By Jacqueline Palank
CHICAGO--A bankruptcy judge Wednesday signed off on $7.5 million
in bonuses for Edison Mission Energy employees as they work to
close a $2.6 billion sale of the company to NRG Energy Inc.
(NRG).
Judge Jacqueline Cox of the U.S. Bankruptcy Court in Chicago on
Wednesday approved the bonuses, overruling an objection from a
government bankruptcy watchdog that the bulk of the payments were
illegal retention payments for high-ranking employees.
Judge Cox found that the $6.4 million in proposed bonuses for
so-called company insiders, a designation that can include
officers, aren't illegal retention payments but are instead proper
incentives, payable only if the employees achieve certain goals in
connection with the NRG sale.
"This is an incentive-for-performance plan," the judge said.
"The purpose is to increase stakeholder value."
The bankruptcy watchdog, U.S. Trustee Patrick Layng, didn't
object to a separate bonus plan that would offer up to $1.1 million
in retention payments to about 20 non-insider employees. Judge Cox
approved those bonuses, as well as Edison Mission's request to keep
the identity of the employees under wraps.
Edison Mission's attorneys say the bonuses are crucial to
motivate its employees to work hard, during a time of great
uncertainty, on closing a deal that's best for the company and its
creditors, even if in doing so they work themselves out of a job.
Joining the company in support of the bonuses were many of its
bondholders as well as the committee representing its unsecured
creditors.
The U.S. trustee's attorney, Kathryn Gleason, argued Wednesday
that the criteria for determining whether company insiders can
share in up to $6.4 million in bonuses are too vague and
subjective, making the bonuses disguised retention payments.
Ms. Gleason also said creditor support for the bonuses doesn't
override the Bankruptcy Code's general prohibition against
retention payments for high-level employees, which Congress passed
to combat the perception that executives were abusing the
bankruptcy process to pay themselves high bonuses and obtain golden
parachutes.
Frederic Brace, one of two independent Edison Mission directors
responsible for awarding bonuses, testified that insider employees
will only be rewarded for "extraordinary" contributions to the
closing of the NRG sale or a superior offer.
"We're not going to pay people for just sitting around and
surfing the Internet while they wait for the transaction to close,"
he said.
NRG has offered to pay $2.285 billion in cash and $350 million
in stock to acquire Edison Mission out of bankruptcy in a deal
Edison Mission hopes to close next year. The deal is subject to
regulatory and bankruptcy-court approval, as well as a go-shop
period during which Edison Mission will seek higher and better
offers.
If such an offer is found, Judge Cox has authorized Edison
Mission to pay NRG a $65 million breakup fee.
Edison Mission, a unit of Edison International (EIX), generates
energy at about 40 coal, wind and gas facilities in 12 states. It
sought Chapter 11 protection last December.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Jacqueline Palank at jacqueline.palank@wsj.com
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