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Sunbeam Girds for Fight With Ousted Chief

<i> From Bloomberg News</i>

Sunbeam Corp.'s board is giving “Chainsaw” Al Dunlap a taste of his own medicine as the appliance maker girds for a legal fight to prevent its fired chairman from collecting an estimated $27 million in severance pay.

Dunlap fired 12,000 Sunbeam workers in less than two years as part of the take-no-prisoners approach to cost-cutting he describes in his book “Mean Business.” “If you don’t do the job,” he wrote in 1996, “you should not only lose your incentives, you should lose your job.”

Dunlap lost his job on Saturday. While most chief executives are pushed out with cushy pay packages, Sunbeam directors are intent on making the 60-year-old executive live by his words.

Yet compensation experts expect he’ll ultimately walk away with cash of $5.4 million, a grant of stock worth about $5 million and stock options worth about $17 million.

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“This is the price of failure,” said Graef “Bud” Crystal, an executive compensation consultant who believes Dunlap can win a legal battle. “Dunlap is a fighter. He has deeper pockets than Sunbeam. After all, he’s looted so many companies.”

The company, which makes Mr. Coffee machines, Coleman camping products and Oster blenders, will contest the remainder of its three-year contract with Dunlap, said Jerry Levin, an aide to billionaire Ron Perelman, who replaced Dunlap as chief executive.

“All matters related to Al’s contract have been referred to our attorneys,” Levin said.

In his contract, Dunlap was granted options to buy 3.75 million shares at $36.85 over the next 10 years. Though currently worthless, the options could be worth about $17 million based on a model that considers likely scenarios for Sunbeam’s stock performance over the next decade, Crystal said.

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If he succeeds in winning severance pay, Dunlap’s total compensation at Sunbeam will be valued at about $70 million, he said. Crystal’s estimate includes $23 million in stock options that were already granted, $27 million in severance pay, $17 million in stock and $2 million in cash.

Dunlap’s contract allows the board to terminate him “for cause"--and thus not pay him--only if he is convicted of a felony or for “willful failure” to perform his job by taking actions that were “not in good faith,” an extremely difficult standard to meet.

“The contract is stacked in Dunlap’s favor,” said Donald Fisher, managing director with Compensation Resource Group. “The reality is the board will have to negotiate something.”

Dunlap was fired after he told directors that Sunbeam would report a second-quarter operating loss only a month after he told investors the company would report a profit for the quarter. Sunbeam reported a first-quarter loss, which he described as an aberration.

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