In Denmark, it is common for entrepreneurs to agree to a reverse vesting schedule in respect of their shares as part of the process of raising venture capital financing.
It is market standard for the shares to vest (reversely) over a period of three to four years, in arrears either monthly, quarterly, or annually. Sometimes, the vesting schedule will partially or fully accelerate upon the occurrence of an exit event. However, there is not a great tradition in Denmark for accelerated vesting at exits, which in those cases mean that the warrants will either simply continue to vest under the new ownership or be cancelled/redeemed subject to a separate agreement as if accelerated, exercised, and purchased as part of the exit.
As in the UK, vesting provisions in Denmark generally distinguish between good and bad leavers. While the details are to some extent contingent on the bargaining power of the parties, founders are generally considered good leavers in line with UK market practice described above, i.e., death, serious illness, retirement, and dismissal without cause.
Most other scenarios will cause the founder to become a bad leaver, most commonly the founder’s own resignation without this being triggered by a breach on the part of the company.
Good leavers are usually allowed to keep their vested shares in full or partially, whereas the unvested shares are subject to an option to purchase at fair market value by the company and/or the remaining founders and/or shareholders at fair market value.
Some schedules – typically in the early stages of a startup’s life – will provide a right to acquire all shares (vested and unvested) at fair market value to provide for an opportunity to replace the leaving founder with a new co-founder.
It is, however, common practice that a leaving founder and the remaining founders as well as the shareholders will engage in negotiations around the number of shares to be retained and the purchase price for those shares that are sold.
For bad leavers, the shares are commonly bought back at nominal value by the company or pro rata amongst the other founders or shareholders. This also applies to the shares already vested.
As in the UK, some deals will introduce a further definition of a ‘grey’ or ‘intermediate’ leaver, often referred to as a ‘no cause leaver’. Usually this is a founder leaving the business after a period of years, e.g., in a scenario where the vesting has been reset in a subsequent funding round, and other than in circumstances where he or she could have been or was dismissed for ‘cause’. These kinds of arrangements can be viewed as a form of ‘loyalty’ bonus and are increasingly common to see on deals.
No cause leavers will most of the time keep/see fair market value for their vested shares and be treated as bad leavers for the unvested part, i.e., have their shares acquired at nominal value.
The leaver mechanics will typically be included in the company’s shareholders’ agreement, and not in the articles of association (or “vedtægter” in Danish) of the company (unlike in the UK).
A lock-up (a restriction on transfer) and negative pledge (a restriction against creating any security interests over the shares) will be imposed during the vesting period for the relevant founder(s).
Varieties of single and double-trigger provisions are still rather rare in Danish vesting schedules although the double-trigger mechanism (termination event and change of control) is seen now and then for C-suite individuals.