Change of Control
Commercial Contract
Table of Contents:
Definitions
Assignment
Termination
Release of/Access to Intellectual Property
Change of Control
Concerns may arise when there is a material change in the control, structure, and/or ownership of a party to a contract (aka as a “change of control”). Because of a potential disruption to the original intent of the parties or to the status quo, the occurrence of a change-of-control event may trigger certain rights in favor of the non-changing party, such as the right to assign that party’s rights and obligations, the right to terminate the contract, and/or even the right to access the changing party’s intellectual property.
Definitions
In light of the significant consequences that may ensue under a contract upon a “change of control”, the parties may be advised to take care in defining when such a critical event occurs:
Exemplar C15-1
A “Change of Control” means a sale of all or substantially all of the assets or stock of Customer to an independent third party, or (ii) a merger, business combination, acquisition or other transaction in which the holders of Customer's voting equity interests immediately prior to the merger or business combination beneficially own less than 50% of the voting equity interests in the surviving company.
Exemplar C15-2
“Change of Control” means the consummation of any transaction or series of related transactions in which any one or more of the following occurs: (i) any person, or group of persons acting in concert, becomes the beneficial owner, directly or indirectly, of 50% or more of a Party or its Affiliate’s then outstanding common stock or then outstanding voting securities entitled to vote generally in the election of directors (or comparable governing body if such Party is not a corporation); (ii) the sale, lease, exchange or other disposition of 50% or more of all of the Party’s consolidated assets; (iii) during any period of two (2) consecutive years, a majority of the Board consists of individuals who were not elected to the Board (or recommended for election) by the Company’s stockholders by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the two (2) year period; (iv) consummation, or approval by the shareholders of a Party or its Affiliate of a complete liquidation or dissolution or a plan of complete liquidation or dissolution of the Party; or (v) a Party or its Affiliate becomes the beneficial owner, directly or indirectly, of 50% or more of a Competitor payment card network’s then outstanding common stock or then outstanding voting securities entitled to vote generally in the election of directors (or comparable governing body if such Party is not a corporation).
Exemplar C15-3
For purposes of this Agreement, “Change of Control” means (x) the consummation of a reorganization, merger or consolidation or sale or other disposition of substantially all of the assets of CUSTOMER; or (y) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more than 50% of either (i) the then outstanding shares of common stock of such party; or (ii) the combined voting power of the then outstanding voting securities of such party entitled to vote generally in the election of directors. This Agreement will bind and inure to the benefit of the parties and their respective successors and permitted assigns.
Exemplar C15-4
A "Change in Control" shall mean the occurrence of any of the following events:
i. Approval by stockholders of the company of (a) any consolidation or merger of the company in which the company is not the continuing or surviving corporation or pursuant to which shares of stock of the company would be converted into cash, securities or other property, other than a consolidation or merger of the company in which holders of its common stock immediately prior to the consolidation or merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger as immediately before, or (b) a sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the company;
ii. a change in the majority of members of the board within a 24-month period unless the election or nomination for election by the Company stockholders of each new director was approved at a vote of two thirds of the directors then still in office who were in office at the beginning of the 2-month period;
iii. either (A) receipt by the company of a report on schedule 13D, or an amendment to such a report, filed with the Securities and Exchange Commission ("SEC") pursuant to section 13(d) of the Securities Exchange Act of 1934 (the "1934 Act") disclosing that any person, group, corporation or other entity (a "Person") is the beneficial owner, directly or indirectly, of 20% or more of the outstanding stock of the company or (B) actual knowledge by the company of facts, on the basis of which any person is required to file such a report on schedule 13D, or an amendment to such a report, with the SEC (or would be required to file such a report or amendment upon the lapse of the applicable period of time Specified in Section 13(d) of the 1934 Act) disclosing that such a person is the beneficial owner, directly or indirectly, of 20% or more of the outstanding stock of the company;
iv. purchase by any person (as defined in section 13(d) of the 1934 act), corporation or other entity, other than the company or a wholly owned subsidiary of the company, of shares pursuant to a tender or exchange offer, to acquire any stock of the company (or securities convertible into stock) for cash, securities or any other consideration provided that, after consummation of the offer, such person, group, corporation or other entity is the beneficial owner (as defined in rule 13d-3 under And 1934 Act), directly or indirectly, Of 20% or More of the Outstanding Stock of the Company (calculated as provided in paragraph (d) of Rule 13d-3 under the 1934 act in the case of rights to acquire stock);
v. the Company combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of the company immediately prior to the combination do not hold, directly or indirectly, more than 50% of the Voting Stock of the combined company (there being excluded from the number of shares held by such shareholders, but not from the Voting Stock of the combined company, any shares received by affiliates (as defined in the rules of the Securities and Exchange Commission) of such other company in exchange for stock of such other company).
Assignment
Where the parties have agreed to allow a party to assign its rights and obligations to an affiliate (for a further discussion on affiliates, please see the section entitled “Affiliates”), the parties may also agree to allow assignment to third parties who become a new affiliate of the assigning party via a change of control event:
Exemplar C15-5
Each party will have the right to assign this Agreement to:(a) any third party with the prior written consent of the other party, such consent not to be unreasonably withheld, conditioned, or delayed; (b) any present Affiliate of the assigning party, or (c) to any new Affiliate of the assigning party other third party into which the assigning party has merged or which has otherwise succeeded to all or substantially all of its business and assets to which this Agreement pertains, by purchase of stock, assets, merger, reorganization or other Change of Control event. In each of the above instances, the assigning party will provide the other party with written evidence of such future assignee’s acceptance of the assignment, delegation and assumption of the obligations under this Agreement, including assumption of all accepted Purchase Orders. Except for confidentiality obligations, the assigning party will be released and discharged, to the extent of the assignment and delegation, from all future duties under this Agreement or Purchase Orders accepted prior to the time of such permitted assignment, and all rights granted to the assigning party hereunder will be terminated effective upon such assignment.
Termination
To ensure that that the new relationship resulting from a change of control does not lead to an untenable or unsustainable situation that prohibits the parties from continuing to perform under a contract (for example, if a party is acquired by a competitor of the other party), the parties may agree to allow the non-changing party to terminate the contract upon a change in control. However, to avoid such a harsh and disruptive remedy as termination, the parties may agree that the right to terminate does not apply where the non-changing party consents to the change or is otherwise provided with evidence that the status quo shall be maintained:
Exemplar C15-6
Notwithstanding anything to the contrary herein, CONTRACTOR shall have the right to terminate this Agreement by giving thirty (30) days prior written notice of termination to CUSTOMER in the event CUSTOMER assigns this Agreement or undergoes a Change of Control, except where (i) CONTRACTOR has provided its prior written consent to such Change of Control, such consent not to be unreasonably withheld, conditioned, or delayed; or (ii) CUSTOMER provides CONTRACTOR with written evidence that the third party who obtains ownership of CUSTOMER as a result of the Change of Control has accepted the assignment, delegation and assumption of all of CUSTOMER’s obligations under this Agreement.
Release of/Access to Intellectual Property
In the following exemplar, the non-assigning party--as an IP licensee--has two options in the event of a change of control by the licensor to which the licensee did not consent: either terminate the agreement or, alternatively, obtain access to the licensor’s intellectual property (such as source code) and receive the right to use such intellectual property and exercise its rights under the agreement independently of the licensor (see the discussion of source code escrow rights in the section entitled “License Grants-Source Code Escrow and License”):
Exemplar C15-7
This Agreement may not be assigned by Licensor, in whole or in part, including, without limitation, by operation of law, in a merger or stock or asset sale, without the express written permission of Licensee. If Licensor makes any attempt to assign this Agreement to any such party without Licensee’s written consent, Licensee will have the option to immediately terminate this Agreement. No permitted assignment or subcontract by Licensee shall relieve Licensee of any obligations hereunder. Licensee shall always remain jointly and severally liable with any assignees under this Agreement. In the event of a transfer by Licensee of any of the Intellectual Property that is the subject of this Agreement, whether by operation of law or otherwise, and Licensor does not exercise its rights to terminate the Agreement as stated above, the escrow rights described in Section X shall be deemed immediately vested.