Saturday, August 30, 2008

Tenure and Resignation of Fran Barton

CFO Fran Barton is retiring effective August 31, 2008. This was unusual in that there was no transition period (atleast not that the street was aware of). Fran was hired by UTStarcom to be its CFO effective September 2005. Then CFO Mike Sophie focused on the COO spot after Fran Barton's hiring. From the company PR, "I believe that Fran's background represents an optimal fit for the needs of our finance organization as we go through the restructuring and diversification initiatives," said Mike Sophie, chief operating officer at UTStarcom, "His appointment will allow me to focus on the operating aspects of these initiatives. Fran and I will work closely toward disciplined execution of UTStarcom's strategy and timely attainment of the company's goals, including a return to sustainable revenue growth and profitability."

I want to highlight the positives and negatives of Fran Barton's tenure and provide some commentary.


I will take the positives from the November 30, 2007 8K filing discussing Fran Barton's retention agreement.

"The Compensation Committee approved the Retention Agreement after taking into consideration: (i) Mr. Barton's performance during a challenging year, including completing the Company's previously disclosed stock option and historical sales contract investigations, bringing the Company current in its SEC filings and improving the Company's Section 404 compliance process; (ii) the critical nature of Mr. Barton's current and future role in light of anticipated management transitions in fiscal year 2008; and (iii) increasing competition in the market for experienced financial professionals. "

The balance sheet is also better due to asset/investment/none-core business unit sales.


1. There was not one single profitable operating quarter during Fran Barton's tenure.
1a. Write downs and poor contracts (such as in India) and bloated expenses added to the decline in PAS to contribute to the money losing quarters.
2. Predictions of profitability for (a) early 2007 (given in late 2005), (b) early 2008 (given in August 2007), and (c) early 2009 or late 2008 (given in late 2007) did not come close.
3. The material weaknesses identified have not been fully resolved (the last I heard there were 3 outstanding).
4. "Legacy" expenses from accounting to legal still continue to date.
5. ARP accounting systems are not fully in place as of yet.
6. The stock price has declined from around $8 (already down from the $30s/40s the previous year in 2004) to the low $3 level in 3 years.


Barton started out with a base salary of $500k that was increased to $750k. At the end of November, 2007 (after the shareholder meeting when the price was sub $3 no less), shareholders received news of the retention agreement.

"The Retention Agreement provides that the Company will provide a retention incentive to Mr. Barton with a total value of $10,000,000 (the "Retention Incentive"), consisting of a combination of restricted stock, RSUs, performance shares and performance units (together, "Equity") to be granted under the Plan and/or cash, in the sole discretion of the Compensation Committee. Each installment of the Retention Incentive will be awarded in a combination of Equity, in the Committee's sole discretion, up to the annual maximum amounts permitted under the Plan after taking into account Mr. Barton's focal awards for each particular year. The first installment was awarded effective November 30, 2007 (see below), and the remaining installments are expected to be awarded each January thereafter. Because of limits on the maximum amount of Equity that can be granted to an individual in any calendar year under the Plan, the Company expects that the Retention Incentive will be awarded over a number of years, so that as much of the Retention Incentive can be awarded under the Plan as possible. The first installment of the Retention Incentive will vest as to $2,500,000 in value on November 30, 2007, and the remaining installments will vest as to $2,500,000 in value on each November 30 thereafter until the full $10,000,000 in value has vested. For purposes of determining the vested value, the value of Equity to vest will be based on the Fair Market Value (as defined in the Plan) of the Company's common stock on the applicable date of grant."

Resignation Agreement:

Fran Barton will receive $380k and accelerated vesting of the $2.5m retention bonus that was going to vest in November 2008. So, Fran effectively collected half of the $10m in retention bonus.


As a shareholder in the company, it is hard for me to even say "thank you" for Fran Barton's services due to the negatives I outlined above. During the March 17 meeting that some shareholders had with management, I openly questioned management and lead director Thomas Toy about management compensation and highlighted specifically Fran Barton's compensation. Tom basically defended the compensation/retention agreement based on the "positives" noted on the 8k. At that time, the management/board made it seem Barton had the blue print plan to return the company to sustainable profitability and growth (See my March 2008 postings to review our meeting).

It does seem odd that now Barton has retired, management is confident that the executives left behind can fill Fran Barton's role with "seamless transition". I had emailed Peter Blackmore late Thursday and he explained the departures as simply for personal reasons and that he was confident in the team that they had. Blackmore wanted to discuss it personally but we did not hook up the following day. I have been a constant critic of Fran Barton even before blogging and did not feel he deserved the compensation for the performance. Now that the turnaround is well underway, it seems less likely he would contribute. I did not get an impression Barton was well in-tuned with the technology and would forget certain numbers even during planned CCs. During the few times I had personal contact with Fran, he seemed very nice/professional and well liked by the other employees. However, this is the business world where performance is the metric which we measure the CFO and not likeability. In that measure, Fran Barton did not fulfill the goal when he was hired to return the company to growth and profitability. The balance sheet seems better with all the asset sales but shareholder equity has also gone down. Nor did the shareprice (already low at the time when Fran Barton joined) go up.

In summary, I enjoyed the minimal conversations I had with Fran but think it is a positive impact to the company/share holders that he retired. I guess it was "nice" for Fran's reputation that the street react negatively for a day to Fran Barton's departure but that just reinforced my belief that in the short term that the street has mispriced the stock badly.

I want to end this post wishing Fran Barton good luck but does he really need it or UT shareholders still facing the ongoing soap opera that is UTStarcom......all potential, valuation, and little results. As we think about Fran's tenure, we shareholders still cling to the hope that management/board can "work closely toward disciplined execution of UTStarcom's strategy and timely attainment of the company's goals, including a return to sustainable revenue growth and profitability." When did we hear that one before? Or are we shareholders just a bunch of short term traders with no patience. Right...give us a break. Really, please give us a break :-)