Certain Additional Payments by the Company; Code Section 409A Matters Clause Samples
This clause outlines the company's obligations to make certain additional payments to employees or service providers, specifically addressing compliance with Section 409A of the Internal Revenue Code. It typically details how the company will handle payments that may be subject to deferred compensation rules, ensuring that any such payments are structured to avoid adverse tax consequences. The core function of this clause is to ensure that compensation arrangements remain compliant with tax regulations, thereby protecting both the company and recipients from unexpected tax liabilities or penalties.
Certain Additional Payments by the Company; Code Section 409A Matters. (a) Notwithstanding anything in this Agreement to the contrary and subject to the provisions of this Section 5 (including the Safe Harbor Cap described in subsection (b), in the event that the Independent Accountants (as defined below) shall determine that any amount paid or distributed to the Executive pursuant to this Agreement (the “Agreement Payments”) shall, as a result of a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company, constitute a parachute payment within the meaning of Section 280G of the Code, and the aggregate of such parachute payments and any other amounts paid or distributed to the Executive from any other plans or arrangements maintained by the Company, or by any other member of the same affiliated group (as defined in Section 1504 of the Code determined without regard to Section 1504(b)) which includes the Company (such other payments together with the Agreement Payments shall be referred to as the “Total Payments”), would more likely than not, in the opinion of the Independent Accountants cause the Executive to be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the “Gross-Up Payment”), such that the net amount the Executive shall receive after the payment of any Excise Tax shall equal the amount which he would have received if the Excise Tax had not been imposed. The Gross-Up Payment shall be determined by the Independent Accountants and shall equal the sum of the following:
(1) The rate of the Excise Tax multiplied by the amount of the excess parachute payments;
(2) Any federal income tax, social security tax, unemployment tax or Excise Tax imposed upon the Executive as a result of the Gross-Up Payment required to be made under this Section 5; and
(3) Any state income or other tax imposed upon the Executive as a result of the Gross-Up Payment required to be made under this Section 5. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation for individuals in the calendar year in which the Excise Tax is required to be paid. In addition, the Executive shall be deemed to pay state income taxes at a rate determined in accordance with the following formula: (1 - (highest marginal rate of federal income taxation for individuals)) x (highest marginal rate of income tax in the state in which the Execut...