The Unbearable Weirdness of TARP Contracts

In my last post, I complained that our esteemed Treasury Secretary was handing out cash to banks without making sure they'll use it to help un-freeze the credit freeze.

To be fair to Mr. Paulson (not that we're ever unfair), the standard agreement that banks sign to get cash infusions does contain this lovely language:

"WHEREAS, the Company agrees to expand the flow of credit to U.S. consumers and
businesses on competitive terms to promote the sustained growth and vitality of the U.S. economy."

and

"WHEREAS, the Company agrees to work diligently, under existing programs, to modify the terms of residential mortgages as appropriate to strengthen the health of the U.S. housing market."

But here's the thing: These earnest promises show up only in the "whereas" clauses - part of what lawyers call the "preamble" or the "recitals" to the contract - not in the contract itself.

I don't pretend to be a law professor, or any kind of expert on the enforceability of stuff that gets stuck in the preamble to a contract. However, as a lawyer I can say with conviction that if you really want the guy on the other side of a contract to do something, you put that in the main part of the document, not in the preamble.

In five seconds of careful research, I found this lawyerly blog post on preambles. It says that under New York law - which, as it happens, governs these Treasury agreements - "a term appearing in a recital ... is not part of the contract." So maybe the banks are off the hook. Or maybe not. Bring on the law professors.

Like so many aspects of the bailout, the deal between Treasury and the banks is fuzzy, so fuzzy that even lawyers can't figure out exactly what it is. Meanwhile, our nation is left to ponder more and more mysteries: things like "Katy Perry, why do you exist?" and "banks, are you going to lend out your stupid bailout money or not?"

TARP Money: Lend It If You Like

Hank Paulson was once a tree-hugger. In happier days, he served as Chairman of the Nature Conservancy, though you won’t find that in his official Treasury bio.

Now Hank is a bank-hugger. He gives banks a few million (or a few billion), they hand him some preferred stock, and off they trot. Maybe they lend the cash to credit-starved businesses and consumers, maybe they stick it in the office Secret Santa fund. Whatever.

The lucky recipients like to imply - but not promise - that they’ll use the money for loans. Take this artful sentence in yesterday's press release from Washington Banking, announcing Treasury's approval of $26 million in TARP funding:

“Our ability to meet the needs of our customers and the communities we serve will be further strengthened by these funds.”

Very nice, but does this mean the bank plans to lend out its HankBucks? Dunno.

Perhaps I’ll send a loan application to Center Financial, which announced a $55 million commitment from the TARP last week. Center has big plans for its TARP take:

“While increasing Center Bank’s lending capacity to continue supporting the financial needs of small and middle-market businesses in our communities, the additional capital will enhance the company’s liquidity and further our ability to capitalize on strategic opportunities.”

Sounds good, but does increased “lending capacity” equal more loans? Again, dunno. And how much of the $55 million will they spend on "strategic opportunities"? And what the heck do they mean by that, anyway?

As long as we're asking questions, here’s a musical one. You sing, I’ll play the harmonica:

How many bucks must banks get without strings
Before you call it a scam?

The answer, my friend, is...well, I think you know.

Paulson Is Mean To Golden Parachutes

There's a chance that Bailoutland could turn out to be a pretty gloomy place for CEOs accustomed to life on the sunny slopes of Proxyland.

Under the bailout bill, banks at which the Treasury throws capital aren’t allowed to make “golden parachute payments” if they boot out top managers - not until we taxpayers and our money are outta there, at least. Mr. Paulson, in guidelines put out last week, is valiantly trying to prevent the banks from fudging their way out of this one. (The IRS, with its related rules, is doing the same.)

The golden parachute ban technically applies only when an executive's departure is “involuntary” - what you and I would call getting fired. But in the magical place that is (or was) Proxyland, lawyers' nimble pens have transformed many a firing into something more pleasant-sounding, and more lucrative. For example, you may remember how Merrill, after announcing stunning losses, said Stan O’Neal had suddenly decided to take his $161 million and “retire.” (If only we’d had Sarah P. around back then to help with the winking.)

But Paulson's guidelines are wise to such alchemy. They explicitly pooh-pooh some of Proxyland's time-honored methods for hiding an involuntary termination, like letting an employment contract expire or having the executive resign for “good reason.” Nice try, say the guidelines, but if the facts show the guy was really fired, there’ll be no golden parachute.

How well this works will depend on whether boards tell the truth and - if they don't - whether the feds have the will (and the resources) to second-guess the pretty stories told to protect the feelings, and severance packages, of fired executives. And the guidelines are full of loopholes that might be fun to blog about. Nevertheless, the air of sour cynicism wafting through these rules feels like a refreshing breeze.


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If you like reading about this executive compensation stuff, you should check out Michael Melbinger's blog, which I've just stuck on my blogroll. We need all the help we can get.

Image source: Daylife.com

A Few Dollars More

This was supposed to be one of those interactive web polls, but I ran into a technological issue. So please just vote silently to yourselves.

JP Morgan’s decision to raise its Bear Stearns bid from 2 bucks to 10 bucks is best described as:

(a) A victory for Bear shareholders and the awesome power of Delaware corporate law.

(b) An embarrassment for Ben “BB Gun” Bernanke and his fellow dealmakers at the Fed.

(c) A once-in-a-lifetime opportunity for major newspapers to use the word “quintuple” in a headline.

(d) The only way for Jamie Dimon to get a do-over on the documentation and fix the whopping error made by a nameless Wachtell, Lipton attorney who apparently lacked the correct prescription drugs to bear down all night on the Guaranty Agreement.

That is, if it really was an error.

(e) All of the above.

(f) This is stupid. Please go away. (Which is, coincidentally, the same thing Bear employees told Mr. Dimon, but he didn't, and neither will I.)

Seeking Liquidity

I think we’re all learning a lot from the Bear Stearns (BSC) thing. Sorry, I know writers are supposed to avoid vague words like "thing," but Fed Chairman Bernanke hates the term "bailout" and I don’t want to increase the poor guy's stress level. So even though Jamie Dimon is slotted to get the Manhattan skyscraper while we taxpayers effectively acquire a basement full of illiquid mortgage-backed securities, I will steer clear of the B-word and just call it a thing instead. Thingy, if you prefer.

Here’s what I myself have learned so far. First, I've learned that, according to the Fed, the Bear deal isn’t a thingy if JP Morgan (JPM) pays 2 bucks a share for stock that recently traded at 67, but it might be a thingy if it pays 10. And even more importantly, I’ve found out that folks at well-paid legal powerhouse Wachtell, Lipton can make mistakes-- like the one in the JPMorgan/Bear merger agreement (thank you, New York Times) that says JPM will stand behind Bear’s trades even if shareholders reject the deal. Not to mention someone spelled the word "dependent" with an "ant," which always bugs me.

There’s another clause in the merger agreement that kind of jumped out at me. (Yes, I confess to actually sort of reading the document, but I was watching The Simpsons at the same time so it doesn't count.) I’m talking about the sentence that says JPM will "honor" all of Bear’s employment agreements, change in control agreements and deferred compensation plans. According to Bear’s last proxy, the only CIC arrangements its officers have are equity-linked, and therefore perhaps nothing to get excited about. Still, the promise to love, honor and obey Bear's CIC deals made it into the contract, and covers any commitments to Bear employees or officers, "written or unwritten." So we citizens of Bailout Nation (damn, that just slipped out) may want to keep an eye on who at Bear walks out with what, just in case.

Back in 2006, the Wall Street Journal reported that some were referring to Mr. Bernanke as "Bearnanke" because of his views on the bond market. The label didn’t stick at the time, though it may now, for a different reason.

I say the hardworking Chairman deserves a nickname that’s more fun, some kind of fratboy moniker completely incongruous with his beard-sporting appearance and somber demeanor. So best of luck with the Bear thing, "BB Gun." The next beer I chug will be for you.

It's Just a Phase

After years of yakking, policy wonks still haven't answered this question: What the Heck Are We Going to Do With All These Baby Boomers? This issue has a bunch of workplace subtopics, including: (1) How Are We Going To Get Them To Leave Once And For All So We Can Have Their Aeron Chairs? (2) OMG, Who’s Going To Do All This Work When They’ve Gone? and (3) Hey, When Can We Get Rid of This Stupid Rule The Old People Have Against Flip-Flops in the Office Cuz That's, Like, Really Stupid?

The solution to these pressing questions, some people think, is to offer “phased retirement,” gradually reducing boomers’ hours and responsibilities as they train their successors. Sensible as this sounds, it doesn’t usually work (despite some legislative fixes), because few people can afford to phase out before their pensions fully phase in, and if they cut back their hours, their medical benefits may retire and move to Fort Lauderdale.

In Proxyland, however, phased retirement is not merely a wistful dream, but a thriving institution, though it goes by a different name -- the “post-retirement consulting arrangement.” These cushy deals for outgoing bigshots come in many varieties, and may take the form of pretend jobs or involve titles like non-executive officer or Chairman Emeritus.

But at least one company has realized that "phased retirement" has a nice ring. Taking a bold semantic step, Schlumberger (SLB) states in its proxy that it follows this practice for its executive officers. Last year, for example, it signed this contract with former CFO Jean-Marc Perraud, "phasing" him down to "senior financial advisor." Through 2010, Mr. Perraud will be working no more than half-time (and quite possibly less) at a salary of $450K, plus benefits. If all boomers could phase out like that, we wouldn’t need no freaking policy wonks, thank you.

But I don’t really want to pick on Schlumberger, a company that doesn’t use employment contracts, golden parachutes or change of control agreements, and sometimes assigns its executives high-minded performance objectives involving stuff like safety, diversity, and social responsibility. Plus which, given that its arch-rival in the oilfield services business is an outfit named Halliburton, it's going to look squeaky clean no matter what I say.

You Rock, IRS

Thanks to Hillary Clinton, we all know who gave Barack Obama sound bites for his speeches. But what genius has been feeding lines to folks at the SEC? Last week an SEC official devoted an entire speech – in Australia*, no less – to a strained analogy between the 1962 western, The Man Who Shot Liberty Valance, and...I don’t know, something or other.

SEC Commissioner Kathleen Casey also waxed clumsily metaphorical recently. Speaking at a conference, she commented that when Congress has tried to use tax laws to tamp down executive compensation, compensation has simply “shifted” elsewhere “like a rock on jello.” (I keep wondering if she meant to say "jello on a rock." Would a rock on jello really shift? Wouldn't you need a whole lot of jello and a really small rock? Anyone out there looking for science project ideas?)

Commissioner Casey may soon be eating her words. The very day she delivered that speech, the IRS threw Proxyland (the place, not the blog) into a tizzy by deciding to re-interpret a section of the Internal Revenue Code that’s been sitting around, not doing terribly much, since Bill Clinton signed it into law in 1993. I’m talking, of course, about the famous Section 162(m), which says you can only deduct a paltry $1M per year for a top executive’s compensation, unless (nice big exception here) it's completely "performance-based.”

Last week, backing up a less formal ruling it issued in late January, the IRS officially confirmed its new tough guy position, which basically says: If an executive's contract calls for bonuses tied to performance, but also guarantees him freebie bonuses to be paid out as severance if things don't work out - no matter how he's performed - then the bonus program isn't entirely performance-based. So, sorry, no tax deductions. Did that make any sense? The tax code is no fun to blog about.

Even though the IRS was nice enough to grandfather all existing contracts, the immediate result of this ruling will be that law firms will reap their own "performance-based compensation" for re-writing massive numbers of bigshot employment agreements. One firm even suggests that “most companies will want to eliminate these termination and retirement accelerations from their plans and agreements.” If that’s right, there's a chance that Commissioner Casey, and others who don’t believe in the power of legislation to affect executive compensation in a meaningful way, could be wrong.

If this tax ruling inspires companies to hand out severance payments in a less carefree manner, I'll have one less thing to complain about here. In which case I'll have to find my lab partner, get out my rock and my jello, and figure out how to shift my cranky attention to something else.
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*Coincidentally, this very blog just made news in the Land Down Under.

Thanks for Stopping By

When someone leaves a job for “personal reasons,” like Gregory S. Gemette - who has resigned after heading the Arden B. division of women’s clothing retailer Wet Seal (WTSLA) for less than 2 years - I want to know the juicy details. In this case I found none, though I did unearth this photo of Mr. Gemette standing next to David Hasselhoff, which I figure is almost as good.

Whatever the scoop on Mr. Gemette’s private life in The O.C. (Wet Seal is headquartered in Foothill Ranch, California), he doesn't seem to be one for long-term relationships. From 2001 to 2003 he managed women’s merchandise for American Eagle Outfitters (AEO), then made a beeline for Bebe (BEBE), but never got there. Instead he spent 11 months at Home Shopping Network, followed by 9 months at G &G Retail (my favorite place, in my mall-loving youth, to snap up the latest teen fads in cheapo fabrics). When Wet Seal hired Gemette in March 2006, the company seemed unperturbed by the fact that this would be his fourth job in less than 6 years (not counting the almost-job at Bebe), with some gaps in between.

As Gemette left the scene last week, the company announced that January sales were down 5.7% over last year, blaming “continued weakness” at Arden B. Per the last proxy, Gemette was one of Wet Seal’s 3 most highly compensated officers, earning $716K in total comp for the 10 months he worked there during 2006. However, his contract doesn’t appear to bestow any severance pay here, so let's toss Wet Seal a few brownie points for that, and now let's cancel them out with a bunch of demerits for selling Playboy-logo clothing to teenage girls.

Strangely, Gemette’s predecessor at Arden B. also left for ”personal reasons.” I don't know what's going on at that place, but those frightful pink and orange things on Arden B.'s home page, which I guess are supposed to be dresses, look like cheap Halloween versions of the babydoll nightgowns worn in 1960s movies and would, in my book, constitute "personal reasons" to get the heck out of there.

Happy Hour

Many baby boomers, recent research has revealed, have no intention of retiring. The idea that they might quit working strikes terror into their hearts, and the idea that they'll never leave strikes terror into everyone else’s.

But a recent post here noted that companies in Proxyland – including, of late, Merrill Lynch (MER) – like to ease out failed CEOs with this happy message: “You’re not fired, you’ve retired!” After that, Reuters made the same point in a story entitled: “Firings Are Few and Far Between in Executive Suite.” The piece, by Martha Graybow, explained that boards have an incentive to work out so-called "friendly divorces" (now there’s a whopper of an oxymoron) because of juicy contracts assuring CEOs huge payments if they’re fired. (Unless, of course, they're ousted for “cause” - but as regular visitors to this blog know, merely doing a crummy job in an exalted and highly-paid position doesn't usually get you there.)

Having obligingly locked themselves into rich severance promises, boards can say shareholders come out ahead when a poorly performing CEO is allowed to retire. Mr. O’Neal, though, had no employment contract, so it’s not clear how Merrill shareholders benefited from this face-saving measure; an old-fashioned firing would at least have given them some emotional satisfaction in exchange for forking over $161 million in equity and vested retirement (plus some nice perks) to a very well-paid guy who presided over an $8.4 billion loss. (Mr. O’Neal’s “non-severance” deal, as Broc Romanek points out here courtesy of The Corporate Library, is “#5 on a list of 10 of the most excessive severance packages this decade.”)

So at least one baby boomer has retired early. With his company-paid car and driver, Mr. O'Neal can easily cruise Manhattan's restaurants for early-bird specials.

Decisions, Decisions

The world of PR lives by its own happy rules. Take the press release Merrill Lynch (MER) put out yesterday to announce Stan O’Neal’s official parting. It said (with what would be a straight face, if press releases had faces) that the esteemed Chairman and CEO had “decided to retire.”

In some legal hair-splitting way, this might be a true statement. Once O’Neal and the board high-fived on calling his embarrassing ouster a retirement (both for public consumption and under the firm’s compensation and benefit plans), he sensibly chose to take that route.

But whether Mr. O'Neal negotiated for the "decided to retire" language or it sprang from the head of some PR genius, the wording suffers from trying too hard. Did Merrill think none of us were watching last week as the board dragged O’Neal toward the exit door like bouncers evicting a drunk? Maybe they assumed we were all fixated on the imminent release of Saw IV.

It's telling that in the 8-K filing (to which the company attached O'Neal's severance agreement), Merrill spoke more carefully, sparing us the “decided” part and stating simply that Mr. O’Neal “has retired.”

Of course, we all know that in Proxyland people rarely get fired. Every day, however, CEOs are seized by sudden urges to retire long before retirement age, or wild impulses to run off and “pursue other interests." Maybe some PR people should follow their example.

Fixer-Uppers

I've been wandering through Proxyland for a long time now, but I'm still awed by what a special place it is. For instance, where else would you find the kind of forgiveness demonstrated in the "termination for cause" section of John Tyson’s new "employment” contract with Tyson Foods(TSN)? (I posted about other aspects of this contract earlier today at Footnoted.)

Per his contract, firing Mr. Tyson for cause would take some pretty bad behavior. He'd have to commit “willful malfeasance or misconduct,” act with "gross negligence," breach the contract willfully or be convicted of a felony. Felonies aside, the legal upshot of these fancy words is that he’d have to act with a conscious intention to do something wrong, or show reckless disregard for the consequences of his behavior. (I’m oversimplifying here, so my apologies to anyone who would prefer to read a thousand-page treatise.)

But the quality of mercy is not strained in some corners of corporate America. Before the company could boot him, Mr. Tyson would get a chance to “cure” what he’s done. In other words, if he cleans up whatever mess he’s made, even willful and reckless behavior may be forgiven.

Similar kindness crops up in another deal Michelle Leder recently wrote about at Footnoted: President Richard Wohl’s yummy contract with Indymac Bank (whose publicly traded holding company is Indymac Bancorp, Inc. (IMB)). Mr. Wohl may be able to avoid certain types of terminations for cause by curing his misconduct, even he acted "in bad faith.”

Me, I don’t think I’d want to keep some reckless wrongdoer hanging around the office, even if he says he’s very sorry. But I'm seeing lots of these cure-all clauses, so many companies are promising to keep loving (and paying) the sinner if he or she makes amends for the sin.

Heartbreak

When hiring new execs, many companies fall in love like cartoon characters – suddenly, completely, unabashedly. But no cute red hearts fly around, just green dollar signs.

In October 2005 Kinetic Concepts, Inc. brought in Mark Carbeau to head KCI USA. Soon there were some changes at the top and last week they fired him.

Mr. Carbeau held his job only 20 months, the corporate equivalent of a one-night stand. While it lasted, he snapped up a $65,000 sign-in bonus, $20,000 in relocation expenses, a $5000 tax gross-up, a free “executive physical,” tax planning services, a $343,750 salary and a bonus of $169,000, plus a chunk of options that look to be way way in the money right now. (Kinetic is chugging along nicely on sales of high-tech wound treatments used on soldiers and diabetics; they also produce special "bariatric" hospital beds and other medical gizmos to accommodate patients weighing up to 1000 pounds. Guess these are what you call "growth industries.")

His parting kiss comes in the form of a lump-sum severance check for $730,000 and a “bonus opportunity” of $100,000 - “among other things,” the 8-K adds helpfully, with no hint of what other kinds of things they are among. Having squinted at the severance provisions of Mr. Carbeau's contract, we’re not entirely sure how the ex-lovers got to these figures; the numbers may take into account accelerating vesting of some equity goodies.

Cartoon characters routinely survive bombs, crashes, and many a mallet to the head. But when their skulls get clonked they see stars. Execs in Proxyland, on the other hand, get the boot and feel no pain.

Chopped

On Sunday night seismographs picked up the coast-to-coast screams of Sopranos fans, convinced their TiVo machines had whacked the finale’s last moments. See, we TiVo users expect sudden blackouts near the end of our favorite shows; the cute little TiVo guy loves to hit “stop” when the clock says the program is over, even if it’s not. This time, however, a rewind proved we’d been victimized not by TiVo Man but by a callous human named David Chase.

When it comes to revealing compensation arrangements, TiVo Inc. (TIVO) isn’t so focused on the clock. Back in March, the company sweetened its agreements with President and CEO Thomas S. Rogers, but it didn't file the documents until yesterday’s 10-Q. (TiVo's first quarter ended on April 30; the company employs an unwieldy January 31 fiscal year to match its unwieldy remote control.)

The company revised two separate contracts with Mr. Rogers – his employment contract and his change in control agreement. It did file an 8-K on March 28 to tell us about a new tax gross-up added to the change of control package in case the IRS calls it a “golden parachute.” The SEC rules said TiVo didn’t have to file the full change of control contract right away, so in the 8-K they just promised to staple it to their 10-K later on. But when the 10-K appeared in mid-April, the contract didn’t.

As for the employment agreement, there was no 8-K filing so we're guessing TiVo decided those changes weren't material. The first mention was in the proxy filed at the end of May.

Until someone pays us to do so, we refuse to play lawyer and sweat over the SEC rulebook until the wee hours, but it looks everything TiVo did here was technically OK. Yes, they were allowed to chop this information into bits and dole it out over several months. As we’ve noted before, the SEC thought we were getting Too Much Information about compensation changes, so last fall they fooled around with the 8-K rules to give us Frustratingly Delayed and Disjointed Information instead.

Though if Tony Soprano were to visit Proxyland, he’d probably say we’re “making a molehill” out of this. And if he said that we’d shut up.

p.s. (For more on TiVo and its kindly treatment of CEO Rogers in light of the company's performance, check out this post by David Phillips at 10Q Detective.)

24 Heaven

If you're an exec at The Sharper Image Corporation (SHRP), there are at least twenty-four ways you can get kicked out for “Cause” and lose your severance package.

Whoever wrote the company's executive severance policy (dated October but filed Friday with the 10-K) must have had fun thinking up these two dozen deadly sins, which include drug use, possession of lethal weapons and sabotage, along with ho-hum violations of company policy and willful failures to perform one's duties. And the list is preceded by that lovely legal phrase, “without limitation,” meaning the 24 reasons are just a start and if you think of others they could work too.

We noticed that the employment contract with the company's newbie President and CEO Steven A. Lightman, signed in March, applies the same Cause definition as the severance policy. As discussed here ad nauseam, CEOs often negotiate contracts to ensure big severance pay no matter what sins they commit. So we find Mr. Lightman's deal quite refreshing: we love when a CEO is held to the same standards of behavior as an OCE (Ordinary Corporate Employee). (Here the equality is not complete: If Mr. Lightman does none of the 24 bad things but loses his job anyway, he beats out the OCEs with a two-year severance deal to their nine months.)

To celebrate, we're going to order 24 ounces of overpriced Donald Trump steaks from the Sharper Image catalogue, despite fear of employee sabotage in the form of stray reddish hairs on the Cowboy Bone-in Rib Eye. If we spot even one TrumpHair in our freezer, the beef goes into lockdown and we call Jack Bauer.

Fantasy Islands

We frequently remind ourselves that a billion of the world's people live on a dollar a day or less so we must not let the lifestyles of Proxyland make us feel underprivileged. Today, however, our moral resolve has broken down. We’ve discovered Kenneth LeStrange, Chairman, CEO and President of Endurance Specialty Holdings Ltd. (ENH), and we are self-indulgently bemoaning the wretched squalor of our own existence.

In its March proxy Endurance noted it had no employment contracts with its execs, but casually mentioned it had one in the works for Mr. LeStrange, which popped up in today’s filings. (He's been running the joint since 2001, so why the sudden impulse to “embody the terms” of his tenure in writing? Don’t know, but the change of control payments ain’t half bad.)

The contract sets Mr. LeStrange’s salary at a million, which the Board can bump up if it likes but can’t cut without his say-so. Then there are the usual bonuses and equity awards, though we can’t guess how much because the formulas are contained in a mysteriously unfiled Exhibit A; as a Lost fan, we are confident this document is buried somewhere on The Island and will be discovered next season. Last year these extras added up to about 1.5 million for Mr. LeStrange.

On top of cash, equity and the usual retirement plans and other benefits, he gets a $200K annual housing allowance and is entitled to “at least 400 hours of usage of a Learjet 60 or comparable private aircraft” for business travel. If his bags are packed but the island's Learjets have been commandeered for Rosie O'Donnell Watch, he goes first class with an airline club membership thrown in. He’s fully compensated for U.S. taxes on the housing and travel payments and this gross-up is also grossed up. All this plus five weeks paid vacation.

Nice, but why does Mr. LeStrange engender more envy than better paid, less competent folks we’ve written about? Because he grew up on the same accursed island where we did - Long Island – but now enjoys his employer’s largesse on the tranquil isle of Bermuda. No fair. Our childhood ambitions never included running a reinsurance company because dammit no one told us there was such a job or that we’d absolutely end up on Bermuda if we did it.

If Mr. LeStrange departs the company (except for cause) and relocates away from Bermuda, Endurance foots the bill for that too. If he’ll promise to endure just one miserable hour on the L.I.E., we’ll gladly chip in a few bucks to get his butt back here.

Tight-Lipped

I’m addicted to Lost, though it's clear the show’s writers will never get around to answering all our burning questions. (For example, why can't Charlie, stuck on a mysterious island with a guitar and nothing else to do, teach himself a few more chords?)

There are many unanswered questions in Proxyland as well since the SEC stripped down the 8-K rules for disclosing CEO departure deals. Last week The Wall Street Journal’s Alan Murray wondered why Steve Heyer, CEO of Starwood Hotels and Resorts Worldwide, Inc. (HOT), readily gave up $35 million in severance even though the unfortunate hobby that got him ousted – sending friendly emails to young female employees – didn’t fall under the “Cause” definition in his contract. (BTW, Starwood, you might want to rethink that ticker symbol.)

Heyer’s explanation - “life’s too short” - didn’t convince Murray, who fears there's more to the story. But since Heyer is a married man we’re inclined to take his philosophical comment at face value. Still, it doesn't seem right that a board can lock itself in a room with a disgraced CEO, emerge with a deal and leave us guessing about the legal niceties.

Another company being coy with us is SafeNet, Inc. (SFNT). As you may recall, last fall SafeNet's board tossed out Chairman/CEO Anthony Caputo for options backdating and, in an unusual move, promised by the end of March to select one of two story lines: Caputo either was fired for “Cause” or resigned for "Good Reason." (In the meantime they got busy selling the firm to an outfit called Stealth Acquisition Corp, which completed its tender offer last Wednesday.) In the end, SafeNet filed an 8-K that throws off as much smoke as Lost’s goofy monster. Caputo didn’t get severance – au contraire, he's putting up money to settle a lawsuit against the company – but for purposes of exercising his stock options he was graciously treated as if he'd resigned, though not for "Good Reason."

So did Caputo's conduct constitute "Cause"? We think so, but nowhere in the documents did SafeNet use the C-word so the company's conclusion remains a mystery.

As Don Imus proved last week, some words are just too nasty to say.

When Worlds Don't Collide

We've observed before that Proxyland is a place of paradox. Today we report that in this magical locale it is possible simultaneously to retire, be employed, and get a raise, even if you don't know exactly when all of this will happen. Except for the raise, which already took effect.

On Friday, Compuware Corporation (CPWR) filed an 8-K along with a short document called a "Post-Retirement Consulting Agreement." Apparently Chairman and CEO Peter Karmanos, Jr., on some date that hasn’t happened yet and upon which he and the company will harmoniously agree, will “retire.” In the meantime his salary, set at an even 1 million last June, just went up by $50,000.

Upon “retirement" he’ll transform into “an employee in a consulting role.” The contract specifies no job title, required hours or duties, but for four years Mr. Karmanos will continue to receive annual bonuses (unquantifiable right now) and retain all his medical and insurance benefits - even his vision plan - plus an office, secretarial help, and a car. His stock options won't expire. He'll also receive a year’s salary - pegged to whatever he’s being paid at “retirement” - stretched over the four years of “employment.” (The salary figure, oddly, has a floor of 1.2 million, more than he’s making now.)

If the company decides it no longer needs his “consulting” services, he’ll still get the salary and benefits for the entire four years and all his stock options will vest as he heads out the door.

So is this a new job or merely a cushy severance arrangement? It depends on how Mr. Karmanos spends the time, I guess. He can put on a suit, get in his company car and head to his office each morning to glare at his secretary over the rims of his company-paid eyeglasses. Or he can head to the links to relish his retirement, knowing if a ball whacks him in the head and he ends up in the emergency room, his “employer” has him covered.

Never Mind

Time to give up. It’s clear we'll never see an 8-K telling us how much severance was paid to Glen Laschober, former COO of Omnicare, Inc. (OCR), who left the joint on January 12. To confirm this conclusion, I entered a mind-reading trance to discover what the folks at Omnicare were thinking, which turned out to be: “Hey, stupid, we didn’t put the severance numbers in an 8-K because the SEC says we don’t have to, stupid.”

One of the things the SEC did in the new compensation disclosure rules was to monkey around with the triggers for filing 8-Ks on compensation matters, resulting in more disclosure in some situations and less in others. Severance falls into the “less disclosure” category, since no 8-K is now needed to report payments made under the terms of a contract that’s already on file. (The numbers do have to show up at some point, though, like in the proxy.)

The SEC has not completely lost its mind. The idea is that if you care about silly things like severance payments, you can exhume the fired executive's contract from a prior filing and figure out how much he must be getting. In other words, the SEC decided we bloggers should work harder just so some lazy-ass corporate employee doesn’t have to log out of eBay long enough to file an 8-K.

Jeez, SEC, I thought we were friends. But I’ll get over it. I’m wondering, though, if you realized your new rules could leave us all in the dark, as in the Omnicare case. Sure, we can find Mr. Laschober’s contract (though we’re not going to try right now because we’re very very busy), but the company has fudged the nature of his departure. So even if we decide to get off our butts and locate the document, we can't calculate the payments because we can't tell which termination clause applies here.

Why don't I just find out by reading the booted executive’s mind, you ask? Did you know those little flags on golf courses are designed to deflect incoming telepathic mind waves? Oh, come on. You really thought they were just marking the holes?

Sweet Nothings

For the second day in a row, we're going to praise someone. This must not become a habit. Nothing worse than a happy blogger.

On Tuesday John Nano returned to his post as CEO and President of Competitive Technologies, Inc. (CTT). The company dumped him in June 2005 and to regain his position he had to wage a successful proxy battle and replace the entire board of directors. Gosh, if that’s what it takes to get a job these days it's going to take me longer than I thought.

Mr. Nano’s employment agreement appeared in an 8-K today. We think we like this Nano guy, and not just because he has such a cute name for a tech executive. Despite being in a pretty powerful place right now, he signed a contract (similar to his old one) that treats him less like a CEO and more like an OCE (Ordinary Corporate Employee) when it comes to grounds for firing.

So what's the magic contractual provision making us annoyingly cheerful today? To lose his severance package, Nano need not resort to embezzlement, moral turpitude or a life of crime. All it takes is “a material failure to carry out effectively Executives [sic] duties and obligations to the Company.”

That’s enough, folks, to make us jovial – a contract that lets a company kick a CEO out the door for poor performance and not make him rich in the process. Such a beautiful thing. OK, enough now. Future posts will be surly and mean-spirited.

Cutting the Cord

What is a Chief Information Officer? Apparently this is what we now call the guy who used to be called something like “Head of IT.” When I worked for a small company, the head of IT was the person who showed up to jiggle the power cord when your PC started acting weird. But last year’s top-paid CIO, Randy Mott of Hewlett- Packard, earned $10.3 million. So there must be more to the job than the jiggling.

Whatever a CIO does, Suburban Propane Partners, L.P. (SPH), a master limited partnership traded on the NYSE, has decided it doesn’t need one anymore. So it asked CIO Jeffrey Jolly to leave, eliminating his position.

Mr. Jolly left with a generous package, but Suburban showed some class here. Really. Not that I much like the deal - salary through July 2008 totaling $330,000, eligibility for full un-prorated payouts under three different bonus plans, custody of a PC and an SUV, and free tax preparation and medical coverage. (In exchange, Mr. Jolly agreed not to sue or compete with Suburban and to let the company humiliate him by repeatedly referring to him in the contract as "he/she.")

What I do like is that Suburban’s disclosure was straightforward. They laid the package out in the 8-K in an unvarnished fashion so that the actual contract, which appeared a week later in a 10-Q filing, contained no surprises. This is quite unusual: 8-K summaries of severance contracts tend to be masterpieces of fudgification.

Something else about Mr. Jolly’s deal struck me as unusual. As is customary, Jolly's promise never ever to sue his former employer for anything also binds his descendants, heirs, and executors. But in a supernatural twist, this one names his “ancestors” as well. I don’t know whether someone can contractually bind his dead relatives, such questions being the province of law professors, but I think what we have here is an anti-haunting clause.

p.s.: The company's gift of a GMC Yukon gives me an excuse to post a poem I once read on Honku, a Brooklyn-based website for haikus about road rage. I can't find it on the site any more, but here it is from memory:

Ice caps are melting.
Hope your Yukon Denali
Doubles as a boat.