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The plans referenced in the IMAX case had termination provisions quite similar to what we are familiar with here in the U.S. Yet, the court found that language too general – noting that that what constitutes an actual termination of employment is not defined. This sure raises the question as to whether other courts would have a similar interpretation if such a provision is challenged.
This isn’t the first I’ve heard of plan language being referenced by a court as too general. In cases of divorce, common transfer language in stock plans (prohibiting transfers, for example) may not be enough to convince a court that no transfer should be allowed. It’s possible the courts may view such a transfer as “involuntary” due to the circumstance as divorce, and therefore something the court can’t enforce as a prohibited action – even if the plan says it’s prohibited. Thanks to panelists Derek Windham (Hewlett Packard Enterprise), Josh Schaeffer (Equity Methods), Justin Ho (Orrick Herrington & Sutcliffe LLP), and Raenelle James (Equity Methods) on the session “Divorce, Death and the Impact on Equity Awards”) at our 27th Annual NASPP Conference for this particular insight.
Much of our standard stock plan language has been around for years, if not decades. It’s time to consider which provisions could benefit from more detailed definition.
The Case for ESPPs and Upping Participation
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Underwater Stock Options: Is a Stock Price Forfeiture Provision the Answer?
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ISS Targets Evergreen Provisions
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Implementing an Auto Exercise Program for Stock Options
Companies that grant stock options know that there are a few core challenges that have maintained their existence throughout the life span of these types of arrangements. Among them: how to handle ...Read More
Extend Your Share Reserve with Inducement Grants
Since the Tax Cuts and Jobs Act made all forms of equity compensation subject to Section 162(m), I’ve Read More