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Executive Compensation Tax Issues in Mergers and Acquisitions Navigating Tax Rules for Stock Options, Deferred and Equity Compensation, Golden Parachutes, and More Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. TUESDAY, APRIL 22, 2014 Presenting a live 90-minute webinar with interactive Q&A David A. Calder, Morgan Lewis & Bockius, Irvine, Calif. Gina L. Lauriero, Morgan Lewis & Bockius, New York Mims Maynard Zabriskie, Partner, Morgan Lewis & Bockius, Philadelphia

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Executive Compensation Tax Issues in Mergers and Acquisitions Navigating Tax Rules for Stock Options, Deferred and Equity Compensation, Golden Parachutes, and More

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

The audio portion of the conference may be accessed via the telephone or by using your computer's

speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

TUESDAY, APRIL 22, 2014

Presenting a live 90-minute webinar with interactive Q&A

David A. Calder, Morgan Lewis & Bockius, Irvine, Calif.

Gina L. Lauriero, Morgan Lewis & Bockius, New York

Mims Maynard Zabriskie, Partner, Morgan Lewis & Bockius, Philadelphia

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webinar

Executive Compensation Tax Issues in

Mergers and Acquisitions

Mims Maynard Zabriskie

David A. Calder

Gina L. Lauriero

April 22, 2014

www.morganlewis.com

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© Morgan, Lewis & Bockius LLP

Executive Compensation Tax Issues in

Mergers and Acquisitions

• Introduction

• Planning for a change in control:

• Rationale for change in control arrangements

• Overview of potential issues

• Say on golden parachute pay

• Closing the deal:

• Deal structure

• Overview of issues

• Treatment of equity compensation

• Severance arrangements and other sources of potential unfunded liabilities

• Internal Revenue Code Section 409A

• Internal Revenue Code Section 280G

• Q&A

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© Morgan, Lewis & Bockius LLP

Executive Compensation Tax Issues in

Mergers and Acquisitions

Planning for a Change in Control

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© Morgan, Lewis & Bockius LLP

Purpose of Change in Control Provisions in

Employment Agreements and Change in

Control Agreements

• Goal is to balance the legitimate interests of both the

executive and the employer

• Executive needs to be sure that there is some level of

protection against a successor employer terminating the

relationship or otherwise materially changing the business

deal

• Employer needs to be sure that the change in control

provisions don’t negatively impact its ability to effectuate a

change in control at an appropriate price

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© Morgan, Lewis & Bockius LLP

Change in Control Provisions in

Employment Agreements and Change in

Control Agreements

• Companies will often provide enhanced severance

protection if a termination occurs upon or within one to two

years after a change in control

• Severance multiple is often greater (e.g., two times

compensation vs. one times compensation)

• Severance otherwise paid in installments is often paid in a

lump sum

• All or a portion of outstanding equity awards vest

9

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© Morgan, Lewis & Bockius LLP

Reasons Companies Are Willing to Provide

Change in Control Protection

• Benefits to the employer:

• Helps attract and retain qualified personnel

• Need to provide retention protection if the employer is a possible

target company in a consolidating industry

• Change in control protection makes top management members

neutral regarding acquisition offers and allows them to focus on

the successful completion of the transaction

• Encourages key personnel to continue in employment through

completion of a change in control

• Maximizes shareholder value by retaining key “transition”

personnel

• Protects the company in the event the transaction is not

completed

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© Morgan, Lewis & Bockius LLP

Employer Concerns in Providing

Change in Control Protection

• Need to balance employer concerns:

• If the employer needs to deliver an intact management

team, change in control terms should not give executives

the incentive to leave upon closing

• Making executives too wealthy may reduce motivation after

the closing

• Shareholder concerns

• Public companies will need to disclose arrangements in their

annual proxy statements

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© Morgan, Lewis & Bockius LLP 12

Arrangements Addressing

Change in Control Benefits

• Severance Plans and Agreements

• Enhanced severance

• Bonus Plans

• Accelerated vesting or payout

• Deferred Compensation Plans

• Accelerated vesting or payout

• Additional service credit under executive retirement plans

• Equity Compensation Plans

• Single-trigger or double-trigger vesting

• Assumption or cash-out of equity awards

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© Morgan, Lewis & Bockius LLP

Triggering Events

• Single-Trigger

• Equity vesting upon the occurrence of the change in

control

• Executive has the right to voluntarily quit on or following

the change in control and receive change in control

benefits

• Double-Trigger

• Executive will only receive change in control benefits upon

a qualifying termination in connection with or within a

specified period following the change in control

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© Morgan, Lewis & Bockius LLP

Employer-Initiated Termination – “Cause”

• Defining “Cause” is a balancing act

• Executive wants to remove subjectivity to be sure only

specific, objective events are included

• Employer wants to retain subjectivity to allow flexibility in

light of uncertain circumstances

• Notice and cure periods

• Due-process right to Board review

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© Morgan, Lewis & Bockius LLP

Executive-Initiated Termination –

“Good Reason”

• “Good reason” essentially amounts to constructive

termination without cause, and thus generally results in

the same economics to the executive

• Successor employer should not be permitted to

materially change the initial business deal (e.g., CEO

becomes part of the janitorial staff)

• Notice and cure periods

• Section 409A considerations

15

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© Morgan, Lewis & Bockius LLP

Current Trends

• Limited group of executives covered by change in control

arrangements

• Lower severance multiples

• Trending away from three times multiple

• Severance multiples of more than three times base salary

plus target/average/last paid bonus are considered a

problematic pay practice by ISS

• Shift to double-trigger

16

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© Morgan, Lewis & Bockius LLP

Current Trends

• Elimination of 280G gross-ups

• Addition of 280G “best net” provisions

• Clawbacks

• Impact of say on golden parachute payments

17

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© Morgan, Lewis & Bockius LLP

Disclosure of Change in Control Obligations

• Proxy/CD&A Disclosure

• Must describe severance and change in control benefits

• Must calculate value of benefits

• Must quantify any gross-ups on excess parachute

payments (280G)

18

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© Morgan, Lewis & Bockius LLP 19

Shareholder Vote on

Golden Parachute Arrangements

• “Say on golden parachute” provisions apply where:

• Seeking shareholder approval of an acquisition, merger, consolidation, or proposed sale or disposition of all or substantially all of a public company’s assets

• Disclosure also required in connection with going-private transactions and third-party tender offers

• Requirements:

• Disclosure

• Non-binding shareholder advisory vote

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© Morgan, Lewis & Bockius LLP 20

Shareholder Vote on Golden Parachute

Arrangements

• Disclosure requirements:

• Disclosure must be in a “clear and simple form in accordance

with the regulations” and must include “the aggregate total of

all such compensation that may (and the conditions upon

which it may) be paid or become payable to or on behalf of

[named executive officers].”

• Disclosure of the “golden parachute” arrangements required

for all agreements and understandings that the acquiring and

target companies have with named executive officers of both

companies.

• Rules require a narrative and a table for disclosing “golden

parachute” compensation.

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© Morgan, Lewis & Bockius LLP 21

Shareholder Vote on Golden Parachute

Arrangements – Sample Table

Elements that are separately quantified and included in the total are any cash severance payments (e.g., base

salary, bonus, and pro rata non-equity incentive plan compensation payments) (column (b)); the dollar value of

accelerated stock awards, in-the-money option awards for which vesting would be accelerated, and payments

in cancellation of stock and option awards (column (c)); pension and nonqualified deferred compensation

benefit enhancements (column (d)); perquisites and other personal benefits and health and welfare benefits

(column (e)); and tax reimbursements (e.g., Internal Revenue Code Section 280G tax gross-ups) (column (f)).

The “Other” column of the table includes any additional elements of compensation not specifically includable in

the other columns of the table (column (g)) and requires footnote identification of each separate form of

compensation reported. The table requires separate footnote identification of amounts attributable to “single-

trigger” arrangements and amounts attributable to “double-trigger” arrangements, so that shareholders can

readily discern these amounts.

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© Morgan, Lewis & Bockius LLP

Shareholder Vote on

Golden Parachute Arrangements

• A separate shareholder advisory vote is not required on

golden parachute compensation if disclosure of that

compensation was included in the executive

compensation disclosure subject to a prior advisory vote

of the shareholders (say on pay)

• Rare that previous say on pay disclosure is sufficient for

this purpose

• Companies are not required to use any specific

language or form resolution for the say on golden

parachute vote

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© Morgan, Lewis & Bockius LLP

Shareholder Vote on

Golden Parachute Arrangements

• Say on golden parachute vote only needs to address

arrangements between the soliciting target company and

the named executive officers of the target and acquiring

companies

23

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© Morgan, Lewis & Bockius LLP

Executive Compensation Tax Issues in

Mergers and Acquisitions

Closing the Deal

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© Morgan, Lewis & Bockius LLP 25

The Deal Structure and Players

• What type of transaction?

• Stock purchase/merger (buyer gets everything)

• Asset deal (buyer can pick and choose)

• Public company deal

• Private company deal

• Considerations will vary for sell-side vs. buy-side vs.

management

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© Morgan, Lewis & Bockius LLP

Equity Plan/Award Structure

• What does the plan require?

• Single-trigger or double-trigger vesting

• Consider treatment of performance-vested awards

• What does the plan permit?

• Unilateral right to cancel and terminate

• Ability to cancel underwater options

• Consent requirements; timing issues if notice is required

26

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© Morgan, Lewis & Bockius LLP

Equity Plan/Award Structure

• What are the deal terms regarding equity awards?

• What are the business risks?

• Lillis v. AT&T Corp.: officers and directors whose

underwater options were canceled without consideration in

a cash acquisition argued that the acquiring corporation

should have provided cash consideration based on the

Black-Scholes value of the canceled options

27

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© Morgan, Lewis & Bockius LLP

Equity Plan/Award Structure –

Assumption of Grants

• Options remain in place, but the underlying shares and

the exercise price are adjusted to reflect the transaction

• The buyer’s shares are used upon the exercise of the

assumed options but do not count against the buyer’s

plan reserve

• May require Form S-8 registration for shares issuable

under assumed options

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© Morgan, Lewis & Bockius LLP

Equity Plan/Award Structure – Substitution

• The old option is cancelled and a new option is issued

under the buyer’s plan

• The number of shares and exercise price in effect under

the new option are based on the number of shares and

exercise price in effect under the old option, and

adjusted to reflect the transaction

29

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© Morgan, Lewis & Bockius LLP

Equity Plan/Award Structure – Substitution

• The buyer’s shares are used upon option exercises and

may be charged against the buyer’s plan

• May require Form S-8 registration for shares issuable

under substituted options

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© Morgan, Lewis & Bockius LLP

Equity Plan/Award Structure – Adjustment

• Assumption or substitution of incentive stock options

must comply with Section 424 regulations

• Assumption or substitution of nonqualified stock options

must comply with Section 409A regulations, which refer

to certain regulations under Section 424

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© Morgan, Lewis & Bockius LLP 32

Equity Plan/Award Structure – Adjustment

• IRC Section 424 Principles

• Aggregate Spread Test:

• The excess of the aggregate fair market value of the shares

subject to the new or assumed option immediately after the

transaction over the aggregate exercise price must not

exceed the excess of the fair market value of the shares

subject to the old option immediately before the transaction

over the aggregate exercise price

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© Morgan, Lewis & Bockius LLP 33

Equity Plan/Award Structure – Adjustment

• Example: Old option for 100 shares with $10 per share

exercise price. At time of acquisition, target’s stock is

worth $20 per share = $1,000 spread. If fair market value

of acquirer’s stock is $40 per share at time of acquisition,

adjusted option will be for 50 shares of acquirer’s stock

with exercise price of $20 per share = $1,000 spread.

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© Morgan, Lewis & Bockius LLP 34

Equity Plan/Award Structure – Adjustment

• IRC Section 424 Principles

• Exercise price to fair market value ratio:

• On a share-by-share basis, the ratio of the exercise price to the fair market value of the shares subject to the new or assumed option immediately after the transaction is not more favorable than the ratio of the exercise price to the fair market value of the shares subject to the old option immediately before the transaction

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© Morgan, Lewis & Bockius LLP

Equity Plan/Award Structure – Adjustment

• Example: Old option for 100 shares with $10 per share exercise price and $20 per share fair market value at time of transaction yields 1:2 ratio.

• If fair market value of acquirer’s stock at time of transaction is $40 per share, then option for 50 shares with $20 exercise price per share also satisfies ratio test: $20 to $40 yields 1:2 ratio

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© Morgan, Lewis & Bockius LLP 36

Equity Plan/Award Structure – Adjustment

• IRC Section 424 Principles

• No new benefits:

• The new or assumed option must not give the optionee

additional benefits

– Vesting acceleration is permissible

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© Morgan, Lewis & Bockius LLP 37

Equity Plan/Award Structure – Adjustment

• IRC Section 424/409A Principles

• Determination of fair market value:

• Any reasonable method of valuation may be used to

determine the fair market value of the shares subject to the

option immediately before the assumption or substitution and

the fair market value of the shares immediately after the

assumption or substitution

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© Morgan, Lewis & Bockius LLP

Equity Plan/Award Structure – Adjustment

• Determination of fair market value:

• For an arm’s-length transaction, the fair market value of the

stock subject to the option before and after the assumption or

substitution may be based upon the values assigned to the

stock for purposes of the transaction

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© Morgan, Lewis & Bockius LLP

Equity Plan/Award Structure – Cash-Out

• Cash-Out of Options

• Seller stock option is cancelled for a payment made in

cash or stock of the acquirer

• Amount of the cash-out is typically equal to the intrinsic

value (“spread”) of the option at the closing of the

transaction

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© Morgan, Lewis & Bockius LLP 40

Equity Plan/Award Structure – Cash-Out

• Issues relating to cash-out of options

• Loss of ISO status

• Cash-out is taxed as ordinary income

• Cash-out of ISO = withholding taxes and employment taxes

• Disqualifying disposition of ISO shares = no withholding

taxes and no employment taxes

• Underwater options: make sure the plan allows for the

cash-out without having to pay consideration

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© Morgan, Lewis & Bockius LLP

Potential Severance Obligations

• Stock Deal:

• Buyer assumes liability for existing arrangements

• Consider whether any severance or change in control plans

prohibit amendment for a specified period following a change

in control

• Determine potential liability under:

• Offer letters and employment agreements

• Severance plans and agreements

• Change in control plans and agreements

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© Morgan, Lewis & Bockius LLP

Potential Severance Obligations

• Asset Deal:

• Transferred employees will experience termination of

employment, absent special provisions in plans and

agreements

• Consider whether the transaction triggers severance pay

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© Morgan, Lewis & Bockius LLP

Additional Unfunded Liabilities

• Types of Liabilities:

• Supplemental executive retirement plans; excess plans

• Incentive plans (annual or long-term)

• Other nonqualified deferred compensation plans

• Payment Triggers

• Does the plan or agreement provide for payment (or

funding) upon a change in control?

• Is the payment hardwired into the deal document?

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© Morgan, Lewis & Bockius LLP

Additional Unfunded Liabilities

• Which party will be obligated to pay:

• Nonqualified plans/SERPs

• Buyer assumes plans and all liabilities (or just those with

respect to transferring employees)

• Buyer establishes mirror plans

• In an asset deal, transferring employees will have termination

of employment triggering payment upon termination, unless

terms provide otherwise

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© Morgan, Lewis & Bockius LLP

Additional Unfunded Liabilities

• Which party will be obligated to pay:

• Incentive plans

• Seller pays pro rata bonuses (employees may or may not

then be eligible to participate in buyer’s incentive plans)

• Buyer pays bonuses for full year (may be problematic if

bonuses are based on seller’s performance)

• Retention concerns

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© Morgan, Lewis & Bockius LLP

Section 409A – Compliance of Existing

Arrangements

• Frequently encounter a lack of compliance – especially

private companies

• Requires careful and creative planning when considering

potential acquisitions

• Must lay out business deal risks for acquirer (employee

penalty tax, reporting and withholding obligations,

potential gross-up)

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© Morgan, Lewis & Bockius LLP

Section 409A – Compliance of Existing

Arrangements

• Individuals in noncompliant plans are subject to tax at

the time of vesting, plus (i) an additional 20% federal

income tax and (ii) interest at the underpayment rate

plus 1%

• California taxpayers are also subject to an additional 5%

state income tax

• Employer has tax reporting and withholding obligations

and may incur penalties if it does not properly report and

withhold

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© Morgan, Lewis & Bockius LLP

Section 409A – Compliance of Existing

Arrangements

• Equity plans

• Fair market value documentation for stock right grants is

key in private company transactions (especially if stock

rights will be assumed)

• Stock rights are options and stock appreciation rights

• Stock rights must be granted on “service recipient stock”

• Common stock of the company that employs the grantee or a

parent company

• RSUs must have Section 409A-compliant payment terms,

or must meet an exemption from Section 409A

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© Morgan, Lewis & Bockius LLP

Section 409A – Compliance of Existing

Arrangements

• Change in control provisions

• Does the time or form of payment vary after a change in

control?

• Is the change in control definition compliant with Section

409A?

• Can equity grants or other arrangements be

terminated/cashed out under Section 409A?

• Substitution issues

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© Morgan, Lewis & Bockius LLP

Section 409A – Compliance of Existing

Arrangements

• Severance Plan/Employment Agreement

• Review payment provisions

• Look out for differing forms of payment (installments before

change in control and lump sum after change in control)

• Good Reason trigger

• Look out for “weak” Good Reason definitions and walk rights

• Six-month delay for “specified employees” in public

companies

• Release timing issues

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Section 409A – Extension of Vesting

• Extension of vesting of awards or other compensation

that otherwise would vest on the change in control:

• Extended vesting condition must constitute a substantial

risk of forfeiture

• Extension must occur before and in connection with the

change in control

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Section 409A – Amounts Payable on a

Change in Control

• Amounts subject to Section 409A can only be paid on a change in control if the change in control meets the requirements of a 409A-compliant change in control

• Keys off of employer (or payor) corporation or any corporation up the chain, linked by majority ownership – note distinction from Section 280G, which looks to the controlled group in determining whether a change in control has occurred

• Change in ownership – acquisition of more than 50%

• Change in effective control – acquisition of 30% or more or turnover of a majority of the board of directors within 12 months

• Change in ownership of a substantial portion of assets – more than 40% within 12 months

• Note that spinoffs and IPOs typically do not satisfy the requirements for a change in control

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Section 409A – Separation from Service

• Separation from Service:

• Generally requires substantial, permanent reduction in

service level with direct employer and its controlled group

• In stock sale, there is continuity of employment with direct

employer, and generally no separation from service (even

though there may be a change in control)

• In asset sale transactions, default is that there would be a

separation from service for transferring employees

• Parties may agree to not treat as separation from service, but

must be consistent

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Section 409A – Amounts Subject to Earn-Out

• Earn-out Consideration

• Earn-out consideration will be subject to Section 409A if not payable within the short-term deferral period

• Short-term deferral period is generally payment within 2-1/2 months after the year in which the compensation vests

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Section 409A – Amounts Subject to Earn-Out

• Earn-out will satisfy Section 409A if:

• Earn-out must be paid on the same schedule and under the same terms and conditions as apply to the shareholder payments, and must be paid within 5 years after the change in control

• Earn-out constitutes a substantial risk of forfeiture and is payable upon the same terms and conditions as apply to the payments made to the shareholders

– in such event the legally binding right to the earn-out is treated for purposes of the short-term deferral exception as arising on the date it became subject to the substantial risk of forfeiture

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Section 409A – Plan Termination

• Change in control plan termination

• Regulations provide special opportunities to terminate Section

409A arrangements pursuant to a change in control

• Must terminate all plans of the same type for all participants

experiencing a change in control

• Note plan aggregation categories

• Termination must occur within 30 days before or within 12

months following a change in control

• All payments must be made within 12 months following the date

of the action to terminate

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The “Golden-Parachute” Tax

• 20% excise tax on the employee/independent contractor

• Loss of tax deduction to employer

• Imposed by IRC Sections 280G and 4999 on “excess

parachute payments”

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The “Golden-Parachute” Tax

• Parachute payments:

• Payments “in the nature of compensation”

• Made to certain “disqualified individuals”

• Company service provider who is an officer, 1% or more

shareholder, or “highly compensated employee” (highest-

paid 1%, not to exceed 250 employees)

• “Contingent” on a “change in control” (i.e., change in the

ownership or control of a corporation or in the ownership of

a substantial portion of its assets)

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The Golden Parachute Tax –

Calculation of the Excise Tax

• If an executive receives parachute payments on a

change in control that equal or exceed three times the

executive’s “base amount,” then

• A 20% excise tax on all amounts in excess of one times

the executive’s “base amount,” except to the extent those

payments represent reasonable compensation

• Base amount is the executive’s average annual

W-2 compensation for the most recent five calendar years

(or period worked, if less) ending before the change in

control

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The Golden Parachute Tax –

Impact of the Excise Tax

• Executives care because they could owe a 20% excise

tax

• Corporations care because parachute payments are not

deductible, and corporations are required to report

parachute payments on Form W-2 and withhold taxes

correctly

• If a corporation fails to withhold and an executive does

not pay, the government may try to collect the tax from

the corporation

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The Golden Parachute Tax – Exemptions

• Payments made by a tax-exempt entity, partnership, or corporation that satisfy most of the requirements to be a small business corporation (commonly referred to as an “S corporation”)

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The Golden Parachute Tax – Exemptions

• Payments made by privately held companies when shareholder approval requirements are met

• Payments must be approved by more than 75% of the disinterested shareholders entitled to vote immediately before the change in control

• “Adequate disclosure” of all material facts regarding all material payments that otherwise would be parachute payments is provided to ALL persons entitled to vote

• Payments must be contingent on the vote

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The Golden Parachute Tax –

Contingent on a Change in Control

• When is a payment “contingent on a change in control”?

• Payment would not have been made absent the change in

control

• If it is substantially certain at the time of the change in

control that a payment would be made regardless of

whether a change in control occurs, it is not contingent on

a change in control

• A payment made as a result of an event that occurs within

one year of a change in control is presumed to be

contingent on a change in control, but the presumption is

rebuttable

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The Golden Parachute Tax – Transactions

That Trigger Parachute Payments

• What is a change in control under Section 280G?

• Change in the ownership of a corporation

• Acquisition of more than 50% of the vote or value

• Change in the effective control of a corporation

• Presumption upon acquisition of more than 20% of the voting power

or replacement of a majority of directors during a 12-month period,

which presumption may be rebutted

• Transfer of a substantial portion of assets

• Assets with a value of at least one-third of the value of all assets,

determined without regard to any liabilities

• Determined on a controlled group basis

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The Golden Parachute Tax –

Parachute Payments

• What is a parachute payment?

• Payment in the nature of compensation, such as

• Transaction bonus

• Cash severance

• Continued health and welfare benefits

• Outplacement services

• Option and restricted stock vesting

• Accelerated payment of deferred compensation

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The Golden Parachute Tax –

Excess Parachute Payments

• Special valuation rules under the 280G regulations can

minimize the amount included as a parachute payment

• The portion of a parachute payment that exceeds the

base amount allocated to it is referred to as an “excess

parachute payment”

• The base amount is allocated pro rata among all the

actual parachute payments

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The Golden Parachute Tax – “Reasonable

Compensation” Before a Change in Control

• If the portion of a parachute payment that can be justified

as reasonable compensation for services rendered

before a change in control exceeds the base amount

allocated to that parachute payment, the excess amount

also will be subtracted from the excess parachute

payment.

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The Golden Parachute Tax – “Reasonable

Compensation” After a Change in Control

• If compensation is reasonable in amount for services to be rendered after the change in control, such amount is subtracted from the payments (i.e., essentially treated as an exempt payment) for all purposes of Section 280G

• Payments may only be made for the period the individual actually performs services

• If duties don’t substantially change, compensation should not be significantly greater than it was prior to the change in control

• If duties substantially change, compensation should not be significantly greater than that paid in the market

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The Golden Parachute Tax – “Reasonable

Compensation” After a Change in Control

• Restrictive covenants

• Compensation paid for a noncompete covenant may be

considered reasonable compensation for services

rendered after a change in control

• Enforceability of a noncompete covenant is required

• The IRS has opposed excessive values attributable to

reasonable compensation, especially where noncompetes

are adopted shortly before a change in control

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The Golden Parachute Tax – Strategies to

Avoid Excise Taxes

• “Gross-up” provision for excise taxes

• Most companies no longer provide gross-ups

• “Best-net” provision for parachute payments

• Reduce payments to avoid excise tax if it puts an

executive in a better net-tax position

• If paying excess parachute payments is better for the

executive, the company loses the deduction

• Parachute cap

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The Golden Parachute Tax – Strategies to

Avoid Excise Taxes

• Increase the executive’s “base amount”

• Attach a valid, enforceable noncompete to parachute

payments (but note the audit risk previously discussed)

• Waiver and shareholder approval for private company

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Presenters

• Mims Maynard Zabriskie

[email protected]

• David Calder

[email protected]

• Gina Lauriero

[email protected]

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DISCLAIMER

• This material is provided as a general informational service to clients and friends of

Morgan, Lewis & Bockius LLP. It does not constitute, and should not be construed as,

legal advice on any specific matter, nor does it create an attorney-client relationship.

You should not act or refrain from acting on the basis of this information. This

material may be considered Attorney Advertising in some states. Any prior results

discussed in the material do not guarantee similar outcomes. Links provided from

outside sources are subject to expiration or change.

© 2014 Morgan, Lewis & Bockius LLP. All Rights Reserved.

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