Paper Source: U.S. trustee objects to $1 million employee bonus plan

By Sarah Lizee

Olympia, Wash., April 8 – Paper Source, Inc.’s proposed key employee incentive plan drew an objection from Region 4 U.S. trustee John P. Fitzgerald, III, according to a Thursday filing with the U.S. Bankruptcy Court for the Eastern District of Virginia.

Fitzgerald said that while there is no prospect of a plan of reorganization on the horizon and there is still uncertainty as to creditor recoveries, the debtors have requested authority to pay incentive bonuses to their top seven executives totaling a maximum of $1 million, in addition to the $1.47 million bonuses the same insiders received in the year prior to the bankruptcy.

Under the proposed KEIP terms, to the extent that a sale is consummated – even a sale under the credit bid of the debtors’ secured creditor – and to the extent that the company’s 13-week net cash from operations is within 80% of what was expected as of the filing, the insiders would be able to recover substantial bonuses.

“Said differently, the KEIP bonus would be awarded even if no plan was ever confirmed, no recovery was contemplated for unsecured creditors, and administrative claimants were not paid in full,” Fitzgerald said.

Chicago-based Paper Source designs, manufactures and markets paper products. The company filed bankruptcy on March 2 under Chapter 11 case number 21-30660.

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