Last year, a federal court considered whether a "change in
control" had occurred under the terms of a company's
Executive Severance Agreement (the "ESA"). The
court's decision provides guidance on how a court might
interpret a change in control definition under executive
compensation arrangements and highlights the need for some
companies to consider modifying their definitions for clarity.
Facts of the Case
Under the facts of the case, two investors in the company acting
separately began to buy shares of the company, eventually acquiring
over 25% of the company between the two of them. Through their
position, they were eventually able to acquire three seats on the
board of directors of the company—one to be controlled by
each individually, and another to be controlled by mutual agreement
between the two. In a single month, four board members resigned;
three of whom were replaced by the two investors and the fourth of
whom was replaced by the board.
