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Bankrupt Colt Seeking Millions In Exit Payouts For Top Executives


(Mara Lee)  Colt Holding Company is asking a bankruptcy judge to approve golden parachutes that could be as high as a full year’s salary for nine top executives.

The bonuses would be paid if an executive were fired, resigned because of lower pay under future owners, or moved to a different location — but only if the company reaches a certain profit level between now and January.

Colt’s request, totaling millions of dollars, comes as the company is trying to wipe out $350 million in debt that it owes to creditors, chiefly bondholders.

The company is also trying to break a provision in the union contract that guarantees the rank-and-file production workers — about 500 members of the United Auto Workers union — can keep their current compensation through the end of their contract in March 2019.

The employees that could receive the bonuses, according to a court filing, include CEO Dennis Veilleux; Scott Flaherty, the chief financial officer; John Coghlin, the general counsel; Jeff Macleod, the general manager for Canada; and five other executives who handle government programs, commercial programs, business solutions and operations.

If all nine received the top of the bonus range, it would total $2.53 million.

Filing for bankruptcy “has created a challenging environment for the debtors’ workforce,” the request says, and so these managers are needed to make sure operations continue in a way that maximizes value for creditors.

The promised payments create an incentive, according to the Colt chief restructuring officer, for key employees to do bankruptcy-related work in addition to their day-to-day duties, and to keep them from quitting before the company emerges from bankruptcy.

Lawyers for Colt told the bankruptcy judge that the proposal for bonus payments should be considered on whether it’s “fair and reasonable or discriminates unfairly.”

Several officials with UAW and AFL-CIO, the umbrella group, did not return calls seeking comment Friday and a lawyer representing the bondholders could not be reached.

The UAW has opposed the company’s attempt to sell itself in bankruptcy without a provision assuring that the contract would remain in force. The current contract states that any new owner would have to honor the contract.

“It’s completely unfair to the workers if the company wants to give management a bonus and take money away from the rank-and-file workers,” said Pratap Chatterjee, executive director of CorpWatch, a military contractor watchdog group in California. “The last thing a bankruptcy judge should be doing is favoring the executives over the workers.”

Colt, in the filing, claims that these payments are similar to incentive plans offered at other companies working through bankruptcy, and emphasizes that it’s not just a retention bonus, but a motivational bonus to convince the executives to “produce tangible results.”
But, Chatterjee said, “What made the company bankrupt was not the workers who run the machines. That is not the workers’ fault. It is sales people and the executives. The executives should not benefit from their own failure.”

A company spokesman could not be reached for a response to those comments.

Veilleux, Flaherty, Coghlin and the top operating officers have frequently received annual bonuses. For instance, Veilleux is paid $400,000 a year, and received a $120,000 bonus in 2013, according to the most recent information filed with regulators. Flaherty was paid $430,000 in 2013 and received a $225,000 bonus.

Veilleux’s contract already provided for a $400,000 severance payment before the current request. Flaherty, too, has a contract that pays a year’s salary in severance. It was not clear from the filings whether the proposed payments were in addition to regular severance guarantees for Veilleux and Flaherty.

The awards Colt is seeking through the bankruptcy court apply if the executives are fired within the first six months after the sale or exit from bankruptcy. They are dependent on the company hitting cash-flow targets — but are still dispensed if the company falls as much as 30 percent short of what it expects to earn through January.

The filing was made Thursday, and none of the other parties had responded as of late Friday. They have until Sept. 3 to register objections.