Monday, November 28, 2011

The hell is an Evergreen Provision?

Zach Levine just tweeted:

Ed Wade said that because of an evergreen provision, his deal was guaranteed through 2013, not 2012.

UPDATE: Zach Levine has the story:
Former Astros general manager Ed Wade had a provision in his contract that guaranteed his 2013 salary in addition to his 2012 figure, he said Monday morning a day after his firing was announced by the Astros. In conjunction with the evergreen provision that triggered the renewal of his deal for what would have been a sixth season in 2013, his dismissal leaves the Astros on the hook for two years of his salary in addition to that of their new general manager.

So...what the hell is an evergreen provision? The "evergreen" term indicates, according to the HOA Law Blog, that the contract could - in theory - last forever.
When the board receives a proposed contract with an evergreen provision that automatically renews the contract (they're called evergreen provisions because the contract could virtually last forever), the board has options.
First, the board could just say no. Most vendors will relent and agree to a more reasonable termination provision. If the board is putting a contract up for bid, tell the vendors upfront that you are not going to agree to an evergreen termination provision nor an extended term of contract, and that the board wants the ability to terminate the contract for cause.

Investopedia says (though obviously not in the context of baseball):
...Rather than go through the process of approving allotments every year, a company can adopt what is known as an evergreen option provision, which provides for an automatic allotment of equity compensation every year.

These types of provisions are highly discouraged:
Rather than agreeing to an evergreen provision, suggest that both parties mutually agree upon additional one-year increments in writing, at the end of each term. If the other party insists on an evergreen term, negotiate a reasonably conscribed no cause termination clause. This will significantly reduce the risk associated with inadvertently rolling into an additional year, as you can simply exercise the “out” clause and terminate the agreement.

Hooray for Drayton! The Astros are giving Ed Wade a two-year paid vacation!