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$1B Termination Fee

Twitter Board Lost Appetite to Remain Public Company, Musk Proxy Shows

Elon Musk agreed for a year after his Twitter takeover to pay each “continuing” employee “at least the same base salary and wage rate” earned before the transaction, according to a preliminary proxy statement filed Tuesday at the SEC for an as-yet-unscheduled special shareholders virtual meeting to vote on the sale. Musk is offering $54.20 a share in cash to take Twitter private.

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Twitter executive officers who are terminated within a year after the takeover would get severance equaling 100% of their base salaries in lump-sum payments, says the proxy. CEO Parag Agrawal would qualify for severance beginning three months before Twitter changes hands, it says. Employees who own equity-based awards will see those options canceled when the deal is done, likely for conversion to cash payouts, it says.

The takeover agreement can be terminated by “mutual written agreement” between Musk and Twitter, even after shareholders approve the deal, or by either party if the transaction hasn’t been consummated by the close of business Oct. 24, says the proxy. Twitter maintains the right to call off the deal on its own if the board authorizes the company to sign a definitive agreement with another buyer offering “a superior proposal,” it says. Twitter would owe Musk a $1 billion fee for any “valid termination” of the agreement, it says.

If the agreement falls through for most reasons, Twitter will remain an independent public company, and its shares will continue to be traded on the New York Stock Exchange, says the proxy. “Depending on the circumstances that cause the merger not to be completed, the price of our common stock may decline significantly,” it says. In “certain specified circumstances” in which the agreement is terminated, Musk has agreed to pay Twitter a $1 billion “reverse termination fee,” the payment of which he has personally “guaranteed,” it says. "This deal cannot move forward" until Twitter shows proof that fake or spam accounts comprise less than 5% of its memberships, tweeted Musk Tuesday.

The proxy says Musk contacted Jack Dorsey April 5 to ask the Twitter founder “his perspectives” in connection with the announcement the same day that Musk agreed to join the Twitter board. “As part of this discussion, Mr. Dorsey shared his personal view that Twitter would be better able to focus on execution as a private company,” says the proxy. Four days later, it says, Musk notified CEO Agrawal and Chairman Bret Taylor of his decision not to join the board and of his intention to make Twitter a takeover offer that would take the company private. Musk’s offer was announced publicly April 14.

Elsewhere in the proxy are references to Musk having frequent talks with Dorsey for the Twitter founder to maintain an unspecified equity stake in the company after the takeover. Dorsey abruptly resigned as CEO in late November (see 2111290038) but maintains his board seat through May. The proxy says Dorsey owned 18.04 million Twitter shares April 29 and was by far its largest individual shareholder.

The “risks” of maintaining Twitter as a public company appeared to worry the Twitter board, figuring prominently in its unanimous vote to accept Musk’s offer, says the proxy. The board was especially mindful of “the challenges to a public company of making investments, and operational changes and improvements” to achieve long-term growth and profitability, it says. The board “was aware that such investments, changes and improvements could lead to disruption in our performance and expose us to scrutiny based on our quarter-over-quarter operational and financial metrics and results,” it says. The board also was fearful that Twitter’s stock price “could be negatively impacted if we failed to meet investor expectations, including if we failed to meet our monetization, growth and profitability objectives,” it says.