STEVENS & LEE, P.C.

485 Madison Avenue, 20th Floor

New York, New York 10022
Telephone: (212) 319-8500
Facsimile: (212) 319-8505
Alec P. Ostrow
Constantine D. Pourakis
Email: apo@stevenslee.com
cp@stevenslee.com

Attorneys for Debtor

and Debtor in Possession

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------- x
In re : Chapter 11
:
TEEVEE TOONS, INC. : Case No. 08-10562 (ALG)
d/b/a TVT RECORDS, :
:
Debtor. :
------------------------------------------------------- x

MOTION OF DEBTOR AND DEBTOR IN POSSESSION,

PURSUANT TO SECTIONS 105(a) AND 363 OF THE
BANKRUPTCY CODE, FOR AN ORDER AUTHORIZING
THE DEBTOR TO INSTITUTE A MODIFIED SEVERANCE PLAN

TO: THE HONORABLE ALLAN L. GROPPER,

UNITED STATES BANKRUPTCY JUDGE:

TeeVee Toons, Inc. d/b/a TVT Records, as debtor and debtor-in-possession (the

“Debtor”), respectfully represents as follows:

BACKGROUND

1. On February 19, 2008 (the “Petition Date”), the Debtor commenced its

reorganization case in this Court by filing a voluntary petition for relief under chapter 11 of title

11 of the United States Code (the “Bankruptcy Code”).

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 2. The Debtor is authorized to continue to operate its business and manage its

properties as a debtor in possession, pursuant to sections 1107(a) and 1108 of the Bankruptcy

Code.

3. On February 28, 2008, the United States Trustee formed the Official

Committee of Unsecured Creditors (the “Creditors Committee”).

JURISDICTION

4. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C.

§ 1134. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper before this

Court pursuant to 28 U.S.C. §§ 1408 and 1409.

RELIEF REQUESTED

5. Pursuant to sections 105(a) and 363 of the Bankruptcy Code, the Debtor

hereby seeks the entry of an order (a) authorizing the Debtor to implement a Modified Severance

Plan (as defined below), and (b) providing that all amount due and owing under the Modified

Severance Program be granted priority ahead of any superpriority claim held by the Debtor’s

post-petition and pre-petition lenders and Agent.

FACTS RELEVANT TO THIS MOTION

A. The Employees

6. The Debtor currently has 18 full-time and part-time hourly and salaried

employees (the “Employees”). The Employees perform a variety of critical functions for the

Debtor’s business, including sales, promotions and marketing, accounting (A/R collections and

A/P), administration, budgeting and planning, finance, human resources, operations, and

business and legal affairs. The Employees’ skills and their specialized knowledge and

understanding of the Debtor’s infrastructure and operations, as well as their relationships with

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customers, vendors and other third parties, are essential to the Debtor’s continuing operations

and to a successful conclusion to the Debtor’s chapter 11 case.

B. Implementation of Modified Severance Program

7. The Debtor never formalized a written severance policy, but historically, on

an informal basis, has paid a maximum of one week severance for every year of employment.

Severance paid to longer term employees was typically subject to negotiations between the

Debtor and the terminated employee. Under the Debtor’s unofficial severance policy, the

severance benefits accrued to current employees amount to approximately $424,000 in the

aggregate.

8. Pursuant to this Motion, the Debtor is seeking permission to implement a

modified severance plan (the “Modified Severance Plan”) applicable to those employees of the

Debtor who are in the employ of the Debtor as of and following the Petition Date. Prior to or at

the hearing on the Motion, the Debtor will provide to the Court, the Office of the United States

Trustee, counsel to the Creditors Committee, and counsel to the post-petition lender a Schedule

setting forth with respect to each Employee of the Debtor the Employee’s annual base

compensation and the name of each Employee of the Debtor who would be subject to the

Modified Severance Plan and the amount of payment or payments to which they would be

entitled under the Modified Severance Plan.

C. Base Severance

9. Under the Modified Severance Plan, Employees working for the Debtor as of

and following the Petition Date would be entitled to receive one week’s notice of termination

and a severance payment equal to two (2) weeks of their current salary, irrespective of their

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prior accrual of severance benefits or their length of past employment with the Debtor (“Base

Severance”).

10. Base Severance will be paid to each Employee who is terminated by the

Debtor without cause and is not, within fifteen (15) days thereafter, employed by a purchaser of

substantially all of the Debtor’s assets on substantially the same or better terms and conditions as

his or her employment with the Debtor.

11. The Debtor estimates that the maximum amount of Base Severance that could

be paid is approximately $75,000. Because all Employees of the Debtor would be included in

the Base Severance portion of the Modified Severance Plan, the one insider of the Debtor would

also be eligible for Base Severance payments. As discussed further below, the Modified

Severance Plan complies with the newly enacted provisions in section 503(c)(2) of the

Bankruptcy Code relating to severance payments in that the Base Severance portion of the

Modified Severance Plan applies to all full-time employees and the amount of severance payable

to an insider of the Debtor is less than ten (10) times the mean severance payable to non-

management employees.

12. Included among the Employees entitled to Base Severance is Steven Gottlieb,

the President, founder and owner. It might be contended that Mr. Gottlieb should be excluded

from the Base Severance. The Debtor believes such contention would be without merit and

perhaps motivated by personal animosity that has no place in this bankruptcy case. A provision

for Mr. Gottlieb under the same formula as all other Employees does not violate section 503(c)

of the Bankruptcy Code, and is reasonable and justifiable for Mr. Gottlieb for the same reasons it

is justifiable for the other Employees.

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 13. Mr. Gottlieb has devoted himself to maximizing the estate’s assets for all

creditors throughout the course of this case. Although the Debtor has not publicly provided the

severance to be paid to each Employee for the obvious reason that to do so would cause internal

strife in the company, the proposed Base Severance to be paid Mr. Gottlieb is sufficiently small

such that (1) it is imprudent to litigate over Mr. Gottlieb’s Base Severance and (2) it is imprudent

to disincentivize Mr. Gottlieb by denying him the Base Severance. Mr. Gottlieb is vital to the

Debtor’s continuing efforts to sell its assets and maximize the return to creditors, and including

him in the Base Severance portion of the Modified Severance Plan is a very small price to pay to

ensure his continued unbridled enthusiasm in consummating a sale and maximizing the estate.

Therefore, any objection to Mr. Gottlieb’s inclusion in the Base Severance is counterproductive

to the overall process of this case.

14. Nevertheless, any issue concerning Mr. Gottlieb’s participation in the Base

Severance should not be used to delay or diminish the approval of the Modified Severance Plan

for the rest of the Employees.

D. Supplemental Severance

15. The Modified Severance Plan further provides for a supplemental severance

and incentive payment (“Supplemental Severance”) to certain Employees deemed by the Debtor

to be integral to the Debtor’s restructuring and sale efforts (the “Key Employees”). None of the

Key Employees is an insider of the Debtor.1 Under the Modified Severance Plan, each of the

Key Employees would receive an additional six (6) to eleven (11) weeks of severance (again,

irrespective of their prior accrual of pre-petition severance benefits or the length of their past

1
Vera Savcic, the Debtor’s General Manager, was also the Debtor’s Secretary, but resigned this position prior to
the bankruptcy filing. The Debtor’s President, Steven Gottlieb, has waived his rights to participate in the
Supplemental Severance portion of the Modified Severance Plan.

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employment with the Debtor) if the Key Employee either (a) is terminated by the Debtor without

cause; or (b) remains in the employ of the Debtor on the later of the one hundred fiftieth (150th)

day after the Petition Date (July 18, 2008) or ten (10) days following the closing of the sale of

substantially all of the Debtor’s assets. The Debtor estimates that the maximum amount of

Supplemental Severance that could be paid is $156,000.

16. Payment of Base Severance and Supplemental Severance under the Modified

Severance Plan shall be included in the next regular payroll of the Debtor following the date that

the right to such payment has accrued. Employees, including Key Employees, have the option of

retaining their rights, if any, under the Pre-petition Severance Plan or accepting payment of Base

Severance or Supplemental Severance payments pursuant to the Modified Severance Plan, but

Employees, including Key Employees, may not participate in both plans. Accordingly,

Employees, including Key Employees, may participate in the Modified Severance Plan only if

they first agree to waive and release any and all severance claims arising under and/or pursuant

to the Pre-petition Severance Plan.

17. The Debtor estimates that the maximum amount that could be paid pursuant to

the Modified Severance Plan to Employees, including Key Employees, is approximately

$231,000. The maximum cost of the Modified Severance Plan is less than the aggregate amount

currently accrued to Employees under the Pre-petition Severance Plan (approximately $424,000).

Rather than seek permission to pay pre-petition severance benefits in the ordinary course, as

debtors often do, the Debtor herein seeks to implement a more cost-effective severance and

incentive plan which will promote stability in the Debtor’s workforce and thereby provide

greater returns to the Debtor, its creditors and its estate in this chapter 11 case.

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 18. The Modified Severance Plan should be approved because it is critical to the

restructuring and sale process that the Employees be incentivized to remain in the Debtor’s

employ through the closing of a sale of the Debtor’s assets. The Employees add significant

value to the Debtor’s business as a going concern and would also be critical to ensuring a

maximization of the value of a sale, benefitting the Debtor’s estate.

19. The Debtor believes that the Modified Severance Plan is the fairest and most

reasonable manner of providing such an incentive without unnecessarily depleting the Debtor’s

resources.

BASIS FOR RELIEF

20. The Debtor respectfully submits that it should be permitted to implement the

Modified Severance Plan. Bankruptcy Code Section 363(b) permits a debtor in possession to use

property outside of the ordinary course of business where the use of such property represents an

exercise of the debtor’s sound business judgment. See e.g. In re Martin, 91 F.3d 389, 395 (3rd

Cir. 1996) (citing Fulton State Bank v. Schipper (In re Schipper), 933 F.2d 513, 515 (7th Cir.

1991)), see also e.g. In re Abbotts Dairies of Pa., Inc., 788 F.2d 143, 145-47 (3rd Cir. 1986);

Stephens Indus. v. McClung, 789 F.2d 386, 390 (6th Cir. 1986) (citing Committee of Equity Sec.

Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1070 (2nd Cir. 1983)); In re

Delaware Hudson R.R. Co., 124 B.R. 169, 176 (Bankr. D. Del. 1991).

21. Typically, courts approve employee compensation, severance and benefit

programs “if the debtor has used proper business judgment in formulating the program and the

court finds the program to be fair and reasonable.” In re Aerovox. Inc., 269 B.R. 74, 80 (Bankr.

D. Mass. 2001) (approving employee compensation program as fair, reasonable and proper

exercise of debtor’s business judgment); see also e.g. In re America West Airlines, Inc., 171 B.R.

674, 678 (Bankr. D. Ariz. 1994) (approving bonuses to certain officers and employees as within

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debtor’s business judgment); In re Interco. Inc., 128 B.R. 229, 234 (Bankr. E.D. Mo. 1991)

(approving performance based compensation program).

22. After evaluating various alternatives to incentivize its employees, the Debtor

determined that the Modified Severance Program is necessary to achieve its intended purpose of

maximizing the value of its chapter 11 estate. Without the Modified Severance Program, the

Debtor risks losing Employees at a vital stage in this case, namely the marketing and sale of he

Debtor’s assets. Due to the small staff already in place at the Debtor, the loss of any Employee

at this time would severely hamper the sale efforts. Consequently, the Debtor believes that

implementation of the Modified Severance Program is justified, reasonable and appropriate

under these facts and circumstances and will accomplish a sound business purpose.

23. The Modified Severance Plan does not conflict with the provisions of newly-

enacted section 503(c) of the Bankruptcy Code.2 With respect to the Base Severance portion of

the Modified Severance Plan, every full time employee, both management and non-management,

would be entitled to a payment equal to two (2) weeks compensation. The Base Severance

portion of the Modified Severance Plan is thus “generally applicable to all full-time employees,”

as required by section 503(c)(2)(A) of the Bankruptcy Code. In addition, as required by section

503(c)(2)(B) of the Bankruptcy Code, Base Severance payments to Employees of the Debtor

who would qualify as “insiders” under the definition in section 101(31) of the Bankruptcy Code,

2
Section 503(c)(2) precludes the allowance of “a severance payment to an insider of the debtor, unless ---
(A) the payment is part of a program that is generally applicable to all full-time employees; and (B) the amount
of the payment is not greater than 10 times the amount of the mean severance pay given to nonmanagement
employees during the calendar year in which the payment is made . . .”

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are limited to an amount which is “not greater than 10 times the amount of the mean severance

pay given to nonmanagement employees,” as required by section 503(c)(2)(B).3

24. With regard to the Supplemental Severance portion of the Modified Severance

Plan, the Debtor believes that none of the eligible Employee participants would qualify as an

insider under the definition set forth in Bankruptcy Code Section 101(31).4 Thus, Bankruptcy

Code Section 503(c)(l) - which only applies to payments intended to induce insiders to “remain

with the [debtor’s] business” by requiring, among other things, the debtor to demonstrate that an

insider (i) has a bona fide job offer from another business and (b) is “essential to the survival of

the business” - does not apply. 11 U.S.C. § 503(c)(1)(A), (B).

Escrow of Severance Amounts

25. The Debtor’s approved DIP financing facility has budgeted the cash necessary

to satisfy all obligations under the Modified Severance Plan. To ensure that the Employees

receive the severance due and owing to them, regardless of the outcome to befall the Debtor, the

Debtor shall escrow the amounts budgeted for the Modified Severance Plan upon approval of

this Motion. These funds will be distributed to each of the Employees in the ordinary course of

business provided each Employee complies with the requirements for receipt of Base Severance,

Supplemental Severance, or both, as detailed herein.

NOTICE

26. No trustee or examiner has been appointed in this Chapter 11 case. Notice of

this Motion has been provided to: (a) the Office of the United States Trustee for the Southern

3
The Debtor suggests that, for the purposes of Bankruptcy Code Section 503(c)(l ), the term insider applies only
to directors and executive officers or controlling shareholders (and not to an individual employee that may
merely hold a title of “vice president - marketing” or similar position but lacks general corporate decision
making authority).
4
As stated before, Vera Savcic resigned as Secretary prior to the Petition Date, and Steven Gottlieb waived his
right to participate in the Supplemental Severance portion of the Modified Severance Plan.

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District of New York; (b) counsel to the Creditors Committee; (c) counsel for the Agent under

the Debtor’s pre-petition credit facilities and post-petition credit facility; and (d) all parties

having filed a notice of appearance. The Debtor submits that no other or further notice need be

provided.

NO PRIOR REQUEST

27. No prior request for the relief sought in this Motion has been made to this or

any other Court.

WAIVER OF MEMORANDUM OF LAW

28. The Debtor submits that this Motion does not present any novel issues of law

requiring briefing, and relevant statutory and case authorities are set forth hereinabove.

Accordingly, the Debtor respectfully requests that the Court waive the requirement contained in

Local Bankruptcy Rule 9013-1(b) that a separate memorandum of law be submitted in support of

the Motion.

WHEREFORE, the Debtor respectfully requests that the Court (a) enter an order

substantially in the form annexed hereto as Exhibit A, granting the relief requested herein; and

(b) grant such other and further relief to the Debtor as the Court may deem proper.

Dated: New York, New York STEVENS & LEE, P.C.

May 15, 2008

By: /s/ Alec P. Ostrow

Alec P. Ostrow
Constantine D. Pourakis
485 Madison Avenue, 20th Floor
New York, New York 10022
(212) 319-8500
apo@stevenslee.com
cp@stevenslee.com

Attorneys for Debtor and

Debtor in Possession

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 EXHIBIT A
PROPOSED FORM OF ORDER

SL1 799425v4/103354.00002
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------- x
In re : Chapter 11
:
TEEVEE TOONS, INC. : Case No. 08-10562 (ALG)
d/b/a TVT RECORDS, :
:
Debtor. :
------------------------------------------------------- x

ORDER PURSUANT TO SECTIONS 105(a) AND 363

OF THE BANKRUPTCY CODE AUTHORIZING THE
DEBTOR TO INSTITUTE A MODIFIED SEVERANCE PLAN

This matter coming before the Court on the Motion of Debtor and

Debtor-in-Possession, Pursuant to Sections 105(a) and 363 of the Bankruptcy Code, for an Order

Authorizing the Debtor to institute a Modified Severance Plan (the “Motion”), filed by the

Debtor and Debtor in Possession in the above-captioned case (the “Debtor”); the Court having

considered the statements of counsel and the evidence adduced with respect to the Motion at a

hearing before the Court (the “Hearing”); and the Court having found that (a) it has jurisdiction

over this matter pursuant to 28 U.S.C. §§ 157 and 1334, (b) this is a core proceeding pursuant to

28 U.S.C. § 157(b), (c) notice of the Motion and the Hearing was sufficient under the

circumstances, and (d) the institution of the Modified Severance Plan on the terms and

conditions described in the Motion is necessary and appropriate to prevent serious disruptions to

the Debtor’s restructuring and sale efforts, and will serve to protect and preserve the Debtor’s

estate for the benefit of all stakeholders; and the Court having determined that the legal and

factual bases set forth in the Motion and at the Hearing establish just cause for the relief granted

herein;

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 IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED.

2. The Debtor is authorized to institute the Modified Severance Program.

3. The requirement of Local Rule 9013-1(b) of the Local Bankruptcy Rules for

the United States Bankruptcy Court for the Southern District of New York for the service and

filing of a separate memorandum of law is satisfied by the Motion.

Dated: New York, New York

____________, 2008

UNITED STATES BANKRUPTCY JUDGE

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