AFC's Golden ParachutesAFC's Golden Parachutes
Tellabs will pay more than $5M if four key AFC execs quit within 18 months of their company's acquisition
August 6, 2004
When the Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) acquisition of Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI) is complete, four executives will walk with payouts totaling more than $5 million if they quit their jobs in 18 months.
AFC chief John Schofield isn't the only one with a cherry "change of control" clause in his employment agreement, according to filings Tellabs has made with the SEC (see Merger Could Reward AFC's Schofield ). "Change in control" clauses -- also called "golden parachutes" -- give executives protections for their continued employment, equity, deferred compensation, and retirement benefits, in the event that their company is bought or otherwise taken over.
"Without that protection, the theory goes, key managers may leave before the acquisition is completed and may be distracted by their own job hunting when they should be focusing on the company's business," says attorney James P. McElligott Jr., a partner at McGuireWoods LLP.
For AFC, Schofield obviously has the largest golden parachute. But CFO Keith E. Pratt, controller R. Leon Blackburn, and VP of sales Jack L. Ermey also stand to benefit if they quit or are terminated without cause within 18 months of a Tellabs/AFC combination.
Pratt will get a payment of 200 percent of his annual salary ($276,058) and his target bonus ($225,443) -- a $777,559 check.
Blackburn will get a payment of 100 percent of his annual salary ($200,769) and his target bonus ($125,903) -- a $326,672 check.
Ermey will get a payment of 100 percent of his annual salary ($238,500) and his target bonus ($137,094) -- a $375,594 check.
When added to Schofield's $3.8 million payday, the golden parachute pile grows to about $5.25 million. While that's not a staggering amount of money for Tellabs, a company worth $3.6 billion, it would keep 25 workers with $100,000 salaries employed for two years.
Unless, of course, there wasn't a change of control (see Tellabs/AFC: The Ever-Shrinking Deal? and Is the Tellabs-AFC Deal in Danger?).
— Phil Harvey, News Editor, Light Reading
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