You do not need a Lexis or Westlaw subscription to know that major cases and significant judgments have sometimes hinged on the meaning of a single word, or the placement of a single Oxford comma. We have a recent case to add to the list: Weinberg v. Waystar, Inc., et al., which was an executive contract dispute case in Delaware that hinged on a single word: “and.”

The plaintiff, an executive at Waystar, received three option grants.  The “call right” provision in the option award documentation allowed the defendants to repurchase the plaintiff’s equity acquired upon exercise of the options upon specified events, including termination without cause and/or a restrictive covenant breach. The plaintiff’s employment was terminated without cause, and she exercised her vested options. The defendants then exercised their call right, repurchasing the plaintiff’s newly acquired equity, pursuant to their interpretation of the call right provision.

As a matter of background, many private companies’ equity incentive arrangements include call rights to allow the company to repurchase equity under a variety of circumstances.  The call right serves both strategic and logistical ends.  Strategically, many companies do not want ex-employees to participate in the upside of the company’s growth post-termination because these ex-employees are no longer contributing to the company’s success. Logistically, having too many minority holders on the capitalization table can create administrative challenges in the future (e.g. with respect to information rights or payments in connection with an exit event) and could also raise securities law issues.  To these ends, call rights are typically triggered upon the termination of an executive’s employment.

Back to the case at hand.  The call right provision read:

“The Converted Units shall be subject to the right of repurchase (the ‘Call Right’) . . . during the six (6) month period following (x) the … Termination of such Participant’s employment . . . and (y) a Restrictive Covenant Breach.” 

(Emphasis added.)  The dispute hinged entirely on the meaning of the word “and” before clause (y).

The plaintiff asserted that the word “and” between “(x)” and “(y)” meant that both conditions had to be satisfied before the defendants could exercise their call right (i.e. the conjunctive interpretation).  Under this interpretation, the call right would not be triggered unless the plaintiff’s employment were terminated and the plaintiff were to breach a restrictive covenant. The parties agreed that the plaintiff did not breach a restrictive covenant; so under the plaintiff’s interpretation, the defendant would not have had a right to buy back the equity.

In contrast, the defendants interpreted the word “and” to mean that they could exercise the call right if the plaintiff’s employment were terminated or if she were to breach a restrictive covenant (i.e. the disjunctive interpretation).  Under this interpretation, the defendants were within their rights to repurchase the plaintiff’s equity grant on the basis of the plaintiff’s termination alone.

The judge sided with the defendants, concluding based on the language and the surrounding context, that the parties must have intended the disjunctive interpretation: “I find that the plain language of the Call Right provision supports the Defendant’s interpretation because it is consistent with the ‘several’ use of ‘and’ that is used in permissive sentences.”  The judge concluded that the provision was analogous to saying “at our resort, you can swim, golf and play tennis”—which would not require participating in all three activities.

The judge also noted that the purchase price for the call right varied depending on whether the plaintiff’s termination was with cause or without cause (another common feature of call right provisions).  The judge said that distinction would be rendered “meaningless” if the conjunctive interpretation of the provision were correct.  It would not make sense to have a “no cause” purchase price if the call right required both termination and breach of a restrictive covenant.

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At the end of the day, the word choice did not change the outcome, but that would ignore the cost of defense.  This case is a good reminder that, in drafting, every word matters.

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Photo of Seth Safra Seth Safra

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined…

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined benefit to cash balance and floor-offset arrangements, ESOPs and 401(k) plans—often coordinating qualified and non-qualified arrangements. He also advises tax-exempt and governmental employers on 403(b) and 457 arrangements, as well as innovative new plan designs; and he advises on ERISA compliance for investments.

On the health and welfare side, Seth helps employers provide benefits that are cost-effective and competitive. He advises on plan design, including consumer-driven health plans with HSAs, retiree medical, fringe benefits, and severance programs, ERISA preemption, and tax and other compliance issues, such as nondiscrimination and cafeteria plan rules.

Seth also advises for-profit and non-profit employers, compensation committees, and boards on executive employment, deferred compensation, change in control, and equity and other incentive arrangements. In addition, he advises on compensation and benefits in corporate transactions.

Seth represents clients before the Department of Labor, IRS and other government agencies.

Seth has been recognized by Chambers USA, The Legal 500, Best Lawyers, Law360, Human Resource Executive, Lawdragon and Super Lawyers.

Photo of David Teigman David Teigman

David Teigman is a partner in the Tax Department and a member of the Employee Benefits & Executive Compensation Group. David focuses his practice on executive compensation and benefit matters, principally in connection with mergers and acquisitions, securities offerings and senior executive employment…

David Teigman is a partner in the Tax Department and a member of the Employee Benefits & Executive Compensation Group. David focuses his practice on executive compensation and benefit matters, principally in connection with mergers and acquisitions, securities offerings and senior executive employment relationships.

David regularly counsels public and private companies on compensatory and benefit arrangements, such as equity-based incentives, cash-based incentives and employment, change-in-control, retention, separation and consulting agreements. He also advises on corporate governance, tax law and securities law related to employment matters.

A frequent author, David has published the following articles:

  • “Share Reserve and Other Limits in Public Company Equity Plans” (Practical Law)
  • “Roadmap to Providing Appropriate Incentives to Employees When Your Company is Going to be Sold” (The M&A Lawyer)
  • “Taxation of an Option Exercise When the Shares are Subject to a Substantial Risk of Forfeiture” (Practical Law)

David is often called upon by leading industry publications, including Agenda/Financial Times, Law360 and Modern Healthcare, for his perspective on executive compensation and benefit issues.

David received his J.D., cum laude, from the University of Buffalo, where he was the Editor-in-Chief of the Buffalo Law Review and the Executive Editor of the Public Interest Law Journal, and his B.S. from Cornell University.

Photo of Gregory Zeien Gregory Zeien

Gregory Zeien is a law clerk in the Tax Department.