Option for a Contract During a Buyout
- Under normal circumstances, the company buying out the other business controls the status of existing employee contracts during a merger. The purchasing company can elect to honor the contracts of the purchased business, terminate the agreements or modify the documents as long as the existing contracts do not have clauses that take effect during a merger to block such terminations or modifications. In the case of the purchased company's executives and high-level management, the purchasing company may elect to terminate the contracts of these professionals in favor of its own current leadership structure.
- Buyout clauses in contracts allow the controlling employer to pay contracted employees lump sums of money to terminate the agreements without any court involvement. During a merger, the purchasing company may choose to exercise these clauses to remove entrenched management or executives in the purchased business to make the installation of new policies and procedures easier. Buyout clauses can range in the hundreds of thousands of dollars into the millions, depending on the size of executive contracts in the purchased company.
- A retention contract is an agreement between a company undergoing a buyout and an executive currently employed by the business. The contract agrees to pay the executive of the purchased company a severance package, including a substantial lump sum or periodic payments of cash, stock options and continued health benefits, for the executive to remain with the company throughout the buyout process. The executive guides the company through the merger and departs the business once the two companies sort out all the legal paperwork and the buyout becomes legally valid.
- The so-called "golden parachute" contracts represent the buyout clauses in the agreements of top executives designed to allow these professionals to live comfortably once company mergers are complete. The golden parachute buyouts are essentially severance packages similar to those in retention contracts -- only the executives are under no obligation to remain with the company during the merger process and do not have to contribute to the legal maneuvering necessary to pull off the company buyout. The executives simply walk away from the business.