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First Niagara to give ex-CEO $2.3 million Paul Kolkmeyer was fired last week

Former First Niagara Financial Group President and CEO Paul J. Kolkmeyer will receive nearly $2.3 million in cash as severance after being fired by the banking company Friday.

According to a filing with the Securities and Exchange Commission late Thursday, the 53-year-old Kolkmeyer will get $1.962 million, which consists of the present value of three years' of base salary and bonus.

That's in keeping with the terms of his employment agreement and a Dec. 8 "separation agreement," which deemed Kolkmeyer's resignation to be a "termination . . . without cause."

He will also get insurance coverage for three years, and an additional cash payment of $325,000 in exchange for releasing the Lockport-based company of claims stemming from his employment, his "immediate resignation," and the 2006 management bonus plan.

Kolkmeyer will forfeit all options and restricted stock awards that do not vest within 30 days of his resignation. But he now has until the end of 2007 to exercise any outstanding options that he retains. As of last December, he had $3.4 million in options to exercise.

Kolkmeyer did not return calls seeking comment. Board chairman Robert G. Weber referred questions to the savings bank.

"A three-year contract is standard for what executives of publicly held banks have," said analyst Kevin Timmons at C.L. King & Associates in Albany. "If you want the guy out, you got to do what you got to do."

First Niagara stunned the banking community both locally and regionally when it abruptly fired Kolkmeyer last week after three years in the top job, during which the company more than doubled in size, revenues and earnings, largely from acquisitions.

Weber cited differences in management style and approach, and noted the board's commitment to shareholder value, but would not elaborate.

Kolkmeyer also resigned from the board.

He was replaced by John R. Koelmel, the savings bank's executive vice president and chief financial officer, who was named president, chief operating officer and acting CEO.

However, Koelmel was not named to the nine-member board, which Timmons said is "pretty unusual" for a CEO.

And the SEC filing said his contract, which called for a 2006 base salary of $275,000, was not changed because of his promotion, although spokeswoman Leslie G. Garrity said the board's compensation committee plans to address that at its next meeting. Koelmel was not available for comment.

Both Koelmel and Weber spent more than 25 years each in the Buffalo office of auditing firm KPMG LLP, including stints as managing partner. Kolkmeyer spent four years at KPMG.

First Niagara, which has $8.1 billion in assets and operates 120 branches across upstate New York, has struggled to post significant quarter-to-quarter earnings growth in the last two years. The company is battling anemic economic conditions in upstate New York, as well as interest rates nationally that have hampered earnings across the industry. As a result, its stock price has also languished.

Even so, observers credit Kolkmeyer with leading the thrift's acquisitions of Troy Financial Corp. and Hudson River Bancorp, as well as the creation of the largest insurance agency in upstate New York. And he directed the development of a strategic plan to boost revenues by cross-selling more products.

But former director B. Thomas Mancuso, who stepped down in August after 17 years because the company wanted to shrink the board, would not say if Kolkmeyer still had the board's support four months ago.

"There was no reason at that time to do anything, or we would have done it," Mancuso said. "I don't know what components changed that led to that decision. I have full faith that they had some reason to do what they did."

The moves left investors and analysts scratching their heads and scrambling to understand both the reasoning and the impact. Many speculated that the board left Koelmel as "acting" because it plans to put itself up for sale, and the company's stock soared 6.6 percent Monday to a 52-week high of $15.31.

Some wondered if Kolkmeyer, who insiders describe as a hard-working, hard-driving "numbers guy" opposed to selling, was fired because he clashed with directors over such plans.

However, First Niagara officials have denied any intention to sell, and indeed have stressed their desire to continue growth through acquisition. Reached by phone this week, director Sharon Randaccio said "the company is not for sale, absolutely," and director David Zebro reiterated that. They and two other directors declined further comment, while others did not return calls.

On Thursday, analyst Joseph Fenech of Sandler O'Neill & Partners LP in New York also threw cold water on the idea of a takeover, even downgrading the stock to "sell" from "hold." He said the board clearly indicated its intention to continue its expansion, which predates Kolkmeyer's tenure as CEO.

He also noted that Kolkmeyer, who became CEO after the death of former CEO William Swan, was similarly named "interim" CEO for several months before getting the permanent nod. And while the stock price has lagged, he said that's not "necessarily indicative of senior management's performance."

"Our belief is that the removal of the former CEO was likely the result of either a personal conflict with the board and/or a dispute over the pace of future acquisition activity," Fenech wrote in a research report. First Niagara's shares fell 2.2 percent Thursday, closing at $14.79.


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