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Reversing a Texas state court of appeals decision, the state’s supreme court held on Oct. 18 that former employees of a Monsanto Co. subsidiary lost the right to buy company stock at favorable stock-option prices after St. Louis-based Monsanto sold the subsidiary where they worked. The court ruled unanimously in Monsanto Co. v. Kamel Boustany, et al. that Monsanto’s sale of Fisher Controls International Inc. to Emerson Electric Co. in 1992 resulted in the termination of Fisher employees, making them ineligible to buy Monsanto stock at a price less than half the going rate. “We hold that the incentive plan and stock option certificates are unambiguous and that a ‘termination of employment’ occurred within the meaning of those agreements,” Justice Priscilla Owen said in the court’s opinion. The ruling prevents a trial of the suit that 110 Fisher employees filed in 1996 after Monsanto refused to honor their stock options. The employees accused Monsanto of fraud, breach of contract and breach of duty of good faith. Monsanto argued that its refusal to honor the stock options was based on a termination-of-employment provision in the company’s incentive plan. The Monsanto executive compensation committee concluded that options granted in February 1992 were invalid because employees had to wait a year to exercise them and that the options for three prior years had to be exercised within a limited time. David Keltner, Monsanto’s attorney for the appeal, says the Texas Supreme Court opted for “strict contract interpretation.” Keltner, a partner in Fort Worth’s Jose, Henry, Brantley & Keltner, says that in construing contracts, it’s important to pay attention to all provisions in the document. “I think the court of appeals did not do that,” he says. Robert C. “Bob” Hilliard, one of the attorneys representing the employees, says the supreme court simply is substituting its opinion for the appellate court’s opinion. NEED GLASSES? “I think they think of themselves like the Texas Supreme Optometrists. … They’re just substituting their reading glasses for the court of appeals’ reading glasses,” says Hilliard, a partner in Beaumont’s Hilliard & Heald and Corpus Christi’s Hilliard & Mu�oz. In 1999, a three-judge panel of the 1st Court of Appeals in Houston reversed the summary judgment granted to Monsanto by the 149th District Court in Brazoria County. The panel, made up of Justices Margaret Mirabal, author of the court’s opinion, Michol O’Connor, and Sam Nuchia, held that Monsanto’s sale of the subsidiary was not a termination of employment. “Monsanto could have included a change-of-control-of-subsidiary provision in the documents, but it did not,” Mirabal said in the opinion. According to the supreme court’s opinion, Fisher management employees were granted options to buy the parent company’s stock under a management incentive plan as compensation for past performance and as an incentive to remain with the Monsanto family of companies. The opinion said the option certificates expired 10 years from the date they were granted or upon termination of employment, defined by the incentive plan as the discontinuance of employment “for any reason other than a transfer.” When Fisher was sold in 1992, some of the stock options granted to its employees could not be exercised profitably because the price they were required to pay was higher than the market price of the stock, Monsanto said in its brief. The supreme court’s opinion said the Monsanto executive compensation committee determined that the sale of Fisher terminated the subsidiary’s employees and that they were required under a provision in the option certificates to exercise their options within three months. Because the market price of the stock was lower than the price at which the 1990 and 1991 stock options could be exercised, the committee extended the time for Fisher employees to exercise their options by nine months, the opinion said. Monsanto’s stock price rose above the option prices before the Sept. 30, 1993, deadline for the Fisher employees to act, and some employees exercised their options, the court said in the opinion. But the court said that a number of employees waited to exercise their options until 1996, when Monsanto’s stock was selling for more than $159 per share, up from $66.25, the high reached during the extension period set by the committee for action on the options. The employees argued in their brief that the stock option plan and certificates, as a whole, are silent regarding whether the sale of Fisher would constitute termination of employment. Keltner says companies increasingly share their wealth with employees through stock options, which are meant to reward employees for their work and to provide an incentive for them to stay on the job. Under the plaintiffs’ theory, the Fisher employees could continue to reap the benefits of Monsanto’s stock years after being separated from Monsanto, Keltner says. “That just defies the whole reason for a stock option plan,” he says. Hilliard says the plaintiffs will file a motion for rehearing by the supreme court. Notes Hilliard of the court, “They’ve taken a well-reasoned opinion and just substituted their view for it.”

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