Author: Sonya Hubbard

Last Friday, FTI Consulting, Inc. (FCN) filed an 8-K to disclose that Executive Vice President/CFO Jorge Celaya had resigned the day before, although “he will remain an employee through the close of business on March 30, 2010.” David G. Bannister, FTI’s Chief Administrative Officer, will be taking over as CFO.

While we aren’t told exactly why Celaya resigned so quickly and with such little notice, the company offers two vague explanations. In the 8-K, it says Celaya “has voluntarily resigned to pursue other opportunities.” In the accompanying press release, it says Celaya is leaving “to pursue a new business venture.” We’ve certainly heard those two lines before, even if they didn’t trot out the oft-used “personal reasons”.

Besides the abrupt departure, though, Celaya is leaving with a more generous departure package than he would have received if the company had simply terminated his employment.

Between March 31 and May 31, 2010, Celaya will work as an “independent contractor consultant” who earns $4,500 per day. While it’s not clear how many days he’ll be able to bill out at this rate, the Separation Agreement does say that during this transition period, “the Company may require you to render transition consulting services from time to time, subject to reasonable advance notice and your reasonable availability.”

The really big bucks, though, come from what the company calls “severance and certain other benefits.”

In April, 2009, the company filed a proxy which stated:  “Pursuant to the offer letter extended by the Company and accepted by Mr. Celaya, Mr. Celaya’s employment with us is ‘at-will.’” We found another section that said (again, this was less than a year ago) that if the company terminated Celaya without cause or in the context of a change in control, he would be paid $550,000.

But under the terms of the Separation Agreement, Celaya will walk away with more than twice that amount. It states:

“Under the terms of this agreement, Mr. Celaya will be paid severance in an amount equal to his current base salary plus $700,000, his equity grants will vest on an accelerated basis, and he will also receive standard separation benefits on the same basis as such benefits would be payable to other senior executives.”

We know from last year’s proxy that the company’s Comp Committee raised Celaya’s base salary to $600,000 on March 1, 2009; thus, he’ll get a lump sum check for $1.3 million, minus deductions, to be paid “promptly after the effective date of your separation from service with the Company.”

When Celaya joined FTI Consulting in July, 2007, the company gave him 10,000 shares of restricted stock. At the time, those shares were to vest over three years, meaning they would fully vest on July 9, 2010. With the accelerated vesting, though, Celaya fully owns that last third of the shares now.

And finally, Celaya also gets to drive the car that the company leased for him through July, 2010.  The company promised Celaya that it will “cover all maintenance expense, but not fuel costs, during the Transition Services Period through the lease expiration. In the event applicable FTI insurance arrangements do not permit the continued use of a leased car after March 30, 2010, suitable and mutually acceptable alternative arrangements will be made.”

Whatever prompted the sudden departure, Celaya is getting a sweeter send-off than most departing employees, many of whom probably feel lucky if they leave with a nice cake and a few greeting cards.

Image source:The School House via Flickr

In Round 2 of “Duking it Out in the Boardroom,” we focus on the directors’ spat at Ohio-based Myers Industries, Inc. (MYE). Founded in 1933, the company has grown into what it now describes as “an international manufacturer of polymer products for industrial, agricultural, automotive, commercial, and consumer markets.”

The disagreement involves Stephen E. Myers, who joined his family’s company many decades ago and eventually became the Chairman and CEO. He retired/resigned from that position in May, 2005. According to the annual report that the corporation filed a couple of weeks ago, Myers still owns 7.84% of the company’s outstanding common stock.

Now almost five years later, Myers resigned from the board by sending a letter dated March 10, 2010 (it’s an exhibit to this 8-K) which stated that his departure stemmed from his “continuing disagreement with the Board over a number of important practices and policies. I feel that the Board’s continued unwillingness to consider my views on these matters, as evidenced by its decision not to include me in management’s slate of nominees for the upcoming meeting, leaves me no other choice.”

Myers listed several complaints about the way the company is being run, including (to name just a few) the board’s “…preoccupation…to increase its compensation” without linking the increases to performance; “the adoption of governance practices that hinder shareholders’ ability to voice their legitimate concerns both to the Board and to other shareholders within the forum of the Company’s Annual Meeting…”; and “the Board’s concern with unanimity and its intolerance of divergent opinion within or without its ranks.”

The company responded to the issues Myers raised with its own letter dated March 16, 2010. It stated that it “has not increased its compensation” for independent directors since 2005 (and that the “compensation for independent directors at Myers Industries, Inc. fell well below the total compensation paid to directors at comparable peer companies”).  It also said that its adoption of advance notice requirements in order for shareholders to nominate directors or new shareholder proposals had been “a legitimate exercise of the authority granted by our shareholders at last year’s meeting and permitted by Ohio corporate law,” and that Myers’ “views and opinions have always been valued and considered, even when divergent from those of other members of the Board.”  (It also addressed the other issues Myers raised.)

Two days later, Myers sent another letter (an exhibit to this 8-K) which notes: “I’ve put a considerable portion of my life into the company, a fact that drives my concern about Board processes which effect the direction of the Company and necessitates my response to several comments in your letter that take on a personal tenor and/or are not responsive to statements I made in my letter of resignation.”

Myers points out that the increase in director compensation had not been in cash, but in “outright annual grants of 1000 shares of Myers stock.”  (Page 12 of the 2010 proxy indicates that non-employee directors do get a grant of 1000 shares if they’ve served since the prior year’s annual meeting.)  And then he writes:

Since the Company became publicly owned in 1971, no Director of the Company has left because of inadequate compensation. There appears to be no problem in attracting qualified directors to the Board as exemplified by the introduction of a new director to the board in four of the last five years. I see no profit in paying an expensive consultant to provide information that a mid-level clerk could research in half-a-day…. It is not productive use of Directors’ fees or time to worry about what other directors earn. That the Board cites the commission of Towers Watson to do such work, an unproductive and irrelevant use of the shareholders’ money, confirms my assertion.

By alerting readers to disputes like this one (and the one yesterday at BioMarin Pharmaceutical, Inc.), we’re not attempting to determine which side in these disputes is “right.”

We are, however, suggesting that shareholders of these companies (and companies in similar situations) would be wise to study the filings and correspondence for themselves.  (And in the case of Myers’ shareholders, perhaps they’ll want to attend the upcoming annual meeting scheduled for April 30, 2010.)  Ultimately, it’s the shareholders who have the most at stake in these disputes.

Image source: Claudiogennari via Flickr

It’s inevitable that a company’s directors are going to disagree from time to time. But rarely do those spats play out as publicly as some that we’ve seen recently. (In the interest of keeping this post at a reasonable length, we’ll write about one company today and another one tomorrow.)

BioMarin Pharmaceutical, Inc. (BMRN) filed an 8-K yesterday to disclose that director Joseph Klein III had resigned last Friday. Klein, who served as a director on BioMarin’s board for nearly five years, chaired the Audit Committee and served as a member of the Corporate Governance and Nominating committees.

In Klein’s resignation letter, he states that he has “fundamental disagreements with the Board on how the Board approaches its governance and oversight responsibilities.”

Klein asserts that earlier in March, Chairman of the Board Pierre Lapalme called to inform Klein that he was not being re-nominated to serve as a director. Both sides agree that Klein then called each of his fellow directors in an attempt to persuade them to reconsider their decision to not re-nominate him as a director.

The company responds that the other board members “…take exception to Mr. Klein’s characterizations of facts and his conclusions.” They also claim that if Klein really had “fundamental disagreements with the Board,” he wouldn’t have tried to convince his colleagues to change their minds and put his name back on the slate of directors to be elected. They declined to do so, stating that they had “lost confidence in Mr. Klein’s ability to work constructively with the rest of the Board members and management of the Company.”

After that, every issue that Klein raises and the company rebuts takes on a “he said” v. “she said” tone.

Klein claims his colleagues didn’t like “How and When I ask questions as Chairman of the Audit Committee.” (The company’s response: None of the board members had a problem with the substance of the questions – just the appropriateness of asking them “in the presence of certain junior personnel.”)

Next, Klein states that he disagrees with the board on “How to Conduct an Ongoing Investigation of a Serious Matter.” (The company replied that what’s underway is a preliminary investigation, and that it is being taken seriously and handled appropriately.)

Third, Klein says there’s a “Disagreement over How to Modify the Company’s Poison Pill.” (Here the company says that discussions about a stockholder rights plan and what it should say doesn’t rise to the level of a disagreement. Also, “the Board cannot reconcile how the changes to the Company’s stockholder rights plan could be deemed to be a disagreement that ultimately caused Mr. Klein to resign since the Board made the decision in February 2009 and Mr. Klein continued to serve as a director for over a year following the adoption of the Company’s existing stockholder rights plan.”)

Fourth, Klein claims there is a “Disagreement with the CEO on How and When the CEO should present to our entire Board a serious, reasonable offer by a third party to acquire the company.” (The company claims that it “has never received any such offer while Mr. Bienaimé has been Chief Executive Officer.” It also denies that it has sought to sell the company, claiming that “…the Board believes that the best course of action to maximize long-term stockholder value is to execute on the Company’s long-term business plan as an independent entity.”)

And finally, Klein asserts that he has a “Disagreement with the CEO over his Desire to Combine the Chairman and CEO Roles.” (Not true, the company replied. It says that the board committees that would recommend such a change “have to date unanimously determined that the current Board governance structure separating the Chairman of the Board and Chief Executive Officer roles continues to be appropriate at this time.”)

The company gave Klein a copy of its response. It also said in the 8-K that if Klein sends a reply, it will file his letter with the SEC within two business days after it is received.

Join us again tomorrow for another exciting round of “Duking it Out in the Boardroom!”

Image source: Claudiogennari via Flickr

Making changes within the executive ranks is rarely inexpensive. In fact, it’s pretty common for a company to spend several million dollars as it bids farewell to one executive officer and hands the keys to the executive washroom over to his or her successor.

That’s certainly the case in the upcoming CFO change at global investment management firm AllianceBernstein (AB). Earlier this week, the company announced that longtime CFO Robert Joseph will retire at the end of 2010 and that John Howard will succeed him. Between now and the end of the year, Joseph will continue to work in what the company is calling a “senior advisory role.”

In the 8-K that the company filed with the SEC yesterday, we get a glimpse into what the change in CFOs will cost the company.  Although Joseph will officially retire on December 31, he will continue to draw his $195,000 per year base salary – as well as medical and dental insurance coverage – through June 30, 2011. Provided that he complies with the terms of his Retirement Agreement, he will also get a “2010 year-end compensation award of $805,000,” which he will receive partly in cash and partly in deferred compensation. Finally, he will also get restricted units “representing assignments of beneficial ownership of limited partnership interests in AB Holding” worth $625,000; so long as Joseph complies with his Retirement Agreement, a percentage of those interests will vest each year on December 1st in years 2011 through 2014.

Howard, who comes to AllianceBernstein after serving as CFO/COO at AQR Capital, started learning the ropes at AllianceBernstein on Monday of this week. His starting salary is $200,000 per year, and his 2010 “total year-end cash bonus and long-term incentive compensation award… shall be no less than $1,800,000, which shall be allocated between cash and deferred compensation.” AllianceBernstein is also giving Howard – “for 2010 only” – a year-end grant award of $2.5 million “as replacement equity for awards he is forfeiting by leaving AQR Capital.”

For a company as large as AllianceBernstein, this transition-related outlay of a little more than $6 million might seem like the proverbial drop in the bucket. But it does show that even at the relatively low salary levels here (at least by Wall Street standards), change in the executive suite is still pretty costly.

Image source: Matt@TPE via Flickr

There are several good articles today (such as this one and that one) about the executive compensation changes and the NEOs’ personal plane usage at Ford Motor Co. (F), so there’s no need to rehash either of those subjects.

Instead, the topic that caught our attention in the preliminary proxy that Ford filed this morning was the disclosure that the company spent $1,191,457 in 2009 to provide security to Executive Chairman/Chairman of the Board of Directors William Clay Ford, Jr. (the great-grandson of Henry Ford).

What’s noteworthy here is that the last time the company reported how much it spent on security for Ford was the April, 2007 proxy; however, back in 2006, the company spent “only” $85,708 to keep Ford safe.

The amount spent on security for Ford wasn’t available in either the 2008 or 2009 proxies. In both years, the company’s filings stated: “…Mr. Ford is not identified as a Named Executive in the Summary Compensation Table… because he did not meet the definition of a Named Executive under SEC rules.”

There also isn’t any clue about why the security costs soared so dramatically in just three years. In fact, other than the expenditure and the statement that Ford is required to fly on private aircraft for both business and personal travel for security reasons, the only clues in the proxy led us to expect very modest expenditures. For example, there’s this passage about Ford’s 17-year-old consulting agreement:

“Under this agreement, Mr. Ford is available for consultation, representation, and other duties. For these services, Ford pays him $100,000 per year and provides facilities (including office space), an administrative assistant, and security arrangements. This agreement will continue until either party ends it with 30 days’ notice.”

And then there’s this section:

“Perquisites and Other Benefits: …For certain executive officers, including the Named Executives, we provide a home security evaluation and security system…. The safety and security (personal and financial) of our executives is critically important. We believe the benefits of providing these programs outweigh the relatively minor costs associated with them.”

The company explains that the only reason Ford is listed as a Named Executive Officer in the 2010 proxy (which is why his compensation appears on the Summary Compensation Table) is that he received performance units and stock options that have grant date values. “Consequently, Mr. Ford is included as a Named Executive pursuant to the SEC proxy rules even though he did not, and will not, receive salary, bonus, or equity awards until such time as the Committee determines the Company’s global Automotive sector has achieved full-year profitability, excluding special items.”

We’ll never know what kind of security services Ford received for nearly $1.2 million. But hopefully for that kind of money, the guy at least got a moat.

Image source: PhillipC via Flickr

The Ides of March may have been unlucky for Julius Caesar, but it was a pretty good day for Raymond Milchovich.

That’s because March 15th is the day that Milchovich, the Chairman/CEO of Foster Wheeler, Inc., (a subsidiary of Foster Wheeler AG) (FWLT), signed an agreement to retire as CEO on May 31, 2010 and become a consultant. The company filed an 8-K and Consulting Agreement on Thursday afternoon to disclose the new relationship. (You may recall that in January we reported the generous contract terms Foster Wheeler gave to two executives who agreed to work in Switzerland for up to five years.)

There are several interesting things about this new deal, which will officially start on June 1, 2010 and end on November 3, 2011.

First, it’s one of the most lucrative contracting agreements we’ve read lately (though worth a bit less than this one). Milchovich will get $104,466.67 per month as a consulting fee, which works out to $1,253,600 per year. There’s also a clause stating that on the contract’s anniversary or whenever the parties agree it’s appropriate, “the Company shall review the Consulting Fee and determine if, and by how much, the Consulting Fee should be increased. Once the Consulting Fee has been increased hereunder, it shall not be decreased.”

Foster Wheeler notes that by relocating its primary office from New Jersey to Switzerland, it is in “material breach” of its employment agreement with Milchovich. That breach would entitle Milchovich to terminate his employment “for good cause” and receive a lump sum cash payment from the company, which appears to be (according to his Nov. 2008 Employment Agreement) 200% of his 2009 base salary, or $2,500,000.

Milchovich is to work primarily in New Jersey or Florida, and there is no requirement that he work a set number of hours per month. His duties, which are described in “Annex 1” to the agreement, are stated simply:

“Consultant shall provide the Company with assistance in the transition of the Consultant’s duties and responsibilities and such other business consulting services as the Board or the CEO may request, from time to time.”

In addition to his consulting fees, Milchovich may earn millions more if the company achieves its target objectives.  Per the contractual formula, his incentive fee shall be “equal to the product of (i) the Consultant’s monthly Consulting Fee at the rate in effect at the beginning of such fiscal year, multiplied by twelve and (ii) 130%.” And the Compensation Committee can double that amount – whatever it turns out to be – if it determines that the company achieved objectives that are “significantly beyond expectations.”

Although the agreement specifies that Milchovich will be an independent contractor rather than employee, the company also states – rather incongruously – that he’s eligible to participate in employee pension benefits plans, as well as group medical and dental plans. Foster Wheeler is also giving him $6,000 per month to pay for miscellaneous home office and car expenses, life insurance, and tax and financial planning; and furthermore, it will gross-up any amount Milchovich would owe if those benefits are taxable.  And finally, the agreement provides for large sums to be paid to Milchovich’s estate if he dies, or to him if he becomes disabled or if there’s a change of control at the company.

Personally, we’d probably take Switzerland over Florida and especially New Jersey, especially given that state’s current budget woes. But then again such a sweet consulting deal is hard to come by these days.

At the beginning of February, CIT Group, Inc. (CIT) announced that its president and Chief Operating Officer, Alexander Mason, would leave the company on February 26th. Mason joined the company June 16, 2008, putting his tenure there at just over 19 months.

When the announcement was made on February 1st, the company issued a press release which quoted interim CEO Peter Tobin as saying, “Alex came to CIT at a time of enormous challenge. We would like to thank him for his contributions during our restructuring, and we wish him continued success in the future.” Simultaneously, it also filed an 8-K with the SEC that stated:  “Mr. Mason has agreed to forego severance and any other compensation other than the earned cash compensation he is entitled to receive for 2009 and until termination under his employment agreement dated June 16, 2008.”

Given the wording of the 8-K, it’s understandable if readers might not know that the company was referring to the “minimum cash bonus” that CIT Group promised to give Mason for both 2008 and 2009. But we found that information in the late annual report that CIT Group filed on March 16th. (Its annual report was really due March 1, 2010, but the company filed a notice with the SEC to explain that it would not be able to meet the deadline “without unreasonable effort and expense.”)

Exhibit 10.20 of the annual report is a confidential letter dated January 29, 2010 from Executive Vice President of Human Resources James Duffy to Mason regarding “Transition Arrangements.” It states in part:

“This letter will confirm that your last day with CIT will be February 26, 2010 (the ‘Separation Date’). At that time, each of your positions as an officer and employee of CIT and its subsidiaries will cease.

From now until your Separation Date, you agree that your compensation will consist only of your base salary and continued participation for you and your applicable dependents in the benefit plans in which you or such dependents currently participate. In addition, you will continue to be entitled to the 2009 guaranteed cash bonus of $1,350,000 provided for in your Letter Agreement, dated June 16, 2008 (your ‘Employment Agreement’). For the avoidance of doubt, this amount will be payable at the time, and will be subject to all of the conditions, currently set forth in your Employment Agreement. For the avoidance of doubt, your termination of employment under this letter will be treated as an Eligible Termination for purposes of 2009 guaranteed cash bonus.”

In exchange for signing the “Transition” agreement – which also promised to reimburse Mason for up to $75,000 in legal fees – CIT Group asked for consideration: he had to sign a General Release that gave up any legal claims he might have asserted against the company.

While we haven’t yet seen the new movie Alice in Wonderland, we definitely felt like we had fallen down a rabbit hole when we read Airvana, Inc.’s (AIRV) recent merger proxy.

The Chelmsford, Mass-based company, which sells network infrastructure products to the wireless companies that provide mobile broadband services, announced last December that it planned to go private. The list of high-profile players involved in this deal included SAC Private Capital, Zelnick Media, Goldman Sachs (GS), which served as Airvana’s financial advisor, and Boston law firm Ropes & Gray.

But what really caught our attention in the filing was some of the giant-sized paydays that Airvana executives will receive post-deal. In addition to vested stock options and equity shares, the merger will accelerate the vesting of currently unvested stock options. Page 59 of the filing states what each director and executive officer would receive if a “Total Cash Payment” is made (based on assets owned as of Jan. 3, 2010).

The biggest recipient, by far, is Paul Ferri, an Airvana director since 2000, who will get $ 117,335,080 (yes, $117.3 million).  The proxy notes that Ferri is “a founding partner of Matrix Partners, a venture capital firm, where he has been a General Partner since February 1982.” Keep in mind that the size of the deal is valued at around $530 million and it’s still pretty rare to see so much go to one person. But others will benefit too including director Gururaj Deshpande, who stands to collect nearly $66 million.

Several other executive officers will also see big paydays, though not nearly as big as Ferri’s and Deshpande’s. They include VP/Chief Technical Officer Vedat Eyuboglu – $7,696,237; VP/CFO Jeffrey Glidden – $5,250,414; Luis Pajares (who was VP/North American Sales and Services until he resigned on December 31, 2009) – $3,910,866; and VP/Engineering Mark Rau – $3,472,904.

Battat, Verma, and Eyuboglu are “Rollover Stockholders” who will exchange 60% of their common shares of Airvana for equity interests of the new parent company. (The exchange helps them defer paying taxes.) However, p. 57 notes that they “will be paid merger consideration for [the remaining] approximately 40% of the shares of Airvana common stock that they hold.” Each man will also be an executive officer and a director of the new parent company.

But whereas some of the executive officers are retaining an equity interest in the surviving company, it appears that the directors such as Ferri are completely cashing out their interests.  The proxy says they will collectively receive $607,394 for their options; and “[a]dditionally, these directors will receive an aggregate cash payment in respect of their other beneficially owned shares of Airvana common stock in the amount of $184,118,232.” It continues on p. 61:

“The members of the board of directors (excluding Messrs. Battat and Verma) are independent of and have no economic interest or expectancy of an economic interest in Parent or its affiliates, and will not retain an economic interest in the surviving corporation or Parent following the merger.”

According to pp. 33-34 of the proxy, the board of directors (excluding Battat and Verma, who abstained from voting), and Goldman Sachs, which was hired to advise the Board’s special committee, concluded that the offer to pay $7.65 per share for common stock, was “advisable, fair to and in the best interests of the Company and our unaffiliated stockholders.” [Several law firms that filed suit to oppose the merger apparently disagree.] Page 6 states that Goldman Sachs will be paid “a transaction fee equal to approximately $6.3 million, $5.8 million of which is contingent upon consummation of the merger.”

These sorts of big numbers always make us wonder what the purpose of a deal like this is, other than to enrich a few people. Yet, the deal seems inevitable. Page 68 of the filing notes that as of Feb. 23, 2010, directors and executive officers owned about 48.6% of Airvana’s common stock, and they intend to vote all of their shares in favor of the merger agreement at the upcoming April 9 special shareholders’ meeting.

All this brings to mind another of Lewis Carroll’s well-known works. Except, perhaps, it’s the “Mergerwock” of which we should really take heed.

Image source:  sammydavisdog via Flickr

The Change in Control terms for executives at Leucadia National Corp. (LUK) were already generous, but for Vice President Justin R. Wheeler, they just got a lot better.

Late last Friday afternoon, Leucadia filed this 8-K and an attached letter agreement to set out Wheeler’s new deal with the company.  According to the document, the new terms were “…intended to induce you to remain in the employ of Leucadia National Corporation.”

Frankly, why would he refuse?

Dated March 1, 2010, the agreement states that if within the next five years Wheeler continues to be an executive officer of Leucadia, but neither Ian M. Cumming (Chairman of the Board) nor Joseph S. Steinberg (president) is then serving as Leucadia’s Chief Executive Officer, then Wheeler can make a profitable departure.  If he exercises his written option to do so within six months of the stated change in control, he can terminate his employment and receive $2.5 million.  That amount can be reduced if it would subject Wheeler to Excise tax liability or if he were to act negligently or breach his duties to the company.

(Of course, if either Cumming or Steinberg leaves the company under certain circumstances between now and 2015, provisions at the bottom of p. 28 of the April, 2009 proxy obligate the company to pay each man $5.1 million. However, that is not a new disclosure.)

But even if Cumming or Steinberg don’t leave, Wheeler may get the money anyway. The second page of the letter states:

7.) At the end of the five year period from the date hereof and if a “Change of Control” has not occurred, the Board of Directors of LUK, may upon the recommendation of LUK’s Compensation Committee, choose, in its sole discretion, and based upon its evaluation of your performance during the five year period, to award you all or any portion of the Payment.

So regardless of whether the company changes hands, or whether Wheeler stays or leaves at the end of 2015, he may get $2.5 million – just to continue doing his job.

Image source:  Gala Darling

One of the challenges of reading annual reports is sifting through the massive dump of exhibits and figuring out what has been filed previously and what hasn’t. And despite what you’re probably thinking, that work isn’t always as glamorous as it sounds.

Occasionally, though, the scrutiny pays off, as it did when we reviewed the 10-K that Hess Corp. (HES) filed recently on the Friday before the big March 1 deadline.  Weighing in at a relatively modest 163 pages (compared to other companies’ 10-Ks, that is), we hummed along until we came to Exhibit 10(20), an employment offer letter from the company to Timothy Goodell.   Oddly enough, the letter is dated September 19, 2008, but for some reason it wasn’t filed with the SEC until now.

Hess Corp. hired Goodell to be its Senior Vice President, General Counsel. (Prior filings indicate that Goodell’s relationship with the company started years ago, when he worked in a private firm that did legal work for Hess.)

In addition to a base salary of $650,000, the company gave Goodell a signing bonus of $1.5 million (half of which was to be paid within 30 days of his hiring; the other half was to be paid in September, 2009). He also got a guaranteed bonus of $650,000 in 2009, as well as restricted stock and options with an approximate value of $2.25 million.

The only thing we couldn’t find was an explanation of why it took a year and a half for that contract to make its way into Hess’s filings.  But perhaps with all that paper, maybe the exhibit got lost in the shuffle?

Image source:  Brodeur

A lot of us like a good mystery, but most of us probably prefer the ones in a book to those in an SEC filing.

When we looked at the 10-K that Forestar Group Inc. (FOR) filed yesterday, we noticed an interesting example that illustrates an important point:  Shareholders need transparency and full disclosure in SEC filings.  And when that’s lacking, they can’t know whether the company’s executives are running the company with everyone’s interests in mind, or just their own.

On page 31, in the 2009 section under the heading “Significant aspects of our results of operations follow”, we found the following:

General and administrative expense includes about $3,200,000 paid to outside advisors regarding an evaluation by our Board of Directors of an unsolicited shareholder proposal and $2,213,000 in non-cash impairment charges related to our undivided 15 percent interest in corporate aircraft contributed to us by Temple-Inland at spin-off. Other general and administrative expenses have declined as result of execution of our near-term strategic initiatives to lower costs.

Admittedly, this is not the kind of mystery that involves deep secrets like “Who killed J.R.?”  However, we – and therefore perhaps shareholders – found ourselves wondering:  “$3.2 million to outside advisors?  Who are they? Do these advisors have a connection to anyone at the company?  Or, at a minimum, what kind of advisors are they?  What is the general nature of this ‘unsolicited shareholder proposal’?”  Was this a lame shareholder proposal, or something that really required a lot of due diligence and time to consider?

Another sentence or two to provide some context could have easily answered these questions.

When we researched the point, we discovered that Forestar actually first disclosed this expense in an 8-K filed last May.  But in the handful of documents that refer to the expense which the company has filed since then, it always uses the same phrase, with no further detail.

We understand that companies can’t reveal information that would jeopardize their competitive edge.  However, if a matter doesn’t fall into that category – as this one presumably doesn’t, since it was a shareholder proposal – then companies could use their filings as an opportunity to reassure shareholders that they value transparency and are working with their interests in mind.

So, sadly, in this case we can’t tell you Whodunnit.  Nor can we tell you why.

Update: a valued footnoted reader, Steven Friedman, gets the coveted “Sam Spade for the Day” award for helping us solve the mystery.  Thank you for helping us, Steven!  He writes:

this was the takeover offer last year. http://uk.reuters.com/article/idUKN2330853720090123

Offer was at $15 and stock is higher now so the defense money was probably good ROI for shareholder. The private jet on the other hand….oh well

Image source:  National Geographic

In addition to the exciting news reported yesterday about Dominos Pizza, Inc.’s (DPZ) impressive profits, the company also released information about deals with two top executives.

On March 8th, J. Patrick Doyle will replace David Brandon as President and CEO. And as Doyle’s employment agreement shows, (filed yesterday as an exhibit to Dominos’ annual report), the company is investing a lot in its new leader.

The contract runs for three years and starts with a base salary of $750,000 a year. But Doyle may earn as much as another $1.5 million in the form of a bonus if the company meets the targets set out in the Senior Executive Annual Incentive Plan. The company also gave him stock options to purchase 250,000 shares and a performance share award (which vests over three years) of 75,000 shares of stock.

And then there’s the plane. Section 4.7.3 (bottom of p. 4) starts by saying:

The Company acknowledges its obligation to furnish the Executive (which for purposes of this Sub-Section 4.7.3 includes the Executive’s spouse, family and guests when accompanying him), with transportation during the term hereof that provides him with security to address bona fide business-oriented security concerns, and shall, at the Company’s expense, make available to the Executive, Company or other private aircraft for business and personal use at his discretion, provided that any such personal use shall be limited to thirty-five (35) hours per calendar year (the “Yearly Aircraft Hours”).

The 35-hour limit is invoked again in the Time Sharing Agreement that gives Doyle the right to use Dominos’ Dassault Falcon 2000.  (His contract also provides for a gross-up benefit, which means Dominos will pay any taxes that Doyle would otherwise owe personally.)

But while the parties may intend to invoke that 35-hour limit, we noticed an ambiguity that arguably gives Doyle unlimited personal use of the plane. That’s because the agreement also says:

It is recognized that travel by the Executive on Company or other private aircraft is required for security purposes and, as such, all uses by the Executive shall constitute business use of the aircraft and shall not be subject to reimbursement by the Executive.

Meanwhile, David Brandon, the departing CEO, will remain on the Dominos payroll for a while.  For starters, even though he’s turning over the reins to Doyle next Monday, he’ll earn his regular base salary of $70,621.83 for the month of March (the calculation comes from the 2009 proxy). After that, he’ll earn $25,000 per month in the newly created role of “Special Advisor to the President and Chief Executive Officer”, a position that will last through January 10, 2011. He will also continue to participate in the Annual Incentive Plan, and he keeps the right to use his “Yearly Aircraft Hours” on the company’s plane through the end of FY 2011, or until he stops serving on Dominos’ board.

Brandon’s next career will be as the Director of Intercollegiate Athletics at the University of Michigan, where he will reportedly earn a base salary of $525,000 and $100,000 a year in deferred compensation. While that’s certainly a significant pay cut, when combined with his new gig as an advisor to Doyle, he will still probably have enough to treat the kids at Michigan to an occasional pizza.

Image source:  Culinet

Today’s the deadline for the many companies that are on a calendar year to get their 10Ks in to the SEC, and the folks here at footnoted couldn’t be happier. We won’t bore you with how we spent our respective weekends combing through over 900 alerts to assemble a hefty spreadsheet of all the different things that companies tried to dump in these filings, some of which topped over 1,600 pages! We’ll be sharing our best finds with subscribers to FootnotedPro.

But we thought the 10-K filed by Xerox (XRX) late Friday was a good one to talk about here for several reasons. For one, we’ve been pretty skeptical about the recently approved acquisition of Affiliated Computer Services (old ticker: ACS), which Xerox promises will expand its reach in the business process and document management markets. Yet, there is some positive news. For example, Xerox obtained 16% more patents in 2009 than in 2008. And this article points out that Xerox reported a 4Q 2009 profit of $180 million (although it adds that “the improvement was driven entirely by [its] success in paring its costs”).

If you look deeper, though, you might just end up with that annoyed feeling you get when the photocopier jams, you get toner all over your hands, and you still can’t find the crumpled paper that’s supposedly hiding in “Section B” of the machine.

The biggest annoyance comes from page 29. Here’s a snippet from the paragraph about the Annual Performance Incentive Plan, or “APIP”:

The Compensation Committee approved the payments of cash awards under the Xerox 2004 Performance Incentive Plan (“2004 PIP”), as amended, for the second half of 2009 APIP. The Compensation Committee had previously approved the awards for the first half of 2009 at its July 2009 meeting…. The Compensation Committee approved a second half 2009 cash award of $1,181,250 to [CEO Ursula] Burns, $1,093,750 to [Chairman of the Board Anne] Mulcahy, $624,750 to [Vice Chairman/CFO Lawrence] Zimmerman, $624,750 to [EVP & President, Corp. Operations James] Firestone, and $491,417 to [Sr. VP & President, Developing Markets Operations Jean-Noel] Machon.  These awards, combined with previously approved cash awards for the first half of 2009, result in combined cash awards of $1,884,375 to Ms. Burns, $2,331,250 to Mrs. Mulcahy, $1,071,000 to Mr. Zimmerman, $1,071,000 to Mr. Firestone, and $842,428 to Mr. Machon for full fiscal 2009.

Although the company “explains” the awards by referring to this exhibit, handing out millions of dollars seems inconsistent when viewed in the context of what else is going on. For example, we’re guessing that those types of bonuses won’t sit too well with the 2,500 folks that Xerox plans to lay off.

This article points out that Xerox – which is trying “to reverse five straight quarters of sales declines” – bought Affiliated Computer Services to help boost its revenues.  And this report stated that after the ACS acquisition, S&P lowered Xerox’s ratings to BBB-, one notch above junk status.  It also cited an analyst who said that Xerox is “vulnerable to macroeconomic conditions, as demonstrated by the sharp drop in equipment sales in 2009.”

But what about the fact that the stock is trading about 80 percent higher than it sold for one year ago? Well, that might seem less impressive after looking at p. 27 of the annual report, where Xerox includes a graph that shows what a $100 investment made on December 31, 2004 would be worth five years later. A hundred dollars invested in the S&P 500 Information Technology Index would have been worth $117.11. A hundred dollars invested in the S&P 500 Index would have been worth $102.11. And a hundred dollars in Xerox? Five years later, it would have been worth $51.97.

Image source:  Xerox

As the SEC deadline looms for large accelerated filers to file their 10-Ks by Monday, we’re reviewing literally hundreds of filings a day.  Besides disclosing the state of their own debts, revenues, legal affairs (and so much more!), many companies are also discussing the state of the economy and what they think the future holds.

While there’s not going to be one, identifiable moment where we can collectively sigh and say, “Whew!  Finally, the economy is fixed!”, we’ve noticed that many companies seem to be a bit more bullish in their filings this year.

One that particularly captured our attention was the annual report that the NASDAQ OMX Group, Inc. (NDAQ) filed recently.  (NASDAQ OMX is the world’s largest exchange company, with 3700 companies listed that have a market value of $4.1 trillion.)

Its outlook for 2010 (on pp. 45-46) is one of the most positive that we’ve seen.  After stating that the end of 2009 brought “signs of a recovery in the IPO market,” it stated:

We believe that the most challenging economic conditions in this cycle are behind us and the year ahead will likely prove more positive for our business drivers and our operations. We believe that our aggressive steps in meeting our cost, revenue, and technology synergies in 2008 and 2009 will enable us to benefit from improving economic conditions in 2010. We expect to further diversify our business with enhanced product offerings and/or acquisitions which are complementary to our existing businesses.

Granted, the focus here is primarily on NASDAQ OMX’s own bottom line; however, its positive projections are based on the observations that the economy really is starting to recover.

And even though there’s no danger that Wall Street will be confused with Pamplona any time soon, perhaps it’s at least reassuring to believe that the bulls are coming back.

Image source:  Comtours

Last fall’s public stand-off between Time Warner Cable, Inc. (TWC) and News Corp. (which owns the Fox broadcast network) involved a public spat over fees, but – as consumers know – regardless of which company was “right,” consumers’ bills went up.  And if the prediction in this article is correct, annual hikes of about 5% may become a tradition.

Shareholders, meanwhile, presumably caught the headline at the end of January that Time Warner’s EPS guidance for FY 2010 would likely be lower than analysts expected.

But besides the increased programming costs, investments in technology, and accounting strategies to replace advertising shortfalls, there may be other reasons why those cable bills are climbing.

While reviewing the 10-K that Time Warner filed last Friday, it reminded us that we hadn’t yet posted about the updated employment agreements between it and Chief Operating Officer, Landel Hobbs (see here), or the new agreement with Senior Executive Vice President and Chief Financial Officer, Robert Marcus (see here).

The company did disclose the headlines of the  new agreements in an 8-K filed on January 7, 2010, but it waited until Friday’s 10-K to file the actual agreements.

The odd thing about Hobbs’ raise is that, according to the proxy filed April 20, 2009, his 2008 employment agreement wouldn’t have expired until January 31, 2011.  That agreement paid him a base salary of $900,000, an annual discretionary target bonus of 233% of his base salary (nearly $2.1 million), and a discretionary annual equity and other long-term incentive compensation award with a minimum target value of $3,000,000.

The new agreement took effect January 1, 2010 and has the same expiration date… January 31, 2011 as his former agreement.  But now Hobbs gets a minimum annual base salary of $1,000,000 and an annual long-term incentive compensation with a target value of $3,650,000.  The annual discretionary cash bonus remains at $2,100,000 (although now the number is specifically stated, rather than given as a percentage of his salary).

Marcus, on the other hand, was working under an employment agreement that dated back to August, 2005 and would have expired in 2008; however, it automatically renewed every month since neither party terminated it.  The company had given Marcus raises, of course.  In addition to other types of compensation, as of last April Marcus’s base salary was $800,000, his annual discretionary target bonus was 175% of his base salary ($1.4 million), and his discretionary annual equity and other long-term incentive compensation award had a minimum target value of 225% of his base salary ($1,800,000).

The new agreement, which became effective January 1  and runs through December 31, 2012, states that Marcus will now get a minimum Base Salary of $900,000, an annual Target Bonus of $1,500,000, and an annual long-term incentive compensation with a target value of $3,100,000.

While executives surely appreciate a raise as much as the rest of us do, it’s probably a safe bet that investors and especially cable customers may be less enthusiastic about the new agreements.

Image source:  The Baltimore Sun

Although the relentless winter weather may seem like more of a concern right now than greenhouse gases (GHG), a lot of companies have been mentioning them lately in their SEC filings.

Last month, the SEC issued some guidance on this topic. Still, there’s no formal rules as of yet. But with 10Ks flowing fast and furious, we wanted to take a closer look at what companies are saying.  To do that, we took a digital “snapshot” of one day’s filings that referred to greenhouse gas emissions.

Twelve of the 13 companies referred to one or more of the following:  the public discussion about greenhouse gases, recent findings published by the EPA, pending legislation, debates over a cap and trade system and carbon taxes, policies in Europe and Canada, and – almost always – a statement that the passage of new greenhouse gas laws would probably increase operating costs.

However, one filing was dramatically different – the 10-K filed by Coca-Cola Enterprises, Inc. (CCE), the company that produces, distributes, and markets products of The Coca-Cola Company.

In the context of an initiative called “Commitment 2020,” the company promises that it will invest in energy efficient technologies that improve company facilities and reduce carbon emissions.  On page 21, it states:

“As part of our commitment to Corporate Responsibility and Sustainability (CRS), we have calculated the carbon footprint of our operations in each country where we do business, developed a GHG emissions inventory management plan, and set a public goal to reduce our carbon footprint by 15 percent by the year 2020, as compared to our 2007 baseline.”

The company acknowledged that this plan involves risks:  It might not achieve its goals, the financial investment might not yield the desired returns, and/or a failure might harm the company’s reputation.

For the rest of us, it’s often a challenge to determine whether a company’s claims are green, or greenwashing.

Admittedly, we’re relying on the statements in the annual report; but there are several passages in the filing that seem to support the company’s claims.  Efforts range from introducing a plastic bottle at the current Winter Olympics that is constructed partly from plant materials, to plans to remediate any environmental hazards, to the measurable goals for five areas that are part of the Commitment 2020 plan (p. 29):  “water stewardship, sustainable packaging/recycling, energy conservation/climate change, product portfolio/well-being, diverse and inclusive culture.”

That’s a lot to accomplish in 10 years, but – by setting its own strategy rather than waiting for Congress to pass regulations and the SEC to require additional disclosure – CCE might have an interesting competitive edge.

Image source:  Scientific American

Instead of nibbling on chocolates or checking out the President’s Day sales last weekend, the footnoted staff settled in at our computers with a nice long list of SEC filings.

While the second pot of coffee brewed, we found this 8-K that Armstrong World Industries, Inc. (AWI) filed at 4:39 p.m. last Friday.  Armstrong, which is based in Lancaster, PA, designs and manufactures cabinets, floors, and ceiling products.

The company’s announcement and press release, which got published in forms such as this one, makes an upcoming executive transition sound like a typical changing of the guard.

Armstrong announced that CEO, president, and chairman of the board Michael D. Lockhart would leave his posts on February 28, 2010.  Newly-elected board chairman James O’Connor praised Lockhart for his past service of nearly a decade and noted that the company is doing well and has a strong leadership team.  O’Connor explained the change as follows:  “The Board and Mike agreed that this was the right time to look for new leadership to take the Company into its next phase of growth.”

However, a closer reading of the filing reveals some interesting details about Lockhart’s departure that didn’t make their way into the press release.  For example, in the Separation Agreement and Release, we learn that in the near future Lockhart will receive more than $10.9 million to satisfy the company’s obligations under the Change of Control Agreement; $78,525.64 for unused vacation time; $65,333 for outplacement services; and another $1.54 million for his 2009 bonus.

Then, a few paragraphs down, after saying that Lockhart can purchase his company laptop for its current fair market value, there’s this odd little provision:

“The Company acknowledges that the Executive is entitled to the return of all fitness equipment that he personally paid for in the Company’s gymnasium. This equipment will be removed from the gymnasium and delivered to a location designated by the Executive in Lancaster, Pennsylvania at the expense of the Company.”

While the big story here, of course, is the payout of more than $12.6 million either to Lockhart or on his behalf, the negotiations over the return and delivery of the gym equipment seemed curious and quite possibly the first time we’ve seen gym equipment wind up in a severance agreement. It also underscores the point that when it comes to SEC filings and human behavior, there’s always bound to be a few surprises.

———

FootnotedPro subscribers receive exclusive access to a more comprehensive report on pre-holiday weekend filings. If you’re interested in finding out more about FootnotedPro, please contact us at 1-866-603-4565 or send us an email here.

Image source:  Park Towers Palo Alto

Employment agreements are, no doubt, the result of serious negotiations between a company, an employee, and a gaggle of attorneys and staff from Human Resources.

The filing that caught our attention this time concerns an 8-K that Cincinnati Bell, Inc. (CBB) filed earlier this week.  But before we disclose what popped out of the magical compensation lamp, here’s a little background on the relationship between the company and its top executive.

According to this proxy filed in March, 2009, John F. Cassidy has served as Cincinnati Bell’s president/CEO since July, 2003.  He became a director in 2002, but he has actually been with various divisions of the company since 1997.

Cassidy’s most recent Amended and Restated Employment Agreement is dated January 1, 2009.  (You’ll find it as an attachment to the 10-K, filed February 27, 2009.)  It provides for some nice terms:  Besides the usual benefits, he gets an annual base salary of $645,000, a “Bonus target… of not less than $968,000…”, and the promise that at least once a year he’ll get a review “…and be considered for Base Salary and/or Bonus target increases.”

What’s not mentioned anywhere in past filings – until Monday – was any reference to a retention bonus.

Then – poof!  Suddenly, on February 5, 2010, a new subsection is added to the 2009 Employment Agreement which states that the company is giving Cassidy a $2.1 million retention bonus – and it’s giving it to him that same day.  The 8-K states that “The amendment was approved by the Company’s Board of Directors to reward Mr. Cassidy’s performance and encourage his long-term employment with the Company.”

The most curious thing isn’t that the company wants to reward a long-tenured employee.  It’s that the agreement and the payment of the bonus occurred so suddenly – and seemingly out of thin air. Perhaps there was another job offer that Cassidy was considering, though you’d never know it from the filings.

There’s also the not-too-minor fact that Cincinnati Bell’s stock performance hasn’t exactly been retention-bonus worthy under Cassidy’s tenure as CEO, falling nearly 60% since he took the company’s helm which raises the question of why it’s so important to retain him.

Image source:  Magic Lamp Dance Studio

Proxies – like novels – often take dramatic turns.  An example is the preliminary proxy that pharmaceutical giant Eli Lilly and Company (LLY) filed on Monday.

There were some small discoveries, such as the note on p. 41.  It said starting this year, the company will no longer pay executives for the tax reimbursements for expenses incurred when their spouses attend company functions.  Mind you, these aren’t the expenses themselves, but the taxes on those expenses.  In 2009, those taxes ranged between $1,091 and $2,001 per executive. And last March, Lilly changed its policies to say that executive officers could no longer fly on its corporate planes to attend outside board meetings for other companies.

The next change affects Dr. John Lechleiter, who started with Lilly in 1979 as a senior organic chemist.  In the past three decades, he has worked his way up, becoming president, then CEO in 2008, and chairman of the board in 2009.  Page 27 of the proxy states that “In light of the business challenges the company currently faces, at Dr. Lechleiter’s request, the compensation committee approved that no increases be made to his 2010 salary or incentive targets.”

These all sound like steps in the right direction; but as we read further, it became apparent how small they really were.

According to the Summary Compensation Table and the oddly named “Supplement to the Summary Compensation Table”, both on p. 40, Dr. Lechleiter’s total compensation package is worth either $20,927,649 or $15,905,108. (The numbers vary because the company is transitioning from a one-year performance award, “PA”, to a two-year award.)  Lilly’s filing says it believes the second method is “more representative of [Lechleiter’s] annual compensation.”

The company also says Dr. Lechleiter’s 2009 total compensation (which increased his base salary, bonus target, and equity grant target) was appropriate because it reflected strong performance measured by growth in revenue and EPS.  It acknowledges, however, that the company’s performance “[lagged] in total shareholder return.”  To account for that (p. 27), the executives did not receive yet another award – the shareholder value award, or SVA.

What’s interesting here is that the company touts its progress on “the little stuff” while glossing over the fact that the big dollars continue to flow to the top executives, even though it admits that shareholder return has suffered.

A final irony is that the board of directors opposes two shareholder resolutions.  One would prohibit the CEO from serving on the compensation committee (the board “believes this proposal is not in the best long-term interests of the shareholders”).  The other resolution would give shareholders a “say on pay.”  On this one, the board says that besides company representatives and its independent consultant periodically meeting with shareholder groups, shareholders need only “[s]ee… page 5 for instructions on how [they] can communicate with the compensation committee or board.”*

(*Hint to Lilly’s shareholders:  It’s at the bottom of page 5 on your proxy.)

Image source:  Dowling Law Office

When a company files a document with the SEC at 5:10 on a Friday evening, it’s a little like waving a red cape at the footnoted staff and yelling, “Look at me!” (although, thankfully, there’s no blood and gore involved).

At least, that was the metaphor that came to mind when we saw the 8-K that KBW, Inc., the parent company of full-service investment bank Keefe, Bruyette & Woods, Inc., filed late last Friday.

It was a meaty filing in several ways, starting off with the announcement that its top five executives received cash bonuses totaling more than $6.35 million and 110,586 shares of restricted stock for their work in fiscal year 2009.  The specific awards were:

• Chairman/CEO John Duffy got $1,575,500 cash and 27,423 shares of restricted stock;
• Vice Chairman/President Andrew Senchak got $1,575,500 cash and 27,423 shares of restricted stock;
• Vice Chairman/COO Thomas Michaud got $1,575,500 cash and 27,423 shares of restricted stock;
• Chief Financial and Administrative Officer/EVP Robert Giambrone got $941,875 cash and 16,394 shares of restricted stock; and
• General Counsel/EVP Mitchell Kleinman got $685,000 cash and 11,923 shares of restricted stock.

A third of each man’s RSUs will vest on February 23 in 2011; another third will vest on February 23, 2012; and the final third will vest on February 23, 2013.

The company also announced that, as of February 1, 2010, its Compensation Committee had raised the base salaries for Duffy, Senchak, and Michaud to $400,000 each, while the base salaries for Giambrone and Kleinman increased to $325,000 each.  The employment agreements run for a three-year term, but they have automatic renewal provisions (unless one of the parties notifies the other that it doesn’t want to renew the agreement).

According to the latest proxy, filed in April, 2009, the executives’ new salaries give $75,000 more per year to Duffy, Senchak, and Michaud, $40,000 more to Kleinman, and $35,000 more to Giambrone.  In every case, the bonus is higher than it was in 2008 (but not by that much), yet lower than it was in 2006 or 2007.

It’s true that the stock is up about 34 percent over a year ago, and the company’s total revenues (according to the 10-Q filed last November) for the nine months ending in September, 2009 were positive, compared to a net loss for the same period in 2008.  Yet on page 21 of that Q, the company notes that despite some improvement and stabilization in the financial services sector in the first nine months of 2009:

“…the sector remains under stress and the market stability and continuation of current trends is not certain. The valuation of certain classes of assets remains uncertain and loss reserves have been increasing reflecting continuing concerns in the credit quality of commercial real estate and personal lending and securitization markets have not broadly reopened. U.S. unemployment remains high and lenders have not widely reopened consumer and commercial credit.”

In light of the raises and bonuses given to the top executives, though, apparently that uncertainty is less worrisome than it used to be.

Image source:  Jon Nazca/Reuters/The Guardian U.K.