Example of Golden Parachute
Suppose Company XYZ is a publicly traded company whose CEO is John. Under John’s leadership, the company performed well, but received competition from larger rival ABC Corporation. XYZ Company’s board of directors is evaluating the offer, and if the offer is successful, John’s role may change or be terminated. Due to this situation, XYZ Corporation and John have a parachute competition agreement. It may include:
1. Severance pay: If John is terminated as a result, he will receive a significant severance package that often includes a variety of salaries and income. For example, he will receive three times his annual salary plus a bonus.
2. Accelerated Stock Options: Any stock options or stock options that John holds in Company XYZ will be accelerated, meaning they will become vested and exercisable immediately upon receipt. This allows him to know the value of the company’s shares based on the purchase price.
3. Ongoing Benefits: John will continue to receive health insurance, retirement benefits, and other benefits for a specified period (usually several years after receiving them), ensuring that he does not lose those benefits immediately.
4. Consent Agreement: John may agree to act as a consultant for ABC Company for a period after the acquisition; will receive pay or additional benefits during this period.
5. Non-Competition Clause: The contract may include a non-compete clause that prohibits John from working for a competing company for a certain period.