## Facts

- MediaOne’s 1994 stock-option plan required option adjustments after specified corporate transactions so that an option holder’s “economic position” would not be worsened.
- In 1999, AT&T acquired MediaOne and converted MediaOne options into AT&T options under the plan’s adjustment provisions.
- In 2001, AT&T spun off AT&T Wireless; the options were adjusted into a package of AT&T options and AT&T Wireless options.
- In 2004, Cingular acquired AT&T Wireless; in-the-money AT&T Wireless options were cashed out, while out-of-the-money AT&T Wireless options were canceled without payment.
- Former MediaOne officers/directors (“Option Holders”) alleged their canceled out-of-the-money AT&T Wireless options still had “time value,” and that canceling them without compensation worsened their “economic position” in violation of the plan.
- In early pleadings, AT&T made admissions supporting the Option Holders’ view, later withdrew those admissions, and the admissibility/weight of the withdrawals became contested.
- After a first appeal, the matter was remanded with instructions that the withdrawn admissions receive no weight; on remand, the Court of Chancery found the remaining extrinsic evidence insufficient to show “economic position” included time value and entered judgment for AT&T.

## Issues

1. Whether the plan’s ambiguous “economic position” adjustment clause required preserving the full economic value of options, including time value, after the AT&T Wireless acquisition.
2. Whether, excluding AT&T’s withdrawn admissions, the extrinsic evidence proved a shared intent that “economic position” protected time value for out-of-the-money options.

## Decision

- The Delaware Supreme Court affirmed the post-remand judgment for AT&T.
- The Court held the “economic position” language was ambiguous but, without the withdrawn admissions, the Option Holders failed to prove their interpretation (including time value) reflected shared contractual intent.
- The Court upheld the Court of Chancery’s factual findings as not clearly erroneous and concluded AT&T had no contractual duty to compensate for lost time value.

## Legal Principles

- Ambiguous contract terms are construed using extrinsic evidence aimed at determining the parties’ shared intent at the time of contracting.
- The party seeking damages based on an asserted contract meaning bears the burden to show that meaning is more reasonable than competing interpretations in light of the extrinsic record.
- Unilateral understandings or post hoc characterizations do not establish shared intent absent objective evidence.
- Withdrawn admissions in pleadings may be given no weight when they do not reliably evidence intent regarding the specific contract at issue, particularly where an appellate mandate requires their exclusion.
- Protective language in stock-option plans (e.g., preserving “economic position”) will not be read to guarantee protection of option time value absent persuasive drafting history, negotiations, or consistent practice supporting that meaning.

## Conclusion

The court concluded that, although the stock-option plan’s “economic position” clause was ambiguous, the Option Holders did not prove through admissible extrinsic evidence that the parties intended the clause to preserve option time value; therefore, cancellation of out-of-the-money options without compensation did not establish a breach.


AT&T Corp. v. Lillis, 970 A.2d 166 (Del. 2009)