Corporate Practice Series Portfolio No. 88-1st, Executive Employment Agreements, discusses employment agreements between employers and their key employees. The portfolio primarily deals with employment agreements between corporations and their executives, and includes a discussion of the issues that are typically addressed in those agreements, such as responsibilities and duties, performance standards, change of control provisions, grounds for termination, non-compete provisions, and dispute resolution provisions, among others. The portfolio also covers separation agreements and releases. Certain issues that are of particular relevance to publicly traded corporations, privately held companies, and corporations that conduct business on an international scale are discussed in the portfolio. Finally, the portfolio includes a discussion of Internal Revenue Code Section 409A, as well as practical suggestions for negotiating and drafting employment agreements.

Portfolio 88-1st: Executive Employment Agreements

I. Introduction

II. At-Will Versus Term Employment
    A. At-Will Defined
    B. The Employment At-Will Doctrine
    C. Attacks on the At-Will Rule
         1. Statutory claims for discrimination
         2. Public policy exception
         3. Implied contract exception
         4. Implied covenant of good faith and fair dealing
    D. Creation of the Employer-Employee Relationship
    E. Offer Letters vs. Employment Agreements
    F. Term Duration and Renewal Provisions in Executive Employment Agreements

III. Title, Responsibilities, and Duties
    . Introductory Material
    A. Scope of Duties and Board Involvement
    B. Reporting and Organizational Relationships
    C. Limitations on Outside Activities or Business Endeavors
    D. Performance Standards and Criteria for Evaluation
    E. Employing Entity or Entities

IV. Employment Compensation
    . Introductory Material
    A. Base Salary
    B. Bonuses
         1. Signing bonus
         2. Short-term and long-term incentive bonuses
         3. Performance criteria
    C. Equity Compensation/Phantom Equity
         1. Restricted stock
         2. Stock options
         3. Stock appreciation rights
         4. Phantom stock or restricted stock units
         5. Authority to grant and commitment to make grant and timing
    D. Benefits and Perquisites
         1. Medical benefits
         2. Death and disability benefits
         3. Business expenses, international assignments, and moving and transition expenses
         4. Vacation and other absences
         5. Perquisites
         6. Personal use of company aircraft and regulatory consequences
         7. Retirement enhancement
              a. Qualified defined contribution and defined benefit plans
              b. Nonqualified supplemental retirement plans

V. Change of Control Provisions
    . Introductory Material
    A. Single or Double Trigger
    B. Golden Parachute Limitations and Excise Taxes
    C. Excise Tax Gross-Up or Cutback Provisions
    D. Private Company Shareholder Vote
    E. ERISA Considerations

VI. Grounds for Termination of Employment and Consequences
    . Introductory Material
    A. Expiration of Term
    B. Death
    C. Disability
    D. Cause
    E. ‘Good Reason'
    F. Resignation and Leaves of Absence

VII. Post-Termination Payments
    . Introductory Material
    A. Severance Payments
    B. Continued or Enhanced Benefits
    C. Accelerated Vesting of Equity Grants or Extended Exercise Periods
    D. Offsets/Mitigation/Forfeiture
    E. Release of Claims and Other Post-Termination Covenants

VIII. Post-Termination Obligations
    . Introductory Material
    A. Non-Competition
    B. Non-Solicitation of Customers
    C. Non-Solicitation of Employees
    D. Non-Disparagement
    E. Confidential Information or Materials
         1. Nondisclosure
         2. Return of company property
         3. Obligations to report unauthorized use
    F. Resignation as an Officer from the Board
    G. Remedies and Enforcement

IX. Separation Agreements and Releases
    . Introductory Material
    A. Severance Benefits
    B. Release of Claims, Carve-Outs, ADEA Procedural Protections, and Restrictive Covenants
    C. Dispute Resolution
    D. Negotiating Process
    E. Other Miscellaneous Items
    
X. Miscellaneous Provisions in Employment Agreements
    . Introductory Material
    A. Entire Agreement, Integration of Agreements
    B. Severability, Waivers, and Amendments
    C. Successors and Assigns
    D. Notices
    E. Indemnification and D&O Insurance
    F. Withholding and Tax Liability
    G. Legal Fees and Interest
    H. Intellectual Property, Patents, Copyrights, Trademarks, Inventions
    I. On-Going Cooperation
    J. Choice of Law and Venue
    K. Dispute Resolution

XI. Public Company Considerations
    . Introductory Material
    A. Internal Revenue Code §162(m): Tax Deduction Limitation on Compensation
    B. Sarbanes-Oxley Act of 2002
         1. Impermissible personal loans
         2. Clawback provisions
         3. Accelerated public reporting of equity transactions
         4. Blackouts on trading
    C. Dodd-Frank Wall Street Reform and Consumer Protection Act
    D. Rule 10b5-1 Trading Plans and Insider Trading Policy
    E. Other Public Company Disclosure Rules and Regulations

XII. Private Company Equity Compensation Considerations
    . Introductory Material
    A. Fair Market Value and Internal Revenue Code §409A
    B. Rule 701, Regulation D, and State Blue Sky Laws
    C. Liquidity and Post-Termination Exercise Period
    
XIII. Internal Revenue Code Section 409A
    . Introductory Material
    A. Ambit of ‘Nonqualified Deferred Compensation'
         1. Short-term deferral exemption
         2. Limited amount and deferral period exemption
         3. Post-employment reimbursements
         4. Voluntary or good reason severance triggers
         5. Involuntary good reason triggers
    B. Consequences if §409A Applies
         1. Fixed payment rules
         2. Different forms of payment before and after a change of control
         3. Disputed payments
    C. Income Inclusion and Excise Tax Imposition
    D. Deferral Elections and Modifications
         1. In general
         2. Acceleration of payments
         3. Further deferral of severance
         4. Modifications
    E. Public Company Waiting Period
    F. Other Considerations
         1. Tax gross-ups
         2. Offset provisions

XIV. International Considerations
    . Introductory Material
    A. Structuring the Relationship
    B. Jurisdiction and Choice of Law
         1. Designation of a country
         2. Choice of law
         3. Choice of forum
    C. Duration and Commencement
         1. Probationary periods
         2. Fixed term engagements
    D. Compensation
         1. Base salary
         2. Calculating bonuses and profit sharing
         3. Vacation pay
         4. Overtime and work hours
         5. Benefits entitlement
    E. Termination
         1. Employer ability to terminate
         2. Severance pay
    F. Post-Termination Obligations
         1. Non-compete clauses
         2. Confidentiality and non-disclosure
         3. Assignment of intellectual property rights
         4. Arbitration

XV. Practical Suggestions for Negotiating and Drafting Employment Agreements and Use of Consultants

Portfolio 88-1st: Executive Employment Agreements

Wks. 1 Term Sheet

Wks. 2 Offer Letter

Wks. 3 Employment Agreement

Wks. 4 Change in Control Severance Plan and Summary Plan Description

Wks. 5 Change in Control Agreement

Wks. 6 Retention Agreement

Wks. 7 Separation Agreement and Release (for Executives 40 and Older)

Wks. 8 Agreement for Consulting Services

Wks. 9 Section 162(m) of the Internal Revenue Code—Certain Excessive Employee Remuneration

Wks. 10 Section 280G of the Internal Revenue Code—Golden Parachute Payments

Wks. 11 Section 409A of the Internal Revenue Code— Inclusion in Gross Income of Deferred Compensation Under Nonqualified Deferred Compensation Plans

Wks. 12 Section 4999 of the Internal Revenue Code—Golden Parachute Payments

Wks. 13 Regulation §1.162-27—Certain Employee Remuneration in Excess of $1,000,000

Wks. 14 Preamble of Proposed Regulations (Reg. 1.280G-1) Concerning Golden Parachutes Payments (PS-217-84, May 5, 1989)

Wks. 15 Final Regulations (Reg. 1.280G-1) Concerning Golden Parachute Payments (68 Fed. Reg. 45,745, Aug. 4, 2003, as corrected at 68 Fed. Reg. 59,114, Oct. 14, 2003)

Wks. 16 Regulations Under Section 409A

Wks. 17 Securities and Exchange Commission Disclosure Requirements in Form 10-K and the Proxy Statement for Executive Employment Contracts

Wks. 18 Covenants Not to Compete Statutes

Wks. 19 Board of Directors or Committee Resolutions

Wks. 20 Sarbanes-Oxley Act of 2002, Selected Provisions

Jonathan M. Ocker
Orrick, Herrington & Sutcliffe LLP
San Francisco, California

Gregory C. Schick
Sheppard, Mullin, Richter & Hampton LLP
San Francisco, Californias