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Full title: Motion for Order Approving Employee Retention Plan Pursuant to 11 U.S.C §§ 105(a), 363(b)(1), and 503(c)(3) Filed by Debtor Professional Financial Investors, Inc. (Attachments: # 1 Declaration of Andrew Hinkelman) (Marum, J.) (Entered: 05/06/2021)

Document posted on May 5, 2021 in the bankruptcy, 30 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

3 Professional Financial Investors, Inc. (“PFI”) the lead debtor in possession in the above-4 captioned bankruptcy cases (collectively, the “Cases”), hereby moves the Court (the “Motion”) fo5 entry of an order, substantially in the form attached hereto as Exhibit A: (a) approving, pursuant 6 to sections 105(a), 363(b)(1), and 503(c)(3) of title 11 of the United States Code (the “Bankruptcy7 Code”), an incentive program for PFI’s employees (the “Employee Retention Plan”), which shall 8 provide for the payment of a retention bonus to employees upon the effective date of a 9 successfully confirmed chapter 11 plan, and (b) granting related relief. 23 A. Implementation of the Employee Retention Plan is a Valid Exercise of the Debtors’ 24 Business Judgment under Section 363(b)(1) of the Bankruptcy Code 25 Under Bankruptcy Code section 363, a Court may approve a debtor’s request for relief 26 when the debtor demonstrates a sound business justification for seeking such relief. 9 PFI has determined that the cost associated with the potential aggregate retention bonus payments10 to employees upon the effective date of a confirmed plan is more than justified by the benefits of 11 retaining their trained and knowledgeable employees – whose experience, skills, and diligent 12 efforts are critical for the Debtors’ continued business operations and ability to reach the 13 implementation of a confirmed plan – and by the inevitable expense and disruption to the chapter 14 11 process if employees were to leave, thereby necessitating the expense of hiring and training les15 knowledgeable staff, if new employees could even be found in light of the circumstances, and the16 risk this would pose to reaching the effective date of a confirmed plan. The Employee Retention Plan Satisfies Section 503(c)(3) of the Bankruptcy Code 20 Section 503(c) of the Bankruptcy Code is comprised of three subsections: (1) a general 21 prohibition against retention plans for insiders; (2) limitations on severance payments to insiders; 22 and (3) standards governing other transfers to certain officers, employees and consultants, among 23 others, that are outside of the ordinary course of business.2 This Court, having considered the Debtors’ Motion for Order Approving Employee 19 Retention Program Pursuant to 11 U.S.C. §§ 105(a), 363(b)(1), and 503(c)(3) (the “Motion”)3 20 filed by the debtors and debtors in possession in the above-captioned chapter 11 bankruptcy cases21 on May 6, 2021, as Docket No.

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Document Contents

1 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP A Limited Liability Partnership 2 Including Professional Corporations ORI KATZ, Cal. Bar No. 209561 3 J. BARRETT MARUM, Cal. Bar No. 228628 MATT KLINGER, Cal. Bar No. 307362 4 JEANNIE KIM, Cal. Bar No. 270713 GIANNA SEGRETTI, Cal. Bar No. 323645 5 Four Embarcadero Center, 17th Floor San Francisco, California 94111-4109 6 Telephone: 415.434.9100 Facsimile: 415.434.3947 7 Email: okatz@sheppardmullin.com bmarum@sheppardmullin.com 8 mklinger@sheppardmullin.com jekim@sheppardmullin.com 9 gsegretti@sheppardmullin.com 10 Counsel for the Debtors 11 UNITED STATES BANKRUPTCY COURT 12 NORTHERN DISTRICT OF CALIFORNIA, SAN FRANCISCO DIVISION 13 In re Case No. 20-30604 (Jointly Administered with Case Nos. 20-30579, 14 PROFESSIONAL FINANCIAL 20-30908, 20-30909, 20-30910, 20- 30911, INVESTORS, INC., et al.1 20-30912, 20-30913, 20-30914, 20- 30915, 15 20-30916, 20-30917, 20-30919, 20- 30920, Debtors. 20-30922, 20-30923, 20-30924, 20- 30925, 16 20-30927, 20-30928, 20-30929, 20- 30930, 20-30934, 20-30935, 20-30936, 20- 30937, 17 20-30938, 20-30939, 20-30940, 20- 30941, and 20-30942) 18 Chapter 11 19 PROFESSIONAL FINANCIAL INVESTORS, 20 INC.’S MOTION FOR ORDER APPROVING EMPLOYEE RETENTION PLAN PURSUANT 21 TO 11 U.S.C. §§ 105(a), 363(b)(1), AND 503(c)(3) 22 Judge: Hon. Hannah L. Blumenstiel Date: May 27, 2021 23 Time: 10:00 a.m. Place: Telephonic/Video Appearances Only 24 450 Golden Gate Ave., 16th Fl., Crtm. 19 San Francisco, CA 94102 25 26 1 A complete list of the Debtors and their respective chapter 11 case numbers may be found 27 www.donlinerecano.com/pfi. The federal tax identification numbers of each of the Debtors is also availablin the bankruptcy petitions of each Debtor, also available at the Donlin Recano website.

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1 TABLE OF CONTENTS 2 I. INTRODUCTION ............................................................................................................. 3 II. JURISDICTION ................................................................................................................ 4 III. STATEMENT OF FACTS ................................................................................................ 5 A. The Debtors’ Background ...................................................................................... 6 B. The Debtors’ Business ........................................................................................... 7 C. The Debtors’ Employees ........................................................................................ 8 IV. THE PROPOSED EMPLOYEE RETENTION PLAN ....................................................... 9 V. THE NECESSITY FOR THE EMPLOYEE RETENTION PLAN ..................................... 10 VI. THE COURT MAY AUTHORIZE THE EMPLOYEE RETENTION PLAN .................... 11 A. Implementation of the Employee Retention Plan is a Valid Exercise of the DebtorsBusiness Judgment under Section 363(b)(1) of the Bankruptcy Code ..................... 12 B. The Employee Retention Plan Satisfies Section 503(c)(3) of the Bankruptcy Code13 ............................................................................................................................ 114 1. Because None of the Employee Retention Plan Participants is an Insider, Sections 503(c)(1) and 503(c)(2) are Inapplicable .................................... 115 2. The Employee Retention Plan Satisfies the “Facts and Circumstances” 16 Standard of 503(c)(3) ............................................................................... 117 a. The Employee Retention Plan Satisfies the Majority Application of the “Facts and Circumstances” Standard of Section 503(c)(3) ....... 118 i. Relationship Between the Plan and the Results .................. 119 ii. The Cost of the Employee Retention Plan ......................... 120 iii. The Scope of the Employee Retention Plan is Reasonable . 121 iv. The Employee Retention Plan is Consistent with Industry 22 Standards .......................................................................... 123 v. Due Diligence Efforts ........................................................ 124 vi. Independent Counsel ......................................................... 125 b. The Employee Retention Plan Satisfies the Minority Application of the “Facts and Circumstances” Standard of Section 503(c)(3) ....... 126 C. Regardless of the Standard Applied, the Employee Retention Plan Should be 27 Approved ............................................................................................................. 1

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1 D. The Obligations Under the Employee Retention Program are Administrative Expenses .............................................................................................................. 12 VII. NOTICE .......................................................................................................................... 13 VIII. CONCLUSION ............................................................................................................... 14 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

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1 TABLE OF AUTHORITIES 2 Page(s) Cases 3 In re 455 CPW Assocs. 4 2000 U.S. App. LEXIS 23470 (2d Cir. Sept. 14, 2000) ........................................................ 12 5 In re Am. W. Airlines, Inc. 6 171 B.R. 674 (Bankr. D. Ariz. 1994) ..................................................................................... 9 7 Berg & Berg Enters., LLC v. Boyle 178 Cal. App. 4th 1020 (2009) .............................................................................................. 9 8 In re Blue Water Automotive Svs. Inc. 9 Case No. 08-43196 (MBM) (Bankr. E.D. Mich. May 12, 2008) .......................................... 10 10 In re Boarders Grp., Inc. 11 453 B.R. 459 (Bankr. S.D.N.Y. 2011) ........................................................................... 12, 17 12 C.R.A. Realty Corp. v. Crottv 878 F.2d 562 (2d Cir. 1989) ................................................................................................ 13 13 In re Circuit City Stores, Inc. 14 Case No. 08-35653 (KRH) (Bankr. E.D. Va. Mar. 25, 2009) ............................................... 10 15 Comm. of Asbestos-Related Litigants v. Johns-Manville Corp. (In re Johns-Manville Corp.) 16 60 B.R. 612 (Bankr. S.D.N.Y. 1986) ..................................................................................... 9 17 In re Dana Corp. (“Dana II”) 18 358 B.R. 567 (Bankr. S.D.N.Y. 2006) ..................................................................... 10, 14, 15 19 F.D.I.C. v. Castetter 184 F.3d 1040 (9th Cir. 1999) ............................................................................................... 9 20 In re Glob. Aviation Holdings Inc. 21 478 B.R. 142 (Bankr. E.D.N.Y. 2012) ................................................................................. 12 22 In re Global Home Prods. 23 LLC, 369 B.R. 778 (Bankr. Del. 2007) ................................................................................ 10 24 Gold v. Sloan 486 F.2d 340 (4th Cir. 1973) ............................................................................................... 13 25 In re Interco Inc. 26 128 B.R. 229 (Bankr. E.D. Mo. 1991) ................................................................................... 9 27 In re KB Toys, Inc.

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1 In re KB Toys, Inc. Case No. 08-13269 (KJC) (Bankr. Del. Jan. 14, 2009) ........................................................ 10 2 In re L. Scott Apparel, Inc. 3 2:13-BK-26021-RK, 2019 WL 1768235 (Bankr. C.D. Cal. Jan. 29, 2019), aff’d, 615 B.R. 881 (C.D. Cal. 2020), appeal dismissed, 20-55507, 2020 WL 6482082 (9th Cir. 4 Aug. 12, 2020) .................................................................................................................... 14 5 In re Linens Holding Co. 6 Case No. 08-10832 (CSS) (Bankr. Del. Oct. 21, 2008) ........................................................ 10 7 In re Mervyn’s Holdings, LLC Case No. 08-11586 (KG) (Bankr. Del. Oct. 30, 2009) ......................................................... 10 8 In re Movie Gallery, Inc. 9 Case No. 07-33849 (DOT) (Bankr. E.D. Va. Feb. 29, 2008) ................................................ 11 10 In re Nellson Nutraceutical, Inc. 11 369 B.R. 787 (Bankr. Del. 2007) ......................................................................................... 10 12 NMI Svs. Inc. v. Pillard (In re NMI Svs. Inc.) 179 B.R. 357 (Bankr. D.D.C. 1995) .................................................................................... 13 13 In re Nobex Corp. 14 No. 05-20050 (MFW), 2006 WL 4063024 (Bankr. D. Del. Jan. 19, 2006) ..................... 10, 13 15 Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated 16 Res., Inc.) 147 B.R. 650 (S.D.N.Y. 1992) .............................................................................................. 9 17 In re PG&E Corp. 18 19-30088-DM, 2019 WL 4686765 (Bankr. N.D. Cal. Aug. 30, 2019) .................................. 14 19 In re Pilgrim’s Pride Corp. 401 B.R. 229 (Bankr. N.D. Tex. 2009) .......................................................................... 14, 17 20 In re Plastech Engineered Prods., Inc. 21 Case No. 08-42417 (PJS) (Bankr. E.D. Mich. June 27, 2008) .............................................. 10 22 In re Residential Capital, LLC 23 491 B.R. 73 (Bankr. S.D.N.Y. 2013) ................................................................................... 19 24 Scouler & Co., LLC v. Schwartz No. 11-CV-06377 NC, 2012 WL 1502762 (N.D. Cal. Apr. 23, 2012) .................................... 9 25 In re The Standard Register Company, et al. 26 Case No. 15-10541 (BLS) (Bankr. Del. March 12, 2015) .................................................... 10 27

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1 In re Velo Holdings, Inc. 472 B.R. 201 (Bankr. S.D.N.Y. 2012) ................................................................................. 13 2 In re W.A. Mallory Co. 3 214 B.R. 834 (Bankr. E.D. Va. 1997) .................................................................................... 8 4 WBQ P’ship v. Commonwealth of Virginia (In re WBO P’ship) 189 B.R. 97 (Bankr. E D. Va. 1995) ...................................................................................... 8 5 6 Statutes 7 11 U.S.C. § 363(b)(1) ........................................................................................................... 8, 11 8 28 U.S.C. § 157 .......................................................................................................................... 2 9 28 U.S.C. § 157(b) ...................................................................................................................... 2 10 28 U.S.C. § 1334......................................................................................................................... 2 11 28 U.S.C. § 1408......................................................................................................................... 2 12 28 U.S.C. § 1409......................................................................................................................... 2 13 Bankruptcy Code § 101(31) .................................................................................................. 7, 12 14 Bankruptcy Code §§ 105(a), 362(d), 363(b), and 503(c)(3) ......................................................... 2 15 Bankruptcy Code § 363 ............................................................................................................... 8 16 Bankruptcy Code § 363 and 503(c)(3) ....................................................................................... 12 17 Bankruptcy Code § 363(b) .............................................................................................. 8, 13, 17 18 Bankruptcy Code §§ 363(b)(1) and 503(c)(3) .............................................................................. 8 19 20 Bankruptcy Code § 503(b) ........................................................................................................ 18 21 Bankruptcy Code § 503(c) .................................................................................................... 9, 11 22 Bankruptcy Code § 503(c)(1) ................................................................................... 10, 12, 13, 14 23 Bankruptcy Code §§ 503(c)(1) and (2) ...................................................................................... 12 24 Bankruptcy Code § 503(c)(2) .................................................................................................... 12 25 Bankruptcy Code § 503(c)(3) ......................................................................... 8, 11, 13, 14, 17, 19 26 Bankruptcy Code § 507(a)(2) .................................................................................................... 18 27 U.S. Code Title 11 § 105(a) ........................................................................................................ 1

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1 U.S. Code Title 11 § 363(b)(1) .................................................................................................... 1 2 U.S. Code Title 11 § 503(c)(3) .................................................................................................... 1 3 Other Authorities 4 Bankruptcy Rule 2002 .............................................................................................................. 19 5 Bankruptcy Rule 4001 ................................................................................................................ 2 6 Bankruptcy Rule 6003 ................................................................................................................ 2 7 Bankruptcy Rule 6004 ................................................................................................................ 2 8 Rule 5011-1(a) ............................................................................................................................ 2 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

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1 I. 2 INTRODUCTION 3 Professional Financial Investors, Inc. (“PFI”) the lead debtor in possession in the above-4 captioned bankruptcy cases (collectively, the “Cases”), hereby moves the Court (the “Motion”) fo5 entry of an order, substantially in the form attached hereto as Exhibit A: (a) approving, pursuant 6 to sections 105(a), 363(b)(1), and 503(c)(3) of title 11 of the United States Code (the “Bankruptcy7 Code”), an incentive program for PFI’s employees (the “Employee Retention Plan”), which shall 8 provide for the payment of a retention bonus to employees upon the effective date of a 9 successfully confirmed chapter 11 plan, and (b) granting related relief. 10 Prior to the filing of this Motion, PFI shared details of the proposed Employee Retention 11 Plan with the Official Committee of Unsecured Creditors (the “OCUC”) and obtained its 12 preliminary support of an employee retention bonus program nearly identical to the proposed 13 Employee Retention Plan. The proposed Employee Retention Plan provides for the payment of a 14 bonus of one half to one and a three quarters times an employee’s total monthly compensation to 15 employees in commercial property management, residential property management, and accountin16 and administration positions upon the effective date of a confirmed chapter 11 plan. These rank 17 and file employees are essential to keeping PFI’s and its affiliated debtors (the “Debtors”) 18 properties running and the successful implementation of a confirmed chapter 11 plan of 19 reorganization. Without the promised bonus payments contemplated by the Employee Retention 20 Plan, the PFI’s employees may abandon their duties or jobs, which would not only hinder the 21 leasing of open units to new tenants, but could result in an interruption of services for current 22 tenants and severely hinder the Debtors’ ability to form a viable plan. Moreover, while the 23 Employee Retention Plan is competitive, its potential total cost is likely far less than the necessar24 costs of hiring and training new employees should PFI’s present employees leave. Moreover, 25 losing employees could result in the Debtors failing to reach the effective date of a confirmed pla26 of reorganization to the detriment of the Debtors’ creditors. Therefore, the Employee Retention 27 Plan is in the best interests of the Debtors, their estates, creditors, stakeholders, and other parties-

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1 Debtors’ estates and continue their business as necessary to formulate and implement a successful2 plan of reorganization. 3 This Motion is based on the discussion below, the Declaration of Andrew Hinkelman in 4 Support of the Professional Financial Investors, Inc.’s Motion for Order Approving Employee 5 Retention Program filed concurrently with this motion (the “Hinkelman Declaration”), the other 6 papers of record in this case, and upon such further oral and documentary evidence as may be 7 presented prior to or at the time of the hearing on the Motion. 8 II. 9 JURISDICTION 10 The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and th11 Order Referring Bankruptcy Cases and Proceeding to Bankruptcy Judges, General Order 24 (N. 12 Cal.), and Rule 5011-1(a) of the Bankruptcy Local Rules for the Northern District of California 13 (the “Bankruptcy Local Rules”). This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venu14 is proper before the Court pursuant to 28 U.S.C. §§ 1408 and 1409. 15 The statutory and other bases for the relief requested in this Motion are Bankruptcy Code 16 sections 105(a), 362(d), 363(b), and 503(c)(3) and Bankruptcy Rules 4001, 6003, and 6004. 17 III. 18 STATEMENT OF FACTS 19 A. The Debtors’ Background 20 On July 16, 2020, Jacques Achsen, Samuel Goldberger, Elizabeth Goldblatt, Arthur 21 Indenbaum, Andrew Michaels, Mary Michaels, and Joel Rubenzahl, each of whom assert they are22 creditors of PISF, commenced an involuntary chapter 11 bankruptcy action against PISF, Case 23 No. 20-30579 (the “PISF Case”). On July 26, 2020, PISF filed a consent to the entry of an order 24 for relief in the PISF Case, entered by the Court on July 27, 2020. 25 On July 26, 2020, PFI (together with PISF, the “Original Debtors”) commenced its 26 bankruptcy case, by filing a voluntary chapter 11 petition. Subsequently, PFI commenced 27 involuntary petitions against all but two of its affiliated limited liability companies and limited

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1 Bankruptcy Court, PFI commenced involuntary petitions against twenty-nine of LLC/LP Debtors 2 and on December 11, 2020, PFI consented to such involuntary petitions and the Court entered 3 orders for relief. On February 3, 2021 and February 4, 2021, PFI commenced involuntary 4 petitions against ten additional LLC Debtors. On February 17, 2021, PFI consented to the ten 5 additional involuntary petitions and on February 18, 2021, the Court entered orders for relief. Th6 Debtors’ Chapter 11 Cases are jointly administered under Case No. 20-30604. 7 On August 19, 2020, the Office of the United States Trustee appointed the members of the8 OCUC. Meanwhile, certain parties with a membership interest in limited liability companies 9 formed and controlled by PFI have formed an ad hoc committee of LLC members (the “Ad Hoc 10 Committee of LLC Members”) and certain lenders to the Debtors who are secured by a deed of 11 trust on property owned by one of the Debtors have also formed into an ad hoc committee of DO12 holders (the “Ad Hoc Committee of DOT Holders,” and collectively with the OCUC and the Ad 13 Hoc Committee of LLC Members, the “Committees”). 14 On April 9, 2021, the Debtors and the OCUC filed the Amended Joint Chapter 11 Plan of 15 Professional Financial Investors, Inc. and Its Affiliated Debtors Proposed by the Debtors and 16 Official Committee of Unsecured Creditors and Supported by the Ad Hoc LLC Members 17 Committee and the Ad Hoc DOT Noteholders Committee (the “Plan”) as Docket No. 554. 18 B. The Debtors’ Business 19 The Debtors own, either directly or indirectly, approximately seventy real properties (the 20 “Real Properties”) in Northern California (Marin and Sonoma Counties), consisting mostly of 21 apartment buildings and office parks, with hundreds of tenants. PFI serves as the property 22 manager for all of these real properties, handing all leasing, marketing, and maintenance related t23 the Real Properties. Additionally, PFI acts as the operational arm that manages and accounts for 24 all of the Debtors’ business activities. 25 C. The Debtors’ Employees 26 PFI is the only Debtor in these cases with employees and has a total staff of approximatel27 forty-one full-time employees. Andrew Hinkelman, the Chief Restructuring Officer (“CRO”) of

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1 independent director of PFI and PISF (the “Independent Director”), are not covered by the 2 Employee Retention Plan. PFI’s forty-one employees (the “Employees”) are rank and file 3 employees who run the day-to-day operations for the Debtors’ business. As discussed above, PFI4 serves as the property manager for all of the Debtors’ Real Properties, which consist of 5 approximately seventy total apartment complexes and office parks in Marin and Sonoma Countie6 California. Approximately eight of PFI’s Employees occupy administrative roles (e.g., 7 accounting, administrative support for the business as a whole, business development, and IT), 8 while the rest are employed to manage and maintain the Real Properties. This includes seven 9 employees whose primary role is commercial property management (e.g., Commercial Leasing, 10 Marketing, and Property Management) and twenty-six employees whose role is residential 11 property management and maintenance (e.g., Property Managers, Maintenance Technicians, and 12 Facilities Coordinators). Some of the employees receive housing as part of their compensation, 13 including approximately nine Resident Property Managers and other staff who live on-site at 14 various Real Properties. 15 Accordingly, if any of PFI’s employees were to leave, operations at the Real Properties 16 almost certainly would be negatively impacted and potentially cease, the tenants at the Real 17 Properties likely would suffer, and the value of the Real Properties would be reduced. 18 Accordingly, PFI’s employees are essential to Debtors’ continued operations and viability, as wel19 as to the Debtors’ ability to fulfill their duties as debtors-in-possession in these bankruptcy cases. 20 Certain PFI employees in accounting and administration roles have been and are continuing to be 21 extensively involved in the Debtors’ bankruptcy proceedings by, among other tasks, assisting wit22 the preparation of the schedules and statement of financial affairs for each Debtor, preparing 23 financial analyses and budgets, preparing monthly operating reports, and assisting with the 24 management and maintenance of all of the Debtors’ Real Properties during the pendency of these 25 bankruptcy cases. 26 The filing of these bankruptcy cases has disrupted the Debtors’ normal operations and 27 caused employee morale to suffer given the uncertainty of the bankruptcy proceedings and the

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1 and documents necessary for the bankruptcy cases for those in accounting and administration 2 roles. In addition, the transition to the CRO means the employees have undergone multiple 3 management changes in the past year, which brings added uncertainty to the workplace. While 4 PFI believes that the employees receive competitive compensation, it fears that as the bankruptcy 5 proceedings continue, there is a great risk that employees will find employment elsewhere, which6 would likely interrupt the Debtors’ business operations in the midst of this critical period. PFI’s 7 employees are knowledgeable about the Debtors’ operations and business affairs, as well as about8 operations at the Real Properties, and their retention is necessary to ensure a continued timely and9 efficient bankruptcy process. Moreover, the continued provision of regular building maintenance 10 and property management services by PFI’s employees is critical to the approximately 2,700 11 residents and 400 businesses that call the Real Properties their home and/or their office. The 12 suspension or diminution of such maintenance and property management services could also 13 diminish the value of the affected Real Properties, and thus harm creditors. 14 Without PFI’s employees, the Debtors will not be able to continue to effectively operate 15 their business, and their ability to preserve and maximize the value of their assets – particularly, 16 the Real Properties – will be jeopardized. The continued retention of the Debtors’ employees is 17 particularly critical as the Debtors move toward forming a successful plan of reorganization. The18 departure of employees would be extremely costly in terms of having to hire and train new 19 employees, and likely would set the progression of the Debtors’ bankruptcy cases back. 20 Therefore, all major constituencies, including creditors, employees, and tenants, will benefit from21 the proposed Employee Retention Plan, as set forth below, that provides for the payment of a 22 Retention Bonus to employees upon the effective date of a successfully confirmed plan of 23 reorganization. 24 IV. 25 THE PROPOSED EMPLOYEE RETENTION PLAN 26 To incentivize the employees to remain focused and motivated and to undertake their 27 duties with positive morale notwithstanding the complexities that have arisen by virtue of the

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1 during the plan confirmation process through reaching the effective date of a confirmed plan, PFI 2 proposes paying a retention bonus of one half to one and three quarters times each employee’s 3 total monthly compensation to employees in commercial property management, residential 4 property management, and accounting and administration positions upon the effective date of a 5 confirmed chapter 11 plan of reorganization for the Debtors. Each employee’s total monthly 6 compensation is based on that employee’s monthly salary and the monthly value for housing for 7 those employees who are provided housing as part of their compensation. As noted, these forty-8 one employees (the “Participants”) who are eligible to receive retention bonuses are all rank and 9 file employees and do not hold corporate director or officer level positions. Of the forty-one 10 Participants, three are eligible to receive a retention bonus equal to one and a three quarters times 11 his or her total monthly compensation, four are eligible to receive a retention bonus equal to one 12 and a half times his or her total monthly compensation, fifteen are eligible to receive a retention 13 bonus equal to one month of his or her total monthly compensation, one is eligible to receive a 14 retention bonus equal to three quarters of his or her total monthly compensation, and eighteen are 15 eligible to receive a retention bonus equal to one half of one month of his or her total 16 compensation. The individual retention bonus amounts for Participants range from $2,079.90 to 17 $19,716.66 for an aggregate potential retention bonus payout of $238,536. In comparison, the 18 aggregate total monthly compensation for these same employees is $256,708. 19 PFI shared the specific details of an earlier draft of the Employee Retention Plan with a 20 nearly identical proposed employee retention bonus payment as the one proposed here which the 21 OCUC supported. To protect the privacy of the employees and to prevent potential poaching by 22 competitors, PFI has not included a specific breakdown of each Participant’s job title, name, and 23 proposed retention bonus with this Motion. If so required, however, PFI will submit these specifi24 details of the Employee Retention Plan for in camera review or will file the full Employee 25 Retention Plan containing this information with the Court under seal. 26 27

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1 V. 2 THE NECESSITY FOR THE EMPLOYEE RETENTION PLAN 3 The success of these Cases depends on the willingness of the employees to remain focuse4 and motivated and, in many instances, to take on additional responsibilities to assist with the 5 chapter 11 process and continue operations in a constrained and challenging environment. Based 6 on PFI’s discussions with its employees and the Debtors’ creditors, PFI recognized that it would 7 need to address the concerns of its employees, as well as those of creditors, and to align the 8 interests of these respective constituencies. Following extensive discussions with their 9 professionals, the PFI determined that an Employee Retention Plan was a necessary and 10 appropriate means of motivating the employees, all of whom have played, and continue to play, a 11 critical role in the success of the Debtors’ businesses and their ability to successfully confirm and 12 implement a chapter 11 plan of reorganization. 13 With this goal in mind, PFI (with the input of its advisors and, thereafter, the review of the14 OCUC) developed the Employee Retention Plan. The Employee Retention Plan is aimed at 15 ensuring that the employees remain motivated and focused on their duties during the pendency of 16 these bankruptcy cases through the plan confirmation process and reaching the effective date of a 17 plan, and undertake their duties with positive morale notwithstanding the uncertainties and 18 complexities resulting from the bankruptcy proceedings and any added workload caused in 19 relation thereto. 20 In connection with the development of the Employee Retention Plan, PFI reviewed the list21 of employees and scrutinized the roles and responsibilities of each of these employees. PFI has 22 determined that no “insider” as defined by section 101(31) of the Bankruptcy Code is included in 23 the Employee Retention Plan. 24 By providing the Employee Retention Plan with bonus payments upon the effective date o25 a confirmed plan as discussed above, PFI believes that the vast majority of these employees will 26 remain motivated and focused on their duties during the pendency of the bankruptcy cases. PFI 27 believes that providing the bonus payments will be substantially more efficient and cost-effective

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1 are certain intangible benefits resulting from increased employee morale by preventing turnover 2 that PFI believes will have a direct and positive impact on the Debtors’ operations and, thereby, 3 the value to be attained for the benefit of the creditors. 4 VI. 5 THE COURT MAY AUTHORIZE THE EMPLOYEE RETENTION PLAN 6 Bankruptcy Code section 363(b) provides, in relevant part, that “[t]he trustee, after notice 7 and a hearing, may use, sell or lease, other than in the ordinary course of business, property of the8 estate…” 11 U.S.C. § 363(b)(1). Additionally, section 503(c)(3) of the Bankruptcy Code require9 that: 10 [T]ransfers or obligations that are outside the ordinary course of business [must be] justified by the facts and circumstances of the 11 case, including transfers made to, or obligations incurred for the benefit of, officers, managers, or consultants hired after the date of 12 the filing of the petition. 13 11 U.S.C. § 503(c)(3). As a result, the proposed Employee Retention Plan must be analyzed unde14 both sections 363(b)(1) and 503(c)(3) of the Bankruptcy Code because the contemplated retention15 bonus payments constitute both the use of estate assets and transfers outside the ordinary course o16 business. After an extensive review of authority, the Debtors have determined that there is scant 17 authority from the Ninth Circuit regarding the appropriate standards to apply to these Bankruptcy 18 Code sections when reviewing employee incentive or retention programs. Therefore, the Debtors19 discussion below analyzes the standards applied from other jurisdictions. As discussed in detail 20 herein below, PFI has articulated a valid business reason for implementing the Employee 21 Retention Plan, and the facts and circumstances of these proceedings, including the approval of th22 OCUC of an employee retention bonus payment, support approval thereof. 23 A. Implementation of the Employee Retention Plan is a Valid Exercise of the Debtors’ 24 Business Judgment under Section 363(b)(1) of the Bankruptcy Code 25 Under Bankruptcy Code section 363, a Court may approve a debtor’s request for relief 26 when the debtor demonstrates a sound business justification for seeking such relief. See WBQ 27 P’ship v. Commonwealth of Virginia (In re WBO P’ship), 189 B.R. 97, 102 (Bankr. E D. Va.

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1 W.A. Mallory Co., 214 B.R. 834, 836 (Bankr. E.D. Va. 1997). Once a debtor articulates a valid 2 business justification for a particular form of relief, the Court reviews the debtor’s request under 3 the “business judgment rule.” The business judgment rule has vitality in chapter 11 cases and 4 shields a debtor’s management from judicial second-guessing. See Official Comm. of 5 Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650, 6566 (S.D.N.Y. 1992). “The business judgment rule ‘is a presumption that in making a business 7 decision the directors of a corporation acted on an informed basis, in good faith and in the honest 8 belief that the action was in the best interests of the company.’” See Id.; see also F.D.I.C. v. 9 Castetter, 184 F.3d 1040, 1043 (9th Cir. 1999) (the business judgment rule “requires directors to 10 perform their duties in good faith and as an ordinarily prudent person in a like circumstance 11 would”). 12 “Where the debtor articulates a reasonable basis for its business decisions (as distinct from13 a decision made arbitrarily or capriciously), courts will generally not entertain objections to the 14 debtor’s conduct.” Comm. of Asbestos-Related Litigants v. Johns-Manville Corp. (In re Johns-15 Manville Corp.), 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986). Courts construing California 16 corporate law have consistently declined to interfere with corporate decisions absent a showing of17 bad faith, self-interest, or gross negligence, and have upheld a board’s decisions as long as such 18 decisions were made in good faith. Scouler & Co., LLC v. Schwartz, No. 11-CV-06377 NC, 201219 WL 1502762, at *4 (N.D. Cal. Apr. 23, 2012); Berg & Berg Enters., LLC v. Boyle, 178 Cal. App. 20 4th 1020, 1046 (2009). 21 In the present context, numerous courts have found that a debtor’s use of reasonable 22 performance bonuses and other incentives for employees is a valid exercise of a debtor’s business23 judgment. See. e.g., In re Am. W. Airlines, Inc., 171 B.R. 674, 678 (Bankr. D. Ariz. 1994) (noting 24 that it is the proper use of a debtor’s business judgment to propose bonuses for employees who 25 helped propel the debtor successfully through the bankruptcy process); In re Interco Inc., 128 B.R26 229, 234 (Bankr. E.D. Mo. 1991) (stating that a debtor’s business judgment was controlling in the27 approval of a “performance/retention program”). Even in light of Section 503(c), as discussed

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1 exercises of business judgment. See, e.g., In re Blue Water Automotive Svs. Inc., Case No. 08-2 43196 (MBM) (Bankr. E.D. Mich. May 12, 2008) (approving incentive payments to employees in3 connection with a potential sale of assets); In re Nellson Nutraceutical, Inc., 369 B.R. 787, 801 4 (Bankr. Del. 2007) (Bankruptcy Code section 503(c)(1) does not restrict incentive payments to 5 non-insider employees); In re Dana Corp. (“Dana II”), 358 B.R. 567 (Bankr. S.D.N.Y. 2006) 6 (approving management incentive plan under the business judgment standard); In re Global Hom7 Prods., LLC, 369 B.R. 778 (Bankr. Del. 2007) (approving management incentive program for 8 benefit of nine employees of the debtors provided that such employees fulfilled their obligations t9 the debtors through the closing of a sale of substantially all of the Debtors’ assets); In re The 10 Standard Register Company, et al., Case No. 15-10541 (BLS) (Bankr. Del. March 12, 2015) 11 (approving management incentive program for forty-nine senior or executive employees provided12 the debtors reached certain EBITDARP goals); In re Nobex Corp., No. 05-20050 (MFW), 2006 13 WL 4063024, at *2 (Bankr. D. Del. Jan. 19, 2006) (approving a management incentive plan 14 providing for increasing incentive bonus payments to eligible executives calculated according a 15 schedule based on the gross sales price). 16 Courts have also approved similar incentive plans that contemplate target or task based 17 incentive payments to management and retention payments to non-insiders. See In re Circuit City 18 Stores, Inc., Case No. 08-35653 (KRH) (Bankr. E.D. Va. Mar. 25, 2009) (approving a retention 19 plan for non-insiders and a task based wind-down incentive plan for certain members of the 20 debtor’s management); In re KB Toys, Inc., Case No. 08 13269 (KJC) (Bankr. Del. Jan. 6, 2009) 21 (approving a retention plan for non-insider employees); In re KB Toys, Inc., Case No. 08-13269 22 (KJC) (Bankr. Del. Jan. 14, 2009) (approving an incentive plan based on successfully completing 23 of identifiable “tasks” consistent with targets, which plan applied to certain members of the 24 debtor’s management); In re Mervyn’s Holdings, LLC, Case No. 08-11586 (KG) (Bankr. Del. Oct25 30, 2009) (approving a retention plan for non-insiders and a task and target based incentive plan 26 for certain members of the debtor’s management); see also In re Linens Holding Co., Case No. 0827 10832 (CSS) (Bankr. Del. Oct. 21, 2008) (approving a retention plan for non-insiders and wind-

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1 Prods., Inc., Case No. 08-42417 (PJS) (Bankr. E.D. Mich. June 27, 2008) (approving a 2 management incentive plan tied to the performance of requisite tasks); In re Movie Gallery, Inc., 3 Case No. 07-33849 (DOT) (Bankr. E.D. Va. Feb. 29, 2008) (approving a key employee incentive 4 plan under which management received payments based on performance and non-insiders 5 received payments based on completion of certain tasks associated with their respective positions6 Here, the Employee Retention Plan will accomplish a similarly sound business purpose – 7 retaining the necessary services of the employees and incentivizing them to continue to perform 8 their duties with positive morale and to successfully reach the effective date of a confirmed plan. 9 PFI has determined that the cost associated with the potential aggregate retention bonus payments10 to employees upon the effective date of a confirmed plan is more than justified by the benefits of 11 retaining their trained and knowledgeable employees – whose experience, skills, and diligent 12 efforts are critical for the Debtors’ continued business operations and ability to reach the 13 implementation of a confirmed plan – and by the inevitable expense and disruption to the chapter 14 11 process if employees were to leave, thereby necessitating the expense of hiring and training les15 knowledgeable staff, if new employees could even be found in light of the circumstances, and the16 risk this would pose to reaching the effective date of a confirmed plan. Thus, the Debtors have 17 articulated a valid business justification necessary to satisfy Section 363(b)(1) for the approval an18 implementation of the proposed Employee Retention Plan. 19 B. The Employee Retention Plan Satisfies Section 503(c)(3) of the Bankruptcy Code 20 Section 503(c) of the Bankruptcy Code is comprised of three subsections: (1) a general 21 prohibition against retention plans for insiders; (2) limitations on severance payments to insiders; 22 and (3) standards governing other transfers to certain officers, employees and consultants, among 23 others, that are outside of the ordinary course of business.2 While Sections 503(c)(1) and 24 503(c)(2) place stringent restrictions on retention plans and severance payments, those sections 25 only apply to payments made to insiders. Because none of the employees eligible to participate i26 2 Section 503(c)(3) of the Bankruptcy Code states, in relevant part, that “there shall be neither 27 allowed nor paid . . . other transfers or obligations that are outside the ordinary course of business

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1 the proposed Employee Retention Plan are insiders, the program is governed by Section 363 and 2 503(c)(3) of the Bankruptcy Code and is not subject to review under either section 503(c)(1) or 3 503(c)(2) of the Bankruptcy Code. 4 1. Because None of the Employee Retention Plan Participants is an Insider, Sections 5 503(c)(1) and 503(c)(2) are Inapplicable 6 By the statute’s plain language, sections 503(c)(1) and (2) of the Bankruptcy Code pertain7 solely to the retention and severance plans for insiders. Neither section 503(c)(1) nor section 8 503(c)(2) of the Bankruptcy Code are generally applicable to evaluating the Employee Retention 9 Program because none of the participants in the Employee Retention Program is a director, office10 person in control, or general partner of any Debtor, nor is any participant a relative of any director11 officer, person in control, or general partner of any Debtor. See 11 U.S.C. § 101(31). 12 While all of the employees have important roles in the Debtors’ business and at least three13 of these employees have titles which may suggest that they are insiders (e.g. “Senior Managing 14 Director of Commercial Leasing”), none of these individuals is an insider under the Bankruptcy 15 Code because none has any participation in the management of the Debtors, has the ability to 16 dictate corporate policy or the disposition of corporate assets, was appointed by the Independent 17 Director, or reports to the Independent Director, and all of the employees are only responsible for 18 day-to-day operations. See In re Boarders Grp., Inc., 453 B.R. 459, 468-469 (Bankr. S.D.N.Y. 19 2011) (“An individual’s title, by itself, is insufficient to establish that an individual is a director or20 officer.”). 21 As set forth in the Hinkelman Declaration, while some of the participants in the employee 22 Retention Plan hold a title that includes the term “director,” none of the Participants exercises 23 control over the Debtors. See In re Glob. Aviation Holdings Inc., 478 B.R. 142, 148 (Bankr. 24 E.D.N.Y. 2012) (finding that none of the employees included in the employee retention plan were25 insiders, including “Directors of Safety, Maintenance and Operations”, because those employees 26 held none of the responsibilities of a corporate director); 455 CPW Assocs. v. Greater N.Y. Sav. 27 Bank (In re 455 CPW Assocs., 2000 U.S. App. LEXIS 23470 (2d Cir. Sept. 14, 2000) (affirming a

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1 of the debtor was not an insider because he was not “in control”); NMI Svs. Inc. v. Pillard (In re 2 NMI Svs. Inc.), 179 B.R. 357, 368 (Bankr. D.D.C. 1995) (concluding that a “vice president” was 3 not an “officer” or a “person in control” within the meaning of insider in the Bankruptcy Code 4 because the employee was not in a position to influence corporate policy); cf., Gold v. Sloan, 486 5 F.2d 340, 350 (4th Cir. 1973) (concluding, in the context of a section 16(b) Securities Exchange 6 Act of 1934 lawsuit, that an officer’s title was “merely titular” because such officer was a membe7 of lower level management and did not have access to or could avail himself of inside 8 information); C.R.A. Realty Corp. v. Crottv, 878 F.2d 562, 566 (2d Cir. 1989) (concluding that a 9 vice president was not an “officer” within the meaning of section 16(b) of the Securities Exchang10 Act of 1934 because, among other things, the officer did not have access to inside information). 11 Because none of the Participants of the Employee Retention Plan is an “insider,” the 12 Employee Retention Plan is not generally subject to review under Section 503(c)(1) or (2), and 13 should be approved as an exercise of the Debtors’ sound business judgment under Sections 363(b14 and/or 503(c)(3) of the Bankruptcy Code. 15 2. The Employee Retention Plan Satisfies the “Facts and Circumstances” Standard o16 503(c)(3) 17 The majority of courts hold that the deferential business judgment standard generally 18 applied to determinations of use of estate assets outside the course of ordinary business pursuant t19 Section 363(b) also applies to the determination of whether an employee retention or incentive 20 program is “justified by the facts and circumstances of the case” within the meaning of section 21 503(c)(3) of the Bankruptcy Code. See e.g., In re Velo Holdings, Inc., 472 B.R. 201, 212 (Bankr. 22 S.D.N.Y. 2012) (“Courts have held that the ‘facts and circumstances’ language of section 23 503(c)(3) creates a standard no different than the business judgment standard under section 363(b24 [of the Bankruptcy Code]”). 25 Indeed, in the Nobex case, Judge Walrath stated that: 26 Section 503(c)(3) was meant to provide a standard, albeit not as clear, for any other transfers or obligations outside the ordinary 27 course of business .... I read (c)(3) to be the catch-all and the standard under (c)(3) for any transfers or obligations made outside

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1 facts and circumstances of the case .... I find it quite frankly nothing more than a reiteration of the standard under 363 ... under which 2 courts had previously authorized transfers outside the ordinary course of business and that [are], based on the business judgment of 3 the debtor ... 4 In re Nobex Corp., Case No. 05-20050, Jan. 12, 2006, Hr’g Tr. at 86-87 (an order approving the 5 management incentive plan at issue was entered Jan. 20, 2006) (Bankr. D. Del. 2006); accord In 6 re Dana Corp. (Dana II), 358 B.R. 567, 576 (Bankr. S.D.N.Y. 2006) (per Judge Lifland, 7 management incentive programs should be evaluated under the business judgment standard). 8 Notwithstanding the majority case law discussed above, which has held that employee 9 retention or incentive plans may be approved by a court after applying the business judgment test,10 some courts have held that section 503(c)(3) sets a bar higher than the simple business judgment 11 test, requiring a determination by the court that an incentive plan is “justified by the facts and 12 circumstances of the case.” See In re Pilgrim’s Pride Corp., 401 B.R. 229, 236 (Bankr. N.D. Tex13 2009) (“the court must make its own determination that the transaction will serve the interests of 14 creditors and the debtor’s estate . . . . when a transaction is proposed between a debtor and its 15 insiders”). 16 a. The Employee Retention Plan Satisfies the Majority Application of the 17 “Facts and Circumstances” Standard of Section 503(c)(3) 18 In Dana II, Judge Lifland discussed six factors when examining an employee retention or19 incentive plan under the majority business judgment/facts and circumstances standard. In re Dan20 Corp., 358 B.R. at 576-77. While it remains undetermined what the standard is in the Ninth 21 Circuit, some bankruptcy courts within the Ninth Circuit have cited to Dana II when reviewing 22 employee retention and incentive plans. See In re PG&E Corp., 19-30088-DM, 2019 WL 23 4686765, at *2-3 (Bankr. N.D. Cal. Aug. 30, 2019) (applying Dana II factors in evaluating a 24 proposed Key Employee Incentive Plan under Section 503(c)(1)); see also In re L. Scott Apparel, 25 Inc., 2:13-BK-26021-RK, 2019 WL 1768235, at *62 (Bankr. C.D. Cal. Jan. 29, 2019), aff’d, 615 26 B.R. 881 (C.D. Cal. 2020), appeal dismissed, 20-55507, 2020 WL 6482082 (9th Cir. Aug. 12, 27

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1 2020) (citing Dana II as setting forth standard to apply in evaluating postpetition retention and 2 incentive payments under Section 503(c)(3)). The six Dana II factors are as follows: 3 • Is there a reasonable relationship between the plan proposed and results to be obtained, i.e., will the key employee stay for 4 as long as it takes for the debtor to reorganize…? 5 • Is the cost of the plan reasonable in the context of the debtor’s assets, liabilities and earning potential? 6 • Is the scope of the plan fair and reasonable; does it apply to all 7 employees; does it discriminate unfairly? 8 • Is the plan or proposal consistent with industry standards? 9 • What were the due diligence efforts of the debtor in investigating the need for a plan; analyzing which key 10 employees need to be incentivized; what is available; what is generally applicable in a particular industry? 11 • Did the debtor receive independent counsel in performing due 12 diligence and in creating and authorizing the incentive compensation? 13 In re Dana Corp., 358 B.R. at 576-77. 14 15 Here, an examination of the six Dana II factors demonstrates that approval of the 16 Employee Retention Plan is justified by the facts and circumstances of these Cases and represents17 a sound exercise of the Debtors business judgment: 18 i. Relationship Between the Plan and the Results 19 The Employee Retention Plan has been proposed for the direct purpose of retaining the 20 employees through plan confirmation and reaching the effective date of a confirmed plan as they 21 are critical to the Debtors’ continued business operations. Without the Debtors’ continued 22 business operations, they would be unlikely to confirm a plan of reorganization. Thus, the 23 proposed Employee Retention Plan is directly related to the Debtors’ goal of successfully reachin24 the effective date of a confirmed plan of reorganization. 25 ii. The Cost of the Employee Retention Plan 26 The potential aggregate cost of the Employee Retention Plan is $238,536. This is less tha27 the aggregate compensation for the employees for one month. The Debtors collectively have

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1 substantial equity in their real properties and collect millions of dollars in rent from their tenants. 2 In comparison, the potential cost of the Employee Retention Plan is minimal. 3 iii. The Scope of the Employee Retention Plan is Reasonable 4 All rank and file employees are eligible for a retention bonus upon the effective date of 5 Debtors’ confirmed chapter 11 plan. Each eligible employee who remains employed through the 6 effective date of a confirmed plan will receive a retention bonus of an amount equal to one half to7 one and three quarters times that employee’s total monthly compensation. Whether an employee 8 receives a bonus equal to one half, three quarters, one, one and a half times, or one and three 9 quarters times his or her monthly compensation depends on that specific employee’s particular 10 role, key responsibilities, monthly compensation amount, years of industry experience, and years 11 with PFI. Given the critical nature of retaining the employee’s services to reach plan confirmatio12 and that all rank and file employees are eligible for the retention bonus, the Employee Retention 13 Plan is reasonable. 14 iv. The Employee Retention Plan is Consistent with Industry 15 Standards 16 PFI asserts that the Employee Retention Plan is consistent with other retention plans set 17 forth in other bankruptcy cases. Moreover, the Debtors further assert that the employees are paid 18 competitively and the proposed retention bonus amounts are in line with market compensation for19 employees in similar positions. 20 v. Due Diligence Efforts 21 Significant due diligence efforts were undertaken by PFI in developing the Employee 22 Retention Plan. As discussed above, PFI’s management developed a set of metrics for 23 determining what amount each employee should receive as a retention bonus upon the effective 24 date of a confirmed plan. Given the relatively low dollar amount of the potential total cost of the 25 Employee Retention Plan in comparison to the revenue losses, the costs of hiring and training ne26 employees, and the risk of not achieving plan confirmation should employees leave, the OCUC 27 approved the earlier version of the Employ Retention Program containing a proposed payment of

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1 vi. Independent Counsel 2 In addition to having the independent review and approval of the OCUC in developing the3 Employee Retention Plan, PFI received independent counsel from its bankruptcy attorneys and its4 CRO and Independent Director, neither of whom are entitled to participate in the Employee 5 Retention Plan. See Borders, 453 B.R. at 477 (finding that the debtors’ interest were sufficiently 6 protected where the debtors received independent compensation advice from a compensation 7 consultant, the debtors’ restructuring advisor, and the debtors’ bankruptcy counsel). 8 PFI respectfully submits, therefore, that under the majority standard applied to Section 9 503(c)(3), the Employee Retention Plan reflects a considered and reasonable business decision an10 is justified by the facts and circumstances of these Cases. 11 b. The Employee Retention Plan Satisfies the Minority Application of the 12 “Facts and Circumstances” Standard of Section 503(c)(3) 13 According to the minority application of the “facts and circumstances” standard of Sectio14 503(c)(3), “the court must make its own determination that the transaction will serve the interests 15 of creditors and the debtor’s estate . . . when a transaction is proposed between a debtor and its 16 insiders”. In re Pilgrim’s Pride Corp., 401 B.R. at 236. This minority application of the standard17 however, is not as well-articulated and has not been widely adopted, and as a result, it “has 18 become the minority view.” 4 Collier on Bankruptcy ¶ 503.17 (Alan N. Resnick & Henry J. 19 Sommers eds., 16th ed.). 20 In any event, the Debtors submit that the “cause” discussed in detail above with respect to 21 the business judgment standard pursuant to section 363(b) and the majority view of 503(c)(3) of 22 the Bankruptcy Code, also satisfies the “justified by the facts of the case” standard articulated in 23 Pilgrim’s Pride, as the Employee Retention Plan is for the express purpose of retaining essential 24 employees, is necessary and critical to maintain the Debtors’ ongoing business operations and 25 successfully reach the effective date of a confirmed plan, is within industry standards, is 26 reasonable from a cost/benefit perspective, is tailored to obtain its designed objectives, was subje27 to significant due diligence and input from independent counsel, and is based on an employee

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1 C. Regardless of the Standard Applied, the Employee Retention Plan Should be 2 Approved 3 As discussed in detail above, PFI has articulated a valid business reason for implementing 4 the Employee Retention Plan, and the facts and circumstances of these proceedings, including the5 approval of the OCUC of an earlier proposed similar employee retention bonus payment, support 6 approval thereof. Among other things, the Employee Retention Plan was prepared with the input 7 of PFI’s advisors and with input from the OCUC. The Employee Retention Plan is specifically 8 calculated to incentivize the employees to continue fulfilling their duties necessary to continue th9 Debtors’ ongoing leasing, property management, and day-to-day business operations along with 10 completing tasks necessary for the ongoing bankruptcy administration of the Debtors. The 11 Employee Retention Plan is further structured to maximize value for the Debtors’ estates and 12 creditors by incentivizing the Employees to remain focused and motivated during the bankruptcy 13 process culminating in a confirmed plan of reorganization going effective. Moreover, the overall 14 cost of the Employee Retention Plan is reasonable in light of the facts and circumstances of these 15 Cases, including: (i) the size of the Debtors’ estates; (ii) the potential aggregate cost of the 16 Employee Retention Program compared to the aggregate total monthly compensation for those 17 same employees; (iii) the benefits to be obtained by properly incentivizing the employees; (iv) the18 inevitable costs and lost benefits that would be associated with having to replace or operate 19 without the employees’ continued valuable assistance, including the potential loss in revenue if 20 employees no longer continue leasing open tenant spaces; and (v) the likelihood of reaching the 21 effective date of a confirmed plan without the continued work of the employees. Accordingly, PF22 believes that valid business reasons exist for, and the facts and circumstances justify, the 23 implementation of the Employee Retention Program, and that it should be approved. 24 D. The Obligations Under the Employee Retention Program are Administrative 25 Expenses 26 The Debtors request that their obligations to make payments pursuant to the Employee 27 Retention Plan, once earned, be deemed to be administrative expenses pursuant to section 503(b)

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1 e.g., In re Residential Capital, LLC, 491 B.R. 73, 78 (Bankr. S.D.N.Y. 2013) (approving an 2 incentive and retention plan and payment of obligations thereunder as administrative expenses 3 pursuant to Section 503(c)(3)). 4 VII. 5 NOTICE 6 Notice of this Motion and copies thereof, have been provided to: (a) the Office of the U.S. 7 Trustee, (b) PFI’s secured creditors, (c) those appearing on the list of top 40 unsecured creditors 8 for PFI, (d) each of the Committees, and (e) the parties that have filed with the Court requests for 9 notice of all matters in accordance with Bankruptcy Rule 2002. In the event that the Court grants 10 the relief requested by the Motion, the Debtors shall provide notice of the entry of the order 11 granting such relief upon each of the foregoing parties and any other parties-in-interest as the 12 Court directs. The Debtors submit that such notice is sufficient and that no other or further notice13 be given. 14 VIII. 15 CONCLUSION 16 WHEREFORE, the Debtors respectfully request that this Court enter an order, 17 substantially in the form attached hereto as Exhibit A, approving the Employee Retention Plan fo18 the payment of a retention bonus to employees upon the effective date of a confirmed chapter 11 19 plan and granting further related relief as appropriate under the circumstances. The Debtors 20 further request that upon the effective date of a confirmed plan of reorganization for the Debtors, 21 the payment of any retention bonuses earned by Employees shall constitute an administrative 22 expense pursuant to 503(b) of the Bankruptcy Code, and that any payment made by the Debtors t23 or on behalf of any Employee pursuant to the Employee Retention Program approved herein shall24 be final and shall not be subject to disgorgement. 25 26 27

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1 Dated: May 6, 2021 2 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP 3 By: /s/ J. Barrett Marum 4 ORI KATZ J. BARRETT MARUM 5 MATT KLINGER GIANNA SEGRETTI 6 7 Counsel for the Debtors 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

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1 EXHIBIT A 2 (Proposed Order) 3 UNITED STATES BANKRUPTCY COURT 4 NORTHERN DISTRICT OF CALIFORNIA, SAN FRANCISCO DIVISION 5 In re Case No. 20-30604 (Jointly Administered with Case Nos. 20-30579, 6 PROFESSIONAL FINANCIAL 20-30908, 20-30909, 20-30910, 20- 30911, INVESTORS, INC., et al. 20-30912, 20-30913, 20-30914, 20- 30915, 7 20-30916, 20-30917, 20-30919, 20- 30920, Debtors. 20-30922, 20-30923, 20-30924, 20- 30925, 8 20-30927, 20-30928, 20-30929, 20- 30930, 20-30934, 20-30935, 20-30936, 20- 30937, 9 20-30938, 20-30939, 20-30940, 20- 30941, and 20-30942) 10 Chapter 11 11 [PROPOSED] ORDER GRANTING 12 DEBTORS’ MOTION FOR ORDER APPROVING EMPLOYEE RETENTION 13 PROGRAM PURSUANT TO 11 U.S.C. §§ 105(a), 363(b)(1), AND 503(c)(3) 14 Judge: Hon. Hannah L. Blumenstiel 15 Date: May 27, 2021 Time: 10:00 a.m. 16 Place: Telephonic/Video Appearances Only 450 Golden Gate Ave., 16th Fl., Crtm. 19 17 San Francisco, CA 94102 18 This Court, having considered the Debtors’ Motion for Order Approving Employee 19 Retention Program Pursuant to 11 U.S.C. §§ 105(a), 363(b)(1), and 503(c)(3) (the “Motion”)3 20 filed by the debtors and debtors in possession in the above-captioned chapter 11 bankruptcy cases21 on May 6, 2021, as Docket No. [●], seeking an order (a) approving, pursuant to sections 105(a), 22 363(b)(1), and 503(c)(3) of title 11 of the United States Code (the “Bankruptcy Code”), an 23 incentive program for certain of the Debtors’ employees (the “Employee Retention Program”), to 24 provide for the payment of a retention bonus to employees upon the effective date of a 25 26 27 3

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1 successfully confirmed chapter 11 plan, and (b) granting related relief, and finding that good caus2 exists therefore; 3 ORDERS as follows: 4 1. The Motion is GRANTED in its entirety. Capitalized terms used but not otherwis5 defined herein have the meanings ascribed to them in the Motion. 6 2. The Employee Retention Plan, as described in the Motion, is approved. 7 3. The Debtors are authorized, but not directed, to implement the Employee Retentio8 Plan. 9 4. Once earned, the Debtors’ obligation to pay amounts that become due and owing 10 under the Employee Retention Plan shall constitute an administrative expense pursuant to section 11 503(b) of the Bankruptcy Code, entitled to priority payment pursuant to section 507(a)(2) of the 12 Bankruptcy Code. 13 5. The Debtors are authorized to make any payments to or on behalf of any Employe14 pursuant to the Employee Retention Plan. 15 6. Any payment actually made by the Debtors to or on behalf of any Employee 16 pursuant to the Employee Retention Plan shall be final and shall not be subject to disgorgement. 17 7. Notice of the Motion as provided therein shall be deemed good and sufficient and 18 such notice satisfies the requirements of Bankruptcy Rule 6004(a) and the Bankruptcy Local 19 Rules. 20 8. Notwithstanding anything to the contrary therein, to the extent there is any conflict21 between this Order and the Final Order Approving Emergency Motion for Order: (1) Authorizing22 New Debtors to Use Cash Collateral; and (2) Authorizing Existing Debtors’ Continued Use of 23 Cash Collateral (the “Cash Collateral Order”) entered on April 1, 2021, as Docket No. 532, the 24 terms of the Cash Collateral Order shall govern. 25 9. The Debtors are authorized to take all actions necessary to effectuate the relief 26 granted pursuant to this Order. 27 10. The Court retains jurisdiction with respect to all matters arising from or related to

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1 ***END OF PROPOSED ORDER*** 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

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