Well, I just learned that RiskMetrics has made a bit of a change to its policy (unofficial, of course) regarding the time period companies have to cure contracts or agreements that have a single-trigger change-in-control (CIC) provision.
Old “Policy” on Contracts with Single-Trigger CIC Provisions
Last year, RiskMetrics allowed companies up to 24 months to cure such a contract. See for example, the Form 8-K filed by Inventiv Health or the Form 8-K filed by Sybase in which they committed to removing their single-trigger CIC provisions within 24 months.
New “Policy” on Contracts with Single-Trigger CIC Provisions
RiskMetrics has apparently given this some thought and decided that 24 months is too long. The time period they are willing to give companies to cure contracts with single-trigger CIC provisions is now only 6 months. See the Form 8-K filed by DSP Group, Inc.
Implications
If your company has contracts or agreements that contain single-trigger CIC provisions which would expire within 24 months and your company had publicly committed to not adopt any new contracts or extend existing contracts with such provisions, thinking that RiskMetrics would view this as being in compliance with its policies, you’ll need to be prepared. At this point it looks like RiskMetrics will require even companies that have made such commitments and whose contracts are expiring more than 6 months off to commit to removing the single-trigger CIC provision within 6 months. If a company doesn’t, then RiskMetrics will most likely apply its problematic/poor pay practices policy and recommend against the company directors–at least the members of the compensation committee, but possibly the entire board.
If your company has any contract with a single-trigger CIC provision, in order to avoid application of the problematic/poor pay practices policy to the election of some or all of your directors, your company will need to publicly commit to (a) not entering into any new contracts or extending any existing contracts that have such a provision, and (b) removing the single-trigger CIC provision from any existing contracts within 6 months. Of course, if your company has contracts with such a provision that are expiring within 6 months, your company might be able to simply commit to not entering into/extending any contract with such a provision and state when the contract(s) expire(s).
