Parachute Provision Clause Samples
A Parachute Provision is a contractual clause designed to provide significant financial benefits or protections to certain executives or employees in the event of a change in company control, such as a merger or acquisition. Typically, this provision ensures that if the covered individuals are terminated or their roles are significantly altered following such a change, they receive compensation packages, bonuses, or accelerated vesting of stock options. The core practical function of a Parachute Provision is to safeguard key personnel from sudden job loss or unfavorable changes, thereby reducing uncertainty and discouraging hostile takeovers by increasing the cost of such actions.
Parachute Provision. Notwithstanding the provisions of Section 5.a hereof, if, in the opinion of tax counsel selected by the Company's independent auditors,
(i) the Severance Benefits set forth in said Section 5.a and any pay- ments or benefits otherwise payable to the Executive would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code") (said Severance Benefits and other payments or benefits being hereinafter collectively referred to as "Total Payments"), and
(ii) the aggregate present value of the Total Payments would exceed 2.99 times the Executive's base amount, as defined in Section 280G(b)(3) of the Code, then, such portion of the Severance Benefits described in Section 5.a hereof as, in the opinion of said tax counsel, constitute "parachute payments" shall be reduced as directed by tax counsel so that the aggregate present value of the Total Payments is equal to 2.99 times the Executive's base amount. The tax counsel selected pursuant to this Section 5.b may consult with tax counsel for the Executive, but shall have complete, sole and final discretion to determine which Severance Benefits shall be reduced and the amounts of the required reductions. For purposes of this Section 5.b, the Executive's base amount and the value of the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Section 280G of the Code and based upon the advice of tax counsel selected thereby.