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LUTZKER v. WALTER E. HELLER & CO.

March 31, 1959

Isidor H. LUTZKER, Plaintiff,
v.
WALTER E. HELLER & COMPANY, (Inc)., Defendant



The opinion of the court was delivered by: SUGARMAN

Defendant Walter E. Heller & Company (Inc.) moves for an order dismissing the complaint of Isidor H. Lutzker. Matters outside the pleading were presented and not excluded by the court; the motion is therefore deemed one for summary judgment. F.R.Civ.P. 12(b), 28 U.S.C.A.

The complaint herein seeks specific performance of a contract dated June 23, 1955, between the parties to this action, wherein plaintiff, then an employee of the defendant, was given a restricted stock option to purchase shares of the defendant.

The following facts are not in dispute. Defendant is a Delaware corporation whose stock is publicly held and listed on the New York Stock Exchange and on the Midwest Stock Exchange. Plaintiff is an attorney at law, admitted to practice in New York in 1925. After acting as general counsel to defendant for some years, plaintiff in 1947 became a vice president of defendant. In 1953 he was appointed a member of defendant's then newly formed Executive Committee of the Board of Directors. Plaintiff never had a written employment contract with the defendant.

 On June 23, 1955, defendant's Board of Directors met. The minutes of this special meeting show that:

 'The Chairman stated that, in view of the importance of the Company's retaining the services of various officers and key employees, he had had under consideration for some time and had discussed with other members of the Board individually, and with counsel, a program further to encourage stock ownership in the Company by such officers and key employees, by means of restricted stock options as contemplated by Section 421 of the Internal Revenue Code (26 U.S.C.A. § 421).'

 'The Chairman submitted to the meeting a form of restricted stock option, which was examined by the Directors present at the meeting. The Chairman pointed out that the option price, in order fully to qualify gain in the event of disposition for long term capital gain treatment, must be not less than 95% of the fair market value of the shares, or 110 per cent of the fair market value of the shares in the case of officers or employees owning stock possessing 10 per cent or more of the combined voting power of all classes of stock of the Company. He also noted that transactions in the Company's common stock on this day on the American Stock Exchange closed at $ 32.75 per share. He further pointed out that, in order to encourage continued service to the Company, the form of option submitted to the meeting provides that the optionee can exercise his option only after six months and only as to 20 per cent of the stock subject to the option in each year for five years, and that the option is exercisable only while the optionee is employed by the Company, or within three months after the termination of his employment.

 'After discussion of the proposed restricted stock options and of the employees to whom such options might be granted and the number of shares to be granted to each, the following resolutions were proposed and, upon motion duly made, seconded and carried, were adopted:

 'Resolved, that as an incentive and to encourage stock ownership in this corporation by various of its officers and key employees in the manner contemplated by Section 421 of the Internal Revenue Code, there are hereby reserved for issuance pursuant to restricted stock options, as hereinafter specified, 50,000 of the authorized and unissued shares of the common stock, $ 2.00 par value, of this corporation.

 'Resolved Further, that this corporation grant restricted stock options in substantially the form submitted to this meeting to the following named officers and employees of the corporation for the purchase of the number of shares of common stock, $ 2.00 par value, of the corporation set opposite their respective names, at a price of $ 31.12 per share, except that, in the case of any such officer or employee owning stock possessing 10 per cent or more of the combined voting power of all classes of stock of the corporation the price shall be $ 36.03 per share:

 Plaintiff approved and consented to these minutes and signed them sometime after July 20, 1955.

 At or about that time he executed an option agreement *fn1" whereby he acquired the restricted right to purchase 3,850 shares of defendant over a five-year period. *fn2"

 The instant controversy arises from the parties' inability to agree on the construction properly to be given to the option agreement above mentioned.

 A construction is required because within five years from the grant plaintiff of his rights under the option agreement, i.e., in February, 1957, effective March 31, 1957, he resigned from office at defendant's request.

 Plaintiff had on deposit with the company 150 shares of defendant's common stock to satisfy the requirements of paragraph 3. These shares were retained by the company until after plaintiff left its employ and were at all times here pertinent greater in value than the sum necessary as a deposit toward all the shares reserved in ...


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