Green Mountain Coffee Roasters stripped its chairman and lead board director of their titles on Tuesday, saying they had violated internal trading policies after a plunge in its stock price forced margin-call related share sales.
Shares of Green Mountain, which makes Keurig single-serve coffee brewers, fell nearly 4 percent in after-hours trade, exacerbating the company's problems in the wake of last week's disastrous quarterly earnings report. Green Mountain's market value has plunged 47 percent in the last four days to $4.10 billion.
The company said its founder and chairman, Robert Stiller, and lead director William Davis together were forced to sell 5.55 million Green Mountain shares on May 4 and May 7 to meet margin call requirements, at a time when trading by insiders was prohibited by company policy.
"Once the board was notified of this trading activity, it moved quickly to investigate and address this matter," Green Mountain said in a statement.
The board said it decided that it was in the best interest of the company and shareholders for Stiller and Davis to relinquish their leadership positions on the board and their committee roles.
Still, they remain members of the board but will not receive future payment for being directors until further notice. When asked why they were not kicked off the board, a spokeswoman said that the board determined "appropriate action" was taken given the circumstances.
The board also demanded that Stiller and Davis settle all outstanding margin loans by the end of this year.
Stiller and Davis sold their Green Mountain shares to maintain margins on investment accounts, where they had borrowed against their holdings.
When the value of such investments falls and an investor cannot cover the margin, a broker can force the liquidation of some of the investor's holdings.
The broker in Stiller's case was Deutsche Bank.
INTERIM CHAIRMAN
Michael Mardy, chief financial officer of Tumi Holdings Inc, will serve as interim chairman while Hinda Miller, a Vermont state senator, has been named chair of the governance and nominating committee.
The governance and nominating committee will also review the board's structure and composition.
Green Mountain said 400,000 shares were sold from Davis' brokerage account to meet margin calls last Friday, and another 148,000 shares were sold on Monday. Stiller's account sold 5 million shares on Monday to meet margin calls, it said.
The company said these trades were outside the window when insiders are permitted to trade, but declined to specify the dates of the window. Green Mountain reported quarterly earnings last Wednesday.
Green Mountain also accused Davis of violating company policy by pledging about 204,000 new shares to his margin loan after January 1 this year. In December 2011, Green Mountain had revised its trading policy to prohibit new margin accounts and pledges of shares.
As of January 26, Stiller had more than 12.5 million shares held in margin accounts, or pledged as collateral, to various financial institutions as security for one or more loans, according to a previous company filing. That was more than 78 percent of Stiller's total holdings in the company at that point -- just under 16 million shares.
When asked why Green Mountain allowed Stiller to be so leveraged, the spokeswoman said, "Mr. Stiller and Mr. Davis make their own decisions about their personal finances."
The latest stock sale by Stiller, who founded Green Mountain in 1981, cuts his stake in the company by a third to roughly 6 percent, according to Thomson Reuters data.
