Appraisal Economics has valued non-compete agreements (NCAs or covenants not to compete) of senior executives of a publicly traded real estate investment trust (REIT) that merged with another public REIT. As part of the merger, certain executive officers entered into covenants not to compete with the merged entity during, and for a period of time after, their employment. Section 280G and Section 4999 of the Internal Revenue Code relate to excess parachute payments upon certain corporate events, such as a change in control. Amounts that executives receive in exchange for committing to perform and abstain from certain activities specified in the NCAs are generally taxed at lower rates than amounts considered to be “golden parachutes”; however, only amounts that are “reasonable compensation” qualify for this favorable treatment. Appraisal Economics valued each NCA as part of our Section 280G analysis to determine the reasonable compensation of each executive.
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