17-11906-mew Doc 145 Filed 08/11/17 Entered 08/11/17 15:27:44 Main Document Pg 1 of 2 HEARING DATE AND TIME: August 29, 2017 at 10:00AM (Eastern Time) RESPONSE DEADLINE: August 22, 2017 at 4:00PM (Eastern Time) WILK AUSLANDER LLP 1515 Broadway, 43 rd Floor New York, New York 10036 Telephone: (212) 981-2300 Eric J. Snyder, Esq. David L. Barrack, Esq. Eloy A. Peral, Esq. Proposed Counsel for Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x In re: : : Chapter 11 BICOM NY, LLC, et al., 1 : : Case No. 17-11906(MEW) Debtors. : : (Jointly Administrated) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x NOTICE OF MOTION OF DEBTORS PURSUANT TO 11 U.S.C. 363(b)(1) AND 503(c) FOR ENTRY OF AN ORDER APPROVING KEY EMPLOYEE RETENTION PLAN FOR CERTAIN NON-INSIDER EMPLOYEES PLEASE TAKE NOTICE that upon the motion (the Motion ) of BICOM NY, LLC d/b/a Jaguar Land Rover Manhattan ( BICOM ), ISCOM NY, LLC d/b/a Maserati of Manhattan ( ISCOM ), and Bay Ridge Automotive Company, LLC d/b/a Bay Ridge Ford ( BRAC ) (collectively, the Debtors ) pursuant to sections 363(b)(1) and 503(c) of title 11, United States Code (the Bankruptcy Code ) the Debtors will move before the Honorable Michael E. Wiles in Courtroom 617, at the United States Bankruptcy Court for the Southern District of New York, located at One Bowling Green, New York, New York 10004-1408, on August 29, 2017 at 1 The last four digits of each Debtor s taxpayer identification number are as follows: BICOM NY, LLC (9990); ISCOM NY, LLC (1589); and Bay Ridge Automotive Company, LLC (0694). The Debtors addresses are 787 11th Avenue, New York, NY 10019; 1 York Street, New York, NY 10013; and 612 86 th Street, Brooklyn, NY 11228, respectively. 00987318.1
17-11906-mew Doc 145 Filed 08/11/17 Entered 08/11/17 15:27:44 Main Document Pg 2 of 2 10:00AM (Eastern Time), or as soon thereafter as counsel can be heard, for entry of an order approving the Debtors Key Employee Retention Plan for non-insider employees. PLEASE TAKE FURTHER NOTICE, that responses, if any, to the relief requested in the Motion shall be in writing, shall state with particularity the grounds for the objection, shall be filed with the Clerk of the Bankruptcy Court and served upon the undersigned counsel so as to be received no later than August 22, 2017 at 4:00PM (Eastern Time) and upon any other person whose interests would be affected if the Motion is granted or denied. PLEASE TAKE FURTHER NOTICE that objecting parties are required to attend the hearing, and failure to appear may result in relief being granted or denied upon default. Dated: New York, New York August 11, 2017 WILK AUSLANDER LLP By: /s/ Eric J. Snyder Eric J. Snyder, Esq. David L. Barrack, Esq. Eloy A. Peral, Esq. 1515 Broadway, 43rd Floor New York, New York 10036 (212) 981-2300 Proposed Counsel for the Debtors and Debtors in Possession 00987318.1 2
Motion Pg 1 of 19 WILK AUSLANDER LLP 1515 Broadway, 43 rd Floor New York, New York 10036 Telephone: (212) 981-2300 Eric J. Snyder, Esq. David L. Barrack, Esq. Eloy A. Peral, Esq. Proposed Counsel for Debtors and Debtors in Possession HEARING DATE AND TIME: August 29, 2017 at 10:00AM (Eastern Time) RESPONSE DEADLINE: August 22, 2017 at 4:00PM (Eastern Time) UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x In re: : : Chapter 11 BICOM NY, LLC, et al., 1 : : Case No. 17-11906(MEW) Debtors. : : (Jointly Administrated) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x MOTION OF DEBTORS PURSUANT TO 11 U.S.C. 363(b)(1) AND 503(c) FOR ENTRY OF AN ORDER APPROVING KEY EMPLOYEE RETENTION PLAN FOR CERTAIN NON-INSIDER EMPLOYEES BICOM NY, LLC d/b/a Jaguar Land Rover Manhattan ( BICOM ), ISCOM NY, LLC d/b/a Maserati of Manhattan ( ISCOM ), and Bay Ridge Automotive Company, LLC d/b/a Bay Ridge Ford ( BRAC ) (collectively, the Debtors ), by and through their proposed counsel Wilk Auslander, LLP, submit this motion (the Motion ) pursuant to sections 363(b)(1) and 503(c) of title 11, United States Code (the Bankruptcy Code ), seeking the entry of an order (the KERP Order ) in substantially the same form as attached hereto as Exhibit A, approving a very limited 1 The last four digits of each Debtor s taxpayer identification number are as follows: BICOM NY, LLC (9990); ISCOM NY, LLC (1589); and Bay Ridge Automotive Company, LLC (0694). The Debtors addresses are 787 11th Avenue, New York, NY 10019; 1 York Street, New York, NY 10013; and 612 86 th Street, Brooklyn, NY 11228, respectively.
Motion Pg 2 of 19 Key Employee Retention Llan for non-insider employees. In support of this Motion, the Debtors respectfully represent as follows: PRELIMINARY STATEMENT 1. On July 27, 2017, the Debtors filed a motion pursuant to sections 363 and 365 of the Bankruptcy Code requesting approval to: (1) schedule an auction of substantially all of the Debtors assets seeking to sell substantially all of their assets (the Sale ); (2) implement bidding procedures; (3) schedule a hearing to confirm the results of the auction and approve the Sale free and clear of all claims, liens, and interests; and (4) requesting related relief [ECF No. 78] ( Sale Motion ). The Sale Motion provides for an orderly and expeditious sale process and is the sole means of providing any possibility that the Debtors secured, priority, and general unsecured creditors will receive a distribution in these cases and provides an opportunity to preserve the hundreds of jobs held by the Debtors employees. On August 10, 2017, the Court entered an order granting the Sale Motion [ECF No. 132]. 2. Despite the Debtors significant accomplishments since the Petition Date (as defined below) in stabilizing the Debtors operations and preserving their value as going concerns, much work remains to be done to effectuate the Sale. None of this can be easily accomplished without the continued efforts, dedication, and support of certain of the Debtors key employees ( Key Employees ) who must perform the remaining tasks, which are often outside their ordinary and customary duties. It is essential to retain these Key Employees, who are not insiders, in the face of uncertainty regarding their future. Without these employees, the Debtors are greatly concerned that their assets will substantially be diminished in value, thereby undermining the Sale and the Debtors effort to maximize value for all creditors. - 2 -
Motion Pg 3 of 19 3. The Key Employees are five (5) employees that include the Debtors Chief Financial Officer, the Director of Human Resources, the Controller, the General Manager for Jaguar Land Rover Manhattan and Maserati of Manhattan and the Service Manager for Jaguar Land Rover Manhattan. The Debtors and their advisors worked closely to develop a narrowlytailored retention plan for essential Key Employees (the KERP ) who are not insiders as that term is defined in the Bankruptcy Code. The total program is limited to $100,000 and payments are keyed to a successful closing of the Sale. BACKGROUND 4. On July 10, 2017 (the Petition Date ), the Debtors filed voluntary petitions pursuant to Chapter 11 of the Bankruptcy Code and are authorized to continue to operate their businesses and manage their properties as debtors in possession, pursuant to 1107(a) and 1108 of the Bankruptcy Code. 5. No trustee or examiner has been appointed in this case. On July 31, 2017, the United States Trustee appointed an Official Committee of Unsecured Creditors (the Committee ), which, as amended, comprises Market Masters Media Group, Inc., The Daily News LP, and Motivated Security Services, Inc. 6. BICOM, a New York limited liability company, owns and operates a dual Jaguar/Land Rover vehicle franchise (the J/LR Dealership ), pursuant to franchise agreements (the J/LR Franchise Agreements ) by and between BICOM and Jaguar Land Rover North America, LLC ( J/LR ), the manufacturer. The J/LR Dealership, as of the Petition Date, is located at 787 Eleventh Avenue, New York, New York ( J/LR Facility ) and operates under the names Land Rover Manhattan, Jaguar Manhattan, and Jaguar Land Rover Manhattan - 3 -
Motion Pg 4 of 19 pursuant to a lease (the Georgetown Lease ) with Georgetown Eleventh Avenue Owners, LLC ( Georgetown ). 7. ISCOM, a New York limited liability company, owns and operates a Maserati vehicle franchise (the Maserati Dealership ), pursuant to a franchise agreement (the Maserati Franchise Agreement ) by and between ISCOM and Maserati North America, Inc. ( Maserati ), the manufacturer. The Maserati Dealership, as of the Petition Date, is located at 1 York Street, New York, New York ( Maserati Facility ) and operates under the name Maserati of Manhattan. 8. BRAC, a New York limited liability company, owns and operates a Ford vehicle franchise (the Ford Dealership, with the J/LR Dealership and the Maserati Dealership, the Dealerships ), pursuant to a franchise agreement (the Ford Franchise Agreement with the J/LR Franchise Agreements and the Maserati Franchise Agreement, the Franchise Agreements ) by and between BRAC and Ford Motor Company ( Ford, with J/LR and Maserati, the Manufacturers ), the manufacturer. 9. In 2016, the Debtors aggregate gross revenues totaled approximately $269 million. 10. As further detailed in the Sale Motion, the Debtors and JPMorgan Chase Bank, N.A. ( Chase ) are parties to various pre-petition agreements (collectively, the Loan Agreements ), including a line of credit in the original principal amount of $82,000,000, pursuant to which Chase provided floorplan financing for the Debtors to purchase new and used vehicles to sell in their retail operations. Prior to the Petition Date, as a result of the Debtors defaults under the Loan Agreements, Chase ultimately ceased providing floorplan financing. - 4 -
Motion Pg 5 of 19 11. On May 9, 2017, Chase commenced an action in the Supreme Court for the State of New York, County of New York (the State Court Action ) seeking to seize the vehicles, parts, and all other of its collateral (the Collateral ) owned by the Dealerships and restrain the Debtors from removing or selling any of the Collateral. On May 10, 2017, the Supreme Court entered a Temporary Restraining Order prohibiting the Debtors from selling or transferring any of the Collateral. 12. Subsequent to and after the commencement of the State Court Action, the Debtors began soliciting offers to purchase the Dealerships, which resulted in the Debtors engaging with numerous interested parties. 13. On June 15, 2017, after weeks of negotiations, the Debtors and Chase entered into a Forbearance Agreement allowing the Debtors to operate, under certain conditions, until July 17, 2017, if they could secure an agreement ( APA ) to sell the Dealerships and provide the APA to Chase by June 23, 2017 (the APA Date ). 14. However, the Debtors lacked both sufficient liquid assets and the ability to generate sufficient revenue from their operations to satisfy the costs of operating the Dealerships in order to consummate the sale of their assets. The uncertainty surrounding the Dealerships future and their inability to satisfy fundamental operating expenses such as the remittance of sales taxes to the state taxing authority and meeting payroll 2 severely hampered employee 2 According to the Debtors Bankruptcy Schedules there are approximately $7 million in priority claims that will be required to be satisfied before distributions can be made to general unsecured creditors: a) approximately 220 current and former employees of the Debtors are owed approximately $1 million in unpaid wages earned prior to the Petition Date; and b) the Debtors owe approximately $6 million in unpaid sales tax to the New York State Department of Taxation and Finance. - 5 -
Motion Pg 6 of 19 morale. As a result of employee resignations and terminations, the Debtors workforce shrunk by 50 percent immediately before the Petition Date. (Agran KERP Decl., 9.) 3 15. As a result of the Debtors inability to satisfy expenses or to recommence operations subsequent to the Petition Date, the Debtors entered into debtor-in-possession financing (the DIP Financing Facility ) with Chase on or about July 15, 2017. Under the DIP Financing Facility, Chase will only finance the Debtors operations through September 29, 2017 (the Loan Termination Date ). As of the Loan Termination Date, it is projected that the Debtors will owe Chase: a) $2.5 million under the DIP Financing Facility; b) $2.3 million with respect to vehicles sold that remained unpaid prior to the Petition Date; c) $2 million on account of the Working Capital Loan; d) $6.43 million on account of letters of credit posted by Chase on behalf of the Debtors for the benefit of third-party landlords that have been drawn upon; and e) $47 million secured by the Debtors vehicle inventory, totaling approximately $60 million. 4 16. Subsequent to the Petition Date, the Debtors also entered into a stipulation (the Georgetown Stipulation ) with Georgetown wherein Georgetown agreed to defer rent obligations under the J/LR Facility Lease through September 30, 2017. The Bankruptcy Court approved the Georgetown Stipulation on August 8, 2017 [ECF No. 124]. 17. As of the Petition Date, the Debtors retained Carl Marks Advisory Group ( CMAG ) to both assist in the Debtors operations and in the solicitation of interested parties to purchase the Debtors assets. In addition, the Debtors appointed Steven Agran, a Managing Director with CMAG, as Chief Restructuring Officer [ECF No. 126]. 3 Citations to Agran KERP Decl. and references to Agran Declaration are to the declaration of Steven F. Agran, CTP, CIRA, the Debtor s Chief Restructuring Officer, attached hereto as Exhibit B. 4 The Debtors also guarantee at least $3,410,000 of a non-debtor affiliate s indebtedness to Chase. - 6 -
Motion Pg 7 of 19 18. On July 27, 2017, the Debtors filed the Sale Motion, which the Court granted on August 8, 2017. Under the Debtors Sale process (as more fully described in the Sale Motion) the Sale is anticipated to close on or before September 29, 2017 (the Closing ), a day before the DIP Financing Facility terminates and the deferred rent under the Georgetown Stipulation becomes immediately due and owing. Jurisdiction 19. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. 157 (a), 157(b)(l) and 1334. Venue is appropriate in this District pursuant to 28 U.S.C. 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. 157(b)(2). Relief Requested 20. The Debtors request entry of an order, in substantially the same form as Exhibit A, pursuant to sections 363(b)(1) and 503(c)(3) of the Bankruptcy Code, approving the Debtors KERP for Key Employees who are not insiders, as such term is defined in section 101(31) of the Bankruptcy Code. 21. As set forth herein, the Debtors require immediate authorization to implement the KERP to ensure that they do not lose valuable talent and institutional knowledge, and those who are able to continue the Debtors operations pending the Closing. If the Key Employees choose to leave, as many of their co-workers did prior to the Petition Date, it will pose a serious risk to the Debtors ability to get to the Closing and to maximize the purchase price for the Dealerships. 22. In the competitive automotive market place, it will be exceedingly difficult, if not impossible, to find experienced employees willing to commit to an employer whose continued existence in its current form is questionable. Even assuming the Debtors are able to recruit - 7 -
Motion Pg 8 of 19 employees with adequate qualifications and experience, the delay associated with overcoming learning curves by replacement employees would result in direct costs to the Debtors and their constituents that would, in all likelihood, far exceed the cost associated with the KERP. The Debtors could also hire or expand the roles of their professionals, but that too would come at an excessively high cost. Thus, to avoid an exodus of the Key Employees and a correlative decline in the value of their estates, the Debtors respectfully request that the Court approve the terms of the KERP as hereinafter described. The Key Employees and the KERP 23. The Key Employees work across a variety of disciplines and are responsible for facilitating a range of tasks critical to the Debtors operations, including matters relating to dealership store operations and human resources. The Key Employees possess functional and technical expertise, deep institutional knowledge, and management responsibilities over functions and store operations. The Key Employees have also been subject to increased concerns and stress due to commencement of the chapter 11 cases and the public announcement of the sale and wind down of the Debtors operations. Accordingly, the Debtors are legitimately concerned that they may lose the Key Employees. (Agran KERP Decl. 11.) 24. In addition to assisting the Debtors with the administration of the chapter 11 cases, the Key Employees have each taken on the responsibility of performing a variety of new and nuanced tasks associated with the Debtors chapter 11 cases, including preserving the value of franchises in a manner consistent with the Sale. (Id. 12.) 25. None of the Key Employees are insiders as such term is defined in section 101(31) of the Bankruptcy Code. (Id. 13-16.) None of the Key Employees had any input on any aspect of the KERP, including who would be eligible to participate in the KERP, - 8 -
Motion Pg 9 of 19 the criteria and the payments proposed to be made. Further, none of the Key Employees are currently officers of the Debtors or have a direct or indirect interest in the Debtors. (Id.) 26. The total amount to be paid under the KERP is $100,000 (the KERP Payments ) a modest amount, as discussed below, considering the size of the Dealerships operations and access to the DIP Financing Facility. The KERP Payments are to be earned only upon the Closing. To provide assurances that the Debtors will not induce the Key Employees to stay with the Debtors through the Sale process only to terminate them immediately before the Closing thereby stripping them from the KERP Payments, the Key Employees will be entitled to their respective portion of the KERP Payments if they are terminated without cause prior to the Closing. If the Key Employees are terminated for cause before the Closing, they will not be entitled to any of the KERP Payments. 5 27. Below is a chart of each employee eligible under the KERP, their job titles, a summary of their job responsibilities, and the KERP Payments that each employee is entitled to: NAME TITLE BRIEF SUMMARY OF JOB RESPONSIBILITIES PAYMENT ($) Matthew Lawless John Tremaroli Isaac Ashwal Mikhail Kopilovich Director of Human Resources for Debtors Chief Financial Officer for Debtors General Manager for Jaguar Land Rover Manhattan and Maserati of Manhattan Head of Service for Jaguar Land Rover Manhattan Responsible for all employee issues including onboard, separation, and payroll benefits Responsible for all financial reporting, manages finance personnel, and accounting related activities Responsible for all sales and service for Jaguar Land Rover and Maserati brands Responsible for all service of vehicles for Jaguar Land Rover $30,000 $30,000 $30,000 $5,000 5 To be clear, the KERP is not intended to alter the Key Employees employment status or their employment relationship with the Debtors, including any employment agreements between the parties, with respect to matters not associated with the KERP or KERP Payments. Thus, any alternation or limitation of the Debtors ability to terminate the Key Employees at will, to the extent the right exists under applicable law, is limited to entitlement of the KERP Payments. - 9 -
Motion Pg 10 of 19 Anna Acosta Controller for Debtors Manages all books and records, manages payroll, and settles Chase floorplan payments $5,000 28. Given that the KERP is intended to motivate Key Employees to remain employed with the Debtors during the Sale process, the timing of KERP Payments are interconnected to the expected timing of the Closing. The Implementation of the KERP Is a Valid Exercise of the Debtors Business Judgment 29. The KERP constitutes a sound exercise of the Debtors business judgment and should be approved under section 363(b)(1) of the Bankruptcy Code. Section 363(b)(1) provides that [t]he [debtor], after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate. 11 U.S.C. 363(b)(1). Key Employee Retention Plans may be approved under section 363(b)(1) of the Bankruptcy Code. See In re Borders Grp., Inc., 453 B.R. 459, 473 (Bankr. S.D.N.Y. 2001). Use of estate property outside the ordinary course of business is entrusted to the sound business judgment of a debtor. See, e.g., Official Comm. Of Unsecured Creditors v. LTV Corp. (In re Chateaugay), 973 F.2d 141, 143 (2d Cir. 1992) (affirming the bankruptcy s courts approval of debtors asset sale pursuant to section 363(b) as a reasonable exercise of business judgment); Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1072 (2d Cir. 1983) (holding that the application of section 363(b) creditors ); In re Global Crossing Ltd., 295 B.R. 726, 743 (Bankr. S.D.N.Y. 2003) (emphasizing the business judgment rule); Borders, 453 B.R. at 473 (same). 30. The Debtors decision to implement the KERP is a reasonable exercise of business judgment. The Debtors have determined that implementing the KERP will appropriately incentivize and motivate the Key Employees to remain engaged and focused on stabilizing the Dealerships operations and improving the Dealerships financial health, in - 10 -
Motion Pg 11 of 19 addition to performing their traditional duties. As noted herein, the Key Employees possess the special knowledge and expertise necessary to stabilize the Debtors operations and allow them to effectuate a successful wind down strategy. The loss of critical employees has had and will continue to have a severe adverse impact on the Debtors businesses as, among other things, it would have a detrimental impact on the morale of the remaining employees and also will send a negative message to the Debtors customers, franchisors, suppliers, and to potential purchasers. The Debtors have concluded that hiring additional professionals or recruiting replacement candidates who not only have experience in the automobile industry, but also possess the requisite expertise regarding the Debtors businesses, would be extremely challenging and more costly than the KERP. Accordingly, implementing the KERP is a valid exercise of the Debtors business judgment and approval of the KERP is in the best interests of the Debtors and their estates. The KERP Satisfies the requirements of Section 503(c) of the Bankruptcy Code 42. The KERP should be approved pursuant to section 503(c)(3) of the Bankruptcy Code. For the reasons stated herein, the KERP is justified by the facts and circumstances of this case. Moreover, the prohibitions and restrictions under section 503(c)(1) do not apply here. Section 503(c)(1) restricts the ability of insiders to receive payments as part of retention plans. As set forth in the Agran Declaration, none of the Key Employees are insiders (as such term is defined by section 101(31) of the Bankruptcy Code). A. Section 503(c)(1) Does Not Apply 43. If the Key Employees were insiders within meaning of the Bankruptcy Court, the Debtors would be required to meet the strict requirements in section 503(c)(1) to approve the KERP. See In re Residential Capital, LLC, 478 B.R. 154, 169 (Bankr. S.D.N.Y. 2012). - 11 -
Motion Pg 12 of 19 However, as none the Key Employees are insiders the KERP must be evaluated under the more lenient, business judgment standard under section 503(c)(3). 44. The Bankruptcy Code defines an insider to include, among other things, an officer of the debtor and a person in control of the debtor. 11 U.S.C. 101(31). Courts also have concluded that an employee may be an insider if such employee has at least a controlling interest in the debtor or... exercise[s] sufficient authority over the debtor so as to unqualifiably dictate corporate policy and the disposition of corporate assets. In re Velo Holdings, Inc., 472 B.R. 201, 208 (Bankr. S.D.N.Y. 2012) (citation omitted). It is wellestablished that an employee s job title, alone, does not make such employee an insider as defined by the Bankruptcy Code. See In re Borders Grp., Inc., 453 B.R. 459, 469 (Bankr. S.D.N.Y. 2011) (noting that [c]ompanies often give employees the title director or directorlevel, but do not give them decision-making authority akin to an executive and concluding that certain director level employees in that case were not insiders). 44. None of the Key Employees are insiders, as such term is defined by section 101(31) of the Bankruptcy Code. First, none of the Key Employees have discretionary control over substantial budgetary amounts. ( Agran KERP Decl. 15.) Second, all Key Employees must seek authority before taking any significant action relating to strategic decisionmaking or corporate policy and asset disposition. (Id. 14.) Third, none of the Key Employees receive equity of the Debtors as part of their compensation structure or participate in the Debtors corporate governance. (Id. 15.) Fourth, none of the Key Employees are executive officers of the Debtors. Fifth, none of the Key Employees had any say or input whatsoever on any aspect of the KERP. (Id.) Finally, although the CFO includes the term officer in his job title, he is not an insider of the Debtors for the same reasons set forth above - 12 -
Motion Pg 13 of 19 that establish that the other Key Employees are not insiders. (Id. 14.) Therefore, none of the Key Employees is an insider of the Debtors. As such, the restrictions of section 503(c)(1) of the Bankruptcy Code are inapplicable to the KERP. B. Section 503(c)(3) is Satisfied 45. Section 503(c)(3) of the Bankruptcy Code provides that there shall neither be allowed, nor paid (3) other transfers or obligations that are outside the ordinary course of business and not justified by the facts and circumstances of the case, including transfers made to, or obligations incurred for the benefit of, officers, managers, or consultants hired after the date of the filing of the petition. 46. In this district, courts have concluded that whether payments to employees are justified by the facts and circumstances of case is to be determined by application of the business judgment rule. See In re Velo Holdings, Inc., 472 B.R. 201, 209 (Bankr. S.D.N.Y. 2012) (noting that the facts and circumstances language of 503(c)(3) creates a standard no different than the business judgment standard under section 363(b) ); In re Borders Grp., Inc., 453 B.R. 459, 473 74 (Bankr. S.D.N.Y. 2011) (evaluating debtors KERP under business judgment rule); In re Dana Corp., 358 B.R. 567, 576 77 (Bankr. S.D.N.Y. 2006) (describing six factors that courts may consider when determining whether the structure of a compensation proposal meets the sound business judgment test in accordance with section 503(c)(3) of the Bankruptcy Code). Accordingly, whether a retention plan is justified by the facts and circumstances of the case and the analysis of whether the approval of such plan is a sound exercise of the debtors business judgment remains the same. 46. Courts within the Second Circuit have generally utilized the factors identified in In re Dana Corp. when determining if the structure of a compensation proposal and the process - 13 -
Motion Pg 14 of 19 for its development meet the business judgment test. See, e.g., In re Residential Capital, LLC, 491 B.R. 73, 85 86 (Bankr. S.D.N.Y. 2013) (applying the Dana factors to the debtors retention plan for non-insiders, and approving the plan as an exercise of sound business judgment); Borders, 453 B.R. at 473 74 (same). In Dana, the bankruptcy court set forth six factors for evaluating whether a debtor has satisfied the sound business judgment test for purposes of the approval of a compensation plan under section 503(c)(3) of the Bankruptcy Code: determined, in consultation with the Debtors management, its attorneys, Chase, and other - 14 - Is there a reasonable relationship between the plan proposed and the results to be obtained, i.e., will the key employee stay for as long as it takes for the debtor to reorganize or market its assets, or, in the case of a performance incentive, is the plan calculated to achieve the desired performance? Is the cost of the plan reasonable in the context of the debtor s assets, liabilities and earning potential? Is the scope of the plan fair and reasonable; does it apply to all employees; does it discriminate unfairly? Is the plan or proposal consistent with industry standards? What were the due diligence efforts of the debtor in investigating the need for a plan; analyzing which key employees need to be incentivized; what is available; what is generally applicable in a particular industry? Did the debtor receive independent counsel in performing due diligence and in creating and authorizing the incentive compensation? Dana, 358 B.R. at 576 77 (emphasis in original). 47. For the reasons set forth above, the KERP is appropriate under the facts and circumstances of the Debtors operations and pre-petition distress and their aim of maximizing the value of their estates by effectuating the Sale. In addition, the CRO, who is highly experienced in managing financially distressed companies, including in chapter 11 cases, has
Motion Pg 15 of 19 interested parties, that the KERP is in the best interest of creditors. This is a very focused, uncomplicated, and limited KERP directly tied to a singular goal. The total amount of the KERP Payments is $100,000 to five employees. The CRO and Debtors management believe the Key Employees are essential to consummating the Sale and generating the greatest value for the estate and its creditors. The reasonableness of the KERP is further highlighted by the fact that the total KERP Payments represent only approximately 0.037 percent of the Debtors combined gross revenue for 2016. Cf. In re Borders Grp., Inc., 453 B.R. at 475 (approving Key Employee Retention Program where combined costs of KERP and Key Employee Incentive Program represented.17 percent of the debtor s revenues for the previous year). 48. The Debtors also submit that the KERP is consistent with other ones in similar bankruptcy cases with similar goals as the Debtor. This is a case with greatly limited resources and the Debtors are in the not in a position to hire a third-party KERP expert. 49. Accordingly, the KERP satisfies section 503(c)(3) of the Bankruptcy Code as it is justified by the facts and circumstances of these chapter 11 cases, and should be approved. Waiver of Bankruptcy Rules 6004(h) 50. For the reasons set forth herein, immediate implementation of the KERP is critical to minimize further disruption to the Debtors businesses. Accordingly, the Debtors seek a waiver of the fourteen-day stay of an order authorizing the use, sale, or lease of property under Bankruptcy Rule 6004(h). Notice 51. The Debtors have provided notice of this Motion to: (a) the Key Employees; (b) the United States Trustee for Region 2; (c) counsel for the Official Committee of Unsecured - 15 -
Motion Pg 16 of 19 Creditors; (d) counsel for Chase; (e) the United States Attorney for the Southern District of New York; (f) the United States Securities and Exchange Commission; (g) the Internal Revenue Service; and (h) any party that has requested notice pursuant to Bankruptcy Rule 2002. In light of the nature of the relief requested, the Debtors respectfully submit that no further notice is necessary. No Prior Request 52. No prior request for the relief sought in the Motion has been made to this or any other court. WHEREFORE the Debtors respectfully request that the Court enter an Order in substantially the same form as attached hereto as Exhibit A, approving the KERP, together with such other and further relief as the Court deems appropriate. Dated: New York, New York August 11, 2017 WILK AUSLANDER LLP By: /s/ Eric J. Snyder Eric J. Snyder, Esq. David L. Barrack, Esq. Eloy A. Peral, Esq. 1515 Broadway, 43rd Floor New York, New York 10036 (212) 981-2300 Proposed Counsel for the Debtors and Debtors in Possession - 16 -
Motion Pg 17 of 19 Exhibit A Proposed Order - 17 -
Motion Pg 18 of 19 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x In re: : : Chapter 11 BICOM NY, LLC, et al., 6 : : Case No. 17-11906(MEW) Debtors. : : (Jointly Administrated) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x ORDER GRANTING MOTION OF DEBTORS PURSUANT TO 11 U.S.C. 363(b)(1) AND 503(c) FOR ENTRY OF AN ORDER APPROVING KEY EMPLOYEE RETENTION PLAN FOR CERTAIN NON-INSIDER EMPLOYEES UPON the motion (the Motion ) of BICOM NY, LLC d/b/a Jaguar Land Rover Manhattan ( BICOM ), ISCOM NY, LLC d/b/a Maserati of Manhattan ( ISCOM ), and Bay Ridge Automotive Company, LLC d/b/a Bay Ridge Ford ( BRAC ) (collectively, the Debtors ), pursuant to sections 363(b)(1) and 503(c) of title 11, United States Code (the Bankruptcy Code ), seeking the entry of an order approving a key employee retention plan for non-insider employees (the KERP ), as more fully described in the Motion.; and it appearing that proper and sufficient notice of the relief sought in the Motion has been given; and it further appearing that the requested relief is reasonable and proper and a hearing on the Motion having been held on ; and sufficient cause appearing to me therefor and due consideration having been given; it is HEREBY ORDERED THAT: is approved. 1. The Motion is granted as set forth herein. 2. Pursuant to sections 363(b)(1) and 503(c) of the Bankruptcy Code, the KERP 6 The last four digits of each Debtor s taxpayer identification number are as follows: BICOM NY, LLC (9990); ISCOM NY, LLC (1589); and Bay Ridge Automotive Company, LLC (0694). The Debtors addresses are 787 11th Avenue, New York, NY 10019; 1 York Street, New York, NY 10013; and 612 86 th Street, Brooklyn, NY 11228, respectively. - 18 -
Motion Pg 19 of 19 3. The five (5) Key Employees 7 eligible under the KERP shall be entitled to the KERP Payments if they are terminated by the Debtors without cause prior to the Closing. If the Key Employees are terminated with cause prior to the Closing, they shall not be entitled to the KERP Payments. Any alteration or limitation of the Debtors right to terminate the Key Employees at will, to the extent the Debtors have such right under applicable non-bankruptcy law, shall be limited to entitlement of the KERP Payments. 4. The Debtors are authorized to take all actions necessary to effectuate the relief granted in this Order in accordance with the Motion. 5. Pursuant to Bankruptcy Rule 6004(h), the terms and provisions of this Order shall be immediately effective and enforceable upon its entry. 6. This Court retains jurisdiction with respect to all matters arising from or related to the implementation, interpretation, and enforcement of this Order. Dated: New York, New York August, 2017 HONORABLE MICHAEL E. WILES UNITED STATES BANKRUPTCY JUDGE 7 Capitalized terms in this paragraph shall have the same meaning as ascribed to them in the Motion. - 19 -
17-11906-mew Doc 145-2 Filed 08/11/17 Entered 08/11/17 15:27:44 Exhibit B (Agran Declaration) Pg 1 of 10 EXHIBIT B AGRAN DECLARATION 00986823.2 00988838.1 1
17-11906-mew Doc 145-2 Filed 08/11/17 Entered 08/11/17 15:27:44 Exhibit B (Agran Declaration) Pg 2 of 10 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x In re: : : Chapter 11 BICOM NY, LLC, et al., 1 : : Case No. 17-11906 (MEW) Debtors. : : (Jointly Administrated) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x DECLARATION OF STEVEN F. AGRAN IN SUPPORT OF DEBTORS MOTION PURSUANT TO 11 U.S.C. 363(b)(1) AND503(c) FOR ENTRY OF AN ORDER APPROVING KEY EMPLOYEE RETENTION PLAN FOR CERTAIN NON-INSIDER EMPLOYEES I, Steven F. Agran, hereby declare under penalty of perjury pursuant to 28 U.S.C. 1746 that the foregoing is true and correct to the best of my knowledge, information, and belief: 1. I am a Managing Director of Carl Marks Advisory Group LLC ( CMAG ), a business and restructuring advisory services firm. I am also the Chief Restructuring Officer for BICOM NY, LLC d/b/a Jaguar Land Rover Manhattan ( BICOM ), ISCOM NY, LLC d/b/a Maserati of Manhattan ( ISCOM ), and Bay Ridge Automotive Company, LLC d/b/a Bay Ridge Ford ( BRAC ), the debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the Debtors or the Dealerships ). I submit this declaration (the Declaration ) in support of the above titled (the Motion ). Except as otherwise noted, I have personal knowledge of the matters set forth herein, my opinion, my discussions with the management and professionals of the Debtors, and my review of relevant documents. If called to testify, I could and would testify to each of the facts and opinion set forth herein. 1 The last four digits of each Debtor s taxpayer identification number are as follows: BICOM NY, LLC (9990); ISCOM NY, LLC (1589); and Bay Ridge Automotive Company, LLC (0694). The Debtors addresses are 787 11th Avenue, New York, NY 10019; 1 York Street, New York, NY 10013; and 612 86 th Street, Brooklyn, NY 11228, respectively. 00986823.2 00988838.1 2
17-11906-mew Doc 145-2 Filed 08/11/17 Entered 08/11/17 15:27:44 Exhibit B (Agran Declaration) Pg 3 of 10 2. Pre-petition, I was retained by the Debtors to act as their Chief Restructuring Officer ( CRO ) and by interim order dated July 20, 2017 this Court authorized my retention as CRO and authorized CMAG to provide personnel and other assistance in performance of my duties as CRO effective as of July 10, 2017. I have a Bachelor of Arts degree from University of Michigan and Masters of Business Administration awarded by Duke University Fuqua School of Business. I have been appointed by various bankruptcy courts to act as CRO in four cases and have acted as Chief Financial Officer or Chief Executive Officer of eight companies requiring in and out of court financial restructuring. I am a Certified Public Accountant (CPA) (inactive), a TMA Certified Turnaround Professional (CTP), and a Certified Insolvency and Restructuring Advisor (CIRA). I am also on the Board of Directors of the New Jersey Turnaround Management Association and the Board of Directors of Global TMA and former co-chair of the TMA Mid-Atlantic Symposium. 3. As CRO, I report and provide strategic advice to the Debtors and their manager, Gary Flom, in connection with the Debtors chapter 11 cases, and I am responsible for carrying out the Debtors chapter 11 strategy and objectives. 4. I have reviewed the Motion. I believe that it accurately reflects the circumstances leading to the development of the KERP (as defined below) and the justifications and need to approve the KERP. I firmly and it is the view of the Debtors management that the approval of the KERP and other relief requested in the Motion is absolutely necessary to the Debtors business operations and to maximize the value of the Debtors estates for their creditors. 5. On July 10, 2017, the Debtors filed voluntary petitions pursuant to Chapter 11 of the Bankruptcy Code and are authorized to continue to operate their businesses and manage their properties as debtors in possession, pursuant to 1107(a) and 1108 of the Bankruptcy Code. 00986823.2 00988838.1 3
17-11906-mew Doc 145-2 Filed 08/11/17 Entered 08/11/17 15:27:44 Exhibit B (Agran Declaration) Pg 4 of 10 6. On July 27, 2017, the Debtors filed a motion pursuant to sections 363 and 365 of the Bankruptcy Code requesting approval to: (1) schedule an auction of substantially all of the Debtors assets (the Sale ); (2) implement bidding procedures; (3) schedule a hearing to confirm the results of the auction and to approve the Sale free and clear of all claims, liens, and interests; and (4) requesting related relief [ECF No. 78] ( Sale Motion ). The Sale Motion provides for the orderly liquidation of the Debtors and is the sole means of providing any possibility that the Debtors secured, priority and general unsecured creditors will receive a distribution in these cases and provides an opportunity to preserve the hundreds of jobs held by the Debtors employees. On August 10, 2017, the Court entered an order granting the Sale Motion and approving, inter alia, bidding procedures [ECF No. 132]. 7. The Debtors are at a critical stage of their chapter 11 cases. Despite the Debtors significant accomplishments in stabilizing the Debtors operations and preserving their value as going concerns, much work remains to be done to effectuate the Sale. None of this can be accomplished without the continued efforts, dedication and support of certain of the Debtors key employees ( Key Employees ) who must perform the remaining tasks, which are often outside their ordinary and customary duties. It is essential to retain these Key Employees, who are not insiders, in the face of uncertainty regarding their future as the Debtors seek to sell their assets. Without these employees, it is my opinion and that of the Debtors that their assets will substantially be diminished in value, thereby undermining the Sale and the Debtors effort to maximize value for all creditors. 8. The Key Employees are five (5) employees that include the Debtors Chief Financial Officer, the Director of Human Resources, and the Controller, and the General Manager for Jaguar Land Rover Manhattan and Maserati of Manhattan and Service Manager for 00986823.2 00988838.1 4
17-11906-mew Doc 145-2 Filed 08/11/17 Entered 08/11/17 15:27:44 Exhibit B (Agran Declaration) Pg 5 of 10 Jaguar Land Rover Manhattan. I worked closely with the Debtors and their advisors to develop a narrowly-tailored retention plan for essential Key Employees (the KERP ) who are not insiders as that term is defined in the Bankruptcy Code. The total program is limited to $100,000 and payments thereunder are keyed to a successful closing of the Sale ( Closing ). 9. The Debtors pre-petition efforts to sell the dealerships where unsuccessful. I am informed that the Debtors lacked both sufficient liquid assets and the ability to generate sufficient revenue from their operations to satisfy the costs of operating the Dealerships in order to consummate the sale of their assets. The uncertainty surrounding the Dealerships future and their inability to satisfy fundamental operating expenses such as the remittance of sales taxes to the state taxing authority and meeting payroll 2 severely hampered employee morale. As a result of employee resignations and terminations, the Debtors workforce shrunk by approximately 50 percent immediately before the Petition Date. 10. Under the Debtors Sale process (as more fully described in the Sale Motion and approved in the order granting the motion) the Sale is anticipated to close on or before September 29, 2017 (the Closing ), a day before the DIP Financing Facility (as defined in the Motion) terminates and the deferred rent under the Georgetown Stipulation (as defined in the Motion) becomes immediately due and owing. The Closing must occur prior to the termination of the DIP Financing Facility. 11. The Key Employees work across a variety of disciplines and are responsible for facilitating a range of tasks critical to the Debtors operations, including matters relating to dealership store operations and human resources. The Key Employees possess functional and 2 According to the Debtors Bankruptcy Schedules there are approximately $7 million in priority claims that will be required to be satisfied before distributions can be made to general unsecured creditors a) approximately 220 current and former employees of the Debtors are owed approximately $1 million in unpaid wages earned prior to the Petition Date; and b) the Debtors owe approximately $6 million in unpaid sales tax to the New York State Department of Taxation and Finance. 00986823.2 00988838.1 5
17-11906-mew Doc 145-2 Filed 08/11/17 Entered 08/11/17 15:27:44 Exhibit B (Agran Declaration) Pg 6 of 10 technical expertise, deep institutional knowledge, and management responsibilities over functions and store operations. The Key Employees have also been subject to increased concerns and stress due to commencement of the chapter 11 cases and the public announcement of the sale and wind down of the Debtors operations. Accordingly, it is my opinion that the Debtors concern that they may lose the Key Employees is legitimate. 12. In addition to assisting the Debtors with the administration of the chapter 11 cases, the Key Employees have each taken on the responsibility of performing a variety of new and nuanced tasks associated with the Debtors chapter 11 cases, including preserving the value of franchises in a manner consistent with the Sale. 13. None of the Key Employees are insiders as such term is defined in section 101(31) of the Bankruptcy Code. None of the Key Employees had any input on any aspect of the KERP, including who would be eligible to participate in the KERP, the criteria and the payments proposed to be made. Further, none of the Key Employees have a direct or indirect interest in the Debtor. 14. Four out of five of the Key Employees do not have an officer title. They are the Debtors Director of Human Resources and the Controller, the General Manager for Jaguar Land Rover Manhattan and Maserati of Manhattan and Service Manager for Jaguar Land Rover Manhattan. They each report to the Debtors manager, Gary Flom, and to me as CRO. As I understood, the one Key Employee who has a title of Chief Financial Officer ( CFO ) is not an insider within the meaning of the Bankruptcy Code, because he does not (nor do the other Key Employees) dictate corporate policy and the disposition of corporate assets. Rather, the CFO is responsible for the day-to-day financial reporting and financial operations of the Debtors. The CFO also reports to Mr. Flom and me as CRO. 00986823.2 00988838.1 6
17-11906-mew Doc 145-2 Filed 08/11/17 Entered 08/11/17 15:27:44 Exhibit B (Agran Declaration) Pg 7 of 10 15. None of the Key Employees (i) participate in the Debtors corporate governance; or (ii) receive equity of the Debtors as part of their compensation structure. Moreover, none of the Key Employees (including the CFO) exercise discretionary control over substantial budget amounts. None of the Key Employees had any input whatsoever in the KERP, including the eligible participants, the eligible amounts or the specified tasks that must be performed to receive a payment. 16. The total amount to be paid under the KERP is $100,000 (the KERP Payments ) a modest amount considering the size of the Dealerships operations and access to the DIP Financing Facility. The total KERP Payments are about.037 percent of the Debtors aggregate gross revenue for 2016 (approximately $269 million). The KERP Payments are to be earned only upon the Closing. To provide adequate assurances that the Debtors will not induce the Key Employees to stay with the Debtors through the Sale process only to terminate them immediately before the Closing thereby stripping them from the KERP Payments, the Key Employees will be entitled to their respective portion of the KERP Payments if they are terminated without cause prior to the Closing. If the Key Employees are terminated for cause before the Closing, they will not be entitled to any of the KERP Payments. 3 17. Below is a chart of each employee eligible under the KERP, their job titles, a summary of their job responsibilities, and the KERP Payments that each employee is entitled to: Remainder of Page Intentionally Left Blank 3 To be clear, the KERP is not intended to alter the Key Employees employment status or their employment relationship with the Debtors, including any employment agreements between the parties, with respect to matters not associated with the KERP or KERP Payments. Thus, any alternation or limitation of the Debtors ability to terminate the Key Employees at will, to the extent the right exists under applicable law, is limited to entitlement of the KERP Payments. 00986823.2 00988838.1 7
17-11906-mew Doc 145-2 Filed 08/11/17 Entered 08/11/17 15:27:44 Exhibit B (Agran Declaration) Pg 8 of 10 NAME TITLE BRIEF SUMMARY OF JOB RESPONSIBILITIES PAYMENT ($) Matthew Lawless John Tremaroli Isaac Ashwal Mikhail Kopilovich Anna Acosta Director of Human Resources for Debtors Chief Financial Officer for Debtors General Manager for Jaguar Land Rover Manhattan and Maserati of Manhattan Head of Service for Jaguar Land Rover Manhattan Controller for Debtors Responsible for all employee issues including, onboard, separation, and payroll benefits Responsible for all financial reporting, manages finance personnel, and accounting related activities Responsible for all sales and service for Jaguar Land Rover and Maserati brands Responsible for all service of vehicles for Jaguar Land Rover Manages all books and records, manages payroll, and settles Chase floorplan payments $30,000 $30,000 $30,000 $5,000 $5,000 18. Given that the KERP is intended to motivate Key Employees to remain employed with the Debtors during the Sale process, the timing of KERP Payments is interconnected to the expected timing of the Sale Closing. 19. I, as well as the Debtors management, believe that each of the Key Employees is important to the implementation of the Sale and to maintaining the value of the Debtors as going concerns and their attractiveness to potential bidders. As noted above, the Debtors and their advisors must continue to diligently market their businesses and focus on maintaining operations to ensure the maximization of value for all parties in interest. To this end, the Debtors are in continuous discussions with manufactures, landlords, vendors, and other key constituents as it relates to the Debtors Sale process or otherwise. Thus, in addition to performing their traditional job functions and assisting the Debtors with the administration of the chapter 11 cases, each Key Employee has taken on the responsibility of performing a variety of new and nuanced tasks, including maintaining operations, preserving the value of stores in a manner consistent with the Sale, marketing the Debtors assets, working 00986823.2 00988838.1 8