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Chancery Determines That Former Executives Are Not Entitled to Equity Awards Under Separation Agreement

SeaWorld Entm't, Inc. v. Andrews, C.A. No. 2020-0955-NAC (Del. Ch. May 19, 2023)
SeaWorld Entertainment, Inc. granted unvested equity awards to employees. Pursuant to equity agreements, the awards would vest if the company's controller sold its stock above a threshold price and if the company still employed the awardees at the time of sale. Under the terms of the underlying incentive compensation plan, the company had sole discretion to amend any term of the equity agreements, including to treat individuals differently.

The company later terminated certain employees and entered into separation agreements with them that continued their vesting eligibility as if they remained employed. Subsequently, the controller sold its stock at a price below the vesting threshold. The company announced that it had modified the equity agreements of active employees such that sixty percent of their unvested awards still would vest upon closing even though the price threshold had not been met. Former employees demanded that the company also issue them sixty percent of their unvested awards. The company filed an action seeking declaration that the defendant employees were not entitled to unvested awards. Defendants filed counterclaims. The company moved for judgment on the pleadings as to its claim and to dismiss the counterclaims.

Relying on the plain language of the separation agreements, the Court of Chancery granted the company's motions. The separation agreements had removed the requirement that the former employees remain employed in order for their awards to vest but had not modified the requirement that a stock sale exceed a certain threshold price. The company had later modified the price requirement only for active employees and was within its rights to treat different individuals differently. The Court rejected the defendants' argument that the separation agreements were ambiguous as to which requirements were modified, noting that the company had the flexibility to treat different individuals differently and that the defendants' own asserted understanding of the separation agreements was not a sufficient basis to find ambiguity within the four corners of the agreement. The Court dismissed the defendants' unjust enrichment counterclaim and conversion counterclaim as duplicative of their contractual counterclaim.

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