Opinion ID: 672322
Heading Depth: 3
Heading Rank: 4

Heading: The SAR Holders

Text: 99 The former Isoetec shareholders raise one other issue. Certain Isoetec employees held stock appreciation rights (SARs) in Isoetec that entitled them to receive cash for their SARs upon the sale of Isoetec. Executone entered into an agreement (apparently at the time of the February 1990 closing) with the SAR holders whereby the SAR holders agreed that they would accept some Executone stock in lieu of cash upon the sale of Isoetec to Executone. According to Executone, the SAR holders received Executone stock worth a total of $290,001, plus $190,834 in cash. The district court's final judgment stated as follows: 100 It is further ORDERED that upon entry of this Judgment the defendants, representing the former shareholders of Isoetec Texas, Inc., surrender to Executone the non-negotiable promissory notes and convertible promissory notes issued by Executone to the former shareholders of Isoetec on February 6, 1990, and any stock appreciation rights they received in Executone stock. 101 (emphasis added). 102 The former Isoetec shareholders claim that the district court erred in requiring the SAR holders to surrender the Executone stock they received in lieu of their SAR cash payments. In their view, the SAR stock has no relation to the purchase price stock and constitutes no part of this suit because Executone has requested no relief from the SAR agreement. The former shareholders also complain that this portion of the judgment below affects persons not parties to this suit, but as Executone points out, the part of the judgment complained of orders only the defendants, representing the former shareholders of Isoetec ... [to] surrender to Executone ... any stock appreciation rights they received in Executone stock (emphasis added). Thus, the order was directed only to the parties before the court. 103 Executone responds that its agreement with the SAR holders provided that the stock issued to them would be returned to Executone, revalued, and reissued once the final purchase price was determined. Executone also points out that the shareholders themselves filed a brief with the district court requesting the court to recalculate the amounts due the SAR holders as part of its final judgment. The former shareholders respond that the sole purpose of the recalculation was to ensure an accurate calculation of the purchase price because the SARs were included on Isoetec's income statement as an expense. 104 We review the record to determine when issues regarding the rights of the SAR holders were raised in the district court. It appears that the parties proposed final Isoetec purchase prices to the district court in their post-arbitration motions for summary judgment, each purportedly based on the arbitrator's decision. Executone contended that the final Isoetec purchase price should be $1,093,921. The former Isoetec shareholders filed a response to Executone's motion in which they argued that Executone's figure was incorrect; part of their argument was that Executone's calculation assumed that the value of the SAR holders' rights remained $480,844, as originally calculated, and that the SAR holders' rights should actually be devalued to $202,500 under the terms of the arbitrator's award. In a subsequent response to Executone, the former shareholders again contended that the value of the SAR holders' rights had to be reduced in order to calculate the final purchase price. Attached to that response is a copy of the agreement drawn up to deal with the rights of the SAR holders. According to this agreement, the SAR holders were divided into three classes, and Executone was to pay the members of each class cash or Executone stock in satisfaction of the SAR holders' rights. The amounts of cash and stock paid by Executone were to be adjusted in the same manner as the consideration received by the Shareholders pursuant to the Purchase Agreement, if at all. 105 After the district court entered its order granting the former Isoetec shareholders' summary judgment motion and denying that of Executone, the former shareholders filed a proposed final judgment that did not mention the SAR holders. Executone filed an objection, complaining that the proposed final judgment ignored the recalculation of the SAR holders' rights that the former shareholders had earlier called for and arguing that any person receiving benefits of this judgment should have to tender their stock appreciation rights. Otherwise, they will be afforded a double recovery. The former Isoetec shareholders responded that Executone was claiming [f]or the first time in this case a right to offset for the impact of the arbitrator's decision on the SARs. The former shareholders acknowledged that the arbitration award reduced Isoetec's liability for SARs and thus increased Isoetec's income, but they contended that Executone's claim for any overpayment to the SAR holders had never been an issue in the case. They concluded that Executone has agreements with the SAR holders (of whom only Ed White is a party here), which agreements cover any reduction in the amount of the SARs and how such reduction would be handled, and those matters are best left to those agreements. The district court then entered the final judgment, including the passage quoted supra about which the former shareholders now complain. 106 Executone explains the district court's decision as follows. At the closing, the SAR holders received $290,001 worth of Executone stock and $190,834 in cash. In their calculation of the final purchase price, the former Isoetec shareholders themselves represented to the court that the SARs were worth only $202,500. Thus, argues Executone, the court acted properly in ordering the SAR holders (or at least the one before the court, defendant White) to return the stock that they had received for their SARs. The problem with this logic, of course, is that the district court's order leaves the SAR holders as a group with even less than the $202,500 that the former Isoetec shareholders argued that the SAR holders were entitled to receive. 107 We find ourselves unable to pass on the merits of the former shareholders' argument and must remand for further proceedings. Executone's own argument in support of the district court's order implies that the SAR holders are entitled to receive new Executone stock to reflect the final purchase price, in accordance with the provisions of the purchase agreement. The district court gave no explanation for divesting the SAR holders of the Executone stock that they had received for their SARs. We must therefore VACATE the portion of the district court's final judgment ordering the defendants to surrender to Executone any stock appreciation rights they had received in Executone stock and REMAND this issue for clarification. Once again, we intimate no views whatsoever on the proper outcome.