If there was any doubt who CNET’s senior management team is looking out for, there’s no doubt now: CNET’s senior managers.
A week after Jana, et al, launched their hostile takeover, CNET’s team has responded by:
- Adopting a “poison pill” that will dilute the heck out of anyone trying to buy control
- Adopting fat severance agreements for themselves (so that, in the even Jana does win, CNET’s shareholders will have to pay them to get fired). Details on the latter below.
Jana’s takeover bid is based on the premise that CNET’s senior managers are doing a lousy job. As a big CNET shareholder, Jana wants what other CNET shareholders want: for the stock to go up. To help the stock go up, Jana wants to take control of the board, fire CNET’s senior team, and install a team it thinks can do better. We’re not persuaded that Jana’s team will actually do better–we’d need to see more details of their plan–but this possibility is certainly worth considering.
If CNET’s current team is confident about its strategy–and the strategy is a good one–it should be able to persuade CNET’s shareholders of this itself, thus blocking Jana’s attempt to take over the board without the use of wimpy poison pills. Hopefully, CNET’s poison pill adoption is simply intended to bring Jana to the negotiating table (fighting hostile tactics with hostile tactics). If not, this fight is going to increasingly be about CNET’s senior managers just trying to keep their jobs.
CNET’s New Senior Management Severance Agreements
The severance agreements for the Covered Employees [senior mgt other than CEO and CFO] provide for certain compensation and benefits if a Covered Employee’s employment is terminated in connection with a Change in Control (as defined in the severance agreement), by the Company without Cause (as defined in the severance agreement) or by the Covered Employee for Good Reason. Good Reason is defined as
(a) a material reduction in the Covered Employee’s base salary, annual bonus or benefits,
(b) an assignment to or removal from the Covered Employee of duties or responsibilities that result in a position that is not an executive level position,
(c) a material diminution in the Covered Employee’s duties, authority or scope of responsibilities,
(d) the relocation of the Covered Employee’s employment to a location more than 30 (30) miles from its then-present location and more than 30 (30) miles from the Covered Employee’s then-present residence or
(e) the failure of a successor in a Change in Control to assume in writing all obligations under the severance agreement.
If a Covered Employee’s employment is terminated under such circumstances, the Covered Employee would be entitled to receive a lump sum payment equal to the sum of
(i) unpaid base pay,
(ii) earned but unpaid annual bonus for periods with respect to which the performance period to earn such bonus has closed,
(iii) unused paid vacation or sick pay and unreimbursed business expenses,
(iv) any other compensation or benefits which may be owed or provided to the Covered Employee in accordance with any benefit plans or programs of the Company (the benefits referred to in clauses (i)-(iv) are referred to as the “Accrued Obligations”),
(v) twelve (12) months of base salary, and
(vi) an amount equal to the pro rata portion of the annual cash performance bonus for the year in which the termination occurs. In addition, all of the Covered Employee’s equity awards subject to time-vesting under the Company’s equity incentive plans would become fully vested and the Covered Employee’s stock options would become immediately exercisable. The Covered Employee would also be entitled to continuation of medical benefits premiums until the earlier of twelve (12) months following the date of termination or the date that the Covered Employee first becomes eligible to participate in any other medical benefits plan.
The Covered Employees’ severance agreements also provide for certain compensation and benefits if, other than in connection with a Change in Control, a Covered Employee’s employment is terminated by the Company without Cause or by the Covered Employee for Good Reason (defined as clauses (a), (b) and (e) of the preceding paragraph). If a Covered Employee’s employment is terminated under such circumstances, the Covered Employee would be entitled to receive a lump sum payment equal to the sum of the Accrued Obligations and twelve (12) months of base salary. The Covered Employee would also be entitled to continuation of medical benefits premiums until the earlier of twelve (12) months following the date of termination or the date that the Covered Employee first becomes eligible to participate in any other medical benefits plan.
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