The bonuses were offered to the executives in August, just before the company announced its plan to be acquired by Brocade Communications Systems Inc, in an all-stock deal worth around $600m.
But the matter was private until yesterday, when McData filed an 8-K report with the US Securities and Exchange Commission declaring the action. The exact reason why McData delayed that filing until now is not clear. As Computer Business Review went to press, McData was unable to make any comment.
The six executives include McData’s CEO John Kelley, its EVP and COO Todd Oseth, its engineering SVP Adrian Jones, its CFO Scott Berman. Kelley stands to receive the biggest payout of $1.125m, with Oseth taking the next largest wedge of $0.74m.
If the executives agree to stay on after the merger closes, half of the bonus will be paid at the close of the merger and the remainder will be paid six months later, or earlier if Brocade terminates their employment. Brocade said that although it does not usually comment on such matters, it does expect to hire Kelley as a post-merger consultant.
The merger with Brocade has still not received Hart-Scott-Rodino clearance from the US Federal Trade Commission, and last week the FTC requested Brocade for more information regarding the deal. Brocade cannot hold a meeting to gain shareholder’s blessing for the deal until the FTC has itself given it the go-ahead.
The likelihood is that McData is going to have to report its October quarter before the shareholder vote. That’s when things are going to get interesting, said Samuel Wilson, managing director of equity researcher JMP Securities. Wall Street is already distinctly cool about the merger, Wilson said, as evidenced by a widening difference between share prices ahead of the stock-swap deal.
Ever since the second request for HSR information, the market has believed that there is a lot more risk to this deal than it thought there was a month ago, he said. Wilson expects that the FTC will eventually agree to the merger, because regardless of its effects on the Fibre SAN market, customers can reach to iSCSI or file-level Ethernet-linked NAS as alternatives as alternatives to FC.
The delay to the closing of the deal prolongs a difficult time for McData and Brocade. Immediately the merger was announced, many of McData’s existing customers will have become nervous that post-merger, McData’s products would be killed off. According to some reports, Cisco is already benefiting from a sales campaign tailored specifically to exploit this situation.
Attempting to address this problem, Brocade last month splashed out on full page adverts in the Wall Street Journal, promising that it would stand by McData’s customers, and provide a painless migration to post-merger gear.
