The top two officials of a small California bank would receive an unusual special bonus if the bank were sold for more than $10 million.
Under September 1996 employment agreements with Tustin-based Sunwest Bank, president and chief executive officer James G. LeSieur 3d would receive up to $300,000 in extra compensation in case of a merger of the bank, the sale of most of its assets, or the sale of at least 80% of its shares. Chief financial officer Frank E. Smith would receive up to $150,000.
The September agreements stipulate that any bonus would be equal to a percentage of the difference between the sale price and $9.5 million, roughly the bank's capital level.
Despite appearances, however, the bonuses are not designed as an incentive to sell the bank immediately, Mr. Smith said. Rather, they're intended to encourage the officers to boost the bank's franchise value, thereby increasing the potential sale price in the future.
"It's kind of like a long-term golden handcuff type of employee benefit," Mr. Smith said. "It accomplishes pretty much the same thing as stock options. You're tying the shareholder interest to the interest of management."
"It's a form of compensation in the event they are severed, because they have a relatively small amount of stock options," said Eric D. Hovde, executive vice president of investment banking firm Hovde Financial Inc. Last September, Western Acquisition Partners LP, an investor group affiliated with Hovde, purchased 43.5% of Sunwest in an attempt to raise capital for the bank.
"They (the bonuses) are to reward us for a job well done, for what we've done and what we'll continue to do," Mr. LeSieur said. "They're an encouragement to continue to increase the value of the bank, but that's in the best interests of anyone."
In fact, Mr. Smith said, a full sale of the bank is unlikely in the very near future because of net operating loss carryforwards at the bank and holding company level. Sunwest had $9 million worth of those tax credits at yearend 1996, while parent company West Coast Bancorp, Newport Beach, had another $4 million. Federal tax laws bar an acquirer from using all of the tax credits.
"There's nobody that's going to give you the value for net operating loss carryforwards that you can enjoy yourself," he said.