June 21, 2016
Ninth Circuit Finds That Purpose of Stock Rights Plan Matters
– Broc Romanek, CompensationStandards.com
Here’s the intro from this blog by Keith Bishop:
Most equity award plans that I come across include a statement of the plan’s purposes. I haven’t tended to give these provisions a whole lot of thought, but an opinion issued yesterday by the Ninth Circuit Court of Appeal makes it clear that a plan’s purpose clause can be very important indeed. The case arose from the retirement of the plaintiff, a Mr. Foster Rich, from Booz Allen Hamilton, Inc. (BAH). While working at BAH, Mr. Rich participated in the company’s stock rights plan (SRP) pursuant to which he was granted the right to purchase BAH shares. When Mr. Rich retired from BAH, he had accumulated 30,500 shares. BAH then exercised its right to repurchase those shares and paid Mr. Rich $4,507,900, or $147.80 per share. That is a lot of money, but a little over a year later BAH sold a portion of its business to The Carlyle Group and holders of BAH stock received $763 per share. Because Mr. Rich was no longer a BAH shareholder, he did not receive any compensation from that transaction. Presumably, Mr. Rich would have received $23,271,500 had his shares not been repurchased. It seems that while Mr. Rich became wealthy under the SRP, he didn’t become nearly as wealthy as others.