EZCorp: The gift that keeps on giving

August 13, 2014

With a market cap of just over $500m, EZCorp may be one of the smaller companies whose filings we read. But over the years, it has yielded more than its share of disclosures from fat salary raises at the company to mind-boggling retirement packages for its executives, especially for its former CEO and director Joseph Rotunda.

So when the pawnshop operator disclosed in a recent  8-K  that Rotunda — who announced his retirement in 2010 — is back as a director at the company, it naturally piqued our interest.

And what a comeback!

Rotunda, who earlier served as CEO and director for more than a decade, returns at a turbulent time for the company, which recently ousted its CEO, Paul Rothamel, and installed CFO Mark Kuchenrither as interim CEO. This morning, Kuchenrither was named to the post on a more permanent basis and two other executives were added with the lofty titles of Executive Chairman and Executive Vice Chairman. (For more on the role of the Vice Chairman, see this 2005 piece that Michelle wrote for Slate).

While the news of Rothamel’s ouster received considerable media coverage, reporting on Rotunda’s return was thin, even in Texas, where the company is based. The press release was virtually ignored, with one local newspaper, the Austin Business Journal, covered the news of his return, citing the SEC filing.

Here’s the paragraph in the filing in the 8-K that caught our attention:

“In connection with Mr. Rotunda’s retirement as President and Chief Executive Officer in November 2010, the Company entered into a five-year agreement with Mr. Rotunda, which provided for an annual consulting fee of $500,000 plus a potential bonus of up to $500,000 per year. That agreement was terminated in November 2013. During the term of the agreement, the Company paid Mr. Rotunda the annual consulting fees, but no bonuses. In connection with the termination of the agreement, the Company paid Mr. Rotunda an additional $2.1 million to settle all amounts owing under the agreement. Pursuant to the terms of the retirement arrangements and the consulting agreement, the Company will continue to provide healthcare benefits to Mr. Rotunda through October 31, 2015.”

While his return is shrouded in mystery, what struck us as more mysterious is the news that the company had terminated Rotunda’s agreement in November 2013. We searched through all of EZCorp’s filings from 2013 citing Rotunda, and found only one 8-K, filed on Oct. 3, 2013, that restated his severance package but gave no hint the company would cancel the agreement.

We should also note that during this time, EZCORP stock was free-falling. While that can’t be laid entirely at Rotunda’s feet, it’s hard to argue that giving him piles of cash was beneficial.

We find it intriguing that the company would make no previous mention of why it terminated the agreement with Rotunda, and why it didn’t pay him any bonus during the three-year consulting period, which could have potentially reached $1.5 million. The company disclosed it paid Rotunda “an additional $2.1 million to settle all amounts owing under the agreement” for ending the deal but didn’t provide further details.

 

 

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