Change in Control Agreement

Change in Control Agreement

Drafts a tax-compliant U.S. executive CIC agreement with double-trigger structure, precise statutory definitions, severance benefits, and parachute payment protections.

Quick Start

Gather before drafting:

1. Executive — name, title, base salary, target bonus, outstanding equity (type, vesting, performance metrics)
2. Company — legal name, state of incorporation, entity type, public/​private status
3. Existing agreements — employment agreement, equity plan docs, prior CIC/​severance agreements
4. Deal terms — severance multiple, protection period, 280G treatment, benefits continuation period
5. Benchmarking (if available) — peer agreements, proxy disclosures, comp committee guidelines

Core Workflow

- [ ] Collect executive profile, company info, and existing agreements
- [ ] Define key terms (Change in Control, Cause, Good Reason, Qualifying Termination)
- [ ] Set severance benefits (cash, equity acceleration, COBRA, pro-rated bonus)
- [ ] Configure 280G approach (No Gross-Up / Best Net / Full Gross-Up)
- [ ] Add 409A compliance provisions (separation from service, specified employee delay)
- [ ] Draft release conditions (OWBPA-compliant consideration + revocation periods)
- [ ] Include general provisions (governing law, dispute resolution, successor assignment)
- [ ] Verify all placeholders resolved and cross-references consistent

Article Specifications

Article I — Definitions

• Change in Control: define ownership threshold, merger/​consolidation test, and all-or-substantially-all-assets sale test. Include board-turnover test only if needed by the deal context.
• Cause: include felony/​plea trigger, willful failure after written notice plus cure period, materially injurious conduct, fiduciary-duty breach, and material policy violation with cure where applicable.
• Good Reason: include material duty diminution, compensation reduction not broadly applied, and relocation threshold. Include notice/​cure/​election windows.
• Qualifying Termination: without Cause or for Good Reason during the protection period.
• Protection Period: usually 12-24 months post-CIC; include pre-CIC tail only if requested.

Article II — Severance Benefits

• Cash severance: set multiple against base salary plus target annual bonus.
• Pro-rated bonus: specify target vs actual metric and payment timing.
• Equity acceleration: define covered award types and performance-award vesting level.
• Exercise window: specify post-termination option/​SAR exercise period.
• Benefits continuation: define COBRA or equivalent duration and end conditions.
• Mitigation/​offset: state whether mitigation is required and whether outside earnings offset benefits.

Article III — Conditions to Benefits

• Release requirement: include execution and non-revocation condition with OWBPA-compliant timelines.
• Release scope and carve-outs: list included claims and preserved rights.
• Property return and transition cooperation: include practical handoff obligations and expense reimbursement terms.

Article IV — Section 280G/​4999

• Select one approach: No Gross-Up, Best Net (cutback), or Full Gross-Up.
• If cutback applies, define reduction order (for example, cash first, then equity; 409A-covered amounts first).
• Specify independent calculator (accounting firm or tax counsel), allocation process, and finality standard.

Article V — Section 409A

• Treat each installment/​payment as a separate payment for 409A purposes.
• Tie payment triggers to 409A separation-from-service definitions.
• Include specified-employee delay mechanics for applicable public-company executives.
• Include reimbursement timing/​non-liquidation guardrails and a compliant savings clause.

Article VI — General Provisions

• Governing law and venue/​dispute-resolution path.
• Successor assumption requirements and assignment limits.
• Supersession hierarchy against prior CIC/​severance arrangements.
• Amendment/​waiver formalities, severability, notice mechanics, and permitted offset language.

Key Placeholders

Pitfalls

• Single trigger — avoid for public companies; ISS/​Glass Lewis routinely vote against single-trigger equity acceleration
• 280G modeling — run parachute calculations before selecting approach; full gross-up is rarely defensible in new agreements
• 409A — treat each payment as separate; do not rely on short-term deferral exemption for CIC-contingent amounts; use Day-60 payment with two-tax-year rule; apply specified-employee 6-month delay for public company executives
• OWBPA — strictly observe 21-day (under 40) or 45/​60-day (40+) consideration periods plus 7-day revocation; non-compliance invalidates ADEA release
• Equity plan override — confirm acceleration and extended exercise provisions expressly supersede conflicting plan/​award terms; some plans require separate committee action
• Pre-CIC tail — limit to terminations "at the request of" or "in connection with" the contemplated transaction; avoid overbroad language
• State law — CA, NY, and others restrict non-competes; review local WARN, mini-COBRA, and wage payment requirements separately