Opinion
02 Civ. 4963 (JSR)
August 1, 2002
MEMORANDUM ORDER
In its written and oral orders appointing and implementing the role of Corporate Monitor, see Stipulation and Order of June 28, 2002, Order of July 15, 2002, Stipulation and Order of July 17, 2002, transcript of July 3, 2002 hearing, the Court, at the initiation and with the consent of the parties, sought to create an officer of the court with sufficient plenary powers to provide some assurance that, on a going forward basis, defendant WorldCom, Inc. ("the company"), its employees, its shareholders, and the public generally would be protected against the kinds of excesses, ranging from evidence destruction to corporate looting, that have allegedly characterized some companies in the past. By helping restore confidence in the company, such monitoring serves the goals of both sides to this litigation. Even more importantly, it serves the public interest.
Thus, the original Stipulation and Order of June 28, 2002 creating the monitorship provided that the Corporate Monitor, among other powers, was to exercise complete "oversight responsibility with respect to all compensation paid by WorldCom" (emphasis supplied). The order broadly defined "compensation," and provided the Corporate Monitor with total "discretion to determine the type of compensation to review and either approve or disapprove." The Court's further order of July 15, 2002 was intended to make clear, if there were any doubt, that such oversight included, inter alia, approval or disapproval of any future payment or promise of payment to any outside professional or advisor such as an investment banker, a restructuring specialist, and the like, all such payments and promises being, in the Court's view, a form of compensation.
The monitorship is in no way diminished or otherwise affected by the fact that the company has now filed for Chapter 11 reorganization in bankruptcy. (To the extent that any affected person believes otherwise, all such challenges must be addressed solely to this Court, and the bankruptcy reference is, to that very limited extent, hereby withdrawn. It is anticipated, however, that the Bankruptcy Judge will assist the Court in evaluating any such application.) Meanwhile, to remove any possible misimpression, the Court, reaffirming its interpretation of its prior orders, hereby directs the company and all affiliated with it, under pain of contempt, not to undertake with any person whomsoever, whether internal or external to the company, any compensation arrangement of any kind beyond those arrangements already legally committed to prior to June 28, 2002, without the express prior approval of the Corporate Monitor.
The Bankruptcy Court is requested to docket a copy of this order in In re Worldcom, Inc. et al., Chapter 11 Case No. 02-13533 (AJG). The fact that all compensation arrangements must be approved in advance by the Corporate Monitor does not eliminate the requirement that some or all of these expenditures may also need to be approved by the Bankruptcy Court, in accordance with the Bankruptcy Code. But the Corporate Monitor's approval is not based on that Code but rather is governed by principles of fiscal prudence and by the stated intent of the parties and the Court, as set forth in the original order, "that the Corporate Monitor shall exercise its oversight responsibilities to prevent unjust enrichment as a result of the conduct alleged in the Complaint and to ensure that the assets of Worldcom are not dissipated by payments that are not necessary to the operation of its business." To put it bluntly, it is the responsibility of the Corporate Monitor, among other responsibilities, to prevent unnecessary compensatory expenditures by the company, not only in the form of looting by miscreants but also in the form of excessive compensation of those who mistake a damaged company for a broken piggybank. What is "normal" for a company in bankruptcy reorganization may not necessarily be permissible for a company that stands accused of fraud. To carry out his important functions, it is also vital that the Corporate Monitor be provided with all relevant information, both from the company itself and from its outside advisors, committees, agents, affiliates, and the like. The Corporate Monitor can hardly determine what is "necessary to the operation of the business" if he is not provided with complete information about every aspect of the business he deems relevant to his assessments. Among other things, and without limitation, the Corporate Monitor must be provided, in advance of any company actions, with any and all of the following:
a. any document or information communicated by the company or any professional employed by the company to any of (i) the official committees, (ii) any debtor-in-possession ("DIP") lender, (iii) any participant in the bank group or (iv) any other creditor (any such person being a "Covered Party"). This includes, inter alia, financial or other reports, projections, analyses, proposals, covenant tests, or other written (including electronic format) material.
b. any financial or other report, study, projection, analysis, proposal, presentation or other document relating in any way to material business decisions or the conduct of the bankruptcy (including any such item labeled "drafts" but nonetheless circulated) generated by any professional employed by the company and communicated to senior management of the company. This includes, inter alia, financial reports, restructuring proposals, downsizing analyses, disposition alternatives, "RIF" proposals and proposals to, or under discussion with, potential acquirors, lenders or investors.
c. any plan, proposal or study, including conceptual issue reviews, relating to compensation in any form, including severance and retention programs of any kind, and including, without limitations, retentions of outside professionals or other advisors, including restructuring, investment banking or bankruptcy professionals employed by the company.
d. any document or other material distributed to any one or more members of the board of directors (whether in that person's capacity as a member of the board, any committee thereof, or of management).
e. any proposal, termsheet, agreement, letter of intent, plan, analysis or other communication relating to (i) sale of assets or securities out of the ordinary course, (ii) merger or consolidation of the company or any subsidiary thereof with any other person or entity, (iii) any shutdown of service, termination of activities or abandonment of property or assets, and/or (iv)any other business decision ultimately requiring Bankruptcy Court approval, including any draft study or multiple scenarios for internal review.
f. any business plan, plan of reorganization, plan of liquidation, or proposed recapitalization, or any draft or segment thereof (including exhibits, appendices, or material to be incorporated therein).
g. any cash flow reports or memoranda of any kind, including reports of all activity in the DIP loan facilities of the company, and any draft financial statement or revision thereof.
h. copies of any proposed retention agreement or motion relating thereto.
i. copies of all filings with the Bankruptcy Court.
Furthermore the Corporate Monitor shall have access to any officer or employee of the company to discuss any matter deemed relevant to the Corporate Monitor at any time, and shall likewise have authority to similarly meet with personnel of any outside advisors to the company at any reasonable time and in any manner deemed appropriate by the Corporate Monitor. Even without his request, the Corporate Monitor must be informed of, and invited to, any meetings or discussions between any Covered Party and the company or any of its outside advisors.
Although the Court views this order as simply an implementation of its prior orders, nevertheless, if either or both of the parties wishes to be heard with respect to it, counsel should jointly call Chambers to set a briefing schedule.
SO ORDERED.