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

Heading: The Award of Executone Stock

Text: 91 The district court's final judgment ordered the former Isoetec shareholders to exchange the 246,619 shares of Executone stock that they had previously received for 383,399 new shares of Executone stock under the terms of the purchase agreement. The former Isoetec shareholders now contend that the district court should not have awarded them the Executone stock but rather should have awarded them the cash value of that stock as it existed in 1990, $912,489. Further discussion of the terms of the purchase agreement is necessary to unravel this argument. 92 The purchase agreement allowed Executone to pay part of the purchase price for Isoetec with Executone stock. At the February 1990 closing, it appears that Executone opted to pay some $912,000 of the interim purchase price with Executone stock. At the time, the stock was worth $3.70 per share on the national stock exchange, so the Isoetec shareholders now defendants in this suit received 246,619 shares. The purchase agreement also provided that the number of shares would be adjusted at the time the final Isoetec purchase price was determined to reflect the value of Executone stock after the public announcement of Executone's 1989 year-end earnings and thereby to maintain the value of the consideration. According to the former Isoetec shareholders, this provision entitled them to receive another 136,780 shares in May of 1990, to reflect a drop in the price of Executone stock. The purchase agreement also required Executone to register the stock paid to the Isoetec shareholders with the SEC; Executone asserts that it did file the required registration form and concedes that the registration never became effective, but Executone alleges that this failure was due to the misconduct of the Isoetec shareholders in procuring the audit. The lack of registration has apparently prevented the former Isoetec shareholders from selling their Executone stock. 93 As we have noted, the arbitrator did not compute the final Isoetec purchase price or address the issue of how the final purchase price should be paid to the former Isoetec shareholders. The district court, therefore, could not simply enforce the arbitrator's award but rather was required to enforce the parties' contracts consistently with the arbitrator's award. After the arbitrator's award was released, the former Isoetec shareholders moved for summary judgment requesting judgment to be rendered in their favor in cash; Executone's cross-motion for summary judgment contended that the number of shares it had issued to the former Isoetec shareholders would have to be adjusted, but only so that identical percentages of the final purchase price and the interim purchase price would be represented by Executone stock and using the relevant 1990 stock prices as references. The relevant portion of the purchase agreement provides as follows: 94 The number of shares of Restricted Stock issued at Closing (the Estimated Restricted Stock) shall also be adjusted [upon calculation of the final Isoetec purchase price] as necessary to reflect the change in the average closing price used to calculate the number of shares of Restricted Stock issued at Closing from the average closing price over the 20 trading days immediately prior to Closing ... to the average closing price of Executone's publicly-traded common stock, par value $.01 per share, over the 20 trading days that occur after the public announcement of Executone's ... 1989 year-end earnings.... If the number of shares of Restricted Stock is to be adjusted upward, Executone shall promptly issue new certificates in the aggregate amount of such increase, in the names of the holders of the Estimated Restricted Stock. 95 From our review of the record is apparent that the district court accepted the position advanced by Executone's counsel at the oral argument regarding the parties' post-arbitration summary judgment motions. According to the presentation made by Executone's counsel, Executone's 1989 year-end earnings were announced in March 1990, followed by a drop in the value of Executone's stock to an average of $2.38 over the next twenty days. The district court used this $2.38 figure in ordering Executone to issue 383,399 shares of stock to the former Isoetec shareholders in exchange for the 246,619 shares previously issued (246,619 shares at $3.70 per share is equivalent in value to 383,399 shares at $2.38 per share). The final judgment thus seems to conform to the plain language of the purchase agreement. 96 According to the former Isoetec shareholders, however, this forced exchange of Executone stock is inadequate to put them in the same position as if the contract had been carried out because the Executone stock is now worth much less than it was in May of 1990. See Reynolds Metal Co. v. Westinghouse Elec. Corp., 758 F.2d 1073, 1079 (5th Cir.1985) ([T]he rules for contract damages are intended to place the victim of the breach in the same position he would have occupied had the breach not occurred.). The former shareholders also assert that all the parties contemplated that the former Isoetec shareholders would sell their Executone stock as soon as possible after Executone registered the stock in 1990. 97 Executone responds that the former shareholders are making an equitable argument that they are in no position to assert. In Executone's view, the Isoetec shareholders knew that the purchase agreement expressly provided that the Executone stock delivered at the interim closing could not be sold, and they also knew that they would not receive transferable Executone stock until the final purchase price had been calculated. Executone contends that the shareholders are to blame for the long delay in calculation of the final purchase price--because they overstated Isoetec's 1989 earnings and because they delayed the arbitration and forced Executone to file suit. Executone also contends that the former shareholders' complaints about Executone's delay in registering its stock with the SEC is an exercise in misdirection. In Executone's view, its initial failure to register the stock was Isoetec's fault because Isoetec delayed in providing Executone with the 1989 audit report; Executone asserts in its brief that it has now complied with the district court's order requiring Executone to deposit the stock with the district court and to file a registration statement. 98 The district court's order with respect to the Executone stock is, in our view, in harmony with the relevant provisions of the purchase agreement. Finding no error, we AFFIRM that portion of the final judgment.