Change in control

[J2D2]

I am trying to determine whether a clause in a change in control severance agreement is a common one for publicly-traded companies. The agreement provides that an executive will be considered to have terminated employment and be eligible for the severance benefit if he/she is reassigned to substantial duties that are materially inconsistent with his/her duties, responsibilities and status prior to a change in control. OK so far. In the same paragraph, the agreement further provides that the "reassignment" provision will not apply if the company is no longer publicly-traded and the executive no longer has duties and responsibilities associated exclusively with a publicly-traded company, such as SEC reporting, stock exchange reporting, etc. I'm being asked whether this exception is a common provision.

My sense is that such a provision is not unusual, but I don't have much hands-on experience with this type of agreement. What is your experience?

Thanks!

[Kirk Maldonado]

In my experience, it is extremely rare for an arrangement to even deal with the issue of a "going private" transaction.

[david rigby]

Perhaps my experience is limited, but change in control provisions seem to be common in publcily traded companies. However, they may not be as extensive as the provisions you mention. For example, sometimes they are only a vesting trigger.

Where there is a "reassignment" provision, most have a time limit (such as 6 or 12 months). The wording of such provisions is not ambiguous.

[Kirk Maldonado]

PAX. I agree with you that change in control provisions are common in publicly traded companies.

The point I was trying to make in my prior post was that extremely few of the hundreds of change in control provsions that I've reviewed over the year have special language dealing with a going private transaction.

That isn't too surprising, because most going private transactions will be a change in control anyway (because of the change in ownership). Thus, there generally isn't a need for special rules dealing with a going private transaction.

It seems to me that it would be hard for the executive to make a compelling argument that his or her change in control benefits should become triggered simply because the company's stock is no longer publicly traded. If anything, that should make the executive's job be more, not less, secure.

J2D2. I recommend that you review that language very carefully. Unless it is properly drafted, it is possible that the executive's benefits could be triggered if a holding company were set up to own all of the stock of the currently publicly traded company, even though there is no effective change in ownership of the entity. Holding companies are particularly common in certain industries, such as banks.

[TCWalker]

My experience, the exception clause is unusual.