WILMINGTON, Del. Freedom Communications can continue paying its executives and rank and file $7 million in planned bonuses and any future severance payments, under a ruling today by the federal judge handling the company’s bankruptcy.
Mark McEachen
But Judge Brendan Shannon left open whether Freedom Chief Financial Officer Mark McEachen will be able to collect an estimated $300,000 in bonuses over and above the $100,000 he would get under the executive bonus plan. The extra compensation is included in his employment contract.
Shannon agreed with the unsecured creditors committee that Freedom, the parent company of The Orange County Register, cannot continue to pay severance to employees who were laid off before the Sept. 1 bankruptcy petition was filed and are still receiving payments. That ruling may be revisited, however, as the judge gave lawyers for Freedom time to make an additional argument on that point.
A Register official confirmed that some Register employees who were laid off are still getting severance payments. The paper declined to say how many people are getting such these payments.
In approving the bonus plans and severance for employees laid off in the future, Shannon said he is satisfied that “the proposed payments are justified by the facts and circumstances of the case” and that there is “substantial risk that the company would be harmed without these programs.’’
The creditors committee had opposed the paying of these bonuses saying it was a plan to reward just 50 of the more than 3,000 company employees and not the top to bottom companywide program that Freedom portrayed it to be.
Committee lawyer Robert Feinstein said this bonus program is all about rewarding some “high-end” executives.
McEachen testified that the company has already lost – through layoffs and voluntary departures – valuable employees. He believes more would go if the bonus and severance programs were halted.
Without these executives, McEachen said, “it is my opinion the company won’t make it.’’
Shannon agreed.
When it came to McEatchen’s contract, David Buchbinder, who represents the Justice Department’s U.S. Trustee, said had he known of the existence of this additional compensation for McEachen he would have filed an objection.
Buchbinder said Freedom’s “strategy seems to be to disclose as little as possible for as long as possible.’’
When asked if he would leave if he does not get all the bonuses enumerated in his contract, McEachen, who joined Freedom on May 27, didn’t give a yes or no answer. He said he would have to protect his interests.
The court also gave Freedom permission to continue using investment banking and financial advice firm, Houlihan Lokey Howard and Zukin Capital Inc., to help shepherd through the bankruptcy proceedings. Houlian Lokey would also find $25 million a reorganized Freedom Communications would need upon emerging from bankruptcy.
The creditors objected to the $5 million fee Houlihan is scheduled to get, saying the majority of its work has been done and the fee was excessive.
Shannon agreed to allow the firm to continue at that fee. But instead of permitting Houlihan Lokey to automatically get the $5 million, the firm will have to prove to the court that the money has been earned before it is paid.
Shannon said given the complexity of this bankruptcy case that he is convinced Freedom will continue to need the services of Houlihan Lokey.
Earlier stories on the Register and Freedom Communications ..
- Freedom clears first bankruptcy hurdle
- Freedom Communications faces first major bankruptcy hearing
- Creditors accuse Freedom of being too secretive
- Freedom Communications tries to keep bankruptcy documents secret
- Register’s parent files for Chapter 11 bankruptcy
- Q&A: What bankruptcy of Register’s parent means
- Register parent in talks with its lenders
- Register’s parent enters critical phase of bank talks
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