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CROWDER CONSTRUCTION COMPANY
EUGENE P. KISER
Appeal by defendant from order entered 10 March 1998 by Judge Ben F. Tennille in Mecklenburg County Superior Court. Heard in the Court of Appeals 10 May 1999.
Plaintiff Crowder Construction Company (plaintiff, or Company), a closely held North Carolina corporation, seeks to enforce a stock restriction and buy-out agreement against Eugene P. Kiser (defendant, or Kiser), who is a former employee and corporate officer of plaintiff. Defendant pleads a number of equitable defenses to the enforcement of the agreement, and further contends that the value of his shares of Company stock were not calculated correctly.
Crowder Construction Company was founded in the 1940's by O.P. and W.T. Crowder, Sr., and was incorporated as a North Carolina corporation on 28 May 1953. Stock in the Company has always been closely held by members of the Crowder family and by certain key employees. Since at least 1955, a shareholders' restriction agreement has provided that shareholders who wish to sell their shares of stock in the Company must first offer the shares to the Company at a price based on the book value of the shares. The various shareholders' agreements have also included a "buy-out" provision requiring that the Company purchase the shares of stock at book value (later, adjusted book value), except for those shares obtained by employees pursuant to stock option agreements. As to shares obtained pursuant to stock options, the Company has the first option to purchase those shares, but is not required to do so. Kiser is a certified public accountant (CPA) who was hired by Crowder in 1981 as its corporate Controller. Kiser was elected Vice-President of Finance (later, Chief Financial Officer) and Corporate Secretary in or about 1985, and served in those capacities until his discharge in 1995.
In 1986, the Company developed a stock option plan for key employees. Those employees, including Kiser, were allowed to purchase Crowder stock at $7.00 per share, a substantial discount from the then book value of $31.83 per share. Kiser purchased 2,000 shares under the 1986 plan, an investment of $14,000.00. In 1988, a second stock option plan was adopted. Again, Kiser and other key employees were allowed to purchase Crowder stock at $7.00 per share, again a substantial discount from the book value of $44.83 per share. Kiser purchased 4,750 shares of Company stock at $7.00 per share, for a total investment of $33,250.00. Both stock option plans included a paragraph entitled "Stock Restriction Agreement" which provided that any shares of stock issued pursuant to a stock option plan were subject to the terms of any stock restriction agreement in effect on the date of the stock's issuance.
At the time of the issuance of the optioned shares to Kiser in 1986 and again in 1988, the shareholders' agreements in effect on both dates provided that, if the employment of a shareholder with the Company was terminated "for any reason whatsoever, [the employee] shall offer his shares to the Corporation and the Corporation shall purchase his shares at the price provided [by the formula set out in the agreement]."
Both plans also provided a mechanism for valuation of the stock, and each provided that in order for an employee to receive full book value for his shares, the employee must have maintained an employment relationship with the corporation for at least seven years since the issuance of the stock to the employee pursuant to the stock option plans. A third stock option plan was adopted in 1990, but Kiser purchased no stock under the 1990 plan. In 1991, all shareholders, including Kiser, executed a Revised and Restated Stock Restriction and Purchase Agreement (the 1991 Agreement), superseding all previous agreements. The 1991 Agreement provided in pertinent part that a terminated Company shareholder must offer his shares of stock to the Company, and the Company must purchase the shares at a price determined by use of a formula set out in the agreement. For employees whose shares were not issued pursuant to the provisions of a Stock Option Agreement, the "price to be paid . . . [was] 100% of adjusted book value at the date of the offer to sell."
The 1991 Agreement further provided that, if the employee's shares had been issued pursuant to the 1986 Stock Option Plan, and had been issued for more than seven years prior to the date of termination, the purchase price was to be "100% of the adjusted book value at the time of the offer to sell." The "adjusted book value" was to be determined by the "certified public accountant then servicing the Corporation," by adjusting the net book value per share at the end of the Company's last fiscal year in order to account for funds to be disbursed to shareholders to cover their tax liability resulting from the Company's Subchapter S status, and to reflect the "Corporation's use of the completed contract or percentage of completion method of accounting, or the use of LIFO or FIFO accounting or similar timing adjustments."
In the case of shares issued pursuant to the 1988 option agreement, and held by an employee less than seven years at the time of termination of the employee's employment with the Company, the 1991 Agreement set out the following formula for determining the price to be paid the terminated employee for those shares: