How to prepare a contract diligence findings report for Executive Employment Agreements

Prepare a company-side contract diligence findings report by assembling each executive’s complete compensation package, tracing material rights to operative documents, and testing those rights against defined transaction and termination scenarios. Separate confirmed obligations from estimates, missing evidence, and unresolved legal questions. The resulting report should explain what the company may owe, what could disrupt retention or transaction plans, and who must resolve each issue. Every material finding should connect a source location, business consequence, recommended action, and accountable owner.

When to use this workflow

Use this workflow when company counsel, an acquisition team, or in-house employment lawyers need an assessment before signing, closing, refinancing, or approving executive compensation changes. It is particularly useful when employment agreements interact with retention letters, bonus plans, equity awards, and transaction-specific promises.

The deliverable is a findings report supported by extraction notes and calculation schedules—not a definitive compensation valuation or complete employment-law audit. This US-oriented guide addresses selected federal tax and release provisions. Assign state wage, restrictive-covenant, choice-of-law, and enforcement questions for separate analysis based on the executive’s location, employer, and facts; do not treat the governing-law clause as the entire jurisdictional analysis.

What you need

Request documents by executive and employing entity:

• Executed employment agreements, amendments, side letters, incorporated exhibits, and last approved drafts.
• Bonus plans, retention arrangements, equity plans, individual awards, and relevant compensation approvals.
• Restrictive-covenant agreements, release forms, indemnification arrangements, and reimbursement commitments.
• Salary and target bonus records, award balances, service dates, and evidence of payments or milestone satisfaction.
• Proposed transaction structure, expected timing, retention assumptions, and contemplated employment changes.
• The company’s comparison template and negotiation checklist, with preferred terms, accepted exceptions, and approval authority.

Establish a reporting cutoff. Identify HR, finance, corporate counsel, and specialist contacts who can confirm facts or resolve questions. Attribute management explanations and distinguish them from executed amendments.

Use the template

The companion template is Executive Employment Agreements — Contract diligence findings report. Copy this table into your working document or spreadsheet. Use one row per material finding; several rows may concern one executive.

Use stable finding IDs such as E-01 and document IDs such as EMP-04-v2. Record the document version, section, and page in Source / clause. Keep relevant clause excerpts, definitions, and calculation-cell references in supporting notes keyed to the finding ID.

Finding / status should distinguish confirmed, ambiguous, not located, and not applicable. “Not located” describes the reviewed set; it does not establish that no obligation exists. Scenario / exposure states the assumed event, amount or range, and exclusions.

Explain priority through the financial, legal, operational, or reputational consequence. Decision / timing records acceptance, remediation, or a required answer before a specified decision. The owner must be responsible for resolution, not merely extraction.

Step by step

1. Fix the questions the report must answer

Define the executive population, employing entities, transaction assumptions, and cutoff. Identify whether decision-makers need retention analysis, cash requirements, equity treatment, contractual consents, or all four. Distinguish signing decisions from matters that can wait until closing.

Choose relevant scenarios: continued employment, termination without Cause, Good Reason resignation, transaction-related termination, death, and disability. Explain exclusions rather than silently omitting them.

Record: scope and assumptions in the report header; unresolved scope questions in finding rows with owners and decision milestones.

2. Reconcile the operative contract package

Build a document register for each executive. Compare executed documents against approved drafts, checking signatures, dates, schedules, handwritten changes, and incorporated materials. Identify exactly which provisions each amendment changes.

Read precedence clauses and trace conflicts among employment agreements, plans, and awards. Request missing documents individually. A reference to an equity plan does not establish its acceleration provisions. Do not resolve conflicting documents solely by choosing the newest date.

Record: document IDs, missing evidence, conflicting provisions, and the person responsible for confirming the operative package.

3. Extract entitlements and conditions together

For each compensation component, capture its measure, decision-maker, trigger, continued-service condition, payment timing, forfeiture, and recovery terms. Separate target opportunity from guaranteed compensation and earned amounts from conditional future awards.

For example, Virgin Galactic’s Colglazier agreement specifies a target annual bonus but leaves the actual amount to performance-based Board discretion and includes a continued-employment condition. This illustrates negotiated wording, not market practice (SEC Exhibit 10.1, § 2(b)(ii)). (sec.gov)

Extract notice and cure mechanics alongside Cause and Good Reason definitions. For repayment, reimbursement, or cooperation obligations, identify the actor, trigger, deadline formula, recipient, delivery method, and completion evidence.

Record: each material entitlement with its conditions, linked definitions, and unresolved factual predicates.

4. Model exposure without flattening definitions

Normalize compensation into comparable units while preserving each original formula. A salary multiple differs from a salary-plus-bonus multiple. Distinguish transaction-only acceleration from benefits requiring both a transaction and a qualifying termination, including any contractual protection window.

Build a supporting schedule for severance, bonus treatment, benefits continuation, equity, retention payments, offsets, and release conditions. Test whether benefits replace or supplement one another. Label estimates and identify excluded components rather than entering zero for unknown exposure.

Record: scenario-specific amounts or ranges, schedule and cell references, exclusions, and the finance reviewer responsible for arithmetic verification.

5. Escalate tax and release questions precisely

For potentially deferred compensation, first determine coverage or exemption under Section 409A. Covered payments must satisfy permissible-event and timing requirements; contractual labels alone do not resolve regulatory definitions (26 CFR § 1.409A-3(a)–(b)). (ecfr.gov)

The specified-employee rule generally delays covered separation-triggered payments until six months after separation, or earlier death. It is not a blanket delay for every executive or severance payment (§ 1.409A-3(i)(2)). (ecfr.gov)

For Section 280G review, collect the broader compensation package. The general threshold tests aggregate present value of covered change-contingent compensation against at least three times the disqualified individual’s base amount. Excess parachute payments generally subtract the allocated base amount—not three times that amount. Corporate and individual status, valuation, and exceptions require analysis (26 CFR § 1.280G-1, Q/A-1–3, 30). (ecfr.gov)

Inspect the actual release form. For waivers governed by ADEA § 626(f)(1), selected requirements include additional consideration, specific ADEA reference, written advice to consult counsel, and no waiver of future claims. These are not a complete release checklist (29 USC § 626(f)(1)). (eeoc.gov)

Record: focused specialist questions, necessary facts, owners, and decision deadlines—not unsupported compliance conclusions.

6. Convert discrepancies into decisions

Compare material provisions against the identified company template version and documented approvals. Separate intentional concessions from unapproved changes, drafting conflicts, and incomplete records. Explain the consequence of a deviation under the relevant scenario.

Recommend a proportionate response: obtain evidence, confirm interpretation, secure approval, negotiate an amendment, or assign specialist analysis. If remediation changes Cause, Good Reason, or change-in-control language, recheck linked benefits and notice provisions. For timing issues, preserve notice, cure, resignation, release, and payment events separately.

Record: action, rationale, approval authority, and whether resolution is needed before signing, closing, or a later event.

7. Reconcile the summary with the evidence

Draft the executive summary last. Lead with decisions needed, material exposure ranges, and missing evidence that could change those ranges. Do not aggregate mutually exclusive scenarios or overlapping benefits.

Have a second reviewer trace material findings to documents and calculation schedules. Route factual questions to HR or finance and legal questions to counsel. Keep unresolved issues visible when the report is issued; a reporting deadline does not resolve uncertainty.

Record: reviewer disposition, confirmed assumptions, authorized exceptions, and assigned open issues. Match summary status to underlying rows.

Worked example

Fictional scenario: Alder Quay Systems, Inc. is preparing for a stock acquisition. CFO Mira Chen earns $360,000, with a target bonus of 50% of salary. Fictional executed agreement AQ-EMP-01 provides cash severance equal to 1.5 × (annual salary + target annual bonus) after a qualifying transaction-related termination, subject to an effective release. Ordinary qualifying termination instead provides salary-only severance. Equity awards and the release exhibit are missing.

Fictional retention letter AQ-RET-02 promises $120,000 after a product milestone and continued service. It requires repayment for specified departures but ends repayment at its defined change in control. HR reports milestone completion; finance has not supplied payment evidence.

The cash calculation is 1.5 × ($360,000 + $180,000) = $810,000. It is not a complete termination cost, and transaction-related eligibility still requires verification. Missing awards prevent a defensible total.

The retention finding changes the commercial decision: the team should not assume repayment will retain Chen after closing. Neither HR’s milestone report nor the letter proves payment occurred. The release finding calls for evidence and analysis, not a conclusion that severance is unenforceable.

Common mistakes

• Reviewing only the employment agreement. Add plans, awards, side letters, and approvals; list missing incorporated documents individually.
• Reporting target bonus as earned cash. Preserve discretion, performance conditions, service requirements, and termination-specific treatment.
• Adding every benefit into one maximum. Separate scenarios and check replacement, offset, and anti-duplication terms before aggregation.
• Calling tax language compliant without analysis. Extract operative timing and triggers, then assign coverage and exception questions.
• Treating silence as a clean finding. Distinguish language absent from reviewed documents, missing documents, and unresolved facts.

Final quality check

• Every material finding identifies the operative document, version, section, and page.
• Extracted terms match definitions, amendments, and precedence provisions.
• Financial schedules identify assumptions, exclusions, overlaps, and calculation ownership.
• Legal propositions match the cited primary sources and their limitations.
• Notice, cure, release, revocation, and payment events remain separately identifiable.
• Deviations identify the company comparison version and documented approvals.
• Every open issue is resolved or expressly assigned to an owner and decision milestone.
• The summary matches the detailed rows and does not present unknown exposure as zero.

Complete the workflow with DecoverAI

DecoverAI is the Legal Intelligence Platform for litigation and transactions. Its due diligence capabilities include bulk document classification to organize diligence and prioritize human review; tabular review supports work across documents. In contract review, lawyers can select the represented party in Word, provide deal-specific instructions, and examine findings quoting clauses, locating text, ranking severity, and identifying missing language. Lawyers remain responsible for verification, exposure analysis, and report conclusions. To discuss this executive-agreement workflow, book a demo. (decover.ai)

Frequently asked questions

Should the report include every executive compensation term?

Keep material findings in the report and detailed extraction in supporting schedules. Include terms that change exposure, retention, implementation, or a required decision. Retain routine terms in the comparison schedule where useful.

How should we report missing equity awards?

Identify missing grants as precisely as available records permit. Exclude unverified acceleration from confirmed totals, explain its potential effect, and assign document collection. Do not imply that missing awards have no value.

Can we calculate payment dates from a release clause alone?

Not reliably without the form and relevant facts. Applicable § 626(f)(1) waivers require at least 21 days for individual consideration or 45 days for specified group programs, plus at least seven days to revoke; covered group programs also require disclosures. These are not universal contract deadlines. Section 626(f)(2) separately addresses settlements of filed charges or actions (ADEA § 626(f)). (eeoc.gov)

Does a high-priority finding always require amendment?

No. It may require evidence, specialist analysis, revised financial assumptions, or authorized business acceptance. Explain what the response resolves and identify any consequence the company knowingly leaves open.

Sources

• 26 CFR § 1.409A-3: Permissible payments.
• 26 CFR § 1.280G-1: Golden parachute payments.
• EEOC: Age Discrimination in Employment Act, § 626(f).
• SEC: Virgin Galactic–Colglazier employment agreement, Exhibit 10.1.

Scope: General workflow guidance, not advice for a particular matter. Research cutoff: October 13, 2026; the regulatory pages displayed currency through October 9, 2026. The SEC agreement illustrates wording only.

This guide is general information about legal workflows, not legal advice for any matter. It was drafted and reviewed with AI assistance. The worked example is fictional. Contract rights and procedure depend on the governing law, the actual wording, and the facts, so check the cited sources and the rules that apply in your jurisdiction before relying on it.