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Exceptions to Anti-Acceleration Rule


jpod

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Has anyone heard Dan Hogans or anyone else from Treasury/IRS comment on the following issue?

One of the exceptions in the proposed regulations permits payment upon termination of an arrangement (and all substantially similar arrangements) pursuant to "the service recipient's discretion under the terms of the arrangement" within 30 days preceding or 12 months following a change in control.

If the written terms of the arrangement do not reserve this discretion to the service recipient, can you still take advantage of the exception if all of the participants and the service-recipeitn agree to terminate and pay out the money within the permitted time period surrounding a change in control? If not, can you achieve the same objective by first having all the participants and the service-recipient agree to amend the arrangement to give the service-recipient the necessary discretion, and thereafter have the service-recipient exercise that discretion? Seems kind of silly that you can do it through the 2-step approach but not the 1-step approach, which makes me think that maybe you can't do the 2-step approach either.

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I really don't know why you couldn't do it either way but your latter approach is probably more literally in line with the regs.

I have a different question with respect to this particular provision of the regs: Suppose Seller in an asset transaction has a NQP that Buyer does not assume, but Buyer does assume Seller's employees. Buyer has its own NQP. Seller wants to terminate its NQP due to the change of control. Can Seller do so without regard to the continued existence of Buyer's NQP? The question really is who is the service recipient in this case. If it is the Seller only, then the Seller should be able to terminate all of its NQPs and that should not requre the Buyer to terminate any of its NQPs. Do you know how to handle this situation?

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gaham: Thanks for your comments on my issue. Insofar as your issue is concerned, I haven't really thought about it. However, I don't recall anything in the prop. regs. that could make an unrelated party a member of the seller's service-recipient group, in which case I would think the existence of the buyer's NQP should have no effect on the seller's ability to use one or more of the "termination" exceptions.

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