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Proposal for amendment of the Danish Share Option Act

By: Henriette Stakemann and Rasmus Høj Christensen

Submitted by Firm:
Plesner
Firm Contacts:
Henriette Stakemann, Rasmus Christensen
Article Type:
Legal Update
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The Minister for Employment will consult on a draft bill on amendments to the Danish Share Option Act. The bill constitutes the implementation of the political agreement on business and entrepreneurial initiatives concluded between the Government and the parties Dansk Folkeparti and Radikale Venstre on 12 November 2017.

The political agreement entails that "freedom of contract is to be established in order to enter into vesting agreements in employee share programmes, including making it possible to agree that employee shares not yet accrued at the time of termination of employment will lapse when the employee's employment is terminated" and that "freedom of contract is to be established in order to enter into agreements on share repurchases at market price upon termination of employment".

Pursuant to the bill, this increased flexibility will be implemented by deleting Sections 4 and 5 of the Share Option Act currently in force as well as introducing a new Section 4 that will regulate the repurchase of shares acquired through share programmes comprised by the Share Option Act.

Sections 4 and 5 must be regarded as outlining the main principles of the Share Option Act, as they stipulate that a "good leaver" is entitled to keep options etc. that are granted, but not exercised, in connection with termination of employment (Section 4) and that it can be agreed that a "bad leaver" will lose all granted, but not exercised, rights (Section 5).

The deletion of the current Sections 4 and 5 means - as also stated directly in the bill - that freedom of contract is introduced in regard to how to deal with non-exercised instruments comprised by the Share Option Act in connection with termination of employment. However, Section 36 of the Danish Contracts Act will continue to be applicable, to the effect that terms and conditions that are deemed as unfair can be set aside or changed by the courts.

With respect to share repurchases, the bill introduces a new Section 4, pursuant to which it can be agreed that the employer, upon the employee's termination of employment, can repurchase shares - acquired under a programme or an agreement comprised by the Share Option Agreement - at market price. On the one hand, such amendment will entail that the uncertainly that previously existed in regard to the possibility of forcing through a repurchase of shares from a good leaver will now be clarified, but, on the other hand, the fact that repurchases in all circumstances will be at market price seems inappropriate.

Furthermore, the following appears from the comments to the bill: "However, in the case of shares that, in accordance with the programme, are non-transferable in the open market, a clause on repurchase at market price cannot be implemented". It is uncertain how this comment is to be interpreted, including whether a repurchase is only possible for listed companies.

Irrespective of the fact that the bill overall must be regarded as providing greater flexibility for companies in connection with the establishment of option schemes etc., the bill seems rather excessive - and also more excessive than what was contemplated by the political agreement. Specifically the fact that it will be possible without limitations for a "good leaver" to lose the right to all granted, but not exercised, options etc. will constitute a significant change compared to the legal position today.

Furthermore, it seems rather excessive that the repurchase of shares - acquired by exercising share options etc. - will as a minimum be at market value, e.g. in the case of an employee's material breach. In addition, it seems inappropriate to only regulate the repurchasing of shares that are acquired by exercising share options etc., when a large number of employee share programmes are not comprised by the Share Option Act, e.g. due to the fact that the shares are acquired directly, possibly at a preferential price.

It is expected that the bill will be introduced in the end of October 2018 with a view to its entry into force in the beginning of January 2019.

Plesner will of course monitor the further legislative development, including specifically whether any changes have been made to the bill when it is introduced in the Danish Parliament.