Author Topic: 25% of book value gains above 5% for Biglari?  (Read 40959 times)

farnamstreet

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25% of book value gains above 5% for Biglari?
« on: April 30, 2010, 03:32:03 PM »
The Incentive Bonus Agreement provides Mr. Biglari the opportunity to receive annual incentive compensation payments based on the Company’s book value growth for each fiscal year.  If the Company exceeds a 5% annual book value growth hurdle, Mr. Biglari would receive an incentive compensation payment equal to 25% of the Company’s book value in excess of that hurdle.  Mr. Biglari will not receive incentive compensation payments under the Incentive Bonus Agreement unless the Company’s book value exceeds a 5% annual growth rate over the Company’s previous highest book value achieved during the term of the agreement, or the “high water mark.”  Accordingly, in a fiscal year where book value declines, the hurdle for subsequent fiscal years will require the complete recovery of the deficit from the last high water mark, plus a 5% annual growth rate from the last high water mark.  Determinations of book value and the incentive compensation payments to Mr. Biglari under the Incentive Bonus Agreement are subject to the approval of the Governance, Compensation and Nominating Committee of the Board of Directors of the Company.

oh and they bought the lion fund.

http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=7219296-1239-15227&type=sect&TabIndex=2&companyid=11049&ppu=%252fdefault.aspx%253fcompanyid%253d11049


Redskin212

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Re: 25% of book value gains above 5% for Biglari?
« Reply #1 on: April 30, 2010, 03:40:39 PM »
An unusual compensation arrangement for a public company or should I say a public hedge fund?  No mention of what is happening with his $900,000 salary.  The existence of a large salary and a potentially very lucrative incentive compensation arrangement appears to be very greedy and to an extent double dipping.

Redskin

Dorsia1

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Re: 25% of book value gains above 5% for Biglari?
« Reply #2 on: April 30, 2010, 04:02:31 PM »
I agree. If he eliminated the 900k salary then this would be applauded and looked upon as a CEO who really cares about his sharehoalders. I am afraid that it didn't take Mr. Biglari very long to show his true colors.
It also shows that those opposed to the name change saw something that some others didn't, a very big ego.
The next thing to be announced will be an annual "Sardar Biglari Day" at the Steak n shake restaurants. Milkshakes double the price: all proceeds to Sardar Biglari and family.

valuecfa

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Re: 25% of book value gains above 5% for Biglari?
« Reply #3 on: April 30, 2010, 04:41:54 PM »
If he eliminated the 900k salary then this would be applauded and looked upon as a CEO who really cares about his sharehoalders.

I would not be clapping.

This is not an alignment of interests with those of shareholders. I''m sure there will be attempts to spin this as shareholder friendly and interest alignment. This is not that. This is greed.

Just think of how aligned his interests would be if he were allowed 75% of book value gains > 5%  ???

While this percentage may not be a large amount initially...With all these mergers he is pursuing (and planning to pursue) BH will be a multi-Billion dollar company in no time. The larger this company gets the larger his compensation will be when he grows book value.

This is fine for a hedge fund, as they have to grow AUM legitimately. BH isn't a hedge fund it is a public corporation. All Biglari has to do is empire build to get a raise if this passes.
« Last Edit: April 30, 2010, 05:23:07 PM by valuecfa »

Myth465

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Re: 25% of book value gains above 5% for Biglari?
« Reply #4 on: April 30, 2010, 05:01:42 PM »
I am interested in seeing what some of the guys on the board will say about this one.
Maybe he is aligning his interest with shareholders or something like that. Call a spade a spade.


Nnejad

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Re: 25% of book value gains above 5% for Biglari?
« Reply #5 on: April 30, 2010, 05:05:28 PM »
"(ii)    “Book Value” equals the amount of Total Shareholders’ Equity as set forth in the Consolidated Statement of Financial Position of the Company, prepared in accordance with the accounting principles adopted by Company (as set forth in the Company’s Annual Report on Form 10-K for the applicable fiscal year), as of the applicable Incentive Compensation Calculation Date.  Book Value as of the applicable Incentive Compensation Calculation Date shall be determined by reference to the consolidated net income and other comprehensive income of the Company, and appropriate adjustments to such Book Value shall be made for any dividends, shares issuances or buybacks and other factors in accordance with Exhibit A hereto (but Book Value for the next succeeding Incentive Compensation Calculation Date shall not reflect such prior adjustments).  The computations and procedures required to calculate Book Value, including without limitation, any accounting procedures used to implement any adjustments, allocations and other matters, shall be made in such reasonable manner as the Company in good faith shall determine to be appropriate and in accordance with Exhibit A hereto, and shall be subject to the approval of the Governance, Compensation and Nominating Committee (the “Committee”) of the Board of Directors of the Company (the “Board”)."

OracleofCarolina

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Re: 25% of book value gains above 5% for Biglari?
« Reply #6 on: April 30, 2010, 05:11:24 PM »
Sanjeev...what are your initial thoughts?

my initial thought is I want a higher hurdle rate and a low
% to Sardar..

Bronco

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Re: 25% of book value gains above 5% for Biglari?
« Reply #7 on: April 30, 2010, 05:33:43 PM »
I am disappointed.  I wrote on here that the name change brought up some red flags.  This is another.  But lets break this down.

If book value goes up 10% per year, he gets 25% of the amount over 5%, or 12.5%.  So if book value in the future goes from $400 million to $440 million in a given year, he gets 12.5% of $40 million.  That is $5,000,000.  I think of that amount, he is required to buy stock with 30% of that bonus (although I am unsure of the 30%).

I will be selling out of my stake next week.

I am really tired - someone please check my math.

Myth465

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Re: 25% of book value gains above 5% for Biglari?
« Reply #8 on: April 30, 2010, 05:50:25 PM »
Now with my comments I would still invest in BH. FUR has a similar annoying situation. I however would wait until they are below that water mark and are undervalued. I would not hold BH through overvaluation and would basically trade it based on intrinsic value. It would not be a long term buy and hold.

He is giving up on what I am guessing was 2 and 20% on the Lion Fund, He also may have lost alot of his control in BH depending on what happened with the Lion Fund shares. Where they canceled?

shalab

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Re: 25% of book value gains above 5% for Biglari?
« Reply #9 on: April 30, 2010, 06:44:59 PM »
It's a lot less than that. A $400 million co (in terms of book value, not market value) that grew book value at 10%, would produce a bonus of $500K to him, from an equity growth of 40 million.

You got your math wrong. This translates to 5 million pay day. Doing a tender against AAP for at current prices would approximately translate to 25 million pay day for Biglari. This is excluding the retained cash at SNS. If the retained cash is 50 million, we are looking at 12.5 million additional pay for Biglari. Diluting shares shouldn't help Biglari get paid more.

I dont expect Biglari to work for free and would like him to measure his compensation by per share increase in value - as is the case with others such as MPIC funds, Pabrai funds etc.