Orexigen Therapeutics’ official committee of unsecured creditors filed with the U.S. Bankruptcy Court an objection to the Debtors’ key employee retention plan (KERP) and key employee incentive plan (KEIP) motion.
The committee asserts, “By the Motion, the Debtor seeks immediate approval to pay six insiders and 66 (apparent) non-insiders no less than $3.125 million in connection with a proposed sale of substantially all of the Debtor’s assets. The Debtor claims that these employees are critical to the Debtor’s latest round of sales efforts, although, objectively, they failed to secure any buyers in two pre-petition sales efforts over the last year and still have no stalking horse bidder. The Motion is devoid of anything but bare statements that its goals are difficult to achieve and fails to mention that the Insiders will receive ‘incentive’ payments even if the Debtor’s assets are sold for as little as $40 million – almost half of the debtor-in-possession financing (and thus an almost guaranteed outcome rather than a metric to be achieved).”
In addition, “The Debtor appears to be prioritizing employees, especially insider executives, above all other parties in interest, including unsecured creditors. The payments fail to satisfy the strict requirements for retention bonuses, and the Debtor further fails to show that the proposed payments are warranted under the facts and circumstances of the case. This is especially concerning where, as here, the purpose of the KEIP and KERP is solely to benefit a sales process that does not appear likely to clear the secured debt (post DIP loan) of approximately $200 million. Consequently, creation of any new ‘senior’ claims is very problematic unless and until the parties are aligned with respect to the benefits to be obtained through the sales process.”
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