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December 11, 2020 – The Court hearing the Rubio’s Restaurants cases issued an order approving the Debtors’ key employee incentive plan (the “KEIP”) for eight members of the senior management team [Docket No. 270]. The KEIP order specifies that "the Motion is withdrawn without prejudice with respect to the relief requested for the Debtors’ Chief Executive Officer and Chief Financial Officer."
The KEIP was originally slated to award 25% of the base salary of the Debtors' president and CEO and 20% of the base salary of the CFO to those two executives, as well as 6% – 15% of the base salaries of eight of the Debtors' vice presidents/senior vice presidents. As a result, since the CEO and CFO were excluded from the order, the final maximum award amount under the KEIP may come in well below the $411k maximum amount originally quoted in the Debtors' motion.
Previously on October 30, 2020, the Debtors had requested approval of (i) a KEIP for 10 members of the senior management team at an aggregate cost of $411,000, inclusive of a $118,000 discretionary pool, and (ii) a Key Employee Retention Plan (the “KERP”) for 20 non-insiders at an aggregate cost of $224,500, inclusive of a $65,000 discretionary pool. [Docket No. 89]. The KEIP and KERP payments will be made after the effective date of the Debtors’ Plan from the proceeds of Plan investments, rather than from the Debtors’ assets.
On November 19, 2020, the Court issued an order approving the KERP [Docket No. 173]. However, regarding the KEIP motion, the KERP order noted, "For the avoidance of doubt, the Court has not considered, and this Order does not approve, the KEIP, which remains pending before the Court."
The motion [Docket No. 89] states, “The Debtors, with the assistance of their advisors, formulated the KEIP and KERP Plan to (a) motivate ten (10) key members of the Debtors’ senior management team (collectively, the ‘KEIP Participants’) and (b) retain the services of approximately twenty (20) key members of the Debtors’ workforce (collectively, the ‘KERP Participants,’ together with the KEIP Participants, the ‘Participants’) to drive the restructuring process to a value-maximizing conclusion for all stakeholders…Importantly, the KEIP provides payment incentives to the KEIP Participants if and only if the Debtors achieve challenging, performance-based targets…Properly incentivizing, compensating and rewarding the Participants at this critical juncture in the chapter 11 cases is in the best interests of the Debtors, their estates and all parties in interest.
The Debtors have engaged their critical stakeholders regarding the KEIP and KERP Plan and will continue to do so. Specifically, the Debtors and their advisors have had discussions with the Consenting Secured Lenders and the Investor (each as defined in the Plan), who will be investing substantial new capital into the reorganized Debtors. The Debtors have proactively provided information on the KEIP and KERP Plan to these constituencies and responded to inquiries about the programs contemplated therein. As a result of these discussions, these parties have agreed to support approval of the KEIP and KERP Plan, the payments for which will be made on or after the Effective Date from their new investments in the reorganized Debtors, not from any of the current assets of the Debtors.”
The KEIP Participants hold critical operational leadership or corporate management positions within the Debtors’ business. Such individuals are responsible for, among other things: (a) essential day-to-day business functions; (b) executing on the Debtors’ business plan, (c) implementing the operational goals of the Debtors’ restructuring and performance improvement plan, (d) participating in the Debtors’ efforts to successfully effectuate the Plan, (e) assisting the Debtors’ counsel and advisers in the preparation of essential reporting and bankruptcy-related documents and (f) responding to requests for diligence by non-debtor parties in connection with the Debtors’ restructuring process. Given their essential roles in the Debtors’ enterprise as officers, management, department heads, district and regional managers or corporate staff, these individuals are best-positioned to drive performance and results with respect to the Debtors’ restructuring goals and have taken on substantial tasks and responsibilities in furtherance of those goals, in addition to their existing responsibilities.
Under the KEIP, KEIP Participants will be compensated based upon achieving the three separate performance metrics described in the KEIP and KERP Plan (the “KEIP Metrics”) that the Debtors have identified as critical to the success of these chapter 11 cases. The KEIP Metrics include: (i) a target Effective Date of the Plan of December 31, 2020 (the “Plan Metric”); (ii) maintaining the Debtors’ compliance within the permitted variances to the DIP Budget during these chapter 11 cases (the “Financing Metric”); and (iii) achieving an average overall customer satisfaction (“OSAT”) score of at least 70 to 75 during these chapter 11 cases (the “OSAT Metric”). The total amount that may be earned by the KEIP Participants if all three KEIP Metrics are satisfied and incentives are fully earned is $411,000, inclusive of a $118,000 discretionary pool. Each KEIP Metric accounts for one-third of the total amount that may be earned by KEIP Participants.
The Plan Metric further contemplates that the total amount of related incentive awards available to KEIP Participants will be reduced (i) by 20% if the Effective Date occurs between January 1, 2021 and January 31, 2021 and (ii) by 40% of the total amount of related incentive awards available to KEIP Participants if the Effective Date occurs between February 1, 2021 and February 28, 2021. No incentive awards will be given to KEIP Participants under the Plan Metric if the Effective Date occurs beyond February 28, 2021.
The OSAT Metric further contemplates that the total amount of related incentive awards available to KEIP Participants will be reduced by 20% if the average OSAT score during these chapter 11 cases is within a range of 65 to 70. The total amount of related incentive awards available to KEIP Participants will be increased by 10% if the average OSAT score during these chapter 11 cases is above 75, with such additional incentive payments being subject to the approval of the boards of directors of the reorganized Debtors. No incentive awards will be given to KEIP Participants under the OSAT Metric if the average OSAT score during these chapter 11 cases is below 65.
About the Debtors
The Kibler Declaration states: “The Debtors are operators and franchisors of approximately 170 limited service restaurants in California, Arizona and Nevada under the Rubio’s Coastal Grill concept.
Ralph Rubio co-founded Rubio’s in 1983 after repeated trips to Mexico as a college student…The first Rubio’s location was a walk-up stand in Mission Bay, San Diego….After tremendous growth in the late 1980s and 1990s, Rubio’s completed an initial public offering in May 1999, trading on the NASDAQ National Exchange under the ticker symbol ‘RUBO.’ Ralph stepped down as CEO in 2001 but remained actively involved as head of the culinary team, co-founder and Chairman. In 2010, Mill Road Capital, L.P. (the ‘Investor’) acquired Rubio’s in a ‘take- private’ transaction for $91 million.”
The Debtors employ more than 3,400 hourly and salaried employees at their restaurants and corporate offices located in Carlsbad, California.
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