Monday, February 13, 2006

Looking out for The Few

On February 8th the Board of Directors of EXTR approved an Executive Change in Control Severance Plan. The filing with the SEC was made yesterday right after the close of market. What this severance plan entails is a nice pay out for the executives and certain VPs upon change in control of EXTR. The board does not plan to do anything specific for the ordinary shareholders except for "maximizing shareholder value" by attaining the highest possible value in a change of control. Which for a lot of shareholders will mean a fraction of what they paid to become proud owners of the company.

The executives and cetain VPs will get to have 50% of their unvested options and stock appreciation rights (SARs) vested right away when someone takes over EXTR. If these executives or VPs are terminated within 12 months (that's a nice job guarantee) by the acquiring entity then these folks will get all of their options and SARs vested immediately. These terminated employees including the CEO will get 12 months (6 months for non-CEO executives and VPs) of salary and any bonus at time of termination also.

This does raise the question of why has the board acted on this now? Usually these change in control plans are good indicator of potential acquisition or god forbid a hostile takeover. EXTR has been rumored to have been courted by few suitors in the past. Does this indicate something imminent- no one can tell. But one this is clear, the board has performed its fidiuciary duty with flying colors by looking out for The Few and putting the burden on the acquirer. This might or might not make EXTR less attractive to the buyer but then again the board of directors only gets paid by EXTR not by the potential buyer.


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