RTI Holding Company, LLC – Seeks Approval of $1.97mn KEIP for 5 Senior Leaders, $416k KERP for 48 Non-Insider Employees, Each with Modifications

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December 28, 2020 – The Debtors requested Court approval of (i) a key employee incentive plan (“KEIP”) for 5 senior leadership employees with a maximum aggregate award amount of $1.97mn, consisting of (a) $619,500 in Track 1 bonuses and (b) $1.35mn in Track 2 bonuses (summarized below) and (ii) a key employee retention plan (“KERP”) for 48 non-insider employees with a maximum aggregate award amount of $416,658.75 [Docket No. 779].

The motion states, “In order to maintain their operations while attempting to either sell substantially all of their assets or restructure their financial affairs during the extraordinary circumstances presented by the current pandemic, the Debtors believe it is critical to provide incentives to management to achieve critical milestones imposed by the Restructuring Support Agreement (‘RSA’)  reached among the Debtors and their Prepetition Secured Creditors – i.e., Goldman Sachs Specialty Lending Group, L.P. (‘GS’) and TCW Direct Lending LLC and certain of its affiliates (‘TCW’) – and to encourage the retention of key employees through the chapter 11 process….

As set forth in greater detail below and in the JAI Analysis, (a) the KEIP involves payments to Senior Leadership Employee either upon (i) the Debtors’ successful emergence from chapter 11 through the Plan; or, (ii) if the Debtors receive a Topping Bid to acquire their assets, the receipt of such Topping Bid (the ‘Initial KEIP Topping Bid Payment’) and upon consummation of the sale transaction; (b) under the KERP, each Participating Non-Insider Employee would receive one or more bonuses of aggregating up to 5% to 20% of his or her base salary, of which 2.5% to 10% of base salary would be paid prior to December 25, 2020 (the ‘Initial KERP Payment’) and 2.5% to 10% of base salary would be paid upon either (x) the Effective Date of the Plan, if no Topping Bid is received, or (y) the closing date of a sale, if a Topping Bid is received. All milestones are subject to the deadlines imposed by the RSA….

As a result of discussions among the parties arising from [internal] and external review processes and to reflect the passage of time since the issuance of the JAI Analysis, the Debtors have agreed to the following modifications to the proposed KEIP and KERP (the ‘KEIP/KERP Modifications’): a) Under the KEIP, (i) Senior Leadership Employees will not receive the Initial KEIP Topping Bid Payment, just a single payment from the aggregate bonus pool of $1.35 million upon consummation of a sale, if a Topping Bid is received; and (ii) if the Debtors’ assets are sold to NRD Capital Management LLC or an affiliate, the Debtors’ Chief Executive Officer and Chief Operating Officer will receive only fifty percent (50%) of the bonus amount contemplated under the KEIP; and b) Under the KERP, the Initial KERP Payment will be made upon entry of the order granting this Motion.”

The KEIP

The Senior Leadership Employees include the Debtors’ Chief Executive Officer, Chief Strategy Officer, Chief Marketing Officer, Chief Supply Chain Officer and Chief Operating Officer. The Senior Leadership Employees are responsible for executing the Debtors’ operating and strategic plans, including maintaining the Debtors’ business operations during the current, unprecedented pandemic in order to meet the performance requirements under the RSA that forms the basis for the Plan, as well as overseeing and addressing issues arising during the restructuring of the Debtors’ financial affairs and restructuring. The Debtors believe that these Senior Leadership Employees cannot be easily replaced without significant operational setbacks and efficiency losses at this juncture in the Cases.

Under the proposed KEIP, there are two tracks for Senior Leadership Employee bonuses with different goals for each track depending on whether implementation of the Plan results in a reorganization or a sale. Track 1 and Track 2 are mutually exclusive – if the applicable goal is achieved for one of the tracks, Senior Leadership Employees would receive either a Track 1 bonus or Track 2 bonus(es), but not both.

Track 1 is for a successful reorganization through the restructuring transactions with GS and TCW contemplated under the terms of the Plan; it is applicable only if no Topping Bid is received. Track 1 is a one-time bonus for each Senior Leadership Employee to "[e]nsure successful emergence from bankruptcy via confirmation of reorganization plan in accordance with Restructuring Support Agreement deadline." If the Track 1 goal is achieved, each Senior Leadership Employee would receive upon the Effective Date of the Plan a onetime bonus of 35% of his or her base salary. The maximum for Track 1 bonuses to all Senior Leadership Employees in the aggregate is $619,500 if the Track 1 goal is met by all of the Senior Leadership Employees.

Track 2 is applicable only if a Topping Bid is received. Pursuant to the KEIP/KERP Modifications, if NRD or an affiliate submits a Topping Bid and is the successful bidder for the Debtors’ assets, any bonus amounts payable under the KEIP to Shawn Lederman, the Debtors’ Chief Executive Officer, and to Darrin White, the Debtors’ Chief Operating Officer, will be reduced by 50%.

The KERP

The Participating Non-Insider Employees are 48 non-insider employees serving as Area and Regional Coaches or in the Debtor’s Planning, Information Technology (IT), Risk Management, Human Resources, Legal, Finance, Training, Supply Chain and Marketing departments or roles. The Participating Non-Insider Employees are vital to the on-going stability, continuity and strength of the Debtors, particularly with regard to the day to day operation of the Debtors, as well as implementing its medium and long-term goals and objectives.

Under the proposed KERP, each Participating Non-Insider Employee would receive one or more bonuses of aggregating up to 5% to 20% of his or her base salary. The maximum potential cost of the KERP is estimated to be $416,658.75 if all of its goals are met by all of the Participating Non-Insider Employees. Pursuant to the KEIP/KERP Modifications, the Initial KERP Payment will be made upon entry of the order granting this Motion.

About the Debtors

According to the Debtors: “Founded in 1972 in Knoxville, Tennessee, Ruby Tuesday, Inc., is dedicated to delighting guests with exceptional casual dining experiences that offer uncompromising quality paired with passionate service every time they visit. From signature handcrafted burgers to the farm-grown goodness of the Endless Garden Bar, Ruby Tuesday is proud of its long-standing history as an American classic and international favorite for nearly 50 years. The Company currently owns, operates and franchises casual dining restaurants in the United States, Guam, and five foreign countries under the Ruby Tuesday® brand.”

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