Stock Options – Right of exercise

Paris Court of Appeal
13 April 2010

Parties : X / Société AXA

A French company awarded the employees of its German subsidiary two options plans that could be exercised from February 2004 and from March 2005 respectively.

In February 2005, shortly after the severance of his work contract by a cancellation contract submitted to German law, one of the beneficiaries requested the exercise of a part of his options. However, the mother company rejected his request, ascertaining that he had lost the right to exercise options by leaving the company.

Ruled out of the Trade Court, the former staff member appealed, claiming that no legal provision requires beneficiaries to still be staff members when they exercise their options. In addition, as his contract was terminated on amicable terms, he considered that the restrictions for contentious option plans were not applicable to him.

The Court of Appeal observed that in option plan regulations, layoffs do entail the loss of rights to exercise options, but not the amicable severance of an employment contract. Furthermore, the Court judged that the termination convention signed between the German company and its employee did not produce any effect on the options awarded by the mother company.

It considered therefore that the exercise of options by the former employee was valid and it sentenced the awarding company to register the subscription in its books, on the correct date, immediately after payment of the corresponding sums.

Provider of investment services – Experienced operator – Personal equity
plan

Supreme Court of Appeal
18th May 2010

Parties : X / Société Dubus

On the 3rd June 1999, Mr X opened a personal equity plan (PEA) with an investment services provider, the company Dubus. Without a management contract, Mr X could make orders concerning these financial instruments by computer, using an access code, and, in particular, he could pass orders on the monthly payment market, now, the differed payment service.

The service provider issued a writ to oblige Mr X to pay an amount corresponding to the insufficient provision on the securities account. Mr X, for his part, demanded the termination or resolution of the verbal contract tying him to Dubus and requested the company to reimburse the funds invested.

The Court of Appeal sentenced Mr X to reimburse the debt on his account. Mr X lodged an appeal with the Supreme Court, complaining that the provider had not made him sign the convention for a securities account, which, according to him, was the condition of validity for such a contract.

However, according to the Court, although a convention for a securities account must be based on a written agreement, this requirement does not constitute the validity of the contract but serves simply as a rule to provide proof.

Mr X challenged the Court’s description of him as an experienced operator and he claimed that all providers of investment services must give their inexperienced clients information about the characteristics of financial instruments on which the trading is envisaged, the operations to be engaged in and the risks for private individuals.

However, the diversity of the operations done by Mr X on the futures market from 1999 to 2001, the first profits that he had withdrawn and the category of orders given show that he possessed sufficient knowledge about stock market mechanisms.

Mr X’s appeal was therefore rejected.