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Trial’s compensation concentration

Ovitz deal OK'd post-hire 1995

HOLLYWOOD — Former Disney board member Irwin Russell testified Wednesday that the compensation committee did not meet during summer 1995 to discuss the terms of Michael Ovitz’s contract or his hiring as Disney president, which was announced that August.

Russell, who was chairman of the compensation committee at the time of the hiring, testified that he discussed the hiring and Ovitz’s contract with individual members of the compensation committee, which formally approved the contract in September 1995, after Ovitz already was at the company.

Russell, during his second day on the stand, said board member Ray Watson was closely involved in the discussions, and Sidney Poitier, a member of the compensation committee, wholeheartedly endorsed Ovitz’s hiring after a lengthy phone conversation.

Compensation expert Graef “Bud” Crystal also was consulted. Russell testified that Crystal initially found Ovitz’s deal troubling but ultimately agreed that the special circumstances involved in hiring the CAA superagent, who was making $20 million-$25 million a year, justified the amount. The original contract proposal had a $50 million guarantee that was finally dropped because of legal concerns.

Russell left the board in 2001, when age requirements in the company’s bylaws forced him to step down. His testimony, conducted by defendants’ attorney Anne Foster, has been a painstaking account designed to show the care the Disney board lavished on the hiring and firing of Ovitz.

The Disney shareholder suit, which began Oct. 22 in Delaware Chancery court, contends that Disney’s board of directors did not exercise any oversight in the 1995 hiring of Ovitz as Disney president or in the no-fault termination, which allowed Ovitz to walk away with an estimated $140 million after a disastrous 14-month tenure. The plaintiffs seek the return of payment to Disney, plus interest and costs of litigation.

On the hiring, Russell also testified that Ovitz’s goal was parity with Eisner in the granting of stock options. Russell said an analysis showed that because of Disney’s increasing stock price, 3 million stock options would give Ovitz parity, not the 8 million options he wanted.

Russell testified that the problems with Ovitz grew through 1996 and that Eisner complained that Ovitz’s actions didn’t make any business sense. Because Ovitz’s contract provided that he got nothing if he resigned, efforts were made to find him another job. Eisner told Russell casually in fall 1996 that he was helping Ovitz get a job at Sony.

In a note of Dec. 3, 1996, Eisner told Russell that Ovitz had been persuaded to accept the firing and wanted his contract settled right away. Russell said he, Eisner and Disney chief operations officer Sandy Litvack all concluded they didn’t have any grounds for firing him for cause.

But Ovitz didn’t get everything he asked for. He wanted to stay on the Disney board, keep an office and staff at Disney and a consulting agreement, which were rejected.

Russell also recommended that Ovitz receive a bonus of $7.5 million. “Ovitz had worked very hard. It wasn’t all that effective, but the fiscal year had been successful,” said Russell of the bonus.

Disney apparently was caught off-guard at how the press treated the Ovitz firing. The bonus was ultimately rescinded. “On reflection, it was stupid for me to recommend the bonus,” testified Russell. “It was not a contractual obligation. How could you expect people to understand that we paid him this money and then fired him?”

Russell said he had only one conversation with Ovitz about his termination and by then it was already a done deal.

“Ovitz got off on a stream-of-consciousness conversation with me,” Russell testified. “He was basically pleading his heart out to me that he didn’t want to leave, that he thought he could make it work. There were tears in his voice. The door had closed but he just had to get it out of his system.”

Russell is expected back on the stand Friday. So far, defendants have put on two witnesses, Ovitz and Russell. There is no session today because of a court holiday.

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