Variety says Official Committee of Unsecured Creditors and the United States Trustee call bankruptcy milestone payouts "outrageous."
If there's one thing that Midway Games doesn't need right now, it's more problems. Unfortunately, that's apparently just what the publisher has gotten, as
Variety reports this week that the Official Committee of Unsecured Creditors (OCUC) and the United States Trustee have each taken exception with the publisher's proposed key employee incentive payments plan (KEIP). The plan, which was uncovered at the beginning of March, stems from
Midway's descent into Chapter 11 bankruptcy, after its creditors
called in outstanding debts of $240 million in February.
As reported earlier this month,
the plan proposes a payout of some $8 million in compensation to 29 Midway employees upon completion of three milestones. The first milestone--selling off The Wheelman publishing rights--has already come to pass, as
Ubisoft picked up the game in February. Midway confirmed for GameSpot that the KEIP bonus associated with this sale was valued at $497,500.
The second milestone calls for either a "submission by Midway of a plan of reorganization to continue as a going concern" or "execution of an asset-purchase agreement for the sale of Midway's Mortal Kombat franchise assets." The last marker can be achieved by "confirmation of a plan of reorganization or liquidation" or "closing of a sale of Midway's Mortal Kombat franchise assets." The two milestones will pay out collective bonuses of $1,292,500 and $1,965,000, respectively.
According to an objection filed by the OCUC with the federal bankruptcy court in Delaware on March 27, Midway had closed its Wheelman deal with Ubisoft before the KEIP plan was submitted. As such,
Variety reports, the OCUC complained to the court: "The notion that a bonus program designed to reward employees for past accomplishments could be considered an 'incentive' is simply disingenuous."
In a separate objection also filed on March 27, the UST took issue with Midway's second and third milestone, reportedly saying that the company's primary responsibility right now is to make good on a reorganization plan, so it is a task hardly worth incentivizing. The UST also reportedly noted the lack of a timetable or other performance measurements associated with the milestone, saying, "The second and third milestones are based solely upon the occurrence of events without regard to when the events may take place, or to results obtained."
Variety also notes that the UST was none too thrilled over the compensation amount to paid on completion of these milestones, calling the figure "outrageous."
"The Debtors seek authority to pay bonuses to a selected group of officers and managers which are four hundred percent greater than bonuses paid to the same group in 2008 when the debtors were not before the bankruptcy court," wrote the UST. "Given the current state of the general economy, coupled with historical data related to incentive bonuses paid by these debtors, the motion constitutes an outrageous request and is not justified by the facts and circumstances of the case."
The OCUC reportedly agreed with the UST's findings regarding the exorbitant bonus structure in its own complaint. "In a survey prepared by the committee's financial advisor, FTI Consulting, of compensation plans proposed in some twenty comparable bankruptcy cases in recent years, the proposed plan is, by far, the richest compensation plan that has been proposed, despite the unusually poor conditions of the current economy," the government office wrote.
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"Report: Midway bonuses draw flak from feds" was posted by Tom Magrino on Tue, 31 Mar 2009 10:02:03 -0700
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Report: Midway bonuses draw flak from feds
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