Studio Movie Grill Holdings, LLC – Court Approves (up to) $322k KEIP for 33 Key Employees Needed for Sale/Restructuring Efforts

Register, or to view the article

December 11, 2020 – The Court hearing the Studio Movie Grill Holdings cases issued an order approving the key employee incentive plan (the (“KEIP”) for thirty-three key employees with an award pool ranging from $83k to $322k [Docket No. 331].

The motion notes that keeping the proposed participants with the company is key while the Debtors continue to evaluate their strategic options on how best to resolve their chapter 11 cases, as well as through completion of any transaction and confirmation and effectiveness of a Plan.

The KEIP outline is attached as Exhibit A in the motion [Docket No. 194], which notes that the 33 participants include "the twenty-one (21) general managers of the open movie theater locations, the four (4) regional managers and eight (8) corporate office personnel (the ‘KEIP Participants’). In seeking such authority, the Debtors also request that administrative expense priority status be accorded to all claims contemplated to be incurred by the Debtors to the KEIP Participants under the KEIP."

The motion further explains, "Seeking to maximize the value of the Debtors’ assets for the benefit of the Debtors’ estates and all parties in interest, Debtors have been evaluating, and continue to evaluate, all of their strategic options with the input of their key constituents, including the DIP Agent and the DIP Lenders and the Prepetition Agent and the Prepetition Lenders (each as defined in the DIP Order). The Debtors are willing to entertain all viable proposals and have not committed to any particular path; however, the potential options include, without limitation, (a) a sale of all or a portion of the Debtors’ assets; or (b) a reorganization and/or recapitalization of the Debtors.

The success of the Debtors’ sale or restructuring efforts will undoubtedly turn on the performance and productivity of certain of the Debtors’ key employees both during and after these Chapter 11 Cases. During the course of the bankruptcies, these employees will be key drivers of the Debtors’ ability to generate revenue and meet or exceed reductions in overall expenses. In addition, because of the skill and specialized knowledge of these employees, the Debtors could face challenges caused by direct and indirect competitors recruiting these employees. Accordingly, the Debtors seek authorization to implement the KEIP to help them retain key employees and preserve the going concern value of its business for all of its potential bankruptcy options.

The KEIP was developed by the Debtors with the assistance of counsel and its professional advisors with the goal of creating incentive for the KEIP Participants to provide maximum effort to achieve the greatest possible value of the Debtors’ estates. The KEIP is purely incentive-based, with all payouts thereunder conditioned upon achievement of carefully selected financial, operational and strategic metrics (the ‘KEIP Awards’)."

The KEIP

The total amount of the KEIP Awards, as allocated among the KEIP Participants, ranges from $83,160 for achieving the minimum target of favorable budget variance of 3.0%, to $322,560 at the contemplated upper target of favorable budget variance of 8.0% or more, with a continuing upside for all improvements above the upper target as well.

The KEIP Participants will be entitled to receive payment based upon the following two (2) metrics (the “Metrics” or individually “Metric”): 

  • The Debtors’ emergence from bankruptcy via a confirmed chapter 11 plan of reorganization that becomes effective or a closed sale of substantially all of their assets, in each case on terms acceptable to the DIP Agent and Requisite Lenders (as defined in the DIP Order) (a “Plan” and a “Sale,” respectively); and
  • Any budget improvements greater than three (3.0%) percent in comparison of the Debtors’ original, interim debtor-in-possession financing Budget (as defined in the DIP Order), as the estimated operating cash flow and the actual operating cash flow.

Key Terms of the KEIP:

  • KEIP Participants: Thirty-three (33) of the Debtors’ most vital employees, who will play significant operational role in optimizing the Debtors’ overall financial performance in these Chapter 11 Cases.
  • Emergence from Bankruptcy: Under this Metric, the twenty-one (21) general managers and four (4) regional managers would receive predetermined awards upon the Debtors’ emergence from the Chapter 11 Cases. Each general manager would receive an award of $5,700 and each regional manager would receive an award of $12,500, for a total of $169,700 of awards.
  • Improved Operating Cash Flow: Under this Metric, all KEIP Participants would share in an awarded KEIP Pool upon meeting a minimum three (3.0%) percent improvement on the actual operating cash flow above the estimated operating cash flow set forth in the original interim Budget. The KEIP Pool would be determined by a set percentage of the total amount of such an improvement, ranging from twenty-two (22.0%) percent for a three (3.0%) budget improvement to thirty-two (32.0%) percent for an eight (8.0%) percent or greater budget improvement. Hereunder, the each KEIP Participant would have a fixed percentage of the KEIP Pool with general managers each being allocated 1.78%, regional managers each being allocated 3.91% and corporate office personnel each allocated a percentage ranging from 4.70% up to 7.82%.
  • Measurement Period: The measurement period shall run from the Petition Date until the earliest of: (i) the effective date of a Plan; (ii) the closing date of a Sale; and (iii) February 26, 2021.

Read more Bankruptcy News