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D. Determination of Reasonable Compensation
1. Overview of Expert Testimony
Having decided to apply a multifactor test, we turn to a
consideration of whether petitioner has met its burden of showing
by clear and convincing evidence that the Retention Payments and
disputed 1991 SRP Benefits constitute reasonable compensation.
Both parties presented expert testimony on the reasonableness of
the Retained Executives’ compensation under the 1991 Employment
Agreements, as amended in 1992.39 Petitioner’s expert, Pearl
Meyer, is an executive compensation consultant with more than 40
years’ experience. Respondent’s expert, Arthur Rosenbloom, is a
financial consultant and investment banker specializing in
securities valuation and mergers and acquisitions with more than
30 years’ experience. Both Ms. Meyer and Mr. Rosenbloom authored
opening and rebuttal expert reports and testified at trial.
39 Petitioner also argues that the compensation of the
Retained Executives under the 1991 Employment Agreements was
reasonable because it was the product of arm’s-length bargaining.
The short answer to petitioner’s argument is that, while the
negotiations may have been at arm’s length, they were
indisputably skewed by the Retained Executives’ right to collect
their substantial Termination Awards and SRP Cashouts in June
1992, without providing any future services. Thus, as reflected
in our findings, a significant portion of the Retention Payments
and 1991 SRP Benefits served to compensate the Retained
Executives for the relinquishment of their rights to the
Termination Awards and SRP Cashouts, not for their future
services. Consequently, the arm’s-length nature of the
bargaining provides no assurance that the amounts paid were
arm’s-length consideration for the services to be rendered.
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