definitions of financial terms

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a. A golden parachute and a poison pill.

Answer:

Golden Parachute: An agreement that provides key executives with generous severance pay and other benefits in the event that their employment is terminated as a result of a change of ownership at their employer corporation; known more formally as a change-of-control agreement.

Golden parachutes are provided by a firm's board of directors and, depending on the laws of the state in which the company is incorporated, may require shareholder approval. These agreements compensate executives in the event that they lose their job or quit because they have suffered a reduction in power or status following a change of ownership of their employer corporation. Some golden parachutes are triggered even if the control of the corporation does not change completely; such parachutes open after a certain percentage of the corporation's stock is acquired.

Golden parachutes have been justified on three grounds. First, they may enable corporations that are prime takeover targets to hire and retain high-quality executives who would otherwise be reluctant to work for them. Second, since the parachutes add to the cost of acquiring a corporation, they may discourage takeover bids. Finally, if a takeover bid does occur, executives with a golden parachute are more likely to respond in a manner that will benefit the shareholders. Without a golden parachute, executives might resist a takeover that would be in the interests of the shareholders, in order to save their own job.

Making the above paragraph a little more understanding I have broken it down into bullets. This will also discuss how a poison pill is involved with a golden parachute:

Proponents of golden parachutes argue that they provide three main benefits:
1. Golden parachutes make it easier to hire and retain executives, especially in industries more prone to mergers.
2. They help an executive to remain objective about the company during the takeover process.
3. They dissuade takeover attempts by increasing the cost of a takeover, often part of a Poison Pill strategy.

Poison Pill: A defensive strategy based on issuing special stock that is used to deter aggressors in corporate takeover attempts.

The poison pill is a defensive strategy used against corporate takeovers. Popularly known as corporate raiding, takeovers are hostile mergers intended to acquire a corporation. A takeover begins when a so-called aggressor tries to buy sufficient stock in another corporation, known as the target, to seize control of it. Target corporations use a wide range of legal options to deter takeovers, among which is the poison pill: a change in the company's stock plan or financial condition that is intended to make the corporation unattractive to the buyer. Despite its fanciful name, the poison pill does not destroy the target company. It is intended to affect the aggressor, which will be burdened with costs if it succeeds in its takeover. The strategy was widely adopted in the 1980s.

The poison pill is unique among anti-takeover strategies. At the simplest level, takeovers are about buying stock. Corporate raiders offer shareholders an inflated price for their shares. They try to buy the company for more than its stock is worth. Although this idea seems paradoxical, raiders can reap profits from their overpriced acquisition by selling off its divisions and assets. Some anti-takeover strategies try to deter the aggressor by selling off prize assets first, making a counter offer to shareholders, or stipulating that the current executives will receive huge payoffs after a takeover when they are fired. These strategies can injure the company or simply benefit executives. But the poison pill involves a kind of doomsday scenario for the aggressor. If the takeover is successful, ...