Exhibit B: Friske Declaration — Case 22-10951-CTG, Doc 253-3 (United States Bankruptcy Court, District of Delaware)
Summary
Exhibit B, the Declaration of Douglas Friske in support of the Debtors’ motion for an order approving a retention program for certain non-executive employees, filed November 15, 2022 as Doc 253-3 in In re Kabbage, Inc. d/b/a KServicing, et al., Case No. 22-10951 (CTG), U.S. Bankruptcy Court, District of Delaware. The declarant states that Willis Towers Watson US LLC (WTW) was engaged to provide compensation consulting services to the Debtors. The declaration describes the Non-Executive KERP as providing awards to eleven (11) non-executive employees, with total remaining payments of approximately $247,400 including the remaining $63,000 of a Discretionary Pool. It concludes that the Non-Executive KERP is reasonable, and the signature block shows /s/ Douglas Friske, dated November 15, 2022.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
- Date
- 2022-11-15
Cite this document
“Exhibit B: Friske Declaration — Case 22-10951-CTG, Doc 253-3 (United States Bankruptcy Court, District of Delaware).”
Original at archive.org, dated 2022-11-15. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2022-11-15-kservicing-bankruptcy-41e6470b-1/
, SHA-256 41e6470bcaeaea3b239ce7d429c4ca34952f53aed488f398b167a71b8db7cf80.Full text
Case 22-10951-CTG Doc 253-3 Filed 11/15/22 Page 1 of 8
Exhibit B
Friske Declaration
RLF1 28239495V.1
Case 22-10951-CTG Doc 253-3 Filed 11/15/22 Page 2 of 8
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
------------------------------------------------------------ x
:
In re : Chapter 11
:
KABBAGE, INC. d/b/a KSERVICING, et al., : Case No. 22-10951 (CTG)
:
:
Debtors.1 : (Jointly Administered)
:
------------------------------------------------------------ x
DECLARATION OF DOUGLAS FRISKE IN SUPPORT
OF MOTION OF DEBTORS FOR ENTRY OF AN ORDER
(I) APPROVING DEBTORS’ RETENTION PROGRAM FOR CERTAIN
NON-EXECUTIVE EMPLOYEES AND (II) GRANTING RELATED RELIEF
I, Douglas Friske, hereby declare under penalty of perjury, to the best of my
knowledge, information, and belief, that:
1. I am a Managing Director at Willis Towers Watson US LLC (“WTW”).
Prior to the Petition Date, Kabbage, Inc. and certain of its subsidiaries as debtors and debtors-in-
possession (collectively, the “Debtors” and collectively with their non-Debtor affiliates, the
“Company”) engaged WTW to provide compensation consulting services to the Debtors. WTW
is an international professional services firm that offers a wide variety of services to public and
private clients, including expert analysis of executive and management compensation. WTW
designs and delivers solutions that manage risk, optimize benefits, cultivate talent, and expand the
power of capital to protect and strengthen institutions and individuals. I am primarily involved in
1
The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification
number, as applicable are: Kabbage, Inc. d/b/a KServicing (3937); Kabbage Canada Holdings, LLC (N/A); Kabbage
Asset Securitization LLC (N/A); Kabbage Asset Funding 2017-A LLC (4803); Kabbage Asset Funding 2019-A
LLC (8973); and Kabbage Diameter, LLC (N/A). Kabbage is a trademark of American Express used under license;
Kabbage, Inc. d/b/a KServicing is not affiliated with American Express. The Debtors’ mailing and service address
is 925B Peachtree Street NE, Suite 383, Atlanta, GA 30309.
RLF1 28239495V.1
Case 22-10951-CTG Doc 253-3 Filed 11/15/22 Page 3 of 8
consulting to large companies, specifically with regard to executive compensation. I have
participated in the development and design of hundreds of management and employee retention
and incentive plans for companies inside and outside of bankruptcy. I am frequently retained by
large companies to advise them on their employee compensation strategies, programs, and pay
levels. I have over 32 years of experience in designing and implementing compensation
arrangements, including key employee incentive and retention programs.
2. I submit this Declaration in support of the Motion of Debtors for Entry of
Order (I) Approving Debtors’ Retention Program For Certain Non-Executive Employees and
(II) Granting Related Relief (the “Motion”).2 I am generally familiar with the prepetition structure
of the Debtors’ compensation programs and the composition of their workforce. During the course
of WTW’s engagement, my team and I provided input and advice on the design and structure of
the Non-Executive KERP and reviewed for market compararables and reasonableness. I reviewed
the Motion and believe that it accurately reflects the development of, and justification for, the Non-
Executive KERP. I further believe that the Non-Executive KERP is reasonable and appropriate.
3. Except as otherwise indicated, all statements in this declaration (the “Friske
Declaration”) are based on my personal experience and knowledge, my opinions, my discussions
with the Debtors’ management and professionals, and my review of the relevant documents. If
called to testify, I could and would testify to each of the facts and opinions set forth herein.
Non-Executive KERP
I. Terms of the Non-Executive KERP
4. The Non-Executive KERP will provide for awards to eleven (11) non-
executive employees in three equal, remaining installments on or as soon as administratively
2
Capitalized terms not defined herein shall have the meaning ascribed to them in the Motion.
2
RLF1 28239495V.1
Case 22-10951-CTG Doc 253-3 Filed 11/15/22 Page 4 of 8
practicable following each of: December 31, 2022, March 31, 2023, and June 30, 2023.3 The total
remaining payments to be made pursuant to the Non-Executive KERP is approximately $247,400,
which includes the remaining $63,000 from the Discretionary Pool from which the Debtors’ Chief
Executive Officer will determine whether any non-executive employees, who are important to the
Debtors’ restructuring efforts but were not initially identified as Non-Executive KERP
Participants, should receive awards, as well as the appropriate amounts of such awards. The
Discretionary Pool eliminates any concerns that the Debtors have erred in their initial selection of
the Non-Executive KERP Participants. Additionally, the Non-Executive KERP Participants in the
Discretionary Pool are not allowed more than one award and no single award may exceed $18,750.
5. The individual awards for the Non-Executive KERP Participants range
from 8% to 30% of each Non-Executive KERP Participant’s annual salary with such payments to
be paid in equal quarterly installments following an initial payment prior to the Petition Date. To
achieve the Debtors’ goals of retention, the Non-Executive KERP Participants will lose their
entitlement to any future, remaining payments if they are terminated for any reason or otherwise
depart from the Debtors’ employ.
6. I, in consultation with the Debtors’ management team, AlixPartners, and
Weil, assisted in the development of the Non-Executive KERP to increase the likelihood of
employee retention and ensure the Debtors have sufficient personnel on hand to meet their goals
during the pendency of these Chapter 11 Cases, thereby preserving value for the Debtors, their
estates, their creditors, and other parties in interest.
3
Remaining installments are subject to acceleration in the event of a “change of control” (as defined in the Motion).
3
RLF1 28239495V.1
Case 22-10951-CTG Doc 253-3 Filed 11/15/22 Page 5 of 8
II. Reasonableness of the Non-Executive KERP
7. I believe that the design of the Non-Executive KERP is reasonable and is
within the parameters of retention plans implemented in other chapter 11 cases. WTW’s analysis
of the KERP reflected a review of the proposed terms and conditions relating to all aspects of the
KERP, including the method of approval, eligibility, form of payment, total cost, payout frequency
and timing. The Debtors’ other advisors also evaluated the KERP and advised the Debtors on
legal, business, and practical considerations to take into account with respect to adoption of the
KERP. Ultimately, Weil, AlixPartners, and WTW recommended that the Debtors’ Board of
Directors (the “Board”) review, consider, and approve the KERP.
8. In designing the KERP, WTW reviewed the design and cost of non-
executive key employee retention programs across thirty (30) companies with revenues between
$0 - $100 million or assets between $400 million - $1 billion that implemented non-executive key
retention programs in the past five years. Based on these findings, WTW provided a strawmodel
design for the KERP.
9. WTW’s strawmodel design included recommendations on the scope of
participation in the Non-Executive KERP, award amount, form of payment, payment timing, and
treatment upon termination. WTW compared this strawmodel to various other restructuring
compensation programs and found that the proposed aggregate payments under the Non-Executive
KERP was below the 25th percentile of the market when expressed as a percentage of the Debtors’
assets. Overall, the average award to each Non-Executive KERP Participant falls below median
market comparables, and its total cost is reasonable when compared to the aggregate costs of key
employee retention programs approved in similarly sized chapter 11 cases.
4
RLF1 28239495V.1
Case 22-10951-CTG Doc 253-3 Filed 11/15/22 Page 6 of 8
10. Additionally, with respect to the Discretionary Pool, WTW reviewed its
proposed terms and concluded that the total combined cost of the Non-Executive KERP and
Discretionary Pool would still be below the 25th percentile of retention programs adopted by
companies with the ranges of assets and revenues as set forth above. Further, the Discretionary
Pool is reasonable and appropriate given the circumstances; the Debtors are cognizant of the
uncertainty of these cases and do not know if certain individuals not currently included in the Non-
Executive KERP may become necessary or vital to the Debtors’ ultimate goals. I believe that the
awards contemplated by the Non-Executive KERP are reasonable, market-based, and justified
under the circumstances of these Chapter 11 Cases.
11. The awards under the Non-Executive KERP, both in cost per Non-
Executive KERP Participant and as a percentage of the Debtors’ assets, and in the aggregate, fall
below those approved in recent, similarly sized chapter 11 cases, as seen below:
Program Design – Details
Non-Executive Retention Examples (Award Value)
Plan costs
Payments Average
Total Cost as as a Retention Award as
Petition Pre-petition Pre-petition plan % of Per Plan % of Payout period % of
Company date Industry revenue assets cost assets prtcpnt participants Salary schedule (months) Salary
Tops Holding II
Corporation Feb-18 Food Retail $ 2,483,859,000 $ 1,000,000,000 $ 3,000,000 0.30% $ 26,087 115 - Installments 10.3 -
Internet and
Direct
Bluest em Marketing
Brands, Inc. Mar-20 Retail $ 1,707,000,000 $ 514,200,000 $ 1,700,000 0.33% $ 34,000 50 - Lump sum 6.0 -
Commercial
Cenveo, Inc. Feb-18 Printing $ 1,507,948,000 $ 870,017,000 $ 885,000 0.10% $ 3,149 281 - Lump sum 7.2 -
Real Industry,
Inc. Nov-17 Aluminum $ 1,324,600,000 $ 628,800,000 $ 1,300,000 0.21% $ 4,333 300 20% Lump sum 4.4 20%
Gander
Mountain
Company Inc. Mar-17 Specialty Stores $ 1,322,860,000 $ 679,956,000 $ 1,045,000 0.15% $ 28,243 37 20% Installments 2.5 20%
Tuesday General
Morning Merchandise
Corporation May-20 Stores $ 945,080,000 $ 724,500,000 $ 887,510 0.12% $ 17,402 51 30% Installments 7.2 30%
Charlotte Russe
Holding, Inc. Feb-19 Apparel Retail $ 928,072,667 $ 998,500,000 $ 559,229 0.06% $ 19,284 29 17% Lump sum 4.2 17%
RTW
Retailwinds, Inc. Jul-20 Apparel Retail $ 826,990,000 $ 411,984,000 $ 625,000 0.15% $ 34,722 18 14% Installments 5.6 14%
Coal and
Cloud Peak Consumable
Energy Inc. May-19 Fuels $ 738,573,000 $ 882,328,000 $ 1,397,874 0.16% $ 25,887 54 50% Installments 9.0 50%
Speedcast
International Alternative
Limited Apr-20 Carriers $ 722,320,000 $ 588,740,000 $ 3,996,608 0.68% $ 45,416 88 - Installments 14.3 -
The McClatchy
Company Feb-20 Publishing $ 709,500,000 $ 911,300,000 $ 330,000 0.04% $ 47,143 7 - Lump sum 2.6 -
Apparel,
Nine West Accessories and
Holdings, Inc. Apr-18 Luxury Goods $ 695,190,000 $ 412,600,000 $ 655,000 0.16% $ 12,843 51 28% Installments 11.5 28%
Aceto Health Care $
Corporation Feb-19 Distributors $ 682,929,000 $ 753,200,000 $ 4,908,066 0.65% 188,772 26 - Lump sum 6.8 -
5
RLF1 28239495V.1
Case 22-10951-CTG Doc 253-3 Filed 11/15/22 Page 7 of 8
Plan costs
Payments Average
Total Cost as as a Retention Award as
Petition Pre-petition Pre-petition plan % of Per Plan % of Payout period % of
Company date Industry revenue assets cost assets prtcpnt participants Salary schedule (months) Salary
Oil and Gas
EXCO Exploration and
Resources, Inc. Jan-18 Production $ 293,214,000 $ 830,174,000 $ 4,400,000 0.53% $ 30,556 144 - Installments 18.0 -
Basic Energy Oil and Gas
Services, Inc. Equipment and
(2021) Aug-21 Services $ 242,530,000 $ 914,820,000 $ 1,400,000 0.15% $ 46,667 30 35% Installments n/a 35%
Aegerion
Pharmaceuticals,
Inc. May-19 Biotechnology $ 125,120,000 $ 444,670,000 $ 504,173 0.11% $ 31,511 16 42% Lump sum 4.2 42%
Trading
Companies and
WBS INC. Apr-21 Distributors $ 98,550,000 $ 34,080,000 $ 94,000 0.28% $ 4,087 23 - Lump sum 7.3 -
Pernix Sleep,
Inc. Feb-19 Pharmaceuticals $ 92,400,000 n/a $ 894,000 $ 49,667 18 - Installments n/a -
Orexigen
Therapeutics,
Inc. Mar-18 Pharmaceuticals $ 75,287,000 $ 183,747,000 $ 3,115,000 1.70% $ 47,197 66 25% Lump sum 12.0 25%
Commodity
Techniplas, LLC May-20 Chemicals $ 74,150,000 $ 29,630,000 $ 192,000 0.65% $ 6,857 28 18% Lump sum 5.0 18%
Oil and Gas
Exploration and
Venoco, Inc. Apr-17 Production $ 60,720,000 $ 295,276,000 $ 387,268 0.13% $ 96,817 4 - Lump sum 14.6 -
Independent
Power
Griddy Energy Producers and
LLC Mar-21 Energy Traders $ 34,570,000 $ 5,890,000 $ 137,851 2.34% $ 11,488 12 15% Lump sum 3.5 15%
Sancilio
Pharmaceuticals
Company, Inc. Jun-18 Pharmaceuticals $ 24,819,450 $ 37,419,520 $ 354,200 0.95% $ 10,418 34 - Lump sum 2.1 -
Electronic
Manufacturing
AtopTech, Inc. Jan-17 Services $ 22,320,000 n/a $ 1,213,000 $ 18,104 67 - Lump sum 5.3 -
Marbles
Holdings, LLC Feb-17 Specialty Stores $ 15,510,000 n/a $ 12,231 $ 3,058 4 4% Lump sum 4.9 4%
Home
ABC Carpet furnishing
Co., Inc. Sep-21 Retail $ 15,190,000 $ 47,630,000 $ 170,000 0.36% $ 8,095 21 6% Installments n/a 6%
Unilife Healthcare
Corporation Apr-17 Supplies $ 11,208,000 $ 82,982,000 $ 1,334,551 1.61% $ 19,341 69 - Lump sum 8.5 -
Aralez
Pharmaceuticals
US Inc. Aug-18 Pharmaceuticals $ 10,410,000 n/a $ 826,250 $ 59,018 14 34% Lump sum 9.2 34%
Achaogen, Inc. Apr-19 Biotechnology $ 8,728,000 $ 28,340,000 $ 1,606,455 5.67% $ 61,787 26 42% Lump sum 13.4 42%
EMAS Oil and Gas
CHIYODA Equipment and
Subsea Limited Feb-17 Services $ 3,330,000 n/a $ 602,000 $ 18,813 32 25% Installments 4.0 25%
75th Percentile $ 804,885,750 $ 830,174,000 $ 1,399,469 0.65% $46,354 63 34% 9.8 34%
50th Percentile $ 183,825,000 $ 514,200,000 $ 886,255 0.28% $25,987 31 25% 6.8 25%
25th Percentile $ 27,257,088 $ 82,982,000 $ 416,494 0.15% $11,826 19 17% 4.3 17%
12. The total cost of the Non-Executive KERP is modest on a per-employee
basis, and is reasonable when compared to the costs of employee retention programs approved in
other similar chapter 11 cases. The Non-Executive KERP’s total cost, as a percentage of the
Debtors’ assets is 0.03%, while the median KERP plan in those other chapter 11 cases constituted
0.28% of a debtor’s assets. Accordingly, the Non-Executive KERP is a reasonable, market-based
approach, and is justified under the circumstances.
13. I further believe that the other terms of the Non-Executive KERP are within
the range of common market practice, including (i) the number of the Debtors’ Non-Executive
6
RLF1 28239495V.1
Case 22-10951-CTG Doc 253-3 Filed 11/15/22 Page 8 of 8
KERP Participants, (ii) the Debtors’ proposed form of payment, (iii) the proposed quarterly
payments of equal installments, and (iv) the retention requirements for each Non-Executive KERP
Participant to receive their respective payment.
14. Based on the foregoing, my experience, and the terms and provisions of the
Non-Executive KERP, it is my position that the Non-Executive KERP is reasonable, appropriately
designed, and narrowly tailored to motivate and retain the Non-Executive KERP Participants for
the benefit of the Debtors, their economic stakeholders, and the successful administration of these
Chapter 11 Cases.
I declare under the penalty of perjury that the foregoing is true and correct to the best of
my knowledge, information, and belief.
Dated: November 15, 2022
Chicago, Illinois
/s/ Douglas Friske
Douglas Friske
Managing Director, Willis Tower
Watson US LLC
7
RLF1 28239495V.1
File and source
- File
- gov.uscourts.deb.188293.253.3.pdf
- Size
- 304,934 bytes
- SHA-256
- 41e6470bcaeaea3b239ce7d429c4ca34952f53aed488f398b167a71b8db7cf80
- Original
- archive.org