WATERBURY, VT -- Green Mountain Coffee Roasters stripped founder Robert Stiller of his chairman title and ousted William Davis as lead director after they sold shares to meet a margin call on loans secured by their stock in the company, breaking the company's trading policies.
Stiller sold five million shares of Green Mountain's stock for $123.4 million on May 7 after stocks plunged 48%, prompting lenders to demand more collateral on their outstanding loans. The stock tumble on May 3 came after Green Mountain issued lower full-year profit projections after selling fewer brewers and K-cups than expected in its fiscal second quarter. | SEE STORY
Davis, who has served as director of Green Mountain since its founding in 1981, sold 548,000 shares on May 4 and May 7.
Investors can borrow from banks or brokerages using their stock portfolios as collateral, but the lenders require them to maintain a balance in their accounts that is a certain percentage of what they have borrowed. If stock prices fall sharply, investors must deposit more money into their margin accounts to maintain the required cushion.
The shares from Stiller's account and some of Davis's shares were sold at a time when insiders at Green Mountain are not permitted to trade shares, according to company policy. Green Mountain also said that Davis pledged an additional 204,000 new shares to his margin loan after the first of the year, after Green Mountain had amended its internal trading policy to prohibit new pledges.
"These forced sales are disappointing and beyond the control of the company. Once the board was notified of this trading activity, it moved quickly to investigate and address this matter," Green Mountain said.
The company said Stiller and Davis will remain on the board, but will be not be paid for their services until the board determines otherwise. Green Mountain said it has appointed Michael Mardy as interim chairman of the board. He was director and chair of the company's audit and finance committee.
At one point, Stiller owned nearly 45 million shares in the coffee company. Following the latest sale, he reportedly owns 8.39 million shares, or a 5.4% stake.
Stiller and Davis must settle all outstanding margin loans by the end of 2012, according to Green Mountain. The company said if all of their shares that are held in margin accounts or pledged as collateral were settled as of May 8, Stiller's stake would be down to 1.86 million shares, while Davis would own 36,598 shares.
Stiller founded Green Mountain in 1981 and served as its chief executive until May 2007 when he took on the role of chairman. He took the company public in 1993, the same year it invested in Keurig Inc. In 2006, the Vermont coffee roaster acquired Keurig. Today, the lion's share of the company's revenue comes from the sales of brewers and K-Cup portion packs.
Green Mountain's stock began to fall early this year in anticipation of increased competition this fall, when Starbucks Corp. plans to launch a single-cup espresso brewer and two of Green Mountain's patents on K-cup technology expire.