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. Rule 10b5-1 Trading Plans and Insider Trading Policy
D. 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