Strasburger & Price, LLP Publication

Author Luke D. Bailey
LUKE D. BAILEY
901 Main Street, Suite 4400
Dallas, Texas 75202.3794
214.651.4572
214.659.4167 direct fax
luke.bailey@
strasburger.com

OUTLINE VERSION
  

Golden Parachutes Under IRC Sections 280G and 4999 — Rules, Strategies, and Tactics

Strasburger is called upon frequently to advise corporations and executives in the areas of executive employment contracts, severance agreements, and changes in corporate control. A substantial tax issue often involved in these engagements is the Internal Revenue Code's "golden parachute" rules found in Code Sections 280G and 4999.

Luke Bailey, a partner in the Dallas office of Strasburger, specializes in ERISA and executive compensation.
  

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OUTLINE OF SLIDE CONTENTS

  1. Golden Parachutes Under IRC §§280G and 4999 – Rules, Strategies, and Tactics
  2. Reasons for Parachutes
  3. IRC §§ 280G and 4999
  4. "Parachute" for purposes of IRC §§ 280G and 4999
  5. IRC §§ 280G and 4999 – "Cliff"
  6. Applies to both public and private corporations
  7. "Disqualified Individuals"
  8. Change in Control
  9. "Contingent"
  10. "Base Amount"
  11. Executive A
  12. Executive B
  13. Executive C
  14. Chart: Executive A, B, C
  15. Benefit Plan Parachute Payments
  16. Triggers in Benefit Plans
  17. Three years before change in control executive received option to purchase 100,000 shares at $20 per share vesting 20% per year over five years. Stock valued at $30 per share in change in control.
  18. Slide 18: Chart
  19. Slide 19: Chart
  20. One year before change in control executive was awarded 100,000 shares of restricted stock then worth $20 per share that was to "cliff vest" after five years. Stock valued at $30 per share in change in control.
  21. Slide 21: Chart
  22. Slide 22: Chart
  23. Change in Control Severance Agreements
  24. Change in Control Severance Agreements (cont.)
  25. Economics of Parachutes and Gross ups
  26. Assumption for all five cases is that the executive has "base amount" (average W-2 for 5 years preceding year of C-in-C) of $100,000
  27. Case 1: $299,999 C-in-C payment, no gross-up
  28. Case 2: $300,000 C-in-C payment, no gross-up (Case 1 + $1)
  29. Case 2 (cont.)
  30. Case 3: $300,000 C-in-C payment, with gross-up (Case 1 + $1, + gross-up)
  31. Case 3 (cont.)
  32. Case 3 (cont.)
  33. Case 3 (cont.)
  34. Case 4: $600,000 C-in-C payment, no gross-up (Case 2 + $300,000)
  35. Case 4 (cont.)
  36. Case 5: $600,000 C-in-C payment, gross-up (Case 2 + $300,000 + gross-up) OR (Case 4 + gross-up)
  37. Case 5 (cont.)
  38. Case 5 (cont.)
  39. Case 5 (cont.)
  40. Strategies for Avoiding IRC §§ 280G and 4999
  41. Fiduciary Concerns
  42. Golden Parachutes Under IRC §§280G and 4999 – Rules, Strategies, and Tactics

  

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