annual Meeting. The Plan is administered by the Compensation Committee of the board, which 'shall be vested with all discretion and authority as it deems necessary or appropriate to administer the Plan and to interpret the provisions of the Plan.' An express provision authorizes the Compensation Committee 'to grant up to 6,000,000 shares of Common Stock to the Participants.' The plan does not permit the Committee to adjust the number of shares granted to account for stock splits or any other recapitalization transactions. In addition to share price performance targets determining how many shares may be granted, similar performance targets determine when the shares will actually vest. In particular, § 4.4 permits 'Early Vesting' of all of the shares granted (the six million total) if the CA share price trades at $180 or more for at least 60 trading days. On May 21, 1998, the Compensation Committee certified that the price of CA common stock had traded for at least 60 trading days in a twelve-month period at $180 or better (the actual price was $53.33 per share, which is equivalent to $180, adjusted for the stock splits) which triggered the § 4.4 'Early Vesting' provision. Prior to this in August 1995, June 1996, and November 1997, CA gave all holders of Common Stock one share for every two shares held, amounting to three separate 'three for two' stock splits. The Compensation Committee granted the Participants 20.25 million total shares total, which is equivalent to 6 million shares adjusted for these three stock splits. Sanders (P), filed this action on September 15, 1998. Bickel (P), intervened in this action with a Complaint in Intervention on November 19, 1998. Sander's (P) alleges D violated the KESOP by exceeding the limit on additional share grants (four million) in order to adjust for the three stock splits. Sanders (P) does not take issue with the initial two million share grant presumably in the belief they were awarded before the stock splits happened. Sanders (P) believes that Ds should have awarded a total of 10.75 million shares (6 million under the plan + 4.75 million in dividends on the initial two million share grant) and that they awarded 9.5 million shares more than authorized. Sanders (P) alleges the waste of D's assets, gross negligence, and breach of the directors' fiduciary duties of loyalty and care. Bickel (D) argues that the KESOP authorizes only six million shares total, and does not permit any adjustment for stock splits, nor any dividends on any of the shares. He argues that granting any shares above this limit violates the KESOP. Bickel (D) charges the entire CA board, individually and/or jointly, with waste of corporate assets, mismanagement gross negligence, and breach of the fiduciary duties of loyalty, due care, and 'good faith.' Ds claim that demand requirements have not been met because a majority of the directors are disinterested and independent, and the share grant resulted from a valid exercise of business judgment. Ds claim a strict reading of the share limitation provision frustrates the purpose of the Plan and penalizes its recipients. In particular, Ps' strict reading does not make economic sense because if, instead of stock splits, there had been a 'reverse stock split' or a share consolidation, then Ds would get twice as much equity, or over $2 billion. Both parties moved for judgments.