Validity Of Call Options For Leaver Events In German Management Equity Programs

Key Takeaways

• In an appellate ruling, the German Federal Court of Justice (BGH) reaffirmed its established case law on the general validity of call options in case of leaver events in German management equity incentive programs.
• The right to expel a (former) manager from the MEP vehicle without objective grounds (so-called unrestricted expulsion clauses) is generally void pursuant to Section 138(1) of the German Civil Code (BGB), unless such expulsion clause is exceptionally justified by special reasons requiring a comprehensive assessment of all circumstances and the interests of the parties. This is the case if the MEP investment by a manager is deemed an “annex” to the managers’ service function and the shareholding itself is of secondary importance, as evidenced by the manager not being granted any relevant voting rights or influence over decisions.