Suit claims CEO negotiated secret bonus with Olympus as part of company sale

The CEO of Rex Performance Products negotiated a secret deal with Manu Bettegowda, a partner at Olympus Partners, to drive down the sale price of the company in exchange for a $1.5 million bonus, a recent lawsuit alleges.

The lawsuit, brought by Rex Performance, asks for more than $1 million in damages, penalties, costs and other expenses. The defendants are former Rex Performance CEO James Donald Tate, Olympus Partners, Bettegowda and Olympus Partners portfolio company Pregis Performance Products, which acquired Rex Performance last month.

A Texas District Court judge on Feb. 26 issued a temporary restraining order barring Pregis from paying the bonus to Tate and barring Tate from accepting the bonus payment.  A hearing is scheduled for Friday, March 9.

As part of the sale of Rex Performance, Tate joined Pregis and was tapped to lead “the combined engineered foam business going forward,” according to a press release about the deal.

“[Tate] thought he should receive more money than others with a greater percentage of membership interest simply because he felt he worked harder,” according to an affidavit from Rex Hansen, principal shareholder of Willamette Holdings, the majority member of Rex Performance Products.

A person with knowledge of the situation said the alleged bonus was in fact a retention payment meant to keep Tate and other managers on board after the sale. The payments were “fully disclosed per contract to the seller prior to the closing” and were due to managers only if they continued to work for Pregis over a period of time, the person said. “There are no ‘super bonus’ payments,” the person said.

Pregis, Olympus and Bettegowda released an official response Wednesday that calls the allegations meritless. It states:

“Pregis also acquired an experienced management team from Rex Performance, and entered into customary employee retention agreements with that team to incentivize them to stay with Pregis on a go-forward basis following the acquisition. Rex Performance Products has acknowledged in a court filing that it was aware before closing that its former president and CEO intended to enter into an incentive employment agreement with Pregis, but still decided to proceed with the closing on Feb. 23, 2018. Pregis, Olympus Partners, and Mr. Bettegowda intend to vigorously fight these allegations.”

Darrell Cook, an attorney representing Rex Performance, said no one at the company other than Tate was aware of the alleged bonus payment. “The idea that anyone at Rex Performance Products other than Don Tate knew anything about this so-called ‘Super Bonus’ is preposterous,” Cook said in a statement. “As Mr. Tate’s own emails clearly show, the defendants secretly negotiated this scheme while promising to keep it confidential.” 

Sole negotiator

According to the suit, Olympus Partner Bettegowda approached Rex executives about a sale. The parties terminated talks in February 2017, with the offered purchase price at around $24 million, the filing said. About 10 months later, Pregis resumed talks with Tate directly, the filing said. Rex Performance gave Tate responsibility to lead negotiations and he was authorized to agree to a sale of all Rex assets for $20 million, the filing said.

Tate met with Pregis executives in Chicago and relayed to his team at Rex Performance that Pregis would offer no more than $18 million, the filing said. Tate then reduced that price to $17 million for unknown reasons, the filing said. Tate strongly encouraged other Rex executives to accept the offer, the filing said.

The bonus was not disclosed to Rex’s board and was only discovered after Rex employees reviewed Tate’s emails as part of due diligence in closing the sale, the filing said.

The emails highlight back and forth conversations between Tate, other Rex executives including Rex Hansen, and Bettegowda about the bonus program. In the emails, Tate emphasizes the bonus is separate from compensation offered to Rex executives taking new roles with Pregis as part of the deal, and that the bonus should be kept confidential, the suit states.

“Additionally, to incentivize the Executive and Local Team, a Super Bonus program has been offered and will be separate and independent of this purchase agreement and will remain totally confidential and separated from the LOI, APA and/or any of the other purchase sell documents,” Tate allegedly states in in email to Bettegowda dated Jan. 21, 2018.

The bonus was set to go to Tate along with several other Rex executives, according to the filing.

The lawsuit is Rex Performance Products, LLC v. James Donald Tate, et al., No. 141-298129-18. Read petition for temporary restraining order.

Action Item: Read about Olympus’s Rex Performance Products deal: http://bit.ly/2tp5JY5

Photo: Judge gavel, scales of justice and law books in court. Photo courtesy BrianAJackson/iStock/Getty Images