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The Rockport Company KEIP Objection Filed

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The U.S. Trustee assigned to The Rockport Company case filed with the U.S. Bankruptcy Court an objection to the Key Employee Incentive Plan, (“KEIP”) motion.

The Trustee asserts, “The U.S. Trustee objects to the Motion on the grounds that the Debtors have not provided sufficient evidence and have not satisfied their burden under 11 U.S.C. section 503(c) to demonstrate, inter alia, that (i) payments under the KEIP are not primarily retention payments to insiders, and (ii) the KEIP itself is justified by the facts and circumstances of these cases. Although the Debtors state that the KEIP ‘incentivizes the KEIP Participants to maximize the value of the Debtors’ estates, rather than simply rewarding the KEIP Participants for remaining in the Debtors’ employ,’ the Debtors have not provided the information necessary to substantiate this statement. More specifically, the Debtors have not provided much information, including the name, title, annual salary, amount of bonuses paid in the year leading up to the bankruptcy filing, and the percent/amount of the Target Bonus of each KEIP Participant. In addition, the Debtors have not sufficiently substantiated the nexus between the services to be provided by each of the KEIP Participants and the distribution to creditors, nor have the Debtors explained how the KEIP performance targets were established. It is also unclear as to whether the letter, as Exhibit A to the Motion is the entirety of the key employee incentive plan, and whether there are any existing severance agreements, given the reference of such severance plan in section (c) of the Letter. The absence of such information precludes consideration of whether the KEIP is appropriate for payment….Indeed, the Motion omits more information than it provides. Among other things, the Motion does not disclose: (a) the identity and title of each KEIP Participant, including the insiders; (b) the regular annual compensation of each KEIP Participant, necessary to determine the percentage of annual compensation represented by each KEIP payment; (c) the dates and amounts of any bonuses, retention payments, or incentive compensation already paid to any of the KEIP Participants during the one-year period preceding the Petition Date; (d) the methodology used to determine each of the KEIP’s performance goals; (e) the methodology used to determine the bonus amounts payable under the KEIP; (f) whether the Debtors employed any professionals to assist them in establishing the performance goals and bonus amounts proposed in the KEIP and, if so, the identity of such professionals; (g) whether any reports, surveys, summaries or other materials were prepared by any professional in connection with developing the KEIP or establishing its performance goals and bonus amounts; and (h) the amount or percentage of the Aggregate Obligation under the KEIP that each KEIP Participant will receive.” The Court previously scheduled a June 13, 2018 hearing to consider the KEIP motion.

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