At Thursday’s hearing in U.S. Bankruptcy Court in New York, Borders’s motion for lease modifications was quickly approved by Judge Martin Glenn and has already been signed. In presenting the motion, Borders’s attorney noted that the retailer has already saved over $100 million in lease modifications.
However, the issue of bonuses remains unresolved. Although Borders reached an agreement with the Creditors Committee on a motion to incentivize executives an hour and a half before the hearing, it still must overcome the objections of the U.S. Trustee for both the Key Employee Incentive Plan and the Key Employee Retention Plan. After a lengthy recess, U.S. Trustee Paul Schwartzberg, Bruce Buechler with Lowenstein Sandler PC, who represents the Committee, and Borders’s attorney arranged to meet on Wednesday, April 20. If the three are able to agree, Judge Glenn will hold a telephone hearing on Thursday April 21 hear revised plan. If not, an evidentiary hearing will be held in court the following day.
Under the 11th-hour agreement that Borders hammered out with the Committee, the originally proposed target dates for the KEIP would remain the same, but the amount of the awards would be less, ranging from $1.8 to $4.9 million. Maximum KEIP awards would be based on reorganization or a sale within six months of the bankruptcy filing, by August 16, 2011, and a smaller award within nine months, by November 16, 2011—with no payout after that date. The new agreement builds in benchmarks of $73 million, $85 million, $95 million, and up for the amount of money to be recovered by the creditors for the awards to kick in. The Committee would act as gatekeepers. “It has to be a plan or a sale acceptable to the Committee,” noted Buechler.
As to the why the Committee regards the KEIP to be in the best interest of the unsecured creditors, Buechler said, “the Committee is concerned about attrition and that there could be further attrition. We need management not just to be there but to be cheerleaders.” He also pointed to the transition taking place from hardcovers to books on digital readers such as Kobos sold through the chain.
Schwartz’s objection concerned the fact that the bonuses are not being awarded in connection with any achievement. “We think an increase in sales, a decrease in costs would allow us to see an achievement,” he said. He was also concerned that half the people covered came on in the last year, “with their eyes wide open.”
While the numbers who would benefit from the KEIP and KERP are relatively small, there were 16,000 full and part-time employees at the beginning of the bankruptcy, according to Borders’s attorney, now down to 11,000. It is that constituency that concerned Judge Glenn if the case were to “go down the toilette bowl.”
Borders’s attorney expressed another concern of his own. “Retailers in recent years have had a very, very difficult time exiting bankruptcy,” he said.
In other news, Borders notified the Securities and Exchange Commission that the 10-K form for the fiscal year that ended January 29, 2011, will be late. Not surprisingly, it said that the Chapter 11 cases have required “a substantial portion of its personnel and administrative resources.”
