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Cutler v. Ensage, Inc.

Other Lower Courts

November 30, 2007

Peter Cutler, Plaintiff,
v.
Ensage, Inc. d/b/a CrossBorder Solutions, Donald Scherer, Stephanie Scherer, Joan Scherer, Joseph Mileti and The Thomson Corporation, Defendants.

Editorial Note:

This case is not published in a printed volume and its disposition appears in a table in the reporter.

OPINION

Joan Madden, J.

In this action for breach of contract, specific performance, breach of fiduciary duty, injunctive relief, for an accounting, and for defamation, plaintiff Peter Cutler, a former employee of defendant Ensage, Inc. (Ensage), contends that he has the right to exercise his options to purchase 699,469 shares of Ensage common stock.

Defendants Ensage, Donald Scherer, Stephanie Scherer, Joan Scherer, Joseph Mileti (collectively, the Ensage defendants) and the Thomson Corporation (Thomson) now move for an order, pursuant to CPLR 3211 (a) (1) and (7), dismissing plaintiff's amended complaint. Plaintiff opposes the motion, which is granted for the reasons below.

BACKGROUND

Ensage, a privately held tax software company, first hired plaintiff in May 2002 to serve as its Vice President of Sales (Amended Complaint, 11). Pursuant to Ensage's Stock Incentive Plan, dated September 15, 2000 (the Option Plan), Ensage may offer certain stock options to key employees as delineated in the Option Plan (id., 10). As evidenced by a letter dated May 1, 2002, Ensage granted plaintiff an option to purchase 699,469 shares of Ensage stock at an exercise price of $.45, for a total exercise price of $314,761.05 (the Stock Option) (id., 12-13; Exh C).

The terms of this option grant were governed by three documents: (1) the Option Plan; (2) a Non-Qualified Stock Option Agreement between Ensage and plaintiff (the Option Agreement); and (3) the Ensage Stock Incentive Plan Committee's Section 11 Tax Withholding Rule referenced in the Option Plan (collectively, the Option Documents).

On July 5, 2006, plaintiff's employment with Ensage was terminated following his alleged violation of the Company's vacation policy for the sales team [1] (id., 24; Exh D). At the time of his termination, plaintiff had not yet exercised any of his vested stock options. Plaintiff was nonetheless advised that he could still exercise his options, provided he did so before October 5, 2006, when they would otherwise expire (id., Exh J). The rules and requirements for exercising options are set forth in the various Option Documents.

First, the Option Plan provides that:

An option shall be exercised upon written notice to the Company accompanied by payment in full for the shares being acquired. The payment shall be made in cash, by check or, if the option agreement so permits, by delivery of shares of Common Stock of the Company beneficially owned by the participant, duly assigned to the Company with the assignment guaranteed by a bank, trust company or member firm of the New York Stock Exchange or by acombination of the foregoing.

Option Plan, 5 (f).

The Option Agreement provides that:

Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, or whenever restricted stock vests, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state and/or local income and employment withholding tax requirements prior to the delivery of any certificate or certificates for such shares or take any other appropriate action to satisfy such withholding requirements. Notwithstanding the foregoing, subject to such rules as the Committee may promulgate and compliance with any requirements under Rule 16b-3, the recipient may satisfy such obligation in whole or in part by electing to have the Company withhold shares of Common Stock from the shares to which the recipient is otherwise entitled.

Option Plan, 11.

The Option Agreement provides that:

On the date of any exercise of this option, the exercise price of the shares as to which this option is being exercised shall be due and payable in full. Payment shall be made in cash or by check or by delivery of shares of the Common Stock of the Company registered in the name of the optionee, duly assigned to the Company. ... The Option holder shall also remit to the Company the amount needed to satisfy any federal, state or local withholding taxes that may arise or be applicable as the result of the exercise under this option. No certificate will be issued to the Optionholder with respect to the exercised shares until such withholding obligations have been satisfied to the complete satisfaction of the Company.

Option Agreement, 3.

Finally, the Option Rule provides that:

As provided for in Section 11 of the Ensage, Inc. Stock Incentive Plan, the committee has promulgated the following rule regarding tax withholding obligations for participants in the plan. Optionholders may satisfy their tax withholding obligations by electing to have the Company withhold shares of Common Stock from the shares to which the Optionholder is otherwise entitled in the following two scenarios: 1) the Company has consummated an IPO or has cash reserves greater than $10,000,000 or 2) the tax withholding obligations are under $10,000. In all other scenarios, the Optionholder must remit the Company an amount sufficient to satisfy all tax ...


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