An 8-K that Steve Madden, Ltd. (SHOO) filed January 9 – combined with a little rooting through the footnoted archives (home of this little gem from July, 2005) – brought to mind the saying, “The more things change, the more they stay the same.”
In this case, the common theme is Steve Madden’s ever-expanding paycheck, thanks to a very long contract that assures him all kinds of new wealth, including raises of approximately $2 million each year. Yes, you read that correctly!
The new agreement, which is a confusingly-named exhibit attached to the 8-K, is entitled “Second Amendment to Third Amended Employment Agreement.” Like an impressively engineered platform sandal, that document raises Madden’s base salary to bold new heights. Back in 2005, shortly after Madden finished serving a 41-month sentence in a Florida federal prison for insider trading and stock fraud, Madden’s employment agreement at the time assured him a base salary of $600,000 and a 7% raise every other year as a cost of living adjustment. Contrast that with this new agreement, which – effective January 1, 2012 – gives Madden a new base salary of more than $5.41 million.
The single-digit cost of living increases from 2005 are gone. In their place is a promise that Madden’s “base salary shall be adjusted annually as set forth on Exhibit B attached hereto and made a part hereof….” for the term of his employment agreement, which runs through December 31, 2023, one of the longest contracts we’ve ever seen in over 8 years of reading these things. And, as mentioned, Madden will get a raise of about $2 million each year. Regrettably, the table on Exhibit B won’t reproduce well into this web page; however, here are the numbers for Madden’s future base salary rates:
2016 – 2023 $10,697,917
In addition to also giving Madden an “Annual Cash Bonus” and a “New Business Bonus” (to be determined based on a percentage of earnings and revenues, respectively), the new agreement gives Madden restricted shares of stock worth $40 million.
And because one $40 million stock grant might not be enough for a guy, there’s also a section called an “Additional Restricted Shares Amendment” which gives Madden even more restricted shares of stock worth – you guessed it – another $40 million.
Finally, the new agreement touches on one other big topic. Back in 2007, Madden borrowed $3 million from the company in exchange for this Promissory Note (amended in 2009) that promised to repay the loan with 6% interest by June, 2015. The new amendment, though, indicates that the board is evidently in a forgiving mood, based on the following passage:
“Commencing on December 31, 2014 and continuing annually on each December 31 thereafter through December 31, 2023 (the —Maturity Date), one-tenth (1/10th) of the aggregate principal amount payable hereunder together with all interest accrued thereon shall be cancelled by the Corporation provided that the Borrower continues to be employed by the Corporation on each such December 31st and the Corporation shall release a number of Pledged Shares (as hereinafter defined) to be determined by the Corporation’s Board of Directors, in its sole discretion, generally to correlate with the amount cancelled without leaving the Corporation inadequately secured.”
The company seems to be humming along at a good clip, with the stock price up almost 29% from a year ago (although sales are up in part because of the Cejon and Topline acquisitions that occurred in 2011). But for Madden himself, the raises are a bigger and bolder, kind of like the stratospheric-heeled shoes that some women wear (although how they walk in them, we’ll never know). We’ll leave it to investors to figure out the very important question that consumers with a penchant for heels also face: How high is “high enough”?
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