On Black and Decker’s CEO and unicorns…
Though we often read filings several times just to make sure we’re reading (and interpreting them) correctly, we honestly did a double-take when we read the 8-K that Black and Decker (BDK) filed late yesterday. The filing was a follow-up to the $4.5 billion deal that was announced on Monday. The part that caught our attention was the agreement with Chairman and CEO Nolan D. Archibald. Here’s a snip:
Under the terms of his amended and restated employment agreement with Black & Decker, Mr. Archibald would be entitled to certain benefits upon the termination of this employment by Black & Decker without cause or by Mr. Archibald with good reason. Mr. Archibald has the right to terminate his employment for good reason if, upon the occurrence of a change in control, Mr. Archibald is not the chairman, president, and chief executive officer of the successor entity. Upon the termination of his employment without cause by Black & Decker or by Mr. Archibald with good reason, Mr. Archibald would be entitled to a severance payment in the amount of $20,475,000. In connection with a change in control, Mr. Archibald would also be entitled to a gross-up payment if he is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code. However, under the terms of the executive chairman agreement with Stanley, Mr. Archibald has waived his entitlement to the severance payment and the gross-up payment otherwise payable under his amended and restated employment agreement with Black & Decker upon consummation of the Merger.
Say what? A CEO who will essentially be out of a job post-merger — after all there’s only room for one CEO post-deal — is passing up an opportunity to get a pile of cash and a gross-up that he would otherwise be entitled to?
Of course, Archibald isn’t exactly out of a job. Post-merger he’ll be given the new title of Executive Chairman and draw a salary of $1.5 million plus a target bonus of $1.8 million and some other goodies thrown in.
Still, CEOs giving up money that they’d otherwise be entitled to under carefully crafted employment agreements — Archibald’s was just revised on Tuesday — is about as rare as it gets. Next thing you know, we’ll start seeing unicorns in the filings!
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Posted in Tags: 8Ks, CEOs, M&A |
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November 5th, 2009 at 1:57 pm
If he is waiving his opportunity to the pile of cash and the gross up, then why is it in the agreement other than to highlight what a jolly decent chap he is. Perhaps it could be filed under that well known game show ending – “here’s what you would have got”?
November 5th, 2009 at 2:14 pm
@Richard: That’s a good point. Wonder if any lawyers who read footnoted regularly would care to weigh in here on why there was a new contract on the very same day the deal was announced.
November 6th, 2009 at 5:56 am
he wants to retire and get his money out. that’s why he has arranged this ridiculours merger. let’s remember people he’s getting a 22% premium on his B&D stock.
November 6th, 2009 at 9:21 am
I blogged on this in my DealLawyers.com blog and got this response (which I added to my blog) from one of our members:
I don’t mean to throw stones, but Mr. Archibald is 66 years old. Why is he entitled to three years of severance in the first place? Based on my review of his new three year Executive Chairman Agreement, he is entitled to a base salary of $1.5 million per year, a target bonus of $1.875 million per year and long-term incentives of $6.65 million per year, (of which 50% is in stock options and 50% in restricted stock). Add to that, a 1 million share “sign-on” stock option grant (estimated value $15 million) and a Synergy Bonus Amount of as much as $45 million. All in, he could earn $90 million over the next three years, which would easily make up for his contract waiver if the company performs.
It is also worth noting that his current SERP is worth $35 million as of December 31, 2008, and he retained the right to an enhanced SERP if he is terminated before the end of the new contract term (i.e., he gets additional years of service and his foregone severance is included in the benefit calculation).
While I am glad to see a CEO waiving severance, it looks to me like he is getting it back, and then some.
November 6th, 2009 at 9:40 am
@Ralph: I don’t mean to imply that Archibald is some kind of hero or that he’ll be poorly compensated for what can charitably be called a half-baked job. Still, when you compare his take to some of the other CEOs I’ve written about over the years — I’m thinking of John Kanas at Northfork or Jim Kilts from Gillette specifically here, but there’s certainly other examples too — Arhibald does compare favorably.
@Broc: Thanks for cross-posting that comment.
I’m still interested in why there would be a new contract with the severance clause signed on the same day the deal was announced.