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Whiterock CEO reaps big payday with REIT's sale to Dundee

Whiterock Real Estate CEO Jason Underwood's pay package has raised eyebrows in the past.

Fernando Morales/The Globe and Mail/Fernando Morales/The Globe and Mail

Real estate executive Jason Underwood is in line for a huge bonus from the takeover of his company, Whiterock Real Estate Investment Trust , thanks to a provision in his employment contract that remained undisclosed to shareholders for two-and-a-half years.

The circular sent to shareholders outlining the proposed purchase of Whiterock by Dundee REIT , shows that Mr. Underwood will take home a payment equal to 1 per cent of Whiterock's market capitalization if he leaves within six months of the deal's close, which is expected by the end of March.

Mr. Underwood plans to resign as chief executive officer on or just before the closing date, the circular said, giving him a tidy bonus of about $5.5-million, based on Whiterock's current market cap of about $550-million.

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The "change in control" deal is part of an employment agreement dated Aug. 3, 2009, the circular said. However, the two proxy circulars issued by Whiterock since that date made no mention of the lucrative arrangement. Both those circulars said Mr. Underwood's termination under a change of control would garner him an additional one-year's base salary, or a mere $150,000.

Securities regulations say details of executive termination deals must be included in proxy circulars.

Mr. Underwood would not comment on the new arrangement, saying "we just have a general policy that we're not commenting" about the Dundee transaction.

Whiterock's board chairman, Oswald Pedde, said in an interview from his home in Winnipeg that the termination arrangement should have been disclosed to the public. "If it hasn't, it should have been."

However, he said, what really matters is that the arrangement was made known to Dundee before the takeover deal was signed last month.

"The acquisitor had all the information … maybe we slipped up in not disclosing [to everyone] I believe we disclosed, but if we didn't we certainly disclosed to the people making the acquisition," Mr. Pedde said.

Mr. Underwood's pay package has raised eyebrows in the past. In 2010, he garnered $4.8-million in total pay, most of it in bonuses tied to the number of buildings Whiterock bought or sold, and to the issuing of debt or new units in the trust.

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"His compensation has been ridiculous for several years now, and I'm not in support of this compensation structure at all," said Dennis Mitchell, chief investment officer at Sentry Investments, whose funds hold Dundee REIT shares.

"There doesn't appear to be any mention of this in the 2010 or 2011 circulars, so I don't see how he can now be compensated based on the 2009 agreement," Mr. Mitchell said. "But this is par for the course for [Mr. Underwood]and his board in terms of putting himself and his financial interests ahead of the company, in my opinion."

Sentry at one time was a big Whiterock shareholder, but no longer holds any of the units in its funds.

Mr. Mitchell said this kind of compensation "doesn't promote the right type of behaviour in management teams."

In addition to the $5.5-million bonus related to the Whiterock market cap, Mr. Underwood will earn about $11.1-million from the sale of his 686,000 company units to Dundee at the takeover price of $16.25 a unit.

He could also glean millions more because Dundee has agreed to pay out the difference between the current unit price and the exercise price of options held by executives. Mr. Underwood holds more than 1.2 million Whiterock options, according to the deal circular. It does not reveal the average exercise price of those options.

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In an interview with The Globe and Mail last May, Mr. Underwood said he has been paid well "because I have created a lot of value for investors, and if I did not perform I would be the lowest paid executive in the industry," because of his $150,000 base salary.

Laura O'Neill, director of law and policy at the Vancouver-based Shareholder Association for Research and Education, said the problem with large exit bonuses is that they raise questions about executives' motivation.

"If there is a huge parachute, then you are very concerned that the motivation for making a deal may not be entirely attributed to the best interests of the company and its shareholders," she said.

Ms. O'Neill said securities rules make it clear that all aspects of an executive's compensation, including termination agreements, should be fully disclosed to shareholders.

In Canada, she added, it is unusual to see a change-in-control provision that is calculated as a percentage of market cap.

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