Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 8-1 Employment Agreement Myths Advantage Employee An Up-Front Downer It’s Easier After the Honeymoon Always Long and Legal

Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 8-2 The Critical Employment Agreement Issues 1. Term – At Will, Drop-Dead ( No Cut), Evergreen (Renewable) 2. Termination: How impact term Required showing for clean exit– “Cause” or “Good Reason” Consequences if no showing- Full Pay, Time-frame pay Liquidated damages, actual damages Anti-bad faith penalty 3. The Job Description Title Responsibility, Reporting What, Where, How Downward possible?

Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 8-3 The Critical Employment Agreement Issues 4. Compensation Minimum concept for executive protection Base pay revisions Performance incentives Timeframe adjustments Objective factors: Potential amounts, counterparts, factors Much discretion with employer? Perks and benefits 5. Non-competition provision following termination Triggering event – any termination, employee election only, employer “for cause”, employee without “good reason.” Scope – only customers, any competitive activity, industry Time & Geographic area - reasonableness Document employer bona fide interests Specific enforcement

Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 8-4 The Critical Employment Agreement Issues 6. Proprietary and IP interests Work product exclusive property of employer Non-disclosure covenants Anti-moonlighting covenant (limits and scope) Specific IP covenants 7. Arbitration – Pros and cons 8. Protective provisions Prior commitments (no prior hang-ups) Integration clause (this is it) Choice of law (Substance and procedure) Legal representation

Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 8-5 Problem 8-A: Larry Smyth’s Bonus Plan Understandable – 25% of what? Measurable - Can net income be manipulated ? True Incentive - Not tied to any specific actions or goals Calculation factors - Controllable Factors: Very indirect, remote - Direct impact factors: None identified Visible time Motivators: Weak Increase drives perpetual win-win: Who knows? Bottom Line: Weak, Lazy Plan

Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 8-6 Problem 8-B: Waldon Technologies Contract Length Middle Ground Long termination notice – 1 yr. Long “no notice” start-up period – 2 yrs Three legged restrictive covenants - Broad non-compete: Actual or Minimum term - Post-contract term extension: Customers and Employees - Forever: Trade Secrets and Proprietary Information Rights to Creative Efforts Default: All owned by Waldon Exclusion Procedure: Advance, completely unrelated, no adverse work effort impact