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 user 2007-03-29 at 11:13:00 am Views: 76
  • #17478

    Executive payouts in proxy statement
    Lexmark International recently released its proxy statement, the
    company provided updated descriptions of its change of control
    agreements with top executives.Such agreements are common in top
    companies. And in Lexmark’s case, its top four executives would be
    eligible to receive compensation valued at $4.16 million to $17.26
    million, as of Dec. 31, if one of a number of scenarios occurred,
    including if the company was dissolved or sold under certain conditions.

    A company spokesman declined to comment on the agreements.
    According to the filing with the Securities and Exchange Commission, Lexmark defines a change of control in several ways:
    • A majority of the company’s board has changed in the previous two years for reasons other than death or disability.
    • Any person or group becomes the beneficial owner of 30 percent or more of the company’s outstanding stock.

    The company’s stockholders approve a merger that takes the company
    private or results in a majority of board members changing or not
    representing the company’s nominees. The agreements also could kick in
    if, through the merger, any person or group will hold 30 percent or
    more of the new company’s stock.
    • The company’s shareholders approve a sale of the company.
    • The company’s shareholders approve the liquidation or dissolution of the company.
    Lexmark’s case, if a change in control occurred, the company’s top
    executives would be eligible to receive long-term incentive

    In its proxy, the company calculated potential
    payments, as of Dec. 31, as if a change in control had occurred.Because
    such compensation involves stock, the payments are linked to its
    performance. Shares of Lexmark closed out 2006 at $73.20. They closed
    Friday at $59.89.By the company’s calculation, CEO Paul Curlander would
    have received $17.26 million, while chief financial officer John Gamble
    Jr. would have received $4.16 million.Paul Rooke, who oversees the
    company’s laser printer business, would have received $5.62 million,
    while Najib Bahous, who oversees the inkjet business, would have been
    compensated $5.27 million.If after a change of control the employees
    were terminated without cause, the agreement would require millions in
    cash severance packages to be paid.Had such an action occurred as of
    Dec. 31, the amounts paid would have totaled $7.18 million for
    Curlander, $2.72 million for Gamble, $3.18 million for Rooke and $1.84
    million for Bahous.The company also would have provided Curlander,
    Gamble and Rooke with at least the same amount in benefits such as
    medical insurance for an additional three years. Bahous would receive
    the benefits for two years.The compensation in Lexmark’s change of
    control and general employee agreements is far from extraordinary
    compared to notable recent cases, such as that of former Home Depot CEO
    Bob Nardelli.Nardelli resigned earlier this year under intense
    criticism but left with a severance package valued at $210
    million.While Nardelli’s payout didn’t relate directly to a change of
    control, others have, including the highly publicized ones of James
    Kilts of Gillette Co. and John Kanas of North Fork Bancorp.Kilts’
    contract called for a payout of more than $160 million when Gillette
    was absorbed into Procter & Gamble in 2005.Kanas was to receive
    more than $200 million based on change of control provisions activated
    when North Fork was sold to Capital One Financial last year.Commonly
    called golden parachutes, these contract provisions are generally
    billed by corporations as a way to retain top-level executives, who
    would otherwise have difficulty finding similar employment should they
    be terminated after a change of control.They also can be seen as
    methods to reduce the likelihood of unfriendly takeovers.