On appeal from Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-3388-03.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Skillman, Holston, Jr. and Grall.
IGI, Inc., a publicly traded corporation, employed plaintiff as its president and chief operating officer from 1985 until his termination in 1997. Plaintiff also was a member of IGI's Board of Directors. Defendant Novavax was a wholly-owned subsidiary of IGI. Initially, IGI conducted scientific research on animals and developed animal vaccines. It later began to develop human vaccines.
In 1995, IGI decided to separate the corporate ownership of its human vaccine business from its animal vaccine business by spinning off Novavax as a separate publicly traded corporation, the stock of which was distributed to IGI shareholders in proportion to their ownership of IGI stock. Plaintiff was appointed as president, chief operating officer and a member of the Board of Directors of Novavax, although IGI continued to pay his entire salary, subject to partial reimbursement by Novavax.
During the course of his employment by IGI, plaintiff signed a series of stock option agreements under which he became entitled to purchase IGI stock for a ten-year period at prices specified in the agreements. The agreements provided that in the event of a reorganization of the company, the board of directors could decide to terminate the outstanding options.
At the time of the spin-off of Novavax, IGI's board of directors decided to award its stock option holders options in Novavax in relation to the percentage of value the spin-off removed from IGI. According to the Novavax stock option plan, the spin-off options granted to IGI option holders "may be granted to such holders on substantially similar terms to the corresponding options to purchase IGI common stock held by such holders[.]" As a condition to the grant of an option under the plan, each recipient was required to "execute an option agreement in such form not inconsistent with the Plan as may be approved by the Board of Directors. Such option agreements may differ among recipients."
Around the date of the Novavax spin-off, plaintiff was granted an option to purchase 245,000 shares of Novavax stock. However, plaintiff did not sign a stock option agreement, as required under the Novavax stock option plan. The proposed agreement prepared by Novavax, which plaintiff did not execute, contained a provision which stated in part:
If the Optionee, prior to the Expiration Date, is discharged by the Company or IGI, as the case may be, for "cause" . . . the right to exercise this option shall terminate immediately upon such discharge. "Cause" shall mean willful misconduct by the Optionee or willful failure to perform his or her responsibilities in the best interests of the Company or IGI, as the case may be[.]
The IGI stock option agreements plaintiff signed before the spin-off of Novavax did not contain a similar provision.
On November 21, 1997, IGI terminated plaintiff's employment with IGI and all its subsidiaries. The letter from the chairman of IGI's independent committee of outside directors notifying plaintiff of the termination stated that the committee had determined plaintiff engaged in "wilful misconduct in the performance of [his] duties as President and Chief Operating officer of [IGI]." The dismissal related to the United States Department of Agriculture's investigation of misconduct by IGI in the shipment and sale of a nonconforming poultry vaccine to foreign customers.
Gallo was indicted by a federal grand jury on May 14, 2002, and charged with conspiracy, perjury and obstructing a civil investigative proceeding. The indictment was dismissed without prejudice on January 7, 2003. In addition, a federal civil lawsuit against plaintiff was also dismissed.
Following his termination, Novavax notified plaintiff that "pursuant to Section 3(f) of each Non-Statutory Stock Option Agreement governing the Spinoff Options[,]" his 245,000 spin-off options to purchase Novavax ...