Critics have one more chance to convince a judge not to allow the bankruptcy-seeking Journal-Register Co.‘s plan to pay execs $1.7 million in “shutdown bonuses” for closing newspapers and laying off employees.
A federal judge has scheduled a confirmation hearing for June 25 on the bankruptcy plan by JRC, owner of the New Haven Register, among dozens of other newspapers in several states.
Bankruptcy Judge Allan G. Gropper last week dismissed objections to the company’s revised disclosure statement, but put off other objections until the next hearing.
Among those other objections were those filed by Connecticut and Pennsylvania attorneys general, the U.S. Bankruptcy Trustee and others to a so-called management incentive plan (MAP). That is the plan that allows key managers to be given stock, stock options and other bonuses.
The Yardley, Pa.-based chain, which owns the Register and 19 other daily newspapers and some 180 weeklies and other publications, including Connecticut Magazine, filed for bankruptcy protection on Feb. 21.
The controversial so-called “shutdown bonuses” and similar incentives payments are to be rewarded in return for 31 executives meeting certain objectives, including the reduction of expenses by closing newspapers and reducing the level of employment, according to court papers and the JRC filings. The 31 executives stand to share about $1.7 million under the plan.
Objections by the U.S. Trustee in the case indicate that the federal agency feels some provisions of the MAP are an attempt at an end run around federal bankruptcy laws that severely restrict bonuses paid to managers to keep them from leaving the bankrupt company.
(Read an earlier story about that here.)
The disclosure statement is the detailed description of the bankruptcy plan. Gropper dismissed objections from the U.S. Trustee, stockholders, the Newspaper Guild and others that said the statement was defective and incomplete.
Under his ruling, the disclosure statement may now be voted on by creditors of the company. That vote is scheduled to be complete by June 10, according to court papers.
“All other objections were not dealt with; only objections to the disclosure statement were overruled and the disclosure statement was allowed to be voted on by the creditors,” said company counsel Rachel Strickland, of Willkie Farr & Gallagher LLP.
The creditors are most likely to vote to approve the disclosure statement, according to people close to the case. They asked that their names not be used because they were not authorized to comment.
Under the amended plan, general unsecured creditors can expect approximately 10 cents on the dollar, while they would have gotten nothing under the previous version of the plan, Strickland said.
The amended plan also calls for trade creditors to be paid in full, while secured creditors likely will get around 42 cents on the dollar, Strickland added.
The MAP in the revised disclosure statement was nearly identical to the original, except for one part that tied bonuses to meeting certain earnings criteria in the fourth quarter of 2008 and the first quarter of 2009.
Those incentives that depended on reaching certain earnings before interest, taxes, depreciation and amortization (EBITDA) are no longer in the amended plan, Strickland said.
Connecticut Attorney General Richard Blumenthal, who had filed a motion objecting to the “shutdown bonuses,” said it appears that the JRC does “not appear to be pushing the bonuses.
“The postponement without a date to hear our objection [by the bankruptcy court] means it won’t be litigated. As of now, they do not appear to be” pursuing the bonuses, he said. He said, however, that his office would continue to pursue the bonus matter.
Strickland said, however, that other than the EBITDA-linked bonuses, all parts of the management incentive plan are still in the revised document.
Along with the U.S. Trustee, a government agency appointed by the court to oversee bankruptcies and “protect the integrity of the federal bankruptcy system,” attorneys general of Connecticut and Pennsylvania filed objections to the MAP.
The trustee’s objections to the MAP are that it does not meet the legal requirements for such bonuses because the criteria that would have to be met to trigger the bonuses have already been met.
“Taking into consideration that the services rendered by the insiders (key employees) that may be credited toward the achievement of the Performance Objectives are likely to have been performed before the Debtors filed for bankruptcy, there is no concealing that the proposed payments to the insiders are simply retention bonuses subject to section 503 © (1)‘s limitations” the U.S. Trustee’s filing stated. A recent law passed by Congress, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, expressly was passed to restrict insider-retention bonuses, the U.S. Trustee’s objection filing said.
The MAP is an attempt to get around that, to reward the executives for staying put, the objection argues.
The U.S. Trustee takes it one step further, saying that there is no proof that the executives needed incentives to do their jobs up to their full potential, that the bonuses were to be paid to keep the managers rather than reward them for specific performance.
Furthermore, the U.S. Trustee’s objection notes that JRC offered no proof that any of the managers had received any “bona-fide” job offers and were in any danger of leaving, so there was no need to give them bonuses to stay.
The U. S. Trustee’s office does not comment on pending cases beyond its court submissions, said Jane Limprecht, a spokeswoman for the Trustee’s office.
Strickland said that the company can give stock options and stock to whatever employees it wishes after it emerges from bankruptcy.
She said the company was happy with Gropper’s ruling about the disclosure statement.
“We’re as pleased as you can be when your client is in the midst of serious financial distress. The entire newspaper industry is doing terribly, and we are doing the best we can to make the best out of bad situation, and I think we’ve accomplished that,” she said.
Stockholder Fights For More
Stockholders are not happy. At least one is not taking the proposed terms lying down.
Richard Freeman, a Scranton, Pa., stockholder, who owns about 10 percent of the company’s stock, said he will “be left with nothing” if the judge allows the bankruptcy to be confirmed as it is now constituted.
He said he means to continue objecting to that happening. Although his objection to the disclosure statement was overruled, he was told to come back on June 25 to continue his objection to being left with nothing while creditors, including banks, pension funds, suppliers and other vendors were being given either all or part of what they are owed.
“Officially, right now, I have 10 percent. The plan comes up for confirmation at the end of June. That is a final order, which can be appealed if necessary. With that order I lose everything,” Freemans said.
“Several of the objections were noted to be presented at the end of June. I was one of those,” he said.
Freeman said the Journal-Register Co., is potentially a profitable enterprise.
“People are fighting over money. We are not kicking a dying animal. Why should I be relieved in my 10 percent stake, because they want to take it away from me?” he said.
The Central States Pension Fund was one of the other groups objecting to the disclosure statement and the MAP. That group had no comment on the proceedings, said Brad Berliner, one of its lawyers.
Meanwhile, JRC Tuesday asked the bankruptcy court to terminate five union contracts at two Michigan newspapers it owns.
The company made the request after it could not reach agreements with unions at its Independent Newspapers Inc. subsidiary covering pressmen, drivers, journalists, mailers and typographers at the Macomb Daily and Royal Oak Tribune near Detroit.
JRC wants to stop contributions to certain employee pension plans and said union contracts made for higher labor costs.