Bonuses pretty common, according...
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to this story:
Dec 10, 2001
$100 Million-Plus in Bonuses May Be Unseemly, but Legal, Expert Says
By Kristen Hays
Associated Press Writer
HOUSTON (AP) - The more than $100 million in bonuses and retention payments Enron Corp. made last month to keep key employees while the struggling energy marketer faced bankruptcy may appear unseemly, but they are legal and common, a bankruptcy expert said.
However, about half of those bonuses, given to 75 traders in early November when Enron was planning to merge with smaller rival Dynegy Inc., could be problematic because the merger collapsed, said Todd Zywicki, a law professor and bankruptcy expert at George Mason University.
"It's conceivable that there could be some way of recovering those bonuses since the merger didn't consummate," Zywicki said. "It would be a judgment call whether to pursue it. It has at least the smell of fraudulent conveyance."
Enron spokesman Mark Palmer said the $50 million given to traders before the merger crumbled "was done in discussions with Dynegy to protect and preserve the value of the trading organization through what we thought was going to be a fairly long merger process."
Dynegy spokeswoman Debbie Fiorito said Monday that Dynegy didn't approve or endorse those bonuses. "The onus was on Enron to find a way to basically retain the people they needed to keep their business viable until the merger closed," she said.
Enron distributed an additional $55 million to 500 employees two days before filing for bankruptcy protection as an incentive for them to remain with the company while Enron works to emerge from Chapter 11.
Enron filed one of the largest Chapter 11 reorganizations in history in the Southern District of New York on Dec. 2, five days after Dynegy walked away from a $8.4 billion buyout that was announced Nov. 9.
Enron also sued Dynegy for $10 billion in New York, claiming its rival illegally abandoned the merger and forced what was once the world's largest buyer and seller of natural gas into bankruptcy. Enron's lawsuit aims to ensure it keeps a prized pipeline that Dynegy plans to acquire in return for a $1.5 billion investment in Enron.
Dynegy countersued in state District Court in Houston on Dec. 3, claiming it has a right to the pipeline in return for its investment and that it properly invoked an escape clause in the merger agreement because Enron didn't fully disclose how dire its financial situation was.
Enron laid off about 4,000 of the 7,500 employees at its Houston headquarters the day after filing for bankruptcy with a promise that each would receive a $4,500 severance payment.
Zywicki said bankruptcy judges generally approve of retention bonuses because talented workers may jump from what they perceive to be a sinking ship.
"What's unseemly about it is that if everybody has so much confidence that the company can reorganize, why do you have to bribe key employees to stay there? And why take money out of creditors' pockets to do it? Those are the key questions," he said.
Palmer said the payments also were intended to retain employees crucial to the trading business.
Two investment banks, Citigroup Inc. and UBS AG, are expected to make separate proposals to buy Enron's trading operations as early as this week to a New York City bankruptcy court, the Wall Street Journal and the Financial Times reported on Monday, citing unidentified sources.
JP Morgan Chase and Co., which like Citigroup is a large Enron creditor, is expected to submit its own offer at a later stage, the newspapers said. The potential size of the bids was not reported, and sources warned that the Citigroup and UBS AG proposals may still be withdrawn.
Palmer declined comment on any such plans, but he reiterated Enron's desire to emerge from bankruptcy with a partner on board to restore confidence in the trading business.
Representatives from Citigroup and UBS said their companies would not comment on the matter. |
