February 20, 2019 – The Debtors requested Court approval of a key employee incentive plan (the “KEIP”) for two senior executives [Docket No. 36].
The motion states, “The Debtors have identified two (2) executives to receive payments under the KEIP (collectively, the ‘KEIP Participants’), both of whom possess institutional knowledge and skills that are essential to the Debtors’ restructuring efforts. In addition to responsibilities related to the Debtors’ everyday operations, the KEIP Participants have assumed, and will continue to assume, considerable added responsibilities in connection with these Chapter 11 Cases and the proposed sale process, including, but not limited to, (i) continuing business operations with all of the challenges attendant to being in bankruptcy to ensure compliance with the APA, (ii) facilitating and conducting management presentations for potential bidders, (iii) responding to bidder information requests, and (iv) otherwise taking whatever steps are necessary to obtain the highest and best bid for the Debtors’ assets. The Debtors submit that payments made under the KEIP program are necessary to incentivize these critical executives to perform these duties in an optimal manner and to reward them for their efforts during the proposed sale process, especially given the expeditious nature of the proposed sale process.
The KEIP provides incentive payments to the KEIP Participants, who may be insiders (collectively, the ‘KEIP Participants’), based on milestones tied to the sale of the Debtors’ assets. The Debtors selected sale-related milestones because (i) the Debtors have been pursuing a sale of their assets since September of 2018 and (ii) the KEIP Participants have an outsized impact on maintaining the Debtors’ operations. The KEIP Participants have played and will play a significant role in the sale process and closing any sale of the Debtors’ assets. Accordingly, incentivizing the performance of the KEIP Participants will ensure that the sale process takes place efficiently, diligently, and in a value-maximizing manner. Incentive Bonuses:
Out-of-Court Sales Process
|
Single Sale |
Multiple-Sales |
|
|
Milestones |
Incentive Bonus |
Incentive Bonus |
|
Entry into KEIP agreement |
15% |
15% |
|
Company executes purchase agreement(s) |
20% |
10% First Sale 10% Final Sale |
|
Sale transaction(s) close |
65% |
32.5% First Sale 32.5% Final Sale |
|
Totals |
100% |
100% |
Incentive Bonuses: In-Court Sales Process
|
Single Sale |
Multiple Sales |
|
|
Milestones |
Incentive Bonus |
Incentive Bonus |
|
Entry into KEIP agreement |
15% |
15% |
|
Company executes purchase agreement(s) |
20% |
10% First Sale 10% Final Sale |
|
Court enters order(s) approving sale(s) |
30% |
15% First Sale 15% Final Sale |
|
Sale transaction(s) close |
35% |
17.5% First Sale 17.5% Final Sale |
|
Totals |
100% |
100% |
If the applicable KEIP Participant accepts a position with the ultimate purchaser of the Debtors’ assets, the percentages set forth above would be applied to an amount equal to 80% of the KEIP Participant’s total possible incentive payments, which were originally $250,000 and $192,000 for Mr. McDade and Ms. Flynt respectively (the “Possible Incentive Payments”), whereas if the applicable KEIP Participant does not accept a position with the ultimate purchaser of the Debtors’ assets, the percentages set forth above would be applied to the total Possible Incentive Payments. In other words, assuming the milestones are met, the KEIP Participants would be entitled to receive either 80% or 100% of the Possible Incentive Payments depending on whether or not they accepted positions with the purchaser of the Debtors’ assets."
The Court scheduled a hearing to consider the KEIP motion for March 13, 2019, with objections due by March 6, 2019.
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