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November 4, 2020 – The Court hearing the Arandell Holdings cases issued an order approving (i) a proposed key employee retention plan (the “KERP”) for 16 key, non-insider employees (the “KERP Participants”) at an aggregate cost of $160k and (ii) a related request to seal confidential elements of the proposed KERP [Docket Nos. 298 and 299, respectively].
The KERP would pay out a total of $160k, or roughly $10k per participant and represents (on average) 9.2% of an employee's salary. To receive that bonus, participants must agree to keep working for the Debtors through the closing of the Debtors’ proposed asset sale. In addition, no KERP funds will be paid out until five days after the sale closes
The KERP motion [Docket No. 259] states, “The Debtors have determined that a sale (the ‘Sale’) of substantially all of their assets (the ‘Purchased Assets’) is the best path to maximizing the value of the Debtors’ estates and distributions to the Debtors’ stakeholders and, in furtherance thereof, the Debtors have obtained post-petition financing that will allow the Debtors to implement the going concern sale process (the ‘Sale Process’). As of the filing hereof, the Debtors and their advisors are implementing the Sale Process in hope of generating competitive bidding for the Purchased Assets, which include, but are not limited to, inventory, accounts receivables, personal property and intellectual property.
The Debtors’ ability to preserve the value of the Purchased Assets, continue normal operations, and maximize recovery through the Sale Process hinges, in part, upon their ability to successfully retain key employees. The dedicated assistance of the Debtors’ employees during the marketing and Sale Process is a critical component of the Debtors’ ultimate objective: to continue business operations, obtain viable offers for the Purchased Assets that will generate value through the Auction process and, ultimately, position themselves to close on a winning bid in an efficient and expeditious manner.
The Debtors seek authority to implement the KERP to enable them to prosecute and complete an orderly and value-maximizing Sale Process. As described further herein, the KERP has the following primary goals:
- to retain key non-insider personnel throughout the Sale Process;
- to facilitate the successful Sales of the Purchased Assets; and
- to maximize the value of the Debtors’ estates for the benefit of all stakeholders.”
The KERP provides retention payments (the “KERP Payments”) to 16 non-insider employees, with such payments comprising a percentage of each KERP Participant's annual base salary, with an average of approximately 9.2%. To be eligible for a KERP Payment, each KERP Participant must execute an agreement with the Debtors (the “KERP Agreement”) requiring the KERP Participant to remain employed with the Debtors until the Sale closes and perform all designated duties during that time (the “KERP Retention Period”).
The KERP Participants include employees from various functions, including, but not limited, to human resources, sales, marketing, accounting and finance, IT, customer service, product management and operations.
Certain of the KERP Participants have titles of Senior Vice President or Vice President of a particular division. To be clear, however, none of the KERP Participants are officers of the Debtors. Although the KERP Participants are important to the Debtors’ business and are particularly vital during these Chapter 11 Cases, these employees are not insiders of the Debtors – they do not control the Sale Process nor are they managing the Chapter 11 Cases.
Key Terms of the KERP:
- Participation: The Debtors have limited participation in the KERP to sixteen (16) employees. The KERP Participants represent a cross section of various functions of the Company, including human resources, sales, marketing, accounting and finance, IT, customer service, product management and operations.
- Cost: The estimated cost of the KERP, assuming all KERP Participants remain employed through the KERP Retention Period, is $160,000, which represents an average of $10,000 per KERP Participant.
- KERP Payments and Payment Schedule: On a dollar-weighted average basis, the KERP Payments will average 9.2% of KERP Participants’ individual base salary.
- KERP Payments will be paid within five business days upon closing of a Court-approved Sale, provided that the Proposed Order is entered and the KERP Participant has executed a KERP Agreement.
The Seal motion [Docket No. 254] states, “The KERP Participants, all of whom are non-insiders of the Debtors, are key employees of the Debtors and critical to the success of these Chapter 11 Cases and the value that will be realized from the Sale Process. The KERP Participants’ identities and compensation details constitute commercial information that must be protected. As discussed in detail in the KERP Motion, the knowledge and skills of the KERP Participants are essential to maximizing the value of the Debtors’ estates during the Sale Process and the duration of these Chapter 11 Cases. If the information contained in the KERP Exhibit was publicly disclosed, those in the Debtors’ industry would gain an unfair advantage because they could potentially use such information to lure the Debtors’ employees away from the Debtors by offering enhanced compensation and benefits.
The loss of any KERP Participants to the Debtors’ competitors at this challenging time would impair the Debtors’ business operations and would negatively affect the unfolding Sale Process, which the Debtors believe has the potential to yield a promising return for their constituents. Accordingly, the Debtors believe that it is critically important that any and all information which could be used to identify the KERP Participants should not be publicly disclosed to ensure that as many key employees as possible elect to remain with the Debtors during the course of the Sale Process and, indeed, these Chapter 11 Cases.”
The hearing on the motions is scheduled for November 24, 2020, with objections due by October 30, 2020.
On October 16, 2020, the Court issued an order approving (i) bidding procedures for the sale of substantially all of the Debtors' assets (the “Sale”), (ii) bidder protections for stalking horse Arandell Acquisition Company, LLC (“AAC” or the “Stalking Horse Bidder”) and (iii) a timetable culminating in a November 18th auction and November 24th sale hearing [Docket No. 252]. The APA detailing the terms of the stalking horse bid (valued at $31.325mn) is attached to the Debtors' requesting motion as Exhibit B [Docket No. 176].
Key Dates in the Asset Sale Process Include:
- Bid Deadline: November 13, 2020
- Sale Objection Deadline: November 17, 2020
- Auction: November 18, 2020
- Sale Hearing: November 24, 2020
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