A couple of years more or less …

01 Apr 2011

a stock option agreement held good although the ownership of the employer had changed hands.

A stock option agreement held good although the ownership of the employer had changed hands.
Agreements are interpreted literally and based on the general principles of Danish contract law. Any ambiguity may be interpreted against the party who drafted the agreement. This principle also applies to stock option agreements between a company and its employees, as can be seen from this case from the Danish Supreme Court.
A company awarded a group of employees a number of stock options in the parent company in the period from 1999-2002. The stock options were to be exercised within 10 years. But in 2004, the parent company offloaded its subsidiary and it was decided that the stock options would now have to be exercised in 2005 at the latest.
The employees did not believe that the exercise period could be shortened in this way and the matter ended up in the Copenhagen Maritime and Commercial Court and then, on appeal, in the Danish Supreme Court.
Nothing new under the sun
The Supreme Court sided with the employees and held that the company was not entitled under the agreement to shorten the exercise period. The clauses cited by the employer did not do because shortening the exercise period would be to the detriment of the employees.
In addition, the Supreme Court noted that the agreement specified how a number of termination scenarios should be tackled but, unfortunately for the employer, the scenario at hand was not mentioned. The Supreme Court saw no reason in the circumstances to give the clause a wide interpretation, thus affirming the lower court's judgment.


Norrbom Vinding notes

  • that the case shows that also a stock option agreement must be interpreted on the basis of the general principles of Danish contract law and that it may prejudice the employer’s case if the agreement is not drafted in clear and unambiguous language.