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November 19, 2020 – The Court hearing the Rubio’s Restaurants cases issued an order approving the Debtors’ Key Employee Retention Plan (the “KERP”) covering 20 non-insiders at a maximum aggregate cost of $224,500, inclusive of a $65,000 discretionary pool [Docket No. 173].
On October 30, 2020, the Debtors had filed a motion requesting approval of (i) a Key Employee Incentive Plan (the “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) the KERP for 20 non-insiders at an aggregate cost of $224,500, inclusive of a $65,000 discretionary pool. [Docket No. 89]. KEIP and KERP payments are to be made after the effective date of the Debtors’ Plan from the proceeds of Plan investments, rather than from the Debtors’ assets.
Regarding the KEIP motion, the KERP order notes, "For the avoidance of doubt, the Court has not considered, and this Order does not approve, the KEIP, which remains pending before the Court." An amended agenda filed on November 20th indicates that the KEIP hearing is now scheduled to be held on December 14, 2020 [Docket No. 181].
The Debtors' requesting 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…The KEIP provides payment incentives to the KEIP Participants if and only if the Debtors achieve challenging, performance-based targets. The KERP provides payment incentives to the KERP Participants if and only if the KERP Participants remain employed with the Debtors through the Effective Date (as defined in the Plan) ….
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 KERP Participants are non-insiders generally at the regional director, district manager, director or manager level. The KERP Participants play important roles in the Debtors’ restructuring efforts, each performing crucial tasks within the Debtors’ various business functions to ensure a seamless transition into and an efficient emergence from chapter 11. Many of the KERP participants possess unique knowledge of the Debtors’ business operations, which knowledge has been developed over the course of their long-term employment with the Debtors and which cannot easily be replaced. The Debtors’ successful emergence from these chapter 11 cases depends in large part on the Debtors’ ability to leverage the skills of the KERP Participants at this critical juncture for the business. The KERP is intended to provide incentives to these non-insider employees to remain with the Debtors through the implementation of a new business plan, as well as to help manage the Debtors’ ongoing operations during these chapter 11 cases.
Under the KERP, Participants may receive a cash payment equal to 3% – 10% of their current annual base salary for remaining with the Debtors through the Effective Date. Payments will be made on or shortly after the Effective Date in accordance with the KEIP and KERP Plan. The total amount that the Debtors are seeking authority to pay under the KERP is $224,500, inclusive of a $65,000 discretionary pool.
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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