Former execs sue B&L
By WILL ASTOR - 2/13/2009
Three former senior executives of Bausch & Lomb Inc., including retired ex-chairman and CEO Daniel Gill, are suing the eye-care company over what they claim is an illegal cutoff of their retirement pay.
Those suing the company along with Gill are Thomas McDermott, former Bausch & Lomb president and chief operating officer, and Jay Holmes, the firm's onetime vice president and chief administrative officer.
The trio filed a complaint in U.S. District Court in Rochester on Jan. 29. When Bausch & Lomb stopped sending them monthly retirement checks more than a year ago, the men allege, the company breached its duty as a fiduciary, misappropriating a $4.5 million trust fund set up to fund their pension payments.
"Bausch & Lomb believes it has fully met its obligations and that the suit has no merit," Bausch & Lomb spokesman Michael McDougall said. "(Gill, McDermott and Holmes each) left the company more than a decade ago, with each receiving tax-free annual payments since their departure. They were paid in excess of $6 million after taxes, collectively."
Gill retired from Bausch & Lomb in 1995 after 18 years with the company. He spent 13 years as its chairman and CEO and has been widely credited with building Bausch & Lomb into a worldwide player in the contact lens, eye surgery and ophthalmic prescription drug markets. Gill won plaudits locally as the force behind the company's decision to build its world headquarters in downtown Rochester. The later years of his tenure were marked with controversy as Bausch & Lomb was chastised by federal regulators for allegedly pumping up sales figures improperly.
McDermott left the eye-care company to take a job as CEO of Gould's Pumps Inc. in Seneca Falls in 1993. He held that post until the pump-making firm was acquired by ITT Industries Inc. a few years later. He is chairman of Forbes Products Corp. in Rush.
Holmes has worked as an attorney and business consultant and served as a director of several eye-care industry firms since his departure from Bausch & Lomb. He sits on the boards of OccuLogix Inc. and ReVision Optics Inc.
The ex-managers' attorney, Harold Kurland, a partner in Ward, Norris, Heller & Reidy LLP in Rochester, said neither he nor his clients would make a statement beyond what is laid out in legal papers.
"We think the litigation speaks for itself," Kurland said.
The former Bausch & Lomb executives state in court papers that the company's executive pension plan called for each to get annual payouts of as much as 36 percent of their final average annual compensation. The retirement plan also included a gross-up provision, the complaint states. Gross-up clauses require companies to pay income taxes on executive compensation instead of deducting them from the managers' gross pay. They are a common perquisite in compensation packages of U.S. firms' top executives. Also common are change-of-control provisions, which specify how executives are to be paid off when firms are taken over.
Bausch & Lomb invoked the change-of-control provisions in the trio's pension deals in 2007 when the company was acquired and taken private by Warburg Pincus LLC, the court complaint states. The company halted the former managers' monthly payments as of October 2007 after sending each a lump sum as a final payment meant to satisfy any outstanding retirement-pay obligations.
Gill, McDermott and Holmes state in court papers that they immediately questioned the company's move, expressing doubts that the lump-sum amounts were equivalent to the full value of the monthly payments they would have received if the original terms had been met. The complaint details a letter dated Oct. 5, 2007, in which the retirees asked for a full accounting of methods the eye-care company used to arrive at the lump-sum amounts and requested that the company resume sending monthly payments until it supplied such an accounting.
Bausch & Lomb corporate counsel Robert Stiles replied promptly, assuring the trio in letters sent on Oct. 11 and Oct. 17 that the company would look into the matter and would supply information requested by Gill, McDermott and Holmes, the court complaint states. But in a string of exchanges among the three retirees, the eye-care company and the company's lawyers, Bausch & Lomb has failed to adequately explain itself and has refused to back down, the plaintiffs allege.
On Nov. 1, 2007, the legal brief states, Bausch & Lomb told the retirees that the matter would have to be addressed to the board's management committee. Later in the month, however, they were told that a hearing would have to wait until Warburg Pincus organized a new board and formed a new committee. In January 2008, Ronald Zarrella, then the eye-care company's chairman and CEO, wrote to the trio, saying that the matter had been referred to the new board's compensation committee and that the board had hired a lawyer to help in the review.
In the same month, the court complaint states, Howard Shapiro, a compensation and labor specialist with Proskauer Rose LLP in New Orleans, advised the board against complying with Gill's, McDermott's and Holmes' request. Last April, another Bausch & Lomb lawyer, Jonathan Zorn of Ropes & Gray LLP in Boston, informed the trio that the compensation committee had denied their claims.
The trio appealed the decision to the committee in June and heard from Zorn in December that the appeal had been denied, the complaint states. Having "exhausted any and all administrative remedies," Gill and the others moved to put the matter in front of a judge.
The complaint does not detail amounts of pension payments that each man claims to be due or specify a claim for total damages. In addition to actual damages, the men ask the court to assess penalties of $110 a day against Bausch & Lomb and against the firm's compensation committee members individually. That fine would so far come to some $44,000 apiece for the company and each committee member. The penalties should be levied under a section of federal labor law as punishment for the firm's and the committee's alleged failure to account for methods used to set the retirees' lump-sum payments, the complaint states.
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02/13/2009 (C) Rochester Business Journal