A change of control agreement is an agreement between a company and one of its executives to safeguard the remunerative rights of the executive in exchange for his continued service with the company. If a company undergoes a change of control and if the executive is fired without Cause or quits for Good Reason following this change of control, the company will pay out a severance package to the executive, usually consisting of his salary (several times over) and stock options. The theory behind the change of control agreement is that an executive can better focus on his fiduciary duties when he’s not worried about losing his job in a hostile takeover.There are a number of points to look for in a change of control agreement:

1. A change of control, be it:

a. the sale, lease, or other conveyance of the company’s assets;

b. the acquisition of 20% of the company’s outstanding common stock in one year;

c. a merger or consolidation;

d. a change in the majority of the Board members;

e. a decision by the Board to dissolve or liquidate the company; or

f. a resolution by the Board that states that a change of control has occurred.

2. Definition of Cause

3. Definition of Good Reason

4. Death / disability provisions

5. Gross-up provisions

6. The term, and of course…

7. The benefits that may result from a change of control-severance pay, stock options, and the like.

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