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What are the standard clauses for a Change of Control Agreement?
Introduction
A Change of Control Agreement is a legal document that outlines the terms and conditions that apply when there is a significant change in the ownership or control of a company. This type of agreement is crucial for protecting the interests of both the company and its employees, particularly senior executives. In Kenya, such agreements are governed by various laws, including the Companies Act, 2015, the Employment Act, 2007, and the Constitution of Kenya, 2010.
Table of Contents
Definition and Purpose
Key Clauses in a Change of Control Agreement
2.1 Change of Control Definition
2.2 Termination Provisions
2.3 Severance Benefits
2.4 Equity Compensation
2.5 Confidentiality and Non-Compete Clauses
2.6 Governing Law
Legal Framework in Kenya
3.1 Companies Act, 2015
3.2 Employment Act, 2007
3.3 Constitution of Kenya, 2010
Conclusion
1. Definition and Purpose
A Change of Control Agreement is designed to provide financial security and job protection to key employees in the event of a significant change in the ownership or control of a company. This could include mergers, acquisitions, or other corporate restructuring events. The primary purpose of such an agreement is to ensure that the interests of the employees are safeguarded during periods of corporate uncertainty.
2. Key Clauses in a Change of Control Agreement
2.1 Change of Control Definition
Definition Clause: This clause clearly defines what constitutes a "change of control." It typically includes events such as:
Acquisition of a certain percentage of the company's shares by another entity.
Merger or consolidation of the company with another entity.
Sale of all or substantially all of the company's assets.
Changes in the composition of the board of directors.
2.2 Termination Provisions
Termination for Good Reason: This clause allows the employee to terminate their employment for "good reason" following a change of control. "Good reason" may include:
Significant reduction in job responsibilities.
Decrease in salary or benefits.
Relocation of the company's headquarters.
Termination Without Cause: This clause protects the employee from being terminated without cause within a specified period following a change of control.
2.3 Severance Benefits
Severance Pay: This clause outlines the severance benefits that the employee will receive if their employment is terminated following a change of control. This may include:
Lump-sum payment.
Continuation of salary for a specified period.
Payment of bonuses and other incentives.
Health and Welfare Benefits: This clause ensures the continuation of health and welfare benefits for a specified period following termination.
2.4 Equity Compensation
Acceleration of Vesting: This clause provides for the acceleration of vesting of stock options or other equity awards upon a change of control. This ensures that the employee can benefit from their equity compensation even if their employment is terminated.
2.5 Confidentiality and Non-Compete Clauses
Confidentiality: This clause requires the employee to maintain the confidentiality of the company's proprietary information both during and after their employment.
Non-Compete: This clause may restrict the employee from working for a competitor or starting a competing business for a specified period following termination.
2.6 Governing Law
Governing Law Clause: This clause specifies that the agreement will be governed by the laws of Kenya. It ensures that any disputes arising from the agreement will be resolved under Kenyan law.
3. Legal Framework in Kenya
3.1 Companies Act, 2015
Section 93: This section deals with the transfer of shares and the rights of shareholders in the event of a change of control.
Section 238: This section outlines the duties of directors, including their responsibilities during a change of control.
3.2 Employment Act, 2007
Section 10: This section requires employers to provide written contracts of employment, which may include change of control provisions.
Section 35: This section outlines the requirements for termination notice and severance pay, which are relevant to change of control agreements.
3.3 Constitution of Kenya, 2010
Article 41: This article guarantees fair labor practices, which are relevant to the protections provided in change of control agreements.
Article 47: This article guarantees the right to fair administrative action, which may be invoked in disputes arising from change of control agreements.
Conclusion
A Change of Control Agreement is a vital document that protects the interests of key employees during significant corporate changes. In Kenya, such agreements are governed by various laws, including the Companies Act, 2015, the Employment Act, 2007, and the Constitution of Kenya, 2010. Key clauses in these agreements include the definition of change of control, termination provisions, severance benefits, equity compensation, confidentiality, non-compete clauses, and governing law. By including these clauses, companies can ensure that their employees are treated fairly and that their interests are protected during periods of corporate uncertainty.
Answered by mwakili.com