Ask Me Help Desk - Law Regarding Collection on Sale of Common Stock at Private Company

Hello

Our company is private and was bought out in the spring of 07. At that time, I was granted the ability to exercise some incentive stock options.. I did so as the new owner made an offer to buy them from me.

I was sent a Notice of Exercising Stock Options form, for which I selected an option that I would send in the money to buy the options. I was promised to be able to sell them at ~5X the purchase price.

Essentially the new owner owes me about 10K, which I have not seen as of Jan 2009. As of last week, I have been laid off from this company, so I have no further gumption to 'hold off' on trying to secure this money.

Surfed the internet far and wide but haven't found anything easy to decipher on what my options are or how to go about securing this money. Any similar experiences would be appreciated. The company is located in CA.

Sounds like you need two things.

First, you need buy the stock you get from exercising your options. Since you have not paid for that stock, you do not yet have it and thus have nothing to sell to the new owner.

Second, you need to sell the stock to the new owner. Unless the company is public, your stock will not be registered and you will need to meet an exemption for selling the stock.

But I suspect you want to make sure that the new owner will buy your stock at the 5x price before you pay to exercise the options. If you have not done so already, I would try to get the new owner's agreement to that in writing. That will give you comfort.

If you cannot get the agreement in writing, and the new owner tries to back out of the deal, you will need to see what evidence you have of an agreement. It may be that you will have enough to support a claim against the new owner for the money.

I see that you said the company is private.

Quote:

Originally Posted by vpschroeder

I was sent a Notice of Exercising Stock Options form, for which i selected an option that i would send in the money to buy the options. I was promised to be able to sell them at ~5X the purchase price.

Hello vp:

If you were given stock options as part of your pay package, then I don't understand WHY you selected some option on the form indicating that you SEND in the money... You don't OWE any money...

So, I'm confused... If the guy didn't buy your stock, then I don't think you can hold him to a verbal promise. And, you've still got your stock.

I don't know. I think I'm missing something here.

excon

Quote:

Originally Posted by Daanii

Sounds like you need two things.

First, you need buy the stock you get from exercising your options. Since you have not paid for that stock, you do not yet have it and thus have nothing to sell to the new owner.

Second, you need to sell the stock to the new owner. Unless the company is public, your stock will not be registered and you will need to meet an exemption for selling the stock.

But I suspect you want to make sure that the new owner will buy your stock at the 5x price before you pay to exercise the options. If you have not done so already, I would try to get the new owner's agreement to that in writing. That will give you comfort.

If you cannot get the agreement in writing, and the new owner tries to back out of the deal, you will need to see what evidence you have of an agreement. It may be that you will have enough to support a claim against the new owner for the money.

My original post was incomplete... sorry about that.

To further clarify.. Our company is private NOT PUBLIC.

I DID buy the stock and was subsequently sent a stock certificate. I only sent the money in to convert the stock options to stock AFTER I had a confirmed offer from the buyer (the new owner) for 5X the price. In order to exercise the options, I had to sign a legal document provided to me by the company. The confirmed offer from the buyer (the new owner) is in writing in email form.

Where I am today: I have in writing from the buyer that he will buy the stock back from me, I have a stock certificate from the company showing that I (still) own the shares of common stock, and I have proof of all the transactions related to the above.

What I need: to get the money that he owes me.

What I need help with: 1) how do I go about trying to collect on this? 2) since his original offer, the value of the company may have changed.. does that impact his original offer in any way, shape or form?

Thanks for all help

So essentially you have an agreement from the new owner to purchase the stock at a set price (5 times whatever you paid for it). This new owner has not performed according to his agreement.

Send him a letter demanding that he performs. If he fails to respond you have no choice but to file suit against him.

Further questions then arise:

1) Do I file suit against him (e.g. John Doe) or against the company (that he now owns?). It was John Doe that made me the offer..

2) the amount is for 10K. I am not sure what the average lawyer costs are in this situation.. I think that 10K is also above California small claims court limit. Where do I file suit and how do I minimize my costs? Can I recover any lawyer costs I incur along the way? I live in WI... should I plan for traveling to CA and would those costs be recoverable?

3) When asking for the money he owes me, I suppose I need to follow the Fair Debt Collection practices?

Fair Debt Collection Practices Act!

Quote:

Originally Posted by vpschroeder

1) Do I file suit against him (e.g. John Doe) or against the company (that he now owns?). It was John Doe that made me the offer..

Against him.

Quote:

2) the amount is for 10K. I am not sure what the average lawyer costs are in this situation.. I think that 10K is also above California small claims court limit. Where do I file suit and how do I minimize my costs? Can I recover any lawyer costs I incur along the way? I live in WI... should I plan for traveling to CA and would those costs be recoverable?

Small claims also might not work because you are not simply seeking a money judgment, you are asking for specific performance of the contract, which is probaby not within the small claims court jurisdiction.

You could file in either CA or WI; but if you recover a judgment in WI and the debtor has no assets in Wisconsin, you would still have to take steps to register and collect the judgment in CA. So it might be more efficient to sue in California. Why not contact several California attorneys and ask them what they would charge?

Quote:

3) When asking for the money he owes me, I suppose I need to follow the Fair Debt Collection practices?

Fair Debt Collection Practices Act!

No. You are not a debt collecter as defined in the act.

"§ 803. Definitions [15 USC 1692a]

As used in this title --

...
(6) The term "debt collector" means any person who... attempts to collect... owed or due another.. . "

Ak Lawyer's answers are good advice. Let me add a few comments.

First, I would write a letter demanding payment addressed to both John Doe and his company (assuming that he is an officer of the company he bought). No reason to limit it to just him personally. I would try that demand letter first before thinking about a lawsuit.

Second, attorney's fees and costs in litigation are normally not recoverable, particularly in contract cases. I suspect that litigation is not going to be cost effective for you. But I would send the demand letter first and then see how this develops.

I'm a lawyer in California and there are as you might expect a lot of attorneys from high-priced firms to low-priced solo practitioners working out of home offices. Even so, with only $10,000 at stake, I don't see bringing a lawsuit here making any sense at all.

If a demand letter does not get a good reaction, I would find an attorney there who could file a complaint. It probably would not make sense to go to trial on this, even there. But having a complaint filed against you makes you much more likely to settle.

Good luck.