File: 051318F - From documents transmitted: 10/17/2007
Affirmed; Opinion Filed October 17, 2007.
Court of Appeals
Fifth District of Texas at Dallas
ROBIN BIKO, ET AL, and DWIGHT TOMS, ET AL, Appellants
SIEMENS CORPORATION, SIEMENS AKTIENGESELLSCHAFT,
SIEMENS INFORMATION AND COMMUNICATION NETWORKS, INC.,
AND EFFICIENT NETWORKS, INC., Appellees
On Appeal from the County Court At Law No. 5
Dallas County, Texas
Trial Court Cause No. 02-09146-E
Before Justices Whittington, Bridges, and Francis
Opinion By Justice Francis
Ninety-one current and former employees See Footnote 1 of
Efficient Networks, Inc. (Efficient) appeal the trial court's summary judgment in favor of
appellees Siemens Corporation, Siemens Aktiengesellschaft (Siemens AG), Siemens
Information and Communication Networks, Inc. (Siemens ICN), and Efficient. In three issues,
appellants contend the trial court erred in granting summary judgment because appellees did not
conclusively establish their right to summary judgment and fact issues remain on appellants'
causes of action for (1) breach of a stock option agreement, (2) fraud, and (3) breach of
contract. We affirm.
This case arises from Efficient's merger with Memphis Acquisition, Inc., a
wholly-owned subsidiary of Siemens Corporation set up expressly for the merger. Siemens AG
is a diversified global technology company headquartered in Munich, Germany. Siemens
Corporation serves as a holding company for Siemens AG's business interests in the United
States. Efficient and Siemens ICN are subsidiaries of Siemens Corporation.
At issue is the disposition of approximately $80,000,000 in unallocated funds
remaining at the termination of a three-year employee retention program instituted as part of the
merger. Appellants contend Efficient's employees were contractually entitled to the leftover
money and appellees represented they would receive it to induce them to stay after the merger.
Appellees contend appellants received everything due to them under the retention program.
Appellants sued appellees in two lawsuits, eventually consolidated, alleging
variously that appellees failed to abide by the retention agreement, that Efficient's officers
fraudulently misrepresented the elements of the retention program to convince the employees to
stay with Efficient after the merger, and that appellees' underhanded efforts to modify the
retention agreement triggered a breach of Efficient's pre-merger stock plan. In a series of rulings,
the trial court granted summary judgment for appellees on appellants' major claims, and
appellants nonsuited their remaining claims.
We review de novo the trial court's determination to grant summary judgment
to appellees. Dickey v. Club Corp. of Am., 12 S.W.3d 172, 175 (Tex. App.-Dallas 2000,
pet. denied). The trial court stated its rationale for granting summary judgment on appellants'
breach of contract claim. Because the trial court granted final summary judgment on the other
two claims without specifying the grounds it found persuasive, appellants must show on those
two claims that each summary judgment ground alleged by appellees is insufficient to support
the trial court's judgment. See Star- Telegram, Inc. v. Doe, 915 S.W.2d 471, 473 (Tex.
1995). We will affirm if any of appellees' grounds has merit. See id.
Appellees moved for summary judgment on both traditional and “no
evidence” grounds. See Tex. R. Civ. P. 166a(c), (I). In reviewing the “traditional” portion of
the summary judgment, we determine whether appellees met their summary judgment burden by
establishing that no genuine issue of material fact exists and that they are entitled to judgment as a
matter of law. See Tex. R. Civ. P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546,
548 (Tex. 1985); Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002).
Appellees are entitled to summary judgment if they conclusively negated an essential element of
each of appellants' claims. See Grant, 73 S.W.3d at 215. Appellees bear the burden of proof
and we resolve all doubts about the existence of a genuine issue of material fact against them.
See Nixon, 690 S.W.2d at 548-49. We view all evidence and any reasonable inferences in the
light most favorable to appellants. Id. at 548-49.
We review appellees' “no evidence” summary judgment under the same
standard as a directed verdict. King Ranch v. Chapman, 118 S.W.3d 742, 750-51 (Tex.
2003). We examine the record in the light most favorable to appellants and disregard all
contrary evidence and inferences. Id. at 751. If our examination reveals that appellants
produced more than a scintilla of probative evidence to raise a genuine issue of material fact,
then summary judgment was improperly granted. Id. The evidence must be sufficient to create
more than a mere surmise or suspicion of a fact; rather the evidence must allow reasonable and
fair-minded people to differ in their conclusions. Id.
Viewed in the light most favorable to appellants, the evidence shows Efficient
was an industry leader in developing broadband networking equipment known as digital
subscriber line devices (“DSL”). Siemens Corporation was an early investor in Efficient, and
Siemens ICN produced complementary technology. In 2000, Efficient CEO Mark Floyd began
discussing with Siemens ICN executives Roland Koch and Anthony Maher the possibility of
merging Efficient into the Siemens group.
Both sides to the potential merger recognized that the value of Efficient lay
largely with its skilled workforce. The merger would not be successful unless Efficient's
employees could be retained. Like most telecom companies, Efficient compensated and
“incentivized” its employees by awarding them stock options. Efficient awarded employees
options through its “1999 Stock Plan,” under which employees received stock options with
strike prices above the current market value of Efficient stock and with four-year vesting
periods. Each optionee would be given a “Stock Plan Agreement” to sign along with an
Efficient representative setting forth the optionee's number of options, strike price, and vesting
date. By signing the Stock Option Agreement, the optionee agreed that the option was governed
by the 1999 Stock Plan and the optionee accepted “as binding, conclusive and final, all
decisions or interpretations of the Administrator upon any questions relating to the Plan and
Option Agreement.” All but four appellants participated in the 1999 Stock Plan.
The stock option plan was the source of two key obstacles to the proposed
merger. First, because Siemens Corporation's stock was not then publicly traded in the United
States, there was the issue of how the new merged entity could retain its employees without
offering stock options. Second, there was the issue of how the new entity would address the
outstanding, unexercised Efficient options already in employees' hands. In the event of a merger,
section 13(c) of the 1999 Stock Plan required the successor company to either assume the
outstanding stock options or to substitute an equivalent.
To solve the stock option issues, Floyd and Koch devised a two-phase
retention program that would provide cash bonuses in lieu of stock options. The first phase,
known as the Memphis Retention Plan (MRP), would provide automatic across-the-board
bonuses to almost every employee who stayed with the company for the first year after the
merger. The MRP would distribute $50 million to employees in two equal payments to be made
six months after the merger and on the first anniversary of the merger.
The second phase, to be known as the Discretionary Retention Plan (DRP),
would award incentive bonuses to selected key employees during the second and third years
after the merger. Each participant would be assigned a maximum DRP award. To receive the
maximum award, the participant would have to meet performance targets and Efficient would
also have to reach preset company-wide goals. The DRP would be funded with an initial $97
million. An additional $22 million would be set aside in an unallocated reserve fund to cover
future allocations to existing participants and new hires. If a participant did not earn the maximum
award, left the company, or was fired for cause, that participant's DRP cash award would go
back into the unallocated fund. The DRP program would terminate on the third anniversary of
On February 2, 2001, Koch and William Moran, vice president of mergers &
acquisitions of Siemens Corporation, transmitted a letter to the Efficient Board of Directors
formally proposing that Siemens acquire Efficient and outlining the key terms of the acquisition.
Koch and Moran proposed paying holders of “in the money” Efficient stock options the spread
between the purchase price and the option exercise price as the options vested. Koch and
Moran further wrote that “'[o]ut of the money' options would be cancelled, but holders of such
options would be eligible to participate in a proposed Efficient Networks Retention Program, as
outlined in the addendum to this letter.” The addendum to the letter described the MRP as
compensation to employees for “out of the money” options. Koch and Moran described the
DRP's purpose as “to create incentives of a more significant scale for members of Memphis'
management and key engineering, sales and other employees.” Each DRP participant would
receive a letter that would “describe the vesting, performance criteria and payment of funds
under the plan.”
On February 21, 2001, Efficient's Board of Directors approved and signed an
agreement and plan of merger between Efficient, Siemens Corporation, and Memphis
Acquisition, Inc. The plan of merger called for Efficient to merge with Memphis Acquisition,
forming a new Siemens Corporation subsidiary which would retain Efficient's name.
Schedule I to the merger agreement sets forth the MRP and DRP employee
retention programs that the new Efficient would begin after the merger. A Compensation
Committee consisting initially of Koch, Floyd, Maher, and Siemens executive Larry McMillen,
would administer the programs. Schedule I reiterated the scheme for the MRP and DRP
previously announced in Koch and Moran's February 2, 2001 letter. The programs would be
funded with $169 million. The MRP payment would automatically enroll most employees and
would distribute approximately $50 million to the participants in two equal installments at the
six-month and one- year mark. Each DRP participant would be “notified of their eligibility for
the DRP and their target DRP incentive amounts. Each selected employee will be given an
individual participation letter that will describe the vesting, performance criteria and payment of
Awards under the DRP.” The criteria for awarding a participant a DRP bonus depended upon a
combination of individual performance targets and company-wide performance. DRP bonuses
would be paid on the second and third anniversaries of the merger. At the end of the third year,
the DRP would terminate. The sum of $97 million was allocated to the DRP. An additional $22
million and amounts forfeited by participants who were terminated for cause or voluntarily left the
company would “remain unallocated and set aside for future allocations under the DRP as
determined by Memphis management, subject to the approval of the Compensation Committee.”
After signing the merger agreement, Floyd transmitted a February 21, 2001
email to all Efficient employees announcing the merger and opening a dialogue with employees
regarding what was to happen to the company. In his email, Floyd communicated the treatment
of stock options and the retention program:
Stock options will be treated as follows: 1) stock options that are priced under $23.50 per
share and are vested will be converted to cash at the difference between the option price and
$23.50 per share at the close of the transaction, 2) stock options the [sic] are priced under
$23.50 and are not vested, will continue to vest and will be paid in cash at the difference
between the option price and $23.50 per share according to the vesting schedule, 3) stock
options that are priced greater than $23.50 per share will be replaced with a cash incentive
package that totals over $150 million.
Memphis Acquisition, Inc.'s March 2, 2001 written tender offer for Efficient's
stock included a section styled “Employee Stock Options and Other Employee Benefits.” This
section obligated the surviving company to cancel the outstanding stock options and pay in cash
to each optionee holding an option with a strike price below the $23.50 tender offer price the
difference between the option exercise price and the tender offer price. The section described
the MRP and the DRP as follows:
Certain employees of the Company and of the controlled affiliates of Siemens AG will be
eligible to participate in the Discretionary Program. Bonuses awarded under the Discretionary
Program will vest and become payable if a combination of corporate and individual performance
measures are achieved prior to each of the second and third anniversaries of the Effective Time,
provided that the participant is employed by the Company or its affiliate on the applicable
The Retention Program will offer awards of up to an aggregate maximum of $169 million,
which will be divided between the Retention Programs. Of the $169 million, approximately $50
million will be allocated to the Company Retention Program and approximately $97 million will
be allocated to the Discretionary Program. At least $22 million, plus any forfeited amounts
under the Retention Programs, will remain unallocated and will be set aside for future allocations
under the Discretionary Program.
While Memphis Acquisition, Inc. was buying Efficient stock, Floyd and other
Efficient executives held a series of meetings with Efficient employees to explain how the merger
would affect them. During a company-wide meeting held on February 23, 2001, Floyd told the
employees that Siemens would fund a $169 million employee retention fund and all the money
would be distributed within the three-year program. Floyd encouraged the employees to stay
and indicated that if anyone left, it “would be more money for the rest of us.” During a March
7, 2001 sales meeting, Jack Brooks, Efficient's vice president of human resources, conducted a
PowerPoint presentation on the merger. Brooks's presentation included a slide stating the
retention program “essentially serves as an initial substitute for stock options going forward.”
In a second slide, Brooks wrote
Is There Further Upside?
A portion of the retention pool has been reserved for discretionary adjustments to
individual Year Two/Three award levels.
Awards set aside for employees that leave the Company will remain in the pool for
distribution to other participants.
The retention plan will be fully paid out by the end of year three.
Floyd was present during Brooks's presentation and had helped prepare the content of the
slides. A substantially similar message was delivered to Efficient's European employees in
Amsterdam by Floyd and Efficient officer Paul Coutourier.
The presentations left many employees with the understanding that, at the end
of the third year, any unallocated DRP funds would be distributed to the remaining participants
in a process that became known within the company as “Last Man Standing.” Not only did
the employees have this understanding, but Brooks also believed “Last Man Standing” was
part of the DRP agreement. Jill Manning, Efficient's chief financial officer, testified at her
deposition that Floyd's intent was to distribute the entire $169 million to the employees and
future employees during the course of the retention program.
On March 30, 2001, shortly before the merger, Floyd sent an email to Koch,
Maher, McMillen, and Dieter Diehn, another Siemens ICN officer. Floyd represented to the
Siemens officers that the initial DRP rules he had drafted were already in place. Floyd presented
a series of additional rules that would govern “only the reserve balances and forfeited monies
which will consist of the new reserve DRP fund.” Included within the proposed rules was one
for a final distribution of the money at the end of the third year: “Total payout: The total sum of
the MRP and DRP will be paid out to Employees and the plan will terminate at the third
anniversary of the effective date (deal closing date).” On April 10, 2001, Floyd followed up
with an email to McMillen reporting that “Roland [Koch] decided to go with the DRP plan as
proposed with the following exception. I [cannot] grant any DRP allocations to non-US Siemens
employees (not including the original non-US Efficient employees).”
The merger took place on April 3, 2001. After merging with Memphis,
Efficient became part of Access Solutions, Inc., another Siemens subsidiary. Floyd became
president of Access Solutions and James Hamilton succeeded Floyd as CEO of Efficient.
Those employees who held Efficient stock were paid $23.50 per share upon
tendering their stock. Employees holding vested “in the money” options were paid the
difference between their option strike price and the $23.50 tender price. Additionally,
employees holding unvested “in the money” options were paid the difference between their
strike price and the $23.50 tender price upon the vesting of their options. Employees holding
“underwater” options with strike prices above $23.50 were not paid anything.
On May 15, 2001, the Compensation Committee held a meeting and agreed to
recommend the draft retention plans with minor changes. On that same day, Efficient's Board of
Directors formally approved the MRP and DRP plans. The employees and some officers, such
as Brooks, were not informed that the plans were approved.
Under the plans approved, each DRP participant would be given a letter setting
forth the participant's maximum DRP award over the course of the two-year plan. A copy of
the DRP plan would be attached and referenced within the letter. The DRP letter would contain
language requiring the employee to accept the plan as binding upon the employee and agreeing
that the written plan superceded all prior oral understandings and agreements.
The approved DRP plan provided that employees would not have the right to
participate in the retention plan “other than as provided in the Plan.” It gave the Compensation
Committee sole authority to interpret the plan and to determine the maximum amount of each
participant's bonus. It conditioned payment of the maximum bonus upon achievement of
personal and corporate performance objectives. It stated that it superceded any and all prior
retention arrangements, programs, or plans previously offered by Efficient. The approved plan
did not provide for a final distribution of unallocated funds.
Even after the adoption of the plan by the Board, appellees continued to
negotiate between themselves the terms of the DRP, including whether there should be a final
distribution. The items under negotiation are reflected in a Siemens ICN “DRP Plan Analysis”
prepared for McMillen on November 12, 2001 and marked “Highly Confidential.” The DRP
Plan Analysis contains copies of key documents related to the DRP, including a draft version of
a “Revised DRP Plan” containing a section 8 styled “Final Distribution.” Section 8 of the
revised plan provides: The Remaining Balance, if any, shall be distributed on a
pro rata basis among all participants who become vested in the right to receive payment of all or
part of a Discretionary Bonus Installment with respect to a Final Vesting Date. Each Participant
eligible to receive a distribution of a portion of the Remaining Balance in accordance with the
foregoing sentence shall receive an amount equal to the product of (A) a fraction the numerator
of which is the amount of the Discretionary Bonus Installment in which a Participant becomes
vested in respect of the Final Vesting Date and the denominator of which is the aggregate
amount of Discretionary Bonus Installments in which all of the Participants become vested in
respect of the Final Vesting Date, multiplied by (B) the Remaining Balance.
Appellants have not pointed to any evidence in the record showing that the revised DRP plan
was ever adopted and implemented by appellees.
After the retention plans were implemented, accounting records show Efficient
accrued $169 million for payment of the retention bonuses over the three-year period. The
first-year MRP payments were made to employees as promised. During the second year,
however, economic conditions within the telecommunications industry worsened and Efficient
did not meet its targeted goals. Emails exchanged between Efficient's and Siemens's executives
show an effort to curb DRP payments. In one email, Hamilton informed Floyd that Siemens's
counsel had opined there was enough “wiggle room” in the contracts signed to deny the
employees the “last man standing” payment that had been orally promised. Efficient's
accountants revised the accounting accruals to reflect the entire $169 million would not be paid
On or about April 3, 2002, one year after the merger was finalized, Efficient
presented the DRP participants with DRP award letters to sign. The award letters describe the
DRP as a “special bonus,” the maximum target amount of which could be earned if corporate
and individual performance objectives were met. To be eligible for the DRP award, the
employee was required to sign the letter thus acknowledging the employee had read and
understood the plan, accepted his or her DRP bonus subject to the terms of the plan, and agreed
to be bound by the terms of the DRP plan. All appellants except Robin Biko signed their DRP
award letters and received timely DRP bonuses.
When the DRP awards came due, Efficient gave the participants credit for
meeting their individual goals, but did not credit them with the maximum awards because
Efficient had lost money during the course of the retention program. Employees began
contacting Brooks to inquire about the final distribution payment. When Brooks forwarded the
inquiries to Hamilton, he requested guidance from the Compensation Committee. In response,
Hamilton and Brooks were instructed not to discuss the details of the retention plans with the
In a June 10, 2002 letter, to “clear up any confusion,” Siemens ICN CEO
George Nolen wrote Hamilton that there would be no final distribution because “the DRP does
not contain any provision under which any remaining or unused DRP funds are automatically
paid to remaining Plan participants, all employees, or any other group.”
Because of adverse business conditions in the telecommunications industry,
many employee/participants in the DRP were eventually terminated from their employment with
Efficient. Because many employees departed and maximum DRP bonuses were not awarded,
the unallocated portion of the DRP swelled to $80 million. At the end of the third year, appellees
retained the unallocated portion of the DRP rather than distributing it.
Before reviewing appellants' issues, we pause to address two preliminary
matters. First, although Siemens AG and Siemens Corporation are identified as parties to the
appeal, appellants have not challenged on appeal the trial court's summary judgment ruling in
their favor. Accordingly, we affirm the trial court's summary judgment in favor of Siemens AG
and Siemens Corporation. See Kagan-Edelman Enters. v. Bond, 20 S.W.3d 706, 707 (Tex.
2000) (per curiam).
Second, appellants present the issues in the reverse order in which the claims
were pleaded. Appellees contend we should consider the issues in the order the claims were
raised in the pleadings and disposed of in partial summary judgments. Because determination of
the third issue, raising contentions about the breach of contract claim, controls resolution of the
fraud issue, and because there would be no breach of the stock option agreement had the
alleged contract been performed, we turn first to appellants' third issue regarding breach of
In their third issue, appellants contend summary judgment should be reversed
on their breach-of-contract claim because they raised a fact issue regarding the existence of an
April 2001 contract-consisting of emails, letters, presentations, and merger-related
documents-requiring appellees to make a final distribution of the unallocated portion of the
retention fund. Appellees respond that appellants' alleged contract does not satisfy the statute of
frauds. Further, appellees contend the parties' formal written contract, the April 3, 2002 award
letter and its incorporated DRP plan, constitutes an integrated written contract that does
conform to the statute of frauds. Appellants, in turn, counter that the April 3, 2002 contract was
executed without consideration.
Initially, the trial court awarded appellees summary judgment on appellants'
breach of contract cause of action without specifying its grounds. In response to a motion from
appellants requesting clarification of the scope of the ruling, the trial court issued an order
concluding as follows:
[Appellants] argued that several documents and representations that pre-date the April 2002
award letters, when considered together, contractually obligate defendants to make last man
standing payments. The court concludes as a matter of law that those documents and
representations do not create a valid, enforceable contract between [appellants] and [appellees]
obligating [appellees] to make last man standing payments. The court further concludes that the
2002 award letters are valid, enforceable agreements between [appellees] and the [appellants]
that signed the agreements.
Subsequently, after the parties completed discovery, the trial court granted a motion to
reconsider its earlier summary judgment rulings. The trial court's final summary judgment grants
summary judgment without specifying its reasoning, but incorporates its earlier partial summary
judgment rulings. We agree with the trial court's determination and its reasoning for granting
appellees' summary judgment on the breach of contract claim.
The statute of frauds prohibits enforcement of any agreement that cannot be
performed within one year unless the agreement, or a memorandum of the agreement, is
documented in a writing that contains all the material terms of the agreement and is signed by the
person to be charged. See Tex. Bus. & Com. Code Ann. § 26.01(a), (b)(6) (Vernon Supp.
2006); Cohen v. McCutchin, 565 S.W.2d 230, 232 (Tex. 1978). The writing must be
complete within itself in every material detail and must contain all essential elements so the
contract between the parties may be ascertained without resort to oral testimony. Cohen, 565
S.W.2d at 232. “A valid memoranda of the contract may consist of letters or telegrams signed
by the party to be charged and addressed to his agent or the other party to the contract, or even
to a third party not connected with the transaction.” Adams v. Abbott, 151 Tex. 601, 254
S.W.2d 78, 80 (1952).
Whether an agreement falls within the statute of frauds is a question of law.
Bratcher v. Dozier, 162 Tex. 319, 346 S.W.2d 795, 796 (1961). Contending that a contract is
unenforceable under the statute of frauds is an affirmative defense. See Tex. R. Civ. P. 94. To
obtain summary judgment on an affirmative defense, a defendant must plead and conclusively
establish each element of an affirmative defense thereby rebutting the plaintiff's cause of action.
City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979).
Because the contract appellants seek to enforce provides for services to be
provided over a three-year period, with retention bonuses payable at the end of the second and
third years, it is subject to the statute of frauds. See Schroeder v. Tex. Iron Works, Inc., 813
S.W.2d 483, 489 (Tex. 1991) (oral employment agreement lasting eight-to-ten years
unenforceable under statute of frauds). In order to show appellees were not entitled to summary
judgment, appellants must have presented evidence to the trial court showing that appellees
agreed to make a final distribution and that appellees' agreement is in writing and signed by
appellees' representative. See Henriquez v. Cemex Mgmt, Inc., 177 S.W.3d 241, 249 (Tex.
App.-Houston [1st Dist.] 2005, pet. denied).
In the trial court, appellants pleaded, “[a] combination of the oral promises,
presentations, and writings in February, March, and April 2001 created a $169 million retention
program contract between Efficient and those employees who continued their employment with
Efficient.” In their summary judgment response, appellants identified seven documents as
establishing their contract: the February 2, 2001 proposal from Koch and Moran; Memphis
Acquisition's tender offer to purchase Efficient; Schedule I to the merger agreement; slides from
Brooks's March 7, 2001 PowerPoint presentation; Floyd's March 8, 2001 letter describing the
proposed retention plan; Floyd's March 30, 2001 email to Siemens' executives regarding the
DRP rules; and the DRP plan analysis. In their brief on appeal, appellants contend three
documents presented in their summary judgment evidence comprise the necessary agreement to
constitute an enforceable contract: (1) Floyd's March 8, 2001 letter; (2) Floyd's March 30,
2001 email; and (3) Floyd's April 30, 2001 email to McMillen announcing Koch's acceptance
of the proposed DRP plan. In their reply brief, appellants again rely upon Floyd's letter and two
emails, but also identify six additional documents that, among others, “evidence the essential
elements of the agreements between each of the [appellants] and Siemens.” These documents
are (1) Schedule I to the Agreement and Plan of Merger; (2) Brooks's slide showing a
third-year payout; (3) the DRP Plan Analysis; (4) the email chain between Floyd and Hamilton
over the period of February 25, 2002 and March 5, 2002; (5) a March 6, 2002 email from
Hamilton to McMillen explaining that Efficient's employees were expecting a final distribution;
and (6) a May 30, 2002 email from Brooks to McMillen stating the unallocated money was to
be paid out at the end of the third year. Regardless of whether we focus upon
three, seven, or nine documents, appellants' contract claim does not satisfy the statute of frauds.
Most of the documents appellants rely upon are not signed by the parties they seek to charge.
The documents that are signed, Koch and Moran's February 2, 2001 proposal, the merger
agreement with Schedule I attached, and Floyd's March 8, 2001 letter, do not provide for a
“last man standing” final distribution.
Moreover, the signed documents contain language indicating they were not
intended as final contractual agreements. Koch and Moran's letter is described as a
“proposal.” The “proposed” DRP and MRP is “outlined” in the addendum to the letter. The
letter describes the proposed retention plan as “an initial proposal . . . . [W]e look forward to
receiving input from Efficient Network's management to create a program we believe will be
effective.” The letter suggests Siemens and Efficient begin negotiations on an employee retention
program. Finally, the letter states that “this letter shall not be deemed to be binding on any
party.” Section 10.04 of the Merger Agreement states that it is binding and inures to the benefit
only of the signing parties. Section 10.04 expressly disclaims that the agreement confers “any
right, benefit or remedy of any nature whatsoever” upon third parties. Floyd's March 8, 2001
letter, distributed to each DRP participant, provides “brief summaries” of the proposed
retention programs. The letter states each participant's DRP award allocated to the participant
and states that “[f]ormal plan documents incorporating the terms and conditions, and other
provisions, will have to be adopted for these programs after the merger.” The letter continues
that Floyd “will be communicating with you in more detail as the transaction progresses, but we
wanted to take this early opportunity to advise you of these programs.” Attachment 2 to Floyd's
letter, summarizing the DRP program, states that the participants would receive award letters
explaining the “target incentive amounts designated for him or her under the DRP.” Attachment
2 further states that the participant would receive his or her maximum amount “if the applicable
individual and company performance measures are achieved.” Finally, we note attachment 2
states that the “DRP will terminate as to new awards on the third anniversary” without
addressing what will happen to unallocated money.
Additionally, even if we could consider the additional, unsigned documents
appellants point to, there is no document or combination of documents that specifies how the
“last man standing” payment would be distributed among the employees. See id. at 249-50
(concluding parol employment contract not provable through letters and visa application because
documents did not contain sufficient language to provide definite term of employment). The
necessity of a distribution term is demonstrated by evidence in the record showing appellants do
not have the same understanding regarding how the last man standing payment was to be
distributed. For example, in deposition testimony, Biko testified she understood the unallocated
funds would be distributed, in some manner, to DRP participants. Kerry Stover testified Floyd
promised the money would be divvied up equally among all employees, although he admitted
some uncertainty whether that referred only to DRP participants or whether the money would be
shared with all employees. Timothy Doll testified he believed Efficient management had
discretion to pay the unallocated funds to any employee as long as all of the funds were
allocated and paid out within three years. Although not a party to the litigation, Donald Ray
Phillips, Efficient's director of financial reporting charged with maintaining the MRP/DRP
schedule, averred in an affidavit that he understood the unallocated money would be divided in
equal shares among all remaining employees. The only formula in the record for allocating a
“last man standing” payment is contained in the revised contract attached to the DRP analysis.
There is no evidence that the revised contract was ever ratified by the Efficient board, signed by
any party to be charged, or delivered to the appellants. Thus, it cannot provide the necessary
missing term allocating the funds among employees. See Baylor Univ. v. Sonnichsen, 221
S.W.3d 632, 635 (Tex. 2007) (per curiam) (preparing and signing draft contract that was never
delivered to other party does not create enforceable contract due to absence of mutual assent).
Without evidence establishing how to divide the $80 million amongst appellants and other
employees, there is no basis for enforcement. See Henriquez, 177 S.W.3d at 249-50.
Appellants next contend their partial performance removes the alleged parol
agreement from the requirements of the statute of frauds. Partial performance removes an oral
agreement from the statute of frauds only if the performance is unequivocally referable to the
agreement and corroborative of the fact that the contract was made. Chevalier v. Lane's Inc.,
147 Tex. 106, 213 S.W.2d 530, (1948). To take a parol contract out of the statute of frauds,
the partial performance at issue “must be such as could have been done with no other design
than to fulfill the particular agreement sought to be enforced . . . .” Exxon Corp. v. Breezevale
Ltd., 82 S.W.3d 429, 439-40 (Tex. App.-Dallas 2002, pet. denied).
Appellants contend they partially performed the oral contract by working for a
year before signing the award letters while appellees also partly performed by accruing $169
million for the retention plan, and paying the MRP. For their services, however, appellants
received regular salaries and MRP payments. Thus, we cannot conclude their work was
unequivocally referable and corroborative of a contract requiring a “last man standing”
distribution. See Chevalier, 213 S.W.2d at 534 (opining that working for full term of alleged
parol contract without compensation might be sufficiently referable to, and corroborative of,
contract so as to remove it from statute of frauds); Wiley v. Bertelsen, 770 S.W. 2d 878,
881-882 (Tex. App.-Texarkana 1989, no pet.) (holding plaintiff's receipt of monthly salary fully
explained his work as ranch hand thus barring his bid to enforce oral agreement subject to
statute of frauds on ground of partial performance). Likewise, appellees' accrual of the full
potential $169 million payout and payment of the MRP is as corroborative of compliance with
their ratified contract as with appellants' alleged parol agreement. See Exxon, 82 S.W.3d at 440
(concluding parol contract was unenforceable where partial performance consisted of services
that could have been performed pursuant to a different contract). We conclude, as a matter of
law, that appellants cannot meet the standard for establishing the partial performance exception
to the statute of frauds. See Wiley, 770 S.W.2d at 881-82.
In addition to not satisfying the statute of frauds, appellants cannot surmount
their execution of a contract at odds with their alleged parol contract. All appellants except Biko
signed April 3, 2002 award letters. Each April 3, 2002 award letter and its incorporated
retention contract acknowledges that the retention contract controls the distribution of the DRP
funds and establishes the signatory's right to a DRP award. The retention contract contains a
merger clause stating that the retention contract expressly “supercedes any and all prior
retention arrangements, programs or plans previously offered by [Efficient.]”
By entering into an unambiguous agreement with a merger clause, the signing
appellants have foreclosed their reliance on prior agreements and their use of parol evidence to
contradict the agreement's objective language. See COC Servs., Ltd. v. CompUSA, Inc., 150
S.W.3d 654, 666 (Tex. App.-Dallas 2004, pet. denied). By signing the award letters and
accepting the considerable financial awards offered therein, appellants affirmed the contracts
and agreed to be bound by them. See Daniel v. Goesl, 161 Tex. 490, 341 S.W. 892, 895
(1960); see also Cordero v. Tenet Healthcare Corp., 226 S.W.3d 747, 750 (Tex.
App.-Dallas 2007, pet. denied) (accepting benefits of contract after discovering alleged fraud is
ratification of agreement).
assert the award letters do not address the issue of final
distribution, were executed without consideration, and were drawn up after the fact to cover up appellees'
failure to abide by their obligations to make the final distribution. All of appellants' counter
arguments presuppose that there is some provable obligation to make a final distribution.
Because appellants cannot prove their entitlement to a final distribution, the award letters are not
incomplete for omitting such an obligation, the DRP awards constitute ample consideration for
their execution, and the letters reflect the parties' enforceable agreement.
Except for Biko, each appellant entered into an express, written contract with
Efficient setting forth the parties' agreement to the DRP plans as written. The written DRP
contracts do not provide for a final distribution as described by appellants. For all appellants,
including Biko, there is no document or set of documents, signed by the parties to be charged,
that contains the necessary terms of a contract to provide a final distribution of the unallocated
funds. Thus, we conclude the trial court did not err in granting summary judgment on appellants'
breach of contract cause of action on the grounds appellants do not have a valid, enforceable
contract requiring a “last man standing” payment and the April 3, 2002 award letters are valid
and enforceable contracts between the signing parties. Accordingly, we overrule appellants' third
In their second issue, appellants contend summary judgment should be
reversed because fact issues exist on their fraud claim. In the trial court, appellants pleaded that
Floyd and other representatives of Efficient and Siemens ICN “made repeated and consistent
representations to [appellants] on the payment terms of the DRP and 'last man standing' that
constituted material misrepresentations. These misrepresentations related to the setting of
individual goals, the setting of corporate goals, the allocation of $169 million, and the existence
of 'last man standing.'” Appellants accused appellees of both misrepresenting elements of the
retention plans and omitting to disclose “that they never intended to pay out all $169 million set
aside for the retention program which include among other things, 'last man standing'
payments.” As a result of the misrepresentations and failure to disclose, appellants alleged they
suffered “damages in an amount to be determined at trial.”
To support their contentions, appellants point to deposition testimony from
Brooks and Manning agreeing that the employees reasonably relied upon Efficient's officers'
representations. Appellants contend there is a fact question regarding whether appellees owe
them additional sums under the retention program. Among other responses, appellees assert
appellants' fraud claims are derivative of their unenforceable breach-of-contract cause of action.
We have already upheld the trial court's summary judgment on appellants'
breach-of- contract claim on the ground the asserted contract violates the statute of frauds.
Appellants may not recover in a fraud action benefit-of-the-bargain damages not otherwise
enforceable under the statute of frauds. See Haase v Glazner, 62 S.W.3d 795, 799 (Tex.
2001). A party cannot “use a fraud claim essentially to enforce a contract the Statute makes
unenforceable.” Id. A claimant may, however, recover out-of-pocket damages. Id.
Direct damages for common law fraud may include out-of-pocket damages
and benefit-of- the-bargain damages. Sonnichsen, 221 S.W.3d at 636. Out-of-pocket
damages are restitutionary and measure the difference between value parted with and value
received. Id. Benefit-of-the- bargain damages derive from an expectancy theory and measure
the difference between the value that was represented and the value actually received. Id.
Appellants' alleged damages all arise from appellees' refusal to make the final
distribution appellants allege they are owed. Appellants essentially argue they were damaged
because they did not get the benefits they expected when appellees did not honor their contract.
Thus, appellants' fraud claim seeks benefit-of-the-bargain damages. See id. Because we view
appellants' fraud claims as artfully pleaded claims for breach of contract, unenforceable under the
Statute of Frauds, we follow Haase and Sonnichsen and overrule appellants' second issue. See
Sonnichsen, 221 S.W.3d at 636-37; Haase, 62 S.W.3d at 799.
In their first issue, appellants contend summary judgment should be reversed
because fact issues exist on their claim that appellees breached Efficient's 1999 Stock Plan.
Initially, we note appellants concede that four appellants-Massey, Schmertz, Ladson, and
Mason-were not participants in the Stock Plan and, therefore, have no claim to assert.
Additionally, appellees point out fourteen appellants signed written releases when they left
Efficient waiving any claims under the Stock Plan. Because we conclude the trial court did not
err in granting summary judgment against all appellants asserting a cause of action for breach of
the Stock Plan, we need not address the issue of individual waivers.
The Stock Plan empowered Efficient's board of directors, or a committee
appointed by the board, the discretion to select employees who would receive stock options, to
determine the number of optioned shares and the exercise price, and to set the time for the
options to vest. Efficient and each optionee would enter into a “Stock Plan Agreement” setting
forth the optionee's number of options, strike price, and vesting date. By signing the Stock
Option Agreement, the optionee agreed that the option was governed by the Stock Plan and the
optionee accepted “as binding, conclusive and final, all decisions or interpretations of the
Administrator upon any questions relating to the Plan and Option Agreement.”
In the event of a merger, section 13(c) of the Stock Plan required the
successor entity to either assume the outstanding options or substitute “an equivalent option or
right.” Appellees contend they assumed and canceled the stock options in accordance with the
Stock Plan's requirements. Appellants contend appellees did neither and, therefore, breached the
Stock Plan. In the event appellees did assume and cancel the underwater options, appellants
contend appellees breached the Stock Plan by failing to secure their consent before impairing
their rights and terminating the plan.
Appellants contend appellees could not have assumed the options because one
cannot assume an obligation by canceling it. Alternatively, appellants contend using the word
“assume” to mean “cancel” renders the term ambiguous, thus creating a fact issue regarding
the wording of the Stock Plan. Appellants interpret the evidence as showing Efficient initially
elected to substitute the retention plan as an “equivalent right” to the Stock Plan. Appellants
point to Manning's deposition testimony stating that the $169 million figure was calculated by
valuing the underwater options at $18 each and multiplying by the number of outstanding
underwater options. Citing authorities establishing that unvested underwater options have value
up to the date they expire, appellants contend fact issues exist regarding the value of the
further point out that Floyd, other Efficient officers, and Efficient's
outside accountants used the terms “substitute” and “replace” in describing the relationship
between the retention plan and the Stock Plan. Thus, appellants contend, there is a fact issue
regarding whether appellees intended to substitute the retention plan as an equivalent right to
appellants' stock options. Appellants point to evidence showing Efficient's management told
employees that unallocated retention funds would be distributed to them on the third anniversary
of the merger. Subsequently, appellants allege, appellees altered the plan to retain the final
distribution for themselves and ordered Efficient officers not to discuss the retention plan with the
employees. By failing to pay out the full amount, appellants contend, there is a fact issue
regarding whether appellees breached the Stock Plan's requirement that they provide an
equivalent right. In making their argument, appellants ignore the plain wording of the Stock Plan
and the evidence that appellees did assume the options obligation in accordance with the
In the trial court, appellees took the position that they had assumed the
outstanding stock options and paid at the time of the merger those that were “in the money.”
Appellees point to the minutes from a February 21, 2001 meeting of the Efficient Board of
Directors wherein the Board pronounced that “for purposes of [Efficient's] stock option plans,
the provisions of Section 3.07 of the Merger Agreement 'shall be considered an assumption' of
[Efficient's] options.” Section 3.07 of the Merger Agreement, in turn, states as follows:
SECTION 3.07 Employee Stock Options; Employee Stock Purchase Plan.
(a) Effective as of the Effective Time, the Company shall take all necessary action, including
obtaining the consent of the individual option holders, if necessary, to (I) cancel the Company's
1999 Stock Plan . . . and (ii) cancel, at the Effective Time, each outstanding option to purchase
shares of Company Common Stock (each, a “Company Stock Option”) that is outstanding
and unexercised, whether or not vested and exercisable as of such date. Each holder of any
cancelled Company Stock Option that has an exercise price that is less than the Per Share
Amount shall be entitled (subject to the provisions set forth in this Section 3.07(a)) to be paid by
the Surviving Corporation, with respect to each share subject to the Company Stock Option, an
amount in cash (subject to any applicable withholding taxes) equal to the excess, if any, of the
Per Share Amount over the applicable exercise price of such Option (the “Option Payment”).
In respect of those Company Stock Options that have an exercise price that is less than the Per
Share Amount, the Surviving Corporation shall make each Option Payment to the Company
Stock Option holder as of the date on which the applicable number of shares of Common Stock
subject to such Company Stock Option would have otherwise vested, subject to the conditions
for vesting contained in the applicable Company Stock Option award, notwithstanding the
cancellation of such Company Stock Option. The Surviving Corporation shall make such Option
Payment at the Effective Time with respect to any outstanding and fully vested Company Stock
Options that have an exercise price that is less than the Per Share Amount as of such date . . . .
The Company shall take all actions necessary to shorten any pending Offering Period (as
such term is defined in the Company's 1999 Employee Stock Option Purchase Plan (the
“ESPP”)) and establish a New Exercise Date (as contemplated in Section 19(c) of the
ESPP) prior to the Effective Time (the “ESPP Date”). After the ESPP Date, all offering
and purchase periods pending under the ESPP shall be terminated and no new offering or
purchasing periods shall be commenced.
The record shows Efficient elected to assume and cancel the outstanding
options in accordance with section 3.07 of the merger agreement. In the event of a merger, the
1999 Stock Plan provided that an option would be considered assumed “if, following the
merger . . . the option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger .
. . the consideration . . . received in the merger . . . by holders of Common Stock for each
Share held on the effective date of the transaction . . . .”
The first official communication regarding the merger, Koch and Moran's
February 2, 2001 letter, proposed that the “in the money” options be paid and canceled. The
Koch/Moran letter proposed that employees be compensated for their “out of the money”
options by including them in the MRP, which was expressly intended to reward them in lieu of
stock options. The parties do not dispute that the MRP was paid.
Despite the Efficient Board's pre-merger pronouncement that the stock options
were assumed, appellants contend there was no assumption because the Stock Plan required the
successor entity to make the assumption and there is no evidence the new Efficient ever
expressly assumed the options. Appellants, however, ignore the import of the Efficient Board's
declaration in the February 21, 2001 minutes. Section 2(a) of the Stock Plan named the Board
as the Stock Plan “administrator.” Among the enumerated powers of the administrator listed in
section 4(b)(viii) of the Stock Plan is the power “to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan.” Section 4(c) provided that “[t]he Administrator's
decisions, determinations and interpretations shall be final and binding on all Optionees and any
other holders of Options or Stock Purchase Rights.” Section 4(c) is in harmony with the Stock
Option Agreements which require each signing optionee to expressly acknowledge that the
decisions and interpretations of the administrator was “binding, conclusive and final.”
If a written instrument is worded so that it can be given a certain or definite
legal meaning or interpretation, then it is not ambiguous, and we will construe the contract as a
matter of law. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). Under the unambiguous
language of the Stock Plan, the Board's determination that section 3.07 of the Merger
Agreement satisfied the assumption requirement of the Stock Plan is final and binding upon
Moreover, as appellees point out, upon closing of the merger transaction,
appellees, acting as the “successor corporation,” actually paid “the consideration . . . received
in the merger or sale of assets by holders of Common Stock” as required by section 13(c) of
the Stock Plan. It is undisputed that the “in the money” options, including those held by
appellants, were paid at the time of the merger by giving the option holders the difference
between the $23.50 per share tender price (the “Per Share Amount” described in the Merger
Agreement) and the strike price of the option. Thus, having satisfied the consideration
requirement of section 13(c), under the terms of that section, we conclude appellees assumed
the options as a matter of law.
We also find no merit in appellants' efforts to value the “underwater” options.
The Stock Plan unambiguously requires the successor company to provide only the
consideration available to common stockholders. It is undisputed that Efficient's common-stock
holders received $23.50 per share in the merger. Assuming, without deciding, that some residual
value could be attributed to appellants' “underwater” options, section 13(c) does not require
the merging entities to recognize or pay the residual value during the merger. Thus, the fact that
“underwater” options exercisable at prices above the tender price were not compensated is
irrelevant to a determination that appellees assumed and canceled the outstanding options in
accordance with the Stock Plan.
Likewise, we find no fact issue in appellants' contention regarding Efficient's
officers describing the retention plan as a “substitute” for the stock options when describing the
retention plan to employees. As appellants state in their brief, the evidence shows Siemens
Corporation's inability to offer employees stock options as an incentive was a significant hurdle
to merging Efficient into the Siemens group. The fact that the retention plans were widely viewed
by Efficient's employees and managers alike as a pragmatic substitute for the Stock Plan does
not alter or affect the fact that it was not a “substitute” within the meaning of section 13(c) of
the Stock Plan. Section 13(c) does not require in the event of a merger that appellees
compensate optionees for underwater options.
Reinforcing the evidence that the retention plan was intended to replace the
Stock Plan only as a business necessity rather than as a matter of fulfilling the Stock Plan's notion
of an “equivalent right,” we observe that the MRP was available to all employees-not just to
those holding underwater options. Similarly, the DRP bonuses were awarded to key
employees-not just employees holding underwater options. Without evidence directly correlating
underwater options and the awards under the retention plan, appellants cannot show appellees
elected to provide an “equivalent right.”
Turning to appellants' alternative argument, the Stock Plan provided that the
optionee's rights may not be impaired by amendments, alterations, suspensions or termination of
the plan unless agreed in writing. Appellants contend appellees impaired their rights and
terminated the Stock Plan without first acquiring their written consent, thus breaching the Stock
Plan. Appellees respond that the optionees' rights were not impaired by an assumption carried
out in conformity to the contract.
In reviewing the Stock Plan, we must examine and consider the entire contract
in order to harmonize and give effect to all provisions so none are rendered meaningless. Id. By
entering into the Stock Plan agreement, the optionees have already consented to the
merger-event procedure set down in the contract. We agree with appellees that it does not
impair appellants' rights nor does it require additional consent for appellees to conduct a merger
in accordance with the merger event clause of the Stock Plan.
Because the record shows appellees properly assumed and canceled the
options in accordance with the Stock Plan's merger-event provision, we conclude there is no
genuine issue of material fact, and they were entitled to judgment as a matter of law on
appellants' claim for breach of the Stock Plan. We overrule appellant's first issue.
We affirm the trial court's judgment.
Footnote 1 Appellants are Mark Allen Adkins, Glen Arceneaux, Mark Beider, Neill R. Bell,
Vernon Benton, Robin Biko, Constance Blankenship, Eduard Blonk, John Bowers, Charles
Carter, Guy Dame, Timothy D'Angelo, James J. Daughtery, John D'Auria, Huey Dixon, Timothy
Doll, John Y. Du, Stephene K. Dunbar, Ryan Eccles, Kalaiselvi Eswaran, Rudolfo Fidel, Angela
Fitzgerald, David Foster, Michael Fox, Bart Gaines, Mark Geinosky, Peggy Gerwig, Calvin
Gluck, Eric Gonzalez, Xiaofeng Gu, Brian Hall, Tracy Hawn (Carlson), Archer Henderson,
Rhonda Hiesberger, Timothy Hsieh, Lucy Huang, Martine Huizing van-Etten, Rebecca Hukill,
Ernie Ianance, Greg Imahara, Cherrone Johnson, Charles David Kennedy, Amir Khazaie,
Rebecca Kocks, David Korth, D'Andre Ladson, Beverly Landis, Sean Large, Scott Ledbetter,
Lip Thia Leow, Hongjun Li, Maritsa Lohere, Jason Lombardo, Ruben Madrigal, Kim Martin,
Christina Mason, Raymond Massey, Tom McBurney, Patty McCaskey, Richard McCauley,
David Mark Mead, Amy Medina, Patrica A. Miller, Sean Montgomery, Rene Mulder, Ruth
Munevar, Mario Paalvast, Robert Richey, Benjamin Runnels, Tracy Runnels, David Schmertz,
Laura Shacklette, Jeff Smith, Moshe Speckman, Kerry Stover, Tim Sweat, Todd Tatum, Jarrod
Thornton, Dzung Truong, Frederick Tucker, Heather Tucker, Jimmy E. Tucker, Charles Van,
Hugo van den Hurk, Ron Visser, Thomas J. Willie, III, Daniel Winterroud, I-Chin Yu, Dwight
Toms, Barry Chen, and Jody Cire. Appellant Robert Sawler dismissed his appeal.