Case CSS Doc 16 Filed 03/28/18 Page 1 of 16 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE.

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1 Case CSS Doc 16 Filed 03/28/18 Page 1 of 16 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re CANDI CONTROLS, INC., 1 Debtor. Chapter 11 Case No (CSS) DEBTOR S MOTION FOR AUTHORITY TO PAY PRE-PETITION CLAIMS FOR WAGES, SALARIES, REIMBURSABLE EXPENSES, AND EMPLOYEE BENEFITS Candi Controls, Inc., debtor-in-possession in this Chapter 11 case (the Debtor ), respectfully moves the Court for an order: (a) authorizing the Debtor to pay accrued prepetition claims for (i) wages and salaries that do not exceed the $12, per-employee priority amount set by 11 U.S.C. 507(a)(4) for the Debtor s employees, (ii) withholdings, and (iii) reimbursable employee expenses; (b) authorizing the Debtor to continue providing all employee benefits by paying amounts that do not exceed the $12, per-employee priority amount set by 11 U.S.C. 507(a)(5); and (c) directing the Debtor s bank to honor all checks and electronic payment requests related to the foregoing. This Motion seeks immediate entry of an order and is brought on an emergency basis under Local Bankruptcy Rule (m) to avoid immediate and irreparable harm to the Debtor s estate. This Motion is supported by the entire record before the Court, the Declaration of Douglas Klein in Support of First-Day Motions (the Klein Declaration ) filed contemporaneously with this Motion, and by the following: 1 The last four digits of the Debtor s federal tax identification number are The Debtor s principal place of business is th Street, Third Floor, Oakland, CA { }

2 Case CSS Doc 16 Filed 03/28/18 Page 2 of 16 BACKGROUND Jurisdiction and Venue 1. On March 23, 2018 (the Petition Date ), CGM Partners, LLC, Howard Elias, and Kelly Yang Living Trust filed an involuntary petition in this Court under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. 101 et seq. (the Bankruptcy Code ) against the Debtor. The Debtor filed its Certificate of Counsel Regarding Proposed Order for Relief in Involuntary Case on March 23, The Court entered the Chapter 11 order for relief on March 27, 2018 (the Relief Date ). The Debtor now operates its business and manages its assets as a debtor-inpossession under Bankruptcy Code 1107 and This Court has jurisdiction over this Chapter 11 case under 28 U.S.C. 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware dated February 29, This is a core proceeding under 28 U.S.C. 157(b)(2). Under Rule (f) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the Local Rules ), the Debtor consents to the Court s entry of a final order on this Motion to the extent it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments in connection with this Motion consistent with Article III of the United States constitution. Venue is proper in this district under 28 U.S.C and The statutory bases for the relief this Motion seeks are Bankruptcy Code 105(a), 363(b), and 507(a)(4) and (5) and Bankruptcy Rules 6003 and No official committees have been appointed in this case. No party has requested the appointment of a trustee or an examiner. { } 2

3 Case CSS Doc 16 Filed 03/28/18 Page 3 of 16 The Debtor s Workforce 5. As of the Petition Date, the Debtor employs ten full-time salaried employees and one part-time salaried employee. Additionally, the Debtor employs three individuals Martin Fairfax (one of the debtor s full-time senior software engineers), Douglas Klein (the Debtor s parttime chief financial officer), and Lauren Cox-Pursley (the Debtor s part-time bookkeeper) as 1099 contract employees rather than W-2 employees. 6. Without exception, the Debtor s employees are critical to the continuity of the Debtor s business and the value of the Debtor s assets and estate. All employees skills, knowledge, and understanding of the Debtor s operations are essential to maintaining the Debtor s business as a going concern and maximizing the value of the Debtor s assets for disposition in the context of this Chapter 11 case. Without the employees continued services, an effective sale of the Debtor s assets and operations will not be possible. 7. The Debtor s obligations to its employees include wages, salaries, payments and payroll deductions for employee benefits, withholdings, and limited reimbursements for expenses initially borne by a few individual employees. Before the Petition Date, the Debtor customarily either paid or withheld all of these obligations in the ordinary course of business. Wages and Salaries 8. All employees are paid bi-weekly, every other Wednesday, four days in arrears, through direct deposit or checks. Each Tuesday before a Wednesday payroll day, the Debtor transfers funds to Paychex to fund the payroll, which is paid the next day via direct deposit for those employees that have electronic deposits and via checks drawn from Paychex s bank account as and when employees negotiate their checks. { } 3

4 Case CSS Doc 16 Filed 03/28/18 Page 4 of The Debtor s next payroll is scheduled for April 4, 2018, relating to the period from March 18, 2018, through March 31, 2018, which includes payroll for the days between March 18, 2018, and the Relief Date. The aggregate payroll on April 4 will be approximately $60, The Debtor has remained current on all its payroll obligations to its employees at all times up to the Petition Date. Accordingly, the payroll amount owing to any single employee attributable to the prepetition period is well under the priority amount of $12,850. The Debtor seeks authority to continue its payroll in the ordinary course of business, including the payment of all employee wages and salaries relating to the prepetition period. If the Debtor is unable to do so, the Debtor s employees may resign their positions with the Debtor at a time when employees services are crucial to the Debtor and its success in this Chapter 11 case. Withholding 11. The Debtor is required by law to withhold from an employee s paycheck amounts related to federal and state income taxes and social security, FICA, and unemployment taxes (collectively, the Withholding Taxes ) for remittance to the appropriate governmental authorities. The Debtor must also match from its own funds social security and Medicare taxes withheld and pay (based on a percentage of gross payroll) additional amounts for state and federal unemployment insurance (the Employer Payroll Taxes ). The Debtor withholds a total of approximately $16,800 from all employees paychecks for Withholding Taxes during each payroll, which are funded through a direct withdrawal from the Debtor s payroll account on the day payroll is made. The Debtor remits a total of approximately $4,500 for Employer Payroll Taxes each payroll. To the extent that any payroll has not been processed for the prepetition period, the Debtor has not funded either the Withholding Taxes or the Employer Payroll Taxes. Accordingly, the Debtor seeks authority to continue to process and remit all prepetition Withholding Tax and Employer Payroll Tax obligations in the ordinary course of business. { } 4

5 Case CSS Doc 16 Filed 03/28/18 Page 5 of 16 Reimbursable Expenses 12. Operational expenses incurred on the Debtor s behalf ( Employee Expenses ) consist of expenses accrued by employees who submit those expenses to the Debtor for reimbursement. Employee Expenses include, among other things, business travel expenses, local travel expenses, parking, and other minor, episodic expenses. Generally, the Debtor expects employees to submit Employee Expenses for reimbursement as soon as possible after they are incurred but, because some employees may not yet have submitted their Employee Expenses incurred before the Petition Date, the Debtor cannot accurately estimate the amount of Employee Expenses that remain unreimbursed for the prepetition period. Based on historical averages, the Debtor believes that there may be approximately $2,000 in unreimbursed Employee Expenses attributable to the prepetition period. The Debtor seeks authority to reimburse employees for their prepetition Employee Expenses in the ordinary course of business. If the Debtor is unable to do so, the individual employees will unfairly bear the burden of having paid the Debtor s expenses from their personal funds, severely undermining employee morale at a time when these employees best efforts are crucial to the Debtor and its success in this Chapter 11 case. Employee Benefits 13. All full-time W-2 employees are eligible to participate in medical, dental, vision, life, and accidental death and dismemberment (AD&D) insurance plans offered by the Debtor (the Benefit Plans ). 2 (Employees previously were eligible to participate in a 401(k) Safe Harbor retirement savings plan, but the Debtor terminated that benefit for all employees as of March 17, 2018, in order to conserve cash by ending the Debtor s obligation to match employee contributions under that plan.) Under the Benefit Plans, employees and the Debtor each make monthly premium 2 The Debtor is not required by applicable law to provide COBRA benefits and, therefore, does not. { } 5

6 Case CSS Doc 16 Filed 03/28/18 Page 6 of 16 payments. To maintain employee morale and not unfairly impose hardships on its workforce, the Debtor seeks authority to pay any outstanding unpaid premiums, deductibles, and other claims in respect of the Benefit Plans accruing before the Petition Date and to continue to honor prepetition policies relating to the Benefit Plans. a. Medical. All W-2 employees are eligible to participate in a medical plan through United Healthcare ( UHC ). Under this plan, the Debtor pays an aggregate premium in the approximate amount of $5,768 per month for all participating employees to UHC. Approximately 64% of the eligible employees receive medical benefits under this plan, which is fully insured, with premiums paid by the participating employees and the Debtor on a cost-sharing basis. The monthly premium paid to UHC is paid on the tenth day of the coverage month. For that reason, and because the Debtor timely made the March 2018 premium payment in the ordinary course, no portion of the premium due to UHC at the beginning of April 2018 will relate to the period before the Petition Date. Nonetheless, out of an abundance of caution, the Debtor seeks authority to pay any prepetition amounts owing to UHC relating to this medical insurance policy to ensure continuity of the policy for the employees benefit. b. Dental and Vision. The Debtor offers dental and vision insurance programs to fulltime salaried employees administered by CoPower Inc. Under this plan, the Debtor pays an aggregate premium in the approximate amount of $1,404 per month for all participating employees to CoPower. All full-time employees are covered under the dental and vision plan. Coverage for the employee is paid for by the Debtor and coverage for any employee dependents, if elected, is paid by the participating employees through payroll contributions. The monthly premium paid to CoPower is paid on the first day of the coverage month. Because the Debtor timely made the March 2018 premium payment in the ordinary course, the Debtor does not believe that, as of the Petition { } 6

7 Case CSS Doc 16 Filed 03/28/18 Page 7 of 16 Date, it owes any amounts in respect of insurance coverage for the dental and vision plan. Out of an abundance of caution, however, the Debtor seeks authorization to pay any such prepetition claims when they come due in the ordinary course of business. c. Group Life and AD&D Insurance. The Debtor offers its full-time employees premium-based life insurance coverage and AD&D insurance through CoPower. Basic life and AD&D insurance coverage is made available to employees and paid by the Debtor. The premium is embedded in the Dental and Vision insurance plan. Voluntary life and AD&D insurance is made available to employees and their dependents; employees are responsible for the cost of those voluntary insurance coverages. The monthly premiums paid by the Debtor for basic life and AD&D insurance coverage are paid at the beginning of each month for coverage during that month. The Debtor timely made the March 2018 premium payment in the ordinary course. Although the Debtor does not believe that any prepetition amount is owed to CoPower in this regard, out of an abundance of caution and to maintain employee morale, the Debtor requests authority to pay any prepetition costs related to life and AD&D insurance benefits in the ordinary course of business. d. Workers Comp. Under California law, the Debtor must provide workers compensation insurance to its employees at the statutorily-required levels for employment-related injury claims. The Debtor maintains a workers compensation benefits program through Employers Preferred Insurance Company ( EPIC ). This program provides benefits to all the Debtor s employees for claims as well as premiums, deductibles, and other charges (the Worker s Comp Obligations ). EPIC acts as a third-party administrator and provides guaranteed cost insurance coverage at the statutorily-required level. The Debtor has prepaid EPIC in full for coverage through August 31, 2018, subject to adjustment at the end of the policy period to reflect the Debtor s actual insured payroll expense versus the estimated insured payroll expense { } 7

8 Case CSS Doc 16 Filed 03/28/18 Page 8 of 16 used to determine the annual premium paid in advance. Although the Debtor is current with EPIC, the timing of the Petition Date may mean that the Debtor owes EPIC certain prepetition amounts on account of the estimated annual premium being below the actual earned premium. The Debtor seeks authority to pay, in its discretion, prepetition claims arising from the Worker s Comp Obligations that come due after the Petition Date. e. Retention Plan. The Debtor maintains a prepetition retention plan covering substantially all the Debtor s employees and key contractors, including the Debtor s three fulltime executive employees namely, Steve Raschke (the Debtor s Chief Executive Officer), Douglas Harp (the Debtor s Chief Operating Officer), and Michael Anderson (the Debtor s Vice President of Software) who constitute insiders for purposes of Bankruptcy Code 503(c). 3 The Debtor seeks authority to continue the retention plan solely with respect to the Debtor s seven non-insider employees and one key contractor. No amount is due to any employee under the retention plan as of the Petition Date. The retention plan provides each eligible employee a lumpsum payment in connection with the termination of that employee s employment if and only if the employee continues to work through the date of, among other now-inapplicable events, the closing of a sale of substantially all the Debtor s assets. 4 The retention payments scheduled for each eligible employee is based on the employee s share of the retention pool, which is in turn based on each employee s annual base salary divided by the total base salaries of all pool participants. The pool is 10% of the net sale proceeds available for distribution (including amounts that may be 3 None of the Debtor s other employees is an insider as defined in Bankruptcy Code 101(31)(B) because none participates in the corporate or operational management of the Debtor. See In re Foothills Texas, Inc., 408 B.R. 573 (Bankr. D. Del. 2009). Although Douglas Klein acts as the Debtor s part-time chief financial officer, he has been at all times a contract employee of the Debtor and not a participant in the retention plan. 4 Contemporaneously with this Motion, the Debtor has filed a motion seeking approval of such a sale under Bankruptcy Code 363. { } 8

9 Case CSS Doc 16 Filed 03/28/18 Page 9 of 16 held in escrow) to the Debtor s convertible noteholders and stockholders. Total retention payments to be made to non-insider employees under the retention plan, assuming a sale of substantially all the Debtor s assets closes as planned, is approximately $125,000. Providing non-insider employees with reasonable retention payments will ensure that these employees whose efforts are critical to the continued operation of the Debtor s business pending a going-concern sale and the effective implementation of the Debtor s restructuring efforts in this Chapter 11 case will continue to work toward achieving the goals of this Chapter 11 case despite personally facing the near-certain loss of their own employment with the Debtor. Because no retention payments are anticipated at the earliest stages of this case, the Debtor will seek authority to honor retention payments only after the Court s consideration of those payments in connection with the Court s approval of a sale of substantially all the Debtor s assets. The Debtor will not make any retention payments and/or severance payments unless and until a sale of substantially all the Debtor s assets is approved and consummated and only if approved by the Court on the Debtor s separate motion. Approved retention payments and/or severance payments will not be paid from advances under the Debtor s debtor-in-possession financing but, rather, may only be paid from the proceeds of the sale of the Debtor s assets after payment of the secured claims of the debtor-in-possession lender (i.e. if Altair Engineering, Inc. is entitled to such payment under this Court s order authorizing the debtor-in-possession financing, the debtor-in-possession financing credit agreement, or the asset purchase agreement between the Debtor and Altair, Engineering, Inc.), the Bridge Loan Lenders, and any others. RELIEF REQUESTED 14. To ensure employees continued dedication and morale during this critical time and to minimize the personal hardship employees would suffer if prepetition employee-related obligations are not paid when due or as expected, the Debtor seeks entry of an order authorizing { } 9

10 Case CSS Doc 16 Filed 03/28/18 Page 10 of 16 the Debtor: (a) to pay prepetition claims (collectively, the Employee Obligations ) for (i) wages and salaries, (ii) federal and state withholding taxes and other amounts withheld or deducted (e.g., employees share of insurance premiums), and (iii) Employee Expenses; and (b) to continue to pay for and provide all employee benefits under the Benefit Plans and the Workers Comp Obligations the Debtor has historically paid in the ordinary course of business (collectively, the Employee Benefits ). The Debtor also seeks an order directing its bank to honor all checks presented for payment and electronic payments related to the Employee Obligations and Employee Benefits. 15. By this Motion, the Debtor requests that this Court enter an order under Bankruptcy Code 105(a), 363(b), and 507(a)(4) and (5) authorizing the Debtor to pay or otherwise honor the Employee Obligations and Employee Benefits that accrued before the Petition Date. 16. Bankruptcy Code 363(b)(1) authorizes a debtor-in-possession to use, sell or lease, other than in the ordinary course of business, property of the estate. Bankruptcy Code 105(a) provides that the court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. Bankruptcy Code 507(a)(4) and (5) give priority status up to $12,850 per employee for prepetition claims for wages, salaries, vacation, and sick leave, and claims for contributions to employee benefit plans. 17. Because the Debtor has remained current on its employee-related obligations through the most recent pay period, all accrued prepetition obligations owing to individual employees proposed to be paid now will be substantially less than the statutory cap of $12,850 per employee for priority treatment set by Bankruptcy Code 507(a)(4) and (a)(5). Thus, granting the relief sought in this Motion would only affect the timing, and not the amount, of the payment of the Employee Obligations and Employee Benefits because they constitute priority claims. { } 10

11 Case CSS Doc 16 Filed 03/28/18 Page 11 of With respect to the deductions and Withholding Taxes described above, failure to remit those deductions and Withholding Taxes to the proper third parties may cause serious disruption to the Debtor s operations. The deductions and Withholding Taxes represent employee earnings that governments (in the case of taxes), and employees (in the case of voluntarily withheld amounts), have designated for deduction from employees paychecks. Failure to remit these amounts could result in hardship to the employees and, in the case of Withholding Taxes, do not constitute property of the Debtor s estate The Severance Plan should be reviewed under Bankruptcy Code 363(c)(1) rather than Bankruptcy Code 503(c) because the Severance Plan is a preexisting program the Debtor has maintained in the ordinary course of business and wishes to continue post-petition for noninsider employees only. 6 Nonetheless, the Severance Plan, as it pertains solely to the Debtor s non-insider employees, does not offend the restrictions placed on incentive plans under Bankruptcy Code 503(c)(1) and (2). Rather, under Bankruptcy Code 503(c)(3), the Severance Plan need only be justified by the facts and circumstances of the Debtor s case. This standard equates to the business judgment standard applying under Bankruptcy Code 363(b) for transactions that are outside the ordinary course of business. 7 Here, the Debtor s decision to maintain the Severance Plan for non-insider employees reflects the Debtor s sound business 5 See Belgier v. IRS, 496 U.S. 53 (1990) (FICA taxes withheld from employee wages under federal tax law created trust, at time taxes collected, on behalf of IRS for payment of withheld taxes); see also City of Farrell v. Sharon Steel Corp., 41 F.3d 92 (3d Cir. 1994) (state law requiring debtor to withhold city income tax from its employees wages created trust relationship between debtor and city for payment of withheld taxes); Megafoods Stores, Inc. v. Texas Comptroller of Public Accounts (In re Megafoods Stores, Inc.), 210 B.R. 351, 354 (B.A.P. 9th Cir. 1997), aff d in relevant part 163 F.3d 1063 (9th Cir. 1998). 6 See In re Blitz U.S.A. Inc., 475 B.R. 209, 215 (Bankr. D. Del. 2012) (a prepetition employee incentive plan was an ordinary course transaction arising from an exercise of the debtor s good-faith business judgment). 7 See, e.g., In re Velo Holdings Inc., 472 B.R. 201, 212 (Bankr. S.D.N.Y. 2012) ( Courts have held that the facts and circumstances language of section 503(c)(3) creates a standard no different than [sic] the business judgment standard under section 363(b) ). { } 11

12 Case CSS Doc 16 Filed 03/28/18 Page 12 of 16 judgment and serves the interests of the Debtor s estate and creditors. The Severance Plan represents the principal incentive for employees to continue in their employment despite the near certainty of their dismissal when the sale of the Debtor s assets is completed and, therefore, greatly enhances the Debtor s ability to maintain its operations and the value of its assets pending that sale. Given the small size of the Debtor s workforce, any employee attrition would be harmful; significant attrition arising from the Debtor s failure to honor its obligations to the employees, including the Severance Plan, would be catastrophic and would likely doom this Chapter 11 case to failure. (Again, the Debtor does not seek approval of these payments now; approved payments will not be paid from advances under the Debtor s debtor-in-possession financing but, rather, will only be paid from the proceeds of the sale of the Debtor s assets after payment of the secured claims of the debtor-in-possession lender, the Bridge Loan Lenders, and any others.) 20. The Debtor s employees rely on their full compensation and reimbursement of expenses to meet their daily living expenses and will be exposed to significant financial difficulties if the Debtor is not permitted to pay the Employee Obligations and Employee Benefits. The Debtor s failure to meet its obligations to its employees in the ordinary course would destroy employee morale and likely cause most employees to simply resign, inflicting immediate and pervasive damage to the Debtor s ongoing business operations. The resulting harm to the Debtor s estate and the value of the estate s assets would be immediate, irreparable, and incalculable. 21. Under the necessity of payment rule first enunciated by the Supreme Court in Miltenberger v. Logansport, C. & S.W.R. Co., 8 a bankruptcy court may use its 105 equitable powers to permit a debtor-in-possession to pay prepetition claims when payment is necessary to U.S. 286 (1882). { } 12

13 Case CSS Doc 16 Filed 03/28/18 Page 13 of 16 effect a successful reorganization. 9 Its employees continued service and dedication is critical to the Debtor s success in this Chapter 11 case and the preservation of the value of the Debtor s assets. Courts have long recognized the importance of a debtor s ability to pay prepetition wages, 10 permitting debtors-in-possession to pay prepetition wage, salary, expense, and benefit claims if payment of those claims was necessary to effect a successful reorganization. 11 Relief similar to that requested by this Motion has been routinely granted in Chapter 11 cases within this District. 22. The relief requested in this Motion is necessary and should be authorized under Bankruptcy Code The Debtor s employees are vital to the continued operation of the Debtor s business. Authorizing the Debtor to pay the Employee Obligations and honor the Employee Benefits is necessary to maintain employee morale and to prevent employees from suffering personal hardship or from seeking other employment. Accordingly, the relief sought in this Motion is consistent with Bankruptcy Code 105(a) and 507(a). 9 See In re Lehigh & New England Ry. Co., 657 F.2d 570, 581 (3d Cir. 1981) (necessity-of-payment doctrine teaches no more than, if payment of a claim which arose prior to reorganization is essential to the continued operation of the [business] during the reorganization, payment may be authorized even if it is made out of corpus ). 10 See In re Quality Interiors, 127 B.R. 391, 396 (Bankr. N.D. Ohio 1991) (stating that [t]his Court often permits the payment of prepetition wages so that the debtor-in-possession may maintain an effective work force, especially where the amount of the payment is relatively small and where it appears that the wages being paid would ultimately qualify as priority claims ). Likewise, in In re Ionosphere Clubs, Inc., 98 B.R. 174 (Bankr. S.D.N.Y. 1989), the court permitted Eastern Air Lines, Inc. ( EAL ) to pay its current employees prebankruptcy wages, salaries, medical benefits and business expense claims, relying on Section 105(a) to effectuate a restructuring of EAL s finances to provide jobs for its employees. Id. at 177 (citing H.R. Rep. No at 16 (1997)). 11 See In re Gulf Air, Inc., 112 B.R. 152 (Bankr. W.D. La. 1989) (authorizing debtor-in-possession to pay prepetition employee wages and benefits, and health, life, and workers compensation insurance premiums); In re Chateaugay Corp., 80 B.R. 279 (S.D.N.Y. 1987) (affirming order authorizing debtor to pay certain prepetition wages, salaries, employee reimbursement expenses and benefits, including payments on workers compensation claims). { } 13

14 Case CSS Doc 16 Filed 03/28/18 Page 14 of 16 RESERVATION OF RIGHTS 24. Nothing in this Motion admits the validity of any claim against the Debtor, waives the Debtor s rights to dispute any claim on any grounds, constitutes a promise to pay any claim, implies that any particular claim constitutes a claim with respect to any Employee Obligation or Employee Benefit, seeks to assume any contract or lease under Bankruptcy Code 365, or requests relief from the automatic stay under Bankruptcy Code 362. NECESSITY FOR IMMEDIATE RELIEF 25. Under Bankruptcy Rule 6003(b), the Debtor seeks immediately entry of an order granting this Motion. Bankruptcy Rule 6003(b) provides that Except to the extent that relief is necessary to avoid immediate and irreparable harm, the court shall not, within 21 days after the filing of the petition, issue an order granting a motion to pay all or part of a claim that arose before the filing of the petition The Klein Declaration establishes that the Debtor s estate, ongoing business operations, going-concern value, and prospects for a successful reorganization will suffer immediate and irreparable harm if the Debtor is unable to honor its obligations to its employees and the Debtor abruptly loses the service of those employees. Accordingly, the Debtor submits that ample cause exists to justify immediate entry of an order granting this Motion. 26. Further, under Bankruptcy Rule 6004(h), An order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise. As set forth throughout this Motion and the Klein Declaration, ample cause exists to waive that 14-day stay, since any delay in satisfying the employee obligations described above would jeopardize the Debtor s business operations and reorganization efforts to the detriment of the Debtor s estate and creditors. Because cause exists to do so, the Debtor requests that the Court waive the 14-day stay on any order granting the relief requested in this Motion. { } 14

15 Case CSS Doc 16 Filed 03/28/18 Page 15 of 16 NOTICE 27. The Debtor has provided notice of this Motion to the Office of the US Trustee for the District of Delaware, the holders of the 20 largest unsecured claims, the holders of all secured claims against the Debtor, and all parties that have filed a request for notices under Bankruptcy Rule Notice of this Motion and any order entered on it will be served in accordance with Local Rule (m). Considering the nature of relief requested in this Motion, the Debtor believes no additional notice is necessary. CONCLUSION For the foregoing reasons, the Debtor respectfully requests that the Court enter an order substantially the form attached to this Motion as Exhibit A: (a) authorizing the Debtor to pay and honor the Employee Obligations; (b) authorizing the Debtor to continue to provide the Employee Benefits in the ordinary course of business; (c) directing the Debtor s bank to honor all checks and electronic payment requests related to the foregoing; and (e) granting any further appropriate relief. { } 15

16 Case CSS Doc 16 Filed 03/28/18 Page 16 of 16 Dated: March 28, 2018 Wilmington, Delaware THE ROSNER LAW GROUP LLC /s/frederick B. Rosner Frederick B. Rosner (DE #3995) Scott J. Leonhardt (DE #4885) Jason A. Gibson (DE #6091) 824 N Market Street, Suite 810 Wilmington DE (302) rosner@teamrosner.com leonhardt@teamrosner.com gibson@teamrosner.com - and- PERKINS COIE LLP Jordan A. Kroop (Pro Hac Vice admission pending) 2901 N Central Ave Suite 2000 Phoenix AZ (602) jkroop@perkinscoie.com Proposed Co-Counsel to Debtor-in-Possession { } 16

17 Case CSS Doc 16-1 Filed 03/28/18 Page 1 of 4 EXHIBIT A

18 Case CSS Doc 16-1 Filed 03/28/18 Page 2 of 4 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re CANDI CONTROLS, INC., 1 Debtor. Chapter 11 Case No (CSS) Related Docket No. ORDER AUTHORIZING DEBTOR TO PAY PRE-PETITION CLAIMS FOR WAGES, SALARIES, REIMBURSABLE EXPENSES, AND EMPLOYEE BENEFITS THIS MATTER is before this Court on the motion (the Motion ) 2 of the abovereferenced Debtor, Candi Controls, Inc. (the Debtor ), seeking an order: (a) authorizing the Debtor to pay accrued prepetition claims for (i) wages and salaries that do not exceed the $12, per-employee priority amount set by 11 U.S.C. 507(a)(4) for the Debtor s employees, (ii) withholdings, and (iii) reimbursable employee expenses; (b) authorizing the Debtor to continue providing all employee benefits by paying amounts that do not exceed the $12, per-employee priority amount set by 11 U.S.C. 507(a)(5); and (c) directing the Debtor s bank to honor all checks and electronic payment requests related to the foregoing. The Court conducted an emergency hearing (the Hearing ) under Local Bankruptcy Rule (m) to avoid immediate and irreparable harm to the Debtor s estate. Based on the record of the Hearing, THE COURT FINDS AND CONCLUDES: a. On March 23, 2018 (the Petition Date ), CGM Partners, LLC, Howard Elias, and Kelly Yang Living Trust filed an involuntary petition in this Court under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. 101 et seq. (the Bankruptcy Code ) against the Debtor. 1 The last four digits of the Debtor s federal tax identification number are The Debtor s principal place of business is th Street, Third Floor, Oakland, CA Capitalized terms used but not defined in this Order have the meaning ascribed to them in the Motion. { }

19 Case CSS Doc 16-1 Filed 03/28/18 Page 3 of 4 The Debtor filed its Certificate of Counsel Regarding Proposed Order for Relief in Involuntary Case on March 23, 2018 [D.I. 4]. The Court entered the Chapter 11 order for relief on March 27, 2018 (the Relief Date ). The Debtor now operates its business and manages its assets as a debtorin-possession under Bankruptcy Code 1107 and b. This Court has jurisdiction over this Chapter 11 case under 28 U.S.C. 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware dated February 29, This is a core proceeding under 28 U.S.C. 157(b)(2). Venue is proper in this district under 28 U.S.C and c. Notice of the Hearing and the expedited relief requested in the Motion was provided to the United States Trustee for the District of Delaware, the Debtor s 20 largest unsecured creditors, the Debtor s prepetition secured creditors, the Debtor s proposed debtor-in-possession lender, and all parties requesting notices in this case under Bankruptcy Rule Under the circumstances, notice of the Hearing and the relief requested in the Motion was sufficient under the Bankruptcy Code, the Bankruptcy Rules, and the Local Rules of the Court. d. The Employee Obligations and Employee Benefits defined and set forth in the Motion do not exceed the statutory cap of $12,850 for priority treatment set by Bankruptcy Code 507(a)(4) and (a)(5). e. Any disruption in the Debtor s ability to compensate and protect its workforce would result in an immediate deterioration of the Debtor s operations and irreparable harm to the Debtor s estate. Therefore, any delay in either granting the relief requested in the Motion or commencing the payments that the Debtor seeks to make under the Motion would result in severe, immediate, and irreparable harm to the Debtor and its estate. Accordingly, ample cause exists under Bankruptcy Rule 6003(b) to justify immediate entry of this Order. { } - 2 -

20 Case CSS Doc 16-1 Filed 03/28/18 Page 4 of 4 f. Cause exists under Bankruptcy Rule 6004(h) to waive the 14-day stay in implementing the relief granted in this Order. Accordingly, based on the foregoing findings of fact and conclusions of law, and on the Motion and the record of the Hearing, and good and sufficient cause appearing therefor, IT IS HEREBY FOUND, ORDERED, ADJUDGED, AND DECREED THAT: 1. The Motion is granted as set forth below. 2. The Debtor is authorized to pay or otherwise honor any Employee Obligations and Employee Benefits that accrued before the Relief Date up to a maximum of $60, The Debtor may not make any retention payments, severance payments, or any payment that may implicate Bankruptcy Code 503(c) until further order of this Court and only if a sale of substantially all the Debtor s assets is approved and consummated. Approved retention payments and/or severance payments may not be paid from advances under the Debtor s debtorin-possession financing but, rather, may only be paid from the proceeds of the sale of the Debtor s assets after payment of the secured claims of the debtor-in-possession lender (i.e. if Altair Engineering, Inc. is entitled to such payment under this Court s order authorizing the debtor-inpossession financing, the debtor-in-possession financing credit agreement, or the asset purchase agreement between the Debtor and Altair, Engineering, Inc.), the Bridge Loan Lenders, and any others. 4. The Debtor s bank is authorized and directed to honor all checks and electronic payment requests related to the Employee Obligations and Employee Benefits and to follow the Debtor s instructions regarding which checks and electronic payment requests relate to the Employee Obligations and Employee Benefits and are, therefore, authorized by this Order. Dated: April, 2018 Wilmington, Delaware United States Bankruptcy Judge { } - 3 -