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Compensation Upon Termination

The Compensation Upon Termination clauses generally serve two purposes, they (1) define the different types of compensation that may take place on termination; and (2) lay out which types of compensation are payable under different termination scenarios.  As described in other Termination clauses, the structures of these clauses are highly variable.  Some agreements describe compensation along with each termination scenario while others will divide out the compensation section separately.  However, in general, most agreements provide for the same or substantially similar compensation in the case of For Cause or Without Good Reason termination, most often just compensation that the Executive accrued to that point.  Similarly, most agreements also provide additional compensation in the case of Without Cause or For Good Reason termination.  Agreements will group DeathDisability or Retirement with either of the two groups mentioned above or treat them completely separately with distinct compensation.

Example clauses differed not just in structure, but they also differed significantly in the amount and manner of providing additional compensation (when applicable).  Most agreements provide for some factor of annual salary and bonuses, but some also include less common compensation, such as continued medical benefits for the Executive and the Executive's family, accelerated stock options, accelerated retirement plan vesting and even compensation for job placement services.  Generally, the details of the additional compensation clauses appear to be highly negotiated and very deal-specific.

Standard Clause

Accrued Obligations. "Accrued Obligations" shall mean, as of the Date of Termination, the sum of (A) the Executive's base salary under this Agreement through the Date of Termination to the extent not theretofore paid, (B) the amount of any deferred compensation and other cash compensation accrued by the Executive as of the Date of Termination to the extent not theretofore paid, (C) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of the Date of Termination to the extent not theretofore paid, (D) any grants and awards vested or accrued under any equity-based incentive compensation plan or program and (E) all other benefits which have accrued as of the Date of Termination. [For the purpose of this definition, except as provided in the applicable plan, program or policy, amounts shall be deemed to accrue ratably over the period during which they are earned, but no discretionary compensation shall be deemed earned or accrued until it is specifically approved by the Board in accordance with the applicable plan, program or policy.] With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section shall include, without limitation, and Executive shall be entitled after the Disability Effective Date to receive, 

Other Benefits. "Other Benefits" shall mean, as of the Date of Termination, an amount equal equal to [three times] the sum of (A) the Executive's then-current annual base salary, plus (B) the [average of the sum of the][highest] bonus amounts earned by the Executive during the Employment Period. 

Additional Compensation. "Additional Compensation" shall mean, as of the Date of Termination, an amount equal equal to [three times] the sum of (A) the Executive's then-current annual base salary, plus (B) the [average of the sum of the][highest] bonus amounts earned by the Executive during the Employment Period. 

Cause; Without Good Reason. If the Executive's employment is terminated By the Company For Cause or By the Executive Without Good Reason during the Employment Period, the Company shall provide to the Executive the Accrued Obligations and Other Benefits, and shall have no other severance obligations under this agreement. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within [30 days] of the Date of Termination.

Without Cause; With Good Reason. If the Executive's employment is terminated By the Company Without Cause or By the Executive With Good Reason during the Employment Period, the Company shall provide to the Executive the Accrued Obligations, Other Benefits, and Additional Compensation as described above.  In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within [30 days] of the Date of Termination and all Additional Compensation shall be payable in substantially equal monthly installments for a period of [36 months] (the "Severance Period") in accordance with the Company's regular payroll practices.

Nature of Payments. Any amounts due under this Section are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty.

Optional Additional Clause Elements

Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within [30 days] of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within [30 days] of the Date of Termination of an amount equal to [the Additional Compensation].

Disability. If Executive's employment is terminated by reason of Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within [30 days] of the Date of Termination.

Excess Parachute Payments. In the event that any portion of the payments and benefits payable to Executive under this section would constitute an excess parachute payment within the meaning of IRC 280G(b) that is subject to the excise tax imposed on so-called excess parachute payments pursuant to IRC 4999 (an Excise Tax ), the severance otherwise payable under this section will be reduced to the extent necessary to avoid such Excise Tax (and only to such extent) if, and only if, such reduction would result in a larger after-tax benefit to Executive, taking into account all applicable federal, state, and local income and excise taxes, until no portion of the severance payments is subject to such Excise Tax.

Examples of Termination Benefits Clauses

Severance Benefits. Subject to Section 6(e) hereof, if, during the Term of Employment, the Company terminates the Executive’s employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:
(i) within thirty (30) days after the Date of Termination, the Company shall pay to the Executive a cash lump sum equal to the sum of: (1) the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid; (2) any bonus earned during the prior calendar year but not yet paid to the Executive; (3) any accrued but unused vacation in accordance with the Company’s policy; and (4) any incurred but unreimbursed business expenses in accordance with the Company policy (collectively, the “Accrued Obligations”);
(ii) within thirty (30) days after the Date of Termination, the Company shall pay to the Executive a cash lump sum equal to one-half (1/2) of his Annual Base Salary then in effect;
(iii) within thirty (30) days after the Date of Termination, the Company shall provide to the Executive a Full Relocation Package (as that package is described in Section 4(g) of this Agreement) to any location within the continental United States;
(iv) within thirty (30) days of the Date of Termination, the Company shall provide the Executive with outplacement/job placement support and services suitable to his position (but at a cost not exceeding Ten Thousand Dollars ($10,000.00) in the aggregate) through a professional services firm focused on placing executives, for a period of up to twelve (12) months from a firm reasonably designated by the Executive; and
(v) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company through the Date of Termination, as well as any other amounts or rights that become due under this Agreement through the Date of Termination (such of their amounts and benefits through the Date of Termination shall be hereinafter referred to as the “Other Benefits”).

Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Term of Employment, the Company shall pay or provide the Executive’s estate or beneficiary, as applicable, the Accrued Obligations and the Other Benefits. The Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a cash lump sum within thirty (30) days of the Date of Termination.

Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Term of Employment, the Company shall pay or provide the Executive the Accrued Obligations and the Other Benefits. The Accrued Obligations shall be paid to the Executive in a cash lump sum within thirty (30) days of the Date of Termination.

Cause; Other than for Good Reason. If the Executive’s employment shall be terminated for Cause during the Term of Employment or if the Executive terminates his employment during the Term of Employment (excluding a termination for Good Reason), the Company shall pay his Accrued Obligations and his Other Benefits.

(Employment Agreement, August 24, 2011, [Renewable Energy Group, Inc. and Daniel J. Oh])


Termination by the Company other than for Cause; Termination by the Company through Non-Renewal; Termination by the Executive for Good Reason.
...“Severance Pay” under this Agreement includes all of the following forms of salary and fringe benefit compensation: (A) Base Salary, using the Executive’s average Base Salary during the year prior to his termination in making Severance Pay calculations; (B) Bonus, using the Executive’s Bonus during the year prior to his termination in making Severance Pay calculations; and (C) fringe benefit compensation, calculated by the Company exercising its discretion reasonably, equivalent to the cost to the Company of providing the Executive, during the period by which the amount of severance is being measured (i.e., one year or some shorter period specified in the relevant provision), with (1) his group medical and dental insurance (less any deductions for employee contributions), (2) his personal life insurance and disability insurance (but not more than the $10,000 maximum annual allowance); (3) his automobile/country club allowance (but not more than the $2,000 maximum monthly allowance), and (4) Company contributions to any 401(k) plan or other Company retirement plan on the Executive’s behalf, using the Company’s contributions during the year prior to his termination in making this calculation (Severance Pay for any severance period shall be calculated using this methodology; in addition, all Severance Pay due and owing under this Agreement shall be subject to payment of payroll taxes required to be withheld by law). The following forms of compensation shall also be paid by the Company to the Executive: (i) all Base Salary due through the date of termination of employment; (ii) such additional salary as may be due to compensate the Executive for accrued but unused vacation days as of the date of termination of employment, as provided by Section 2(d) of this Agreement, (iii) compensation for any business or telephone expenses under Section 2(e) of this Agreement, not yet reimbursed, as provided by the Company’s business expense reimbursement policies, and (iv) all compensation due the Employee as employee benefits under Sections 2(c) and 2(f) of this Agreement, or under the terms of Company employee benefit plans, as provided for and required by the terms of such plans (all such compensation and benefits are referred to collectively in this Agreement as “Accrued Obligations”). Accrued Obligations shall be paid promptly (but not later than 30 days) following the date on which the Executive’s employment is terminated. In addition, the Executive shall be paid any earned Bonus, where termination of employment occurs after the end of the fiscal year, but before payment of the Bonus (“Final Bonus”). The Final Bonus shall be determined as provided by Section 2(b) of this Agreement. Any such Final Bonus payment shall be made promptly but not later than as provided by Section 2(b).

(Executive Employment Agreement, August 22, 2011, [Elandia International, Inc. and Pedro R. Pizarro])

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