LandSource Chapter 11 – No Bounce Back

The top 10 employees of The Newhall Land and Farming Company are expected to receive their benefits and bonus money despite the Chapter 11 bankruptcy protection petition filed in June by parent company LandSource Communities Development LLC, according to a recent decision handed down by a bankruptcy court judge.

Chief U.S. Bankruptcy Judge Kevin M. Carey signed the order outlining who at Newhall Land gets paid and, specifically, how they get paid.

His order representing the U.S. Bankruptcy Court in the District of Delaware is titled, in part: “Authorizing payment of additional Benefits and authorizing and directing financial institutions to honor and process checks and transfers related to such obligations.”

Attached to the order is a list of LandSource bank accounts, including five specific bank branches in North Carolina, Texas and California.

The “obligations” mentioned in the order, according to court documents obtained by The Signal, refer to benefits for all Newhall Land employees.

Specifically, the benefits refer to the Five Year Future Benefits plan initiated by Newhall Land in 2004.

In Carey’s order, issued two weeks ago, Newhall’s “top tier employees” will get their benefits once six performance targets are met. Two of those targets call for action on Newhall’s proposed 21,000-unit development Newhall Ranch, including: a revised draft Environmental Impact Review with respect to (the development’s first phase) Landmark Village, to be sent to Los Angeles County for review, and for memos to be sent before Oct. 31 to the county seeking commitment for a Newhall Ranch fire station, sheriff’s station and library.

Company spokeswoman Marlee Lauffer declined to comment when asked about the top 10 employees at the company, referring all official comment to LandSource.

“We’re not going to get into specifics on personnel issues,” she said Thursday.

LandSource spokeswoman Tamara Taylor said in an e-mail: “I wish I could tell you more but we do not comment on personnel issues.”

LandSource lawyers are expected to appear in Delaware court today, Robert Jordan, one of the lawyers representing the 21 debtor companies listed in the LandSource case, said Monday that today’s omnibus hearing is expected to be “very short.”

“Every motion we’ve filed, there’s been no objection,” said Jordan.

One of the motions filed recently was a request for Judge Carey to authorize “an incentive plan” that would prevent high-ranking personnel at LandSource – including those at Newhall Land – from leaving the company to pursue careers elsewhere.

According to the motion filed in August, the debtors, which include Newhall Land: “Seek authority to implement an Incentive Plan designed to incentivize certain key employees (the ‘Critical Employees’) who are critical to the Debtor’s efforts to maintain the value of their assets and successfully emerge from Chapter 11.”

Under the terms of the plan spelled out in a court application, “critical employees” will receive some $2.1 million in bonus money.

If “critical employees” were to leave, LandSource lawyers argue, their loss would contribute to sliding morale inside the company.

They argue that paying an incentive is cheaper than the cost of reversing low morale. Specifically, they point out: “Costs related to low employee morale and low levels of motivation due to lack of incentives would, in fact, exceed the total cost of the Incentive Plan.”

“Absent such a plan, critical employees will seek and obtain other employment, thus causing great interruption to the Debtors’ operations and irremediable harm to the value of the estates.”

Some court documents related to benefits, bonus money and “key employees,” “critical employees” and “top-tier employees” have been ordered sealed by the court.

Explaining their need for secrecy, lawyers told the court: “The disclosure of such information would create undue risk of identity theft and/or other unlawful injury to the employees or their property.”

The debtors’ bid to have an incentive plan approved states, “Even though some of the Critical Employees hold officer-like titles, they are not formally ‘officers’ of Newhall because Newhall does not have any legally-authorized officers.

“These individuals were given such titles for organizational reporting purposes only.”

People in the top three positions at Newhall Land are, according to Lauffer:
n Greg McWilliams, president
n Steven D. Zimmer, executive vice president
n Donald L. Kimball, senior vice president and chief financial officer

LandSource filed for Chapter 11 on June 8. The company – which plans and develops master-planned communities and transforms land into ready-to-build home sites and commercial properties in Arizona, California, Florida, New Jersey, Nevada and Texas – had attempted for several months to reach agreement with its lenders to restructure its debt. It defaulted on loan payments due April 22.

LandSource received commitments for debtor-in-possession financing from a group of lenders led by Barclay’s Bank, including a $135 million revolving line of credit that will enable LandSource to meet post-petition obligations and fund operations during the Chapter 11 reorganization.

The additional financing enables LandSource to operate for the next year.

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