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CardinalJay

Judgment or Contract Date?

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Would an equity grant be as of the contract date or the litigated judgment date if it was never awarded previously?

In a employment contract dispute regarding equity, would the equity grant be as of the contract date (2015) or judgment date (2018)? The equity was never awarded and was litigated. If its retroactive to 2015, it causes MAJOR accounting and dilutions problems. If its as of the judgment date (or subsequent grant date) then the award is much more valuable than if awarded in 2015 because of avoiding significant dilution. Thanks!

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16 minutes ago, CardinalJay said:

Would an equity grant be as of the contract date or the litigated judgment date if it was never awarded previously?

In a employment contract dispute regarding equity, would the equity grant be as of the contract date (2015) or judgment date (2018)?

 

I honestly have no idea what these questions mean because you provided no context.  "Equity grant"?  "Contract dispute regarding equity"?

 

Care to provide some context (including what your involvement in this situation is)?

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An employment contract awarded equity.  The equity was not awarded resulting in litigation which resulted in a judgment for the equity that was supposed to be granted in the employment agreement.  The date of the employment contract is 2015.  The date of the judgment is 2018.  If the equity is retroactive and granted as if it was granted in 2015 it significantly dilutes the equity and causes major accounting problems.  If the equity is grant as of the judgment date (2018) then a employee avoids a lot of dilution that took place between 2015 and 2018.  

 

I"m asking whether the original date of the contract (2015) is the grant date for the equity or the date the judgment was entered (2018)?  I work for the company that's going to be granting the equity.

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The contract awards 10% equity but does not have a grant date.  The order states that the contract is valid and company owes employee 10% equity but doesn't provide grant date.  The employee's argument is there is not grant date so it is the date the 10% is actually granted which is going to be in 2018/2019 thus avoiding a lot of dilution.  There doesn't appear to be any right to make it retroactive unless its just supposed to be the date of the contract.

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So, if the company was worth a million dollars in 2015 and is worth a million and a half today, the employee would want the valuation date as of today and the employer would want the valuation date of 2015.

 

Conversely, if the company was worth a million dollars in 2015 and is worth half a million today, the employee would want the valuation date as of 2015 and the employer would want the valuation date of today.

 

If that wasn't specified in the judgment, then somebody did a pretty poor job of litigating.

 

 

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The valuation is irrelevant.  There does not even need to be a valuation.  The employee gets 10% of the company no matter.  What matters is whether the grant date is 2015 (contract date) or 2018 (judgment date).  If it is 2015 then the employee is diluted from 10% to 5%.  If it is 2018 then the company owns 10%.  The assumption is since the 10% has never been granted that he is granted 10% in 2018 (since the company is now forced to grant in 2018) and that it would not be retroactive to the contract date.

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2 hours ago, CardinalJay said:

If it is 2015 then the employee is diluted from 10% to 5%.

 

You're going to have to explain that.

 

If the employee was supposed to get 10% of the company in 2015 and gets 10% of the company today, what difference does it make? 10% is 10%. How does it become 5%?

 

 

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11 hours ago, adjusterjack said:

 

You're going to have to explain that.

 

If the employee was supposed to get 10% of the company in 2015 and gets 10% of the company today, what difference does it make? 10% is 10%. How does it become 5%?

 

 

Because of dilution by subsequent investors.  Between 2015 and 2018 investors invested in the company obtaining 50% of the company so everyone's ownership was cut in half.  I.E. if you owned 10% before you own 5% after.  If you owned 20% before you own 10% after.

 

But IF the grant date if after the 2018 court judgment then the employee is awarded 10% in 2018 thus coming in AFTER the diluting events.  Alternatively, if its retroactive to contract date (2015) then the employee would participate in the diluting events (accounting nightmare to refigure including probably having to refile tax returns) and only own 5%.

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There is no way for folks on a message board to deal intelligently with this.  One would need to read both the contract and the judgment in order to advise your employer properly.  The attorney who represented your employer in the litigation should be providing this advice.

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2 hours ago, CardinalJay said:

But IF the grant date if after the 2018 court judgment then the employee is awarded 10% in 2018 thus coming in AFTER the diluting events.  Alternatively, if its retroactive to contract date (2015) then the employee would participate in the diluting events (accounting nightmare to refigure including probably having to refile tax returns) and only own 5%.

 

Thank you. I get it now.

 

Still, the judgment should have addressed that issue. If the judgment is silent on that issue then you are going to have to seek clarification from the judge.

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The reason we can't answer yyour question is because the inference drawn from the necessity for the suit.  If it was intended the equity be granted immediately, i.e. in 2015, it would not be necessary to have the grant of equity set  out in a contract.  So, there must have been some intent of the parties that the equity would be granted at some time in the future.  If that is the case, there should be something in the contract defining the time or contingencies that would occur that would result in the award of the equity.

 

That's why I ask about the provision  in the contract governing the award of the equity interest.

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I can make this simple.  Someone was entitled to 10% equity in 2015 which they didn't get.  They sue based upon the contract.  Absent a contractual provision to the contrary,  they get what they should have gotten had the contract been executed in 2015 as it was supposed to.  The judgment simply affirms the original terms of the contract.  It doesn't give more.

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1 hour ago, LegalwriterOne said:

I can make this simple.  Someone was entitled to 10% equity in 2015 which they didn't get.  They sue based upon the contract.  Absent a contractual provision to the contrary,  they get what they should have gotten had the contract been executed in 2015 as it was supposed to.  The judgment simply affirms the original terms of the contract.  It doesn't give more.

 

Right. The usual award in a breach of contract case is known as expectancy damages. This means an award that puts the plaintiff in the same position he or she would have been had the contract been performed as promised. So if the agreement was that Joe gets 10% of the shares of XYZ Inc on 12/15/2015 and XYZ breaches the contract with Joe, what Joe gets when he wins the lawsuit is the share interest in the company today that matches what it would be had he got the 10% shares on 12/15/2015 and then went through whatever share dilutions, buy backs, splits, or whatever that occurred thereafter.

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