For the purposes of this clause, "Change of Control" shall mean any sale or transfer of more than 50% of the voting shares or equity of [Party A], or the sale or transfer of substantially all of [Party A]'s assets relating to this Agreement. In the event of a Change of Control of [Party A], [Party B] shall have the right to terminate this Agreement by giving written notice within 30 days of becoming aware of the Change of Control. Such termination shall take effect 30 days from the date of notice. For the avoidance of doubt, [Party A] shall give [Party B] prompt written notice upon a Change of Control of [Party A] occurring.
The clause defines a "Change of Control" as a sale or transfer of over 50% of the shares or ownership in Party A, or a sale of most of Party A's assets relating to the agreement. Some lesser share transfer would not trigger the clause.
• If such a Change of Control occurs for Party A, it gives Party B the right to terminate the agreement. But Party B only has 30 days from finding out about the Change of Control to issue a termination notice.
• The termination would then take effect another 30 days later, giving Party A 60 days' notice in total that the agreement will end due to the Change of Control. • The clause requires Party A to promptly notify Party B in writing if a Change of Control happens. Failure to notify would breach the contract.
• The purpose of the clause is to protect Party B by allowing them to terminate the agreement if there is a major change in ownership or control of Party A that could potentially undermine Party B's position or benefits under the contract in some way. But there is a reasonable notice period to avoid unfairness to Party A.
• The exact parameters and notice periods would depend on the commercial context, but this provides a good sample Change of Control clause and all the key elements you would expect. The aim is balancing the interests and risks of both parties.
Origins in company law - The concept originates from company law, referring to changes in control and ownership of corporations. This influenced how such clauses are defined in contracts, referring to share transfers and asset sales.
• Rise in M&A activity - As mergers and acquisitions activity increased in the 20th century, parties became more concerned about how business transactions might impact their contracts. Change of control clauses emerged as a way to give some protection and control over the fate of key contracts. • Private equity growth - The expansion of private equity firms and leveraged buyouts led to more situations where control of a company changes but the legal entity remains the same. Change of control clauses adapted to address these types of transactions as well. • Balancing risks - Over time, courts and practitioners aimed to achieve a balance around change of control clauses. They are intended to reasonably protect one party's interests but not be overly broad or punitive to the other party in the event of normal business dealings. Terms like material adverse effect and reasonable notice periods helped achieve this balance.
• Interpretation issues - There has been litigation around change of control clauses, often relating to interpreting what constitutes a sufficient "change of control" to trigger the clause or whether notice was properly given. This has clarified best practices. • Market norms - Certain standards have emerged around the typical parameters and notice periods to include in change of control clauses for different commercial contexts. But there is no one-size-fits-all approach.
• International convergence - Change of control clauses have become widely used in international commercial contracts and have been influenced by broader contract interpretation norms. But UK history and case law have still shaped the approach commonly taken under English law. • Remain an important protection - Despite fluctuations in M&A activity, change of control clauses remain an important way for parties to protect themselves in long-term, critical commercial contracts where a change in the other party's ownership or control could significantly impact their rights or the agreement's viability.
So in summary, change of control clauses have evolved with the needs and norms of commercial practice but aim to balance parties' interests in an era of dynamic business dealings. They remain an important contractual protection, with a history deeply rooted in English company and contract law.