In the beginning…

November 14, 2006

egg.jpegPeople often ask me how I first got interested in diving into footnotes. My standard answer is that it came from a failed investment in Qwest Communications (Q). But that’s really only part of the story. Back when I was in college, the father of one of my roommates ran a company. Though the company was based in St. Louis, it maintained a small (read:dumpy) apartment on the first floor of a non-descript building in the east 20s of Manhattan. In 1996, that company, Source Interlink (SORC) went public and suddenly the dumpy apartment was exchanged for a three-bedroom penthouse with views of the East River and Chrysler Building. But that wasn’t the only sign of excess. There was the ski lodge in Utah. And then an upgrade to an even fancier building a stone’s throw away from Bloomingdale’s. As I footnoted last June, Source only began disclosing the apartment and ski lodge to investors last year. Over the past three years, I’ve poked at Source twice (see also here) over what seems — to me at least — like excesses.

I bring this up now because yesterday, Source filed this 8-K announcing the resignation of Chairman and CEO S. Leslie Flegel, my former roommate’s father. Though the company didn’t even bother to trot out the usual "personal reasons" excuse, it’s not clear why Flegel would be stepping down now. Perhaps it’s due to the stagnant stock price or the announcement back in March that the company had hired Deutsche Bank to "explore strategic alternatives". For more on that, see Herb Greenberg’s take on the company.

What is clear is that Flegel’s contract, which, when it was renewed last year gave Flegel a $750K signing bonus, was not set to expire until 2010. But under yesterday’s agreement, it is clear that the rewards won’t end just because Flegel is no longer running the show. Indeed, he will not only collect a $900K bonus for this year, but also a $4.7 million severance package and be eligible to collect as much as $4 million more in additional bonuses. There’s also an undefined tax gross up too. In addition, he’ll remain on Source’s payroll for the next three years as a consultant, making more as a consultant than he was when he was presumably working full-time. That’s also more than twice as much as Flegel was supposed to make as a consultant under last year’s agreement. To say that shareholders are getting the short end of the stick from this deal would be a very mild understatement.

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Just a reminder that I’ll be speaking tonight at Columbia University’s Journalism School on a panel that includes Jimmy Wales of Wikipedia, Bill Grueskin, editor of wsj.com, Kevin Sites of Yahoo, and Rex Smith of the Albany Times Union. The event is free and open to the public and even includes drinks and appetizers, so I hope to see some of you there. The reception begins at 6:30 and the panel begins at 7 pm at the J School, which is at Broadway and W. 116th St.

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