Change Of Control Agreements

Contracts are inherently risky and a number of things can go wrong, which can lead to costly contractual litigation. Of course, this can alter circumstances that are not even dealt with in a treaty, so it is not even possible to challenge such an undesirable change, or perhaps there is only a remote chance of success in the courtroom. A fairly significant change, which is likely to occur and is not often mentioned in contracts, is a change in the structure or ownership of one of the contracting parties. Companies are bought, sold and merged all the time, but contracts are often silent on the impact that such a change should have or will have on the existing contract. This is clearly an error, as a change of ownership may result in deliberate or unintended changes to the existing agreement. For example, a newly created business may change the seller or subcontract with new parties, situations in which the nature, quality or date of contractual obligations are changed. It is always possible that the issue of change of control will not even take place. Therefore, instead of scattering in the attempt to avoid this situation, it may be possible to negotiate certain requirements if this is indeed the case. For example, your company may attempt to include some kind of authorization procedure in which the other party seeks permission to amend and maintain the contract or provides some kind of payment as compensation for the change.

Of course, maintaining the right to terminate the treaty offers the greatest protection, but the need to do so really depends on the nature of the agreement in question. Exchange-in-control agreements, sometimes referred to as „golden parachutes,“ compensate executives for job losses due to mergers or sales. Executives are agents charged with acting in the best interests of the company and shareholders. However, CEOs face difficulties associated with merging or selling the company, the end result of which will result in the loss of his position as an executive. Exchange-in-control agreements are structured to encourage executives to seek and open up opportunities for sale or mergers if it is in the interests of shareholders, without hesitation in losing their own positions.