Legal Updates

An option agreement that did not consider a possibility of corporate restructuring will not be nullified due to that

April 23, 2021

In a loan agreement the borrower company granted the lender a warrant that may be exercised in the event of an IPO. Prior to the IPO the company did a restructuring and contended that the lender lost its right to execute the warrant, even though its effect on the company share value was negligible.
The Court held that the lack in the contract should be filled in a way that gives the lender the warrant even in the event of a corporate structural change. Completion of details is subject to the will of the parties and the freedom of contracts and may fill in technical details but not materially change the agreement. Completion of details should take into account the characteristics of the contract and its terms, can not contradict the purpose of the agreement or the division of risks and chances that the parties undertook and must be based on one of three basis: The practice between the parties, a normative source or the principle of good faith. Here, the contract is based on a business logic, according to which the contract cannot be construed as if the lender waived the possibility of adjusting the option in the event of a structural change. Although no practice or normative source exist, as the effect of the change on the value of the share is negligible, the completion may be made by virtue of the principle of good faith.