A report in the Business section Oct. 26 may have left the impression that Mortimer B. Zuckerman, new owner of U.S. News & World Report magazine, was trying to shift potential legal liabilities from the company to an employe trust fund. Legal documents prepared by lawyers and accountants for the employe-owned company before its sale show that Zuckerman's position represents no change in the sale agreement.
Less than two weeks after Boston real estate magnate Mortimer B. Zuckerman assumed ownership of U.S. News & World Report, a major revolt is brewing at the magazine.
The employe revolt -- which some sources say could lead to a lawsuit to reverse the sale -- stems from a recent legal move by Zuckerman that could ultimately reduce the amount of money each individual will receive from the $176.3 million sale of the employe-owned company.
The dispute is over who should assume the liability for a lawsuit filed by former U.S. News employes who charge they were deliberately underpaid for the U.S. News stock they were required to sell back to the company when they retired.
The employes contend that in agreeing to buy the magazine, Zuckerman agreed to assume any liability for damages from the lawsuit that exceed $10 million. The first $10 million would be paid from the $176.3 million purchase price, employes claim.
However, in a recent legal maneuver, Zuckerman now argues that he is not responsible for any additional payment and any damages due from the legal action should come from the $176.3 million. That could reduce the amount present employes would receive as their share of the sale.
Otherwise, Zuckerman contends, the current employes "will reap a windfall . . . which should have been distributed to former employes " if the court sides with the former U.S. News workers.
About $20 million of the purchase price has already been distributed to employes. Another $135 million is held in the profit-sharing trust and is expected to be distributed in the next few months.
Another $10 million has been placed in escrow to pay for any liabilities from the suit, and the remaining money is for the company's directors' deferred compensation plan.
It is the $135 million profit-sharing trust that is at issue. How that money is split between retired U.S. News workers and those still on the payroll could be determined by the lawsuit.
The amount each employe receives from the sale is determined by salary and the number of years at the company. Some longtime employes have been expecting to receive more than $1 million, while newcomers could stand to gain about $20,000.
Although Zuckerman made his arguments in a legal document filed earlier this week, magazine employes did not learn about them until late yesterday.
"Anyone who has read it is really angry," said one employe.
"This is a real stab in the back," said another, arguing that it was a radical change from Zuckerman's earlier positions.
"It represented a coldness and callousness toward the employes -- nobody bothered to say anything to anybody here," complained a third.
Employes who saw the document said they felt they have been deceived by the company and Zuckerman, noting that earlier company statements supporting the sale said that the company -- not the profit-sharing trust -- would incur any liability from the lawsuit over $10 million.
As a result, some employes said they wondered if they could file a suit to undo the sale. "Many are wondering if they would be better off with another bidder," said one source.