18-10509-shl Doc 1002 Filed 08/08/19 Entered 08/08/19 15 ...€¦ · 12. WP is a distinguished public accounting firm with 61 partners throughout offices located Austin, Dallas, Fort

JENNER & BLOCK LLP Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 Angela Allen (admitted pro hac vice) 353 North Clark Street Chicago, Illinois 60654 (312) 222-9350 Counsel for the Chapter 11 Trustee UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

In re: FIRESTAR DIAMOND, INC., et al.

Debtors.1

Chapter 11 No. 18-10509 (SHL)

(Jointly Administered)

NOTICE OF CHAPTER 11 TRUSTEE’S APPLICATION FOR ORDER APPROVING

EXPANSION OF EMPLOYMENT OF WHITLEY PENN LLP AS ACCOUNTANT NUNC PRO TUNC AS OF JULY 22, 2019

On August 8, 2019, Chapter 11 Trustee Richard Levin (the “Trustee”) filed the annexed

Chapter 11 Trustee’s Application for an Order Approving Expansion of Employment of Whitley Penn LLP

as Accountant Nunc Pro Tunc as of July 22, 2019 (the “Application”).

A hearing on the Application will be held before the Honorable Sean H. Lane of the United

States Bankruptcy Court for the Southern District of New York on August 22, 2019 at 11:00 a.m.

(Eastern Time), or as soon thereafter as counsel may be heard (the “Hearing”), in Courtroom 701

1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Firestar Diamond, Inc. (2729), Fantasy, Inc. (1673), and Old AJ, Inc. f/k/a A. Jaffe, Inc. (4756).

18-10509-shl Doc 1002 Filed 08/08/19 Entered 08/08/19 15:44:22 Main Document Pg 1 of 11

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of the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy

Court”), One Bowling Green, New York, New York 10004.

Objections, if any, to approval of the Application and entry of the proposed order must:

(i) be made in writing; (ii) state with particularity the grounds therefor; (iii) be filed with the

Bankruptcy Court (with a copy to the Judge’s chambers); and (iv) be served upon (a) counsel to

the United States Trustee for Region 2, 201 Varick Street, Suite 1006, New York, NY 10014 (Attn:

Richard Morrissey, Esq.); (b) counsel to the Trustee, Jenner & Block LLP, 919 Third Avenue, New

York, New York 10022 (Attn: Richard Levin, Esq.); (c) counsel to the Debtors, Klestadt Winters

Jureller Southard & Stevens, LLP, 200 West 41st St., 17th Floor, New York, NY 10036 (Attn: Ian

Winters, Esq.); and (d) counsel to Punjab National Bank, Cleary, Gottlieb, Steen & Hamilton LLP,

One Liberty Plaza, New York, NY 10006 (Attn: Sean O’Neal) so as to be received by each of them

no later than 5:00 p.m. (Eastern Time) on August 15, 2019 the “Objection Deadline”).

If no responses or objections are served by the Objection Deadline, the relief may be

granted as requested in the Application without further notice or a hearing. You need not appear

at the Hearing if you do not object to the relief requested in the Application. The Hearing may be

continued or adjourned from time to time without further notice other than an announcement of

the adjourned date or dates at the Hearing or at a later hearing.


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Dated: August 8, 2019 Respectfully submitted, New York, New York

JENNER & BLOCK LLP By: /s/ Marc Hankin Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 [email protected] [email protected] Angela Allen (admitted pro hac vice) 353 North Clark Street Chicago, Illinois 60654 (312) 222-9350 [email protected] Counsel for the Chapter 11 Trustee


JENNER & BLOCK LLP Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 Angela Allen (admitted pro hac vice) 353 North Clark Street Chicago, Illinois 60654 (312) 222-9350 Counsel for the Chapter 11 Trustee UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------------- X : In re : Chapter 11 : FIRESTAR DIAMOND INC., et al.,1 : Case No. 18-10509 (SHL) : Debtors. : Jointly Administered : ---------------------------------------------------------------------- X

CHAPTER 11 TRUSTEE’S APPLICATION FOR AN ORDER

APPROVING EXPANSION OF EMPLOYMENT OF WHITLEY PENN LLP AS ACCOUNTANT NUNC PRO TUNC

AS OF JULY 22, 2019

Richard Levin, not individually but solely in his capacity as chapter 11 trustee (the

“Trustee”) for the above-captioned debtors (the “Debtors”), applies (the “Application”) for an

order under section 327 of the Bankruptcy Code approving an expansion of his employment of

Whitley Penn LLP (“WP”) as his accountant, nunc pro tunc as of July 22, 2019. In support of this

Application, the Trustee relies upon the Declaration of Terry Cosand (the “Cosand Declaration”)

attached to this Application as Exhibit B, and respectfully represents:

1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Firestar Diamond, Inc. (2729), Fantasy, Inc. (1673), and Old AJ, Inc. f/k/a A. Jaffe, Inc. (4756).


2

Jurisdiction, Venue and Authority

1. This Court has jurisdiction over this matter under 28 U.S.C. § 1334(b). Venue is

proper under 28 U.S.C. § 1409. This matter is a core proceeding under 28 U.S.C. § 157(b)(2).

2. The relief requested in this Application is based on section 327 of the Bankruptcy

Code, Rule 2014 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and

Rule 2014-1 of the Local Rules for the United States Bankruptcy Court for the Southern District of

New York (the “Local Rules”).

Background

3. On February 26, 2018 (the “Petition Date”), each of the Debtors filed a voluntary

petition for relief under chapter 11 of the Bankruptcy Code. Until the appointment of the Trustee,

the Debtors operated their businesses and managed their affairs as debtors in possession under

sections 1107 and 1108 of the Bankruptcy Code.

4. On March 9, 2018, the Court entered an Order directing that these cases be jointly

administered. [ECF 24.] Due to lack of creditor interest, no Official Committee of Unsecured

Creditors was appointed in these cases.

5. On June 14, 2018, the Court approved the Trustee’s appointment. [Dkt. 227.]

6. On November 15, 2018, the Trustee requested approval of his employment of WP

as his accountant. [Dkt. 580.] This request was supported by the Declaration of Gary A. Scarborough

in Support of the Application Authorizing the Employment of Whitley Penn LLP as Accountant for the

Trustee, Nunc Pro Tunc to November 7, 2018 (the “Scarborough Declaration) [Dkt. 580, Ex. B].

7. On December 21, 2018, the Court approved the Trustee’s employment of WP as

his accountant nunc pro tunc to November 7, 2018 [Dkt. 644] (the “WP Retention Order”). The

WP Retention Order authorized WP to provide the following services to the Trustee:


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a. Prepare subsidiary reporting for the 2017 Form 1120 (Consolidated) US Corporation Income Tax Return;

b. Prepare the subsidiary reporting for the 2017 state income tax returns;

c. If required, prepare Form 1042 & 1042-S Annual Witholding Tax Return for U.S. Source Income of Foreign Persons;

d. Perform any other tax advisory services requested by the Trustee.

8. Prior to the Petition Date, Firestar Diamond, Inc. sponsored a qualified 401(k) plan

(the “Plan”) under The Employee Retirement Income Security Act of 1974 (“ERISA”). Under 11

U.S.C. § 1106(a)(1) (incorporating by reference 11 U.S.C. § 704(a)(11)), the Trustee must continue

performing Firestar’s obligations as administrator of the Plan. To comply with those obligations,

the U.S. Department of Labor requires the Trustee to have the Plan’s financial statements for the

calendar year 2018 audited.

9. Since WP is already familiar with Firestar, the Trustee, and the circumstances

surrounding these chapter 11 cases, the Trustee would like to employ WP to audit the Plan’s

financial statements. However, as the WP Retention Order does not contemplate such services,

the Trustee now seeks to expand the scope of WP’s employment.

Relief Requested

10. By this Application, the Trustee requests entry of an order under section 327 of the

Bankruptcy Code and in accordance with Bankruptcy Rules 2014 and 2016 and Local Rule 2014-

1 approving an expansion of WP’s employment as the Trustee’s accountant, under the terms of

the engagement letter attached hereto as Exhibit C, to include an audit of the Plan’s financial

statements and related services. The Trustee seeks the approval nunc pro tunc to July 22, 2019, the

date on which WP began rendering services to the Trustee in connection with the Plan.


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Expanded Retention of WP

11. The Trustee seeks authority to hire WP to assist him in connection with carrying

out his duties under sections 1106(a)(1) and 704(a)(11) of the Bankruptcy Code, because WP has

extensive experience auditing employee benefit plans and advising business on compliance with

ERISA and other regulatory requirements.

12. WP is a distinguished public accounting firm with 61 partners throughout offices

located Austin, Dallas, Fort Worth, Houston, and Plano, Texas. In addition to its taxation

expertise, WP has extensive experience advising companies on ERISA compliance and

conducting employee benefit plan audits, consulting, and reporting. WP performs audits on

approximately 270 employee benefit plans annually, ranging from small to large and both

qualified and unqualified. Well over half of WP’s auditors have at least three to five years of

experience in employee benefit plan audits. WP regularly participates in peer reviews by the

American Institute of Certified Public Accountants (AICPA) and the Public Company Accounting

Oversight Board (PCAOB) and has never had a significant deficiency issue raised in such

inspections.

13. Through his employment of WP, the Trustee will have the benefit of the

knowledge and experience of WP’s auditors. The Trustee believes that WP is qualified to assist

him in these cases in a cost-effective, efficient, and timely manner.

Services to be Provided

14. The Trustee anticipates WP will provide him the following services, among others:

a. Conduct an audit of the Plan’s financial statements, which comprise the statement of net assets available for benefits as of December 31, 2018, and the related statement of changes in net assets available for benefits for the year then ended, along with the related notes;


5

b. Prepare the Plan’s financial statements in conformity with U.S. generally accepted accounting principles;

c. Review and analyze the effectiveness of the Plan’s internal controls;

d. Analyze and advise the Trustee on the Plan’s compliance with applicable Internal Revenue Code requirements for tax-exempt status;

e. Analyze and advise the Trustee on whether the Plan’s financial statements comply with the U.S. Department of Labor’s Rules and Regulations for Reporting and Disclosure under ERISA; and

f. Perform any other audit or advisory services requested by the Trustee in connection with the Plan.

WP’s Disinterestedness

15. To the best of the Trustee’s knowledge, information, and belief, other than as set

forth in the Cosand Declaration and the Scarborough Declaration, WP: (i) has no connection with

the Debtors, their creditors, other parties in interest, or the attorneys or accountants of any of the

foregoing, or the United States Trustee or any person employed in the Office of the United States

Trustee; (ii) does not hold any interest adverse to the Debtors’ estates; and (iii) believes it is a

“disinterested person” as defined by section 101(14) of the Bankruptcy Code.

16. Accordingly, the Trustee believes that WP continues to be “disinterested” as such

term is defined in section 101(14) of the Bankruptcy Code.

17. In addition, as set forth in the Cosand Declaration, if any new material facts or

relationships are discovered or arise, WP will provide the Court with a supplemental declaration.

Professional Compensation

18. As it has done for the tax-related services rendered to the Trustee, WP intends to

apply to the Court for allowance of compensation and reimbursement of expenses for

professional services rendered to the Trustee in connection with the Plan. Subject to Court


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approval and the applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, the Local

Rules, and the United States Trustee’s Fee Guidelines (as amended, the “UST Guidelines”), WP

intends (a) to charge for its accounting services on an hourly basis in accordance with its ordinary

and customary hourly rates in effect on the date the services are rendered and (b) to seek

reimbursement of actual and necessary out-of-pocket expenses and other charges in accordance

with the applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, corresponding

Local Rules any other applicable orders of this Court.

19. Notwithstanding anything to the contrary in the Application, the Bankruptcy

Code, the Bankruptcy Rules, corresponding Local Rules, or any other applicable orders of this

Court, all of WP’s personnel who provide billable services to or on behalf of the Trustee, with the

exception of clerical staff, will keep contemporaneous records of the time spent on the services

they perform. WP has agreed to accept as compensation such sums as may be allowed by the

Court. WP understands that interim and final fee awards are subject to approval by the Court.

20. WP will be paid by Firestar’s estate for the services of WP professionals relating to

the Plan at their customary billing rates as follows:

Audit Partners: $445 Audit Sr. Managers: $325 Audit Managers: $280 Audit Senior: $220 Audit Staff: $190 Administrative: $135

21. The Trustee believes that WP’s rates are reasonable. The Trustee requests that all

fees and related costs and expenses incurred by WP be paid as administrative expenses of the

estates under and subject to sections 327, 330(a), 331, 503(b), and 507(a)(1) of the Bankruptcy Code,

as the Plan has terminated and distributed all its assets to the beneficiaries and has no funds to

pay for the legally required audit.


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Notice

22. Notice of this Application has been provided to (a) the Office of the United States

Trustee; (b) counsel to the Debtors; and (c) the 2002 Service List maintained by Omni Management

Group in these chapter 11 Cases in accordance with the Order Establishing Notice and Case

Management Procedures [Dkt. 530]. The Trustee submits that, in light of the nature of the relief

requested, no other or further notice need be provided.

23. The Trustee submits this Application subject to the understanding that

supplemental declarations or revision of the proposed order might be necessary to accommodate

any concerns the Court, the United States Trustee, or parties in interest might have.

24. The Trustee has not made any previous request for the relief sought in this

Application to this or any other Court.

WHEREFORE, the Trustee respectfully requests that this Court grant the Application and

enter an order, substantially in the form attached hereto as Exhibit A, approving an expansion of

his employment of WP as his accountant in these chapter 11 cases, nunc pro tunc to July 22, 2019,

and granting the Trustee such other and further relief as the Court deems just and proper.

Dated: August 8, 2019 Respectfully Submitted, New York, New York

JENNER & BLOCK LLP By: /s/Marc Hankin Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 [email protected] [email protected] Angela Allen (admitted pro hac vice) 353 North Clark Street


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Chicago, Illinois 60654 (312) 222-9350 [email protected] Counsel for the Chapter 11 Trustee


Exhibit A (Proposed Order)

18-10509-shl Doc 1002-1 Filed 08/08/19 Entered 08/08/19 15:44:22 Exhibit A Pg 1 of 4

2

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------------- X : In re : Chapter 11 : FIRESTAR DIAMOND INC., et al.,1 : Case No. 18-10509 (SHL) : Debtors. : Jointly Administered : ---------------------------------------------------------------------- X

[PROPOSED] ORDER APPROVING EXPANSION OF EMPLOYMENT OF

WHITLEY PENN LLP AS ACCOUNTANT FOR THE CHAPTER 11 TRUSTEE NUNC PRO TUNC TO JULY 22, 2019

The Trustee Richard Levin has filed an application (the “Application”)2 for an order

approving the expansion of his employment of Whitley Pen LLP (“WP”) as his accountant nunc

pro tunc to July 22, 2019, under sections 105(a), 327, 1104 and 1106 of the Bankruptcy Code, Rule

2014 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), the Local Rules,

and the Court’s Order Pursuant to 11 U.S.C. §§ 1104(d) Directing the Appointment of a Chapter 11

Trustee [Dkt. 216], and the Court’s Order Approving The Appointment Of Chapter 11 Trustee [Dkt.

227]. The Court has reviewed the Application, the Declaration of Terry Cosand (the “Cosand

Declaration”), and has heard statements in support of the Application at a hearing held before

the Court (the “Hearing”) and any objections to the relief requested in the Application.

The Court finds it has jurisdiction and authority over this matter under 28 U.S.C. §§ 157

and 1334, the Application is a core proceeding under 28 U.S.C. § 157(b)(2), and venue of this

proceeding and the Application in this district is proper under 28 U.S.C. § 1409. Based on the

Application and the Cosand Declaration, the Court finds (a) WP does not hold or represent an

1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Firestar Diamond, Inc. (2729), Fantasy, Inc.(1673), and Old AJ, Inc. f/k/a A. Jaffe, Inc. (4756). 2 Unless otherwise specified, all capitalized terms shall have the meaning ascribed to them in the Application.


3

interest adverse to the Debtors or their estates and (b) WP is a “disinterested person” as defined

in section 101(14) of the Bankruptcy Code, the relief requested in the Application is in the best

interests of the Trustee, the Debtors’ estates, their creditors, and other parties in interest, the

Trustee has provided appropriate notice of the Application under the circumstances and no other

or further notice is required. Any objections to the relief requested herein having been withdrawn

or overruled on the merits; and after due deliberation, it is ORDERED:

1. The Trustee’s employment of WP as his accountant nunc pro tunc to July 22, 2019

in accordance with the terms and conditions set forth in the Application and the Cosand

Declaration is approved.

2. In addition to the services previously authorized by this Court, WP is authorized

to provide the Trustee with the additional professional services described in the Application,

including:





e. Analyze and advise the Trustee on whether the Plan’s financial statements comply with the U.S. Department of Labor’s Rules and Regulations for Reporting and Disclosure under ERISA;



4

3. WP may apply for compensation for professional services rendered and

reimbursement of expenses incurred in connection with the Plan under sections 330 and 331 of

the Bankruptcy Code and applicable provisions of the Bankruptcy Rules, the Local Rules, and

any other applicable procedures and orders of the Court as an expense of administration of these

estates.

4. The Trustee and WP may take all actions necessary to effectuate the relief granted

in this Order.

5. To the extent there is any inconsistency between the terms of the Application and

this Order, the terms of this Order shall govern.

6. This Court shall have exclusive jurisdiction to hear and determine all matters

arising from or relating to this Order and its implementation.

7. This Order shall be effective and enforceable immediately upon its entry.

__________________________________ The Honorable Sean H. Lane United States Bankruptcy Judge


Exhibit B (Declaration of Terry Cosand)

18-10509-shl Doc 1002-2 Filed 08/08/19 Entered 08/08/19 15:44:22 Exhibit B Pg 1 of 6

2

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------------- X : In re : Chapter 11 : FIRESTAR DIAMOND INC., et al.,1 : Case No. 18-10509 (SHL) : Debtors. : Jointly Administered : ---------------------------------------------------------------------- X

DECLARATION OF TERRY COSAND IN SUPPORT OF THE APPLICATION APPROVING EXPANSION OF EMPLOYMENT OF WHITLEY PENN LLP AS

ACCOUNTANT FOR THE TRUSTEE, NUNC PRO TUNC TO JULY 22, 2019

I, Terry Cosand, declare the following is true to the best of my knowledge, information,

and belief:

1. I am a partner with the Dallas, Texas office of Whitley Penn LLP (“WP”), located

at 8343 Douglas Avenue, Suite 400, Dallas, Texas 75225.

2. I submit this Declaration in connection with the application (the “Application”)2

of Richard Levin, not individually but as chapter 11 trustee (the “Trustee”) in the above-

captioned jointly administered chapter 11 cases (the “Chapter 11 Cases”) for an order approving

the expansion of his employment of WP as the Trustee’s accountant nunc pro tunc to July 22, 2019.

Unless otherwise stated in this Declaration, I have personal knowledge of the facts set forth

herein.

3. To the extent that any information disclosed herein requires subsequent

amendment or modification upon WP’s completion of further analysis or as additional

1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Firestar Diamond, Inc. (2729), Fantasy, Inc.(1673), and Old AJ, Inc., f/k/a A. Jaffe, Inc. (4756). 2 Except as specified otherwise, all capitalized terms shall have the meaning ascribed to them in the Application.


3

information regarding creditors and other parties in interest becomes available, one or more

supplemental declarations will be submitted to the Court reflecting the same.

WP’s Qualifications

4. WP is a distinguished public accounting firm with 61 partners throughout offices

located Austin, Dallas, Fort Worth, Houston, and Plano, Texas. In addition to its taxation

expertise, WP has extensive experience advising companies on ERISA compliance and

conducting employee benefit plan audits, consulting, and reporting. WP performs audits on

approximately 270 employee benefit plans annually, ranging from small to large and both

qualified and unqualified. Well over half of WP’s auditors have at least three to five years of

experience in employee benefit plan audits. WP regularly participates in peer reviews by the

American Institute of Certified Public Accountants (AICPA) and the Public Company Accounting

Oversight Board (PCAOB) and has never had a significant deficiency issue raised in such

inspections.

5. From WP’s existing employment by the Trustee, WP has become familiar with the

background pertaining to the Debtors’ businesses, the background of their bankruptcy filing and

proposed restructuring and has conducted a preliminary review of some of the Plan’s financial

materials. I believe that WP is both qualified and able to provide employee benefit plan audit

services to the Trustee in these cases in an efficient and timely manner.

Services to be Provided

6. In addition to the services previously authorized by this Court, I anticipate that in

connection with these Chapter 11 Cases, WP will provide the following services to the Trustee:



4




e. Analyze and advise the Trustee on whether the Plan’s financial statements comply with the U.S. Department of Labor’s Rules and Regulations for Reporting and Disclosure under ERISA;


WP’s Disinterestedness and Connections

7. Except as set forth in the Scarborough Declaration, to the best of my knowledge,

information and belief, neither I, WP, nor any owner, employee, or affiliate of WP, has any prior

connection with the Debtors or any of their creditors or other parties-in-interest in these Chapter

11 Cases.

8. Additionally, to the best of my knowledge, information and belief, neither I, WP,

nor any owner, employee, or affiliate of WP, is a relative of, or has been so connected to, any

judge of the United States Bankruptcy Court for the Southern District of New York, the United

States Trustee for Region 2, or any employee of the United States Trustee for Region 2 as to make

the approval of WP’s employment improper.

9. To the extent that, during or at the conclusion of WP’s employment in these

Chapter 11 Cases, I discover any facts bearing on matters described in this Declaration, I will

supplement the information contained in this Declaration.

10. Based on the foregoing, I believe that WP continues to be a “disinterested person”,

as defined in section 101(14) of the Bankruptcy Code, and does not hold or represent an interest

adverse to these Chapter 11 Cases, as required by section 328(a) of the Bankruptcy Code, and that

WP’s owners, employees, and affiliates do not hold or represent any interest adverse to the


5

Debtors or their estates. Accordingly, I submit that WP is not disqualified for employment by the

Trustee under section 327(a) of the Bankruptcy Code to assist the Trustee in discharging his

duties.

11. Accordingly, I submit that Bankruptcy Rule 5002 would not prohibit employment

of WP as accountant for the Trustee.

Compensation

12. WP will charge for its audit-related services on an hourly basis in accordance with

its ordinary and customary rates in effect as of January 1, 2019, which are as follows:

Audit Partners: $445 Audit Sr. Managers: $325 Audit Managers: $280 Audit Senior: $220 Audit Staff: $190 Administrative: $135

13. The rates set forth above are consistent with the rates that WP charges other

comparable clients for similar services, whether in or outside of chapter 11, regardless of the

location of the client or the court in which a matter is pending. The hourly rates listed above are

appropriate and not significantly different from (a) the rates that WP charges for other similar

types of engagements or (b) the rates that other firms of similar expertise and experience would

charge to do work similar to the work WP will perform in these Chapter 11 Cases.

14. WP will apply for compensation for professional services rendered and

reimbursement of expenses incurred in connection with the Plan as an expense of administration

of these chapter 11 cases in compliance with sections 330 and 331 of the Bankruptcy Code and

applicable provisions of the Bankruptcy Rules, Local Rule and any other applicable procedures

and orders of the Court.

15. WP will not share fees with any other person or entity except to the extent

permitted by section 504 of the Bankruptcy Code.


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I declare under penalty of perjury as provided in 28 U.S.C. § 1746 that the foregoing is

true and correct according to the best of my knowledge, information and belief.

Dated: August 7, 2019 Terry Cosand


2

Exhibit C (Engagement Letter)

18-10509-shl Doc 1002-3 Filed 08/08/19 Entered 08/08/19 15:44:22 Exhibit C Pg 1 of 9

Dallas Office 8343 Douglas Avenue Suite 400Dallas, Texas 75225 214,393.9300 Main

iBwhitleypenn

whitleypenn.com

August 8, 2019

Mr. Richard LevinChapter 11 Trustee of Firestar Diamond, Inc.919 Third AvenueNew York, New York 10022-3908

Dear Mr. Levin:

Objective and Scope of the Audit

You, not individually but solely as chapter 11 trustee of Firestar Diamond, Inc. (“Firestar”) duly appointed in Case No. 18-10509 (the “Chapter 11 Case”) currently pending in the U.S. Bankruptcy Court for the Southern District of New York (the “Court”), have requested, subject to the Court’s approval, that we audit the financial statements of the Firestar Diamond, Inc. 401(k)/Profit Sharing Plan (the “Plan”), which comprise the statement of net assets available for benefits as of December 31, 2018, and the related statement of changes in net assets available for benefits for the year then ended (the “financial statements”), and the related notes to the financial statements.

We are pleased to confirm our acceptance and our understanding of this audit engagement hy means of this letter. We will conduct our audit in accordance with auditing standards generally accepted in the United States of America (“U.S. GAAS”) except that, as permitted by Regulation 2520.103-8 (or 2520.103-12) of the Department of Labor’s (“DOL”) Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 (“ERISA”) and as instructed by you, we will not perform any auditing procedures with respect to information prepared and certified to by Fidelity Investments, the ERISA trustee, other than comparing the information with the related information included in the financial statements and supplemental schedules. Because of the significance of the information that we will not audit, we will not express an opinion on the financial statements as a whole. We also will not express an opinion on the supplemental schedules as a whole. The form and content of the information included in the financial statements and supplemental schedules, other than that derived from the information certified to hy the Transamerica Financial Life Insurance Company, will he audited by us in accordance with U.S. GAAS and will be subjected to tests of the Plan’s accounting records and other procedures we consider necessary to enable us to express an opinion as to whether they are presented in compliance with the DOL’s Rules and Regulations for Reporting and Disclosure under ERISA.

We will prepare the financial statements of the Plan in conformity with accounting principles generally accepted in the United States of America (“GAAP”) based on information provided by you.

A member of

©NexiaInternational


Mr. Richard Levin Firestar Diamond, Tnc.

August 8, 2019 Page 2

The Responsibilities of the Auditor

Because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk that some material misstatements may not be detected exists, even though the audit is properly planned and performed in accordance with U.S. GAAS.

In making our risk assessments, we consider internal control relevant to the Plan’s preparation and fair presentation of the financial statements and supplemental schedules in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control. However, we will communicate to you in writing concerning any significant deficiencies or material weaknesses in internal control relevant to the audit of the financial statements that we have identified during the audit, including those that were remediated during the audit. Our responsibility as auditors is, of course, limited to the period covered by our audit and does not extend to any other periods.

As a part of our audit, we will perform certain procedures, as required by U.S. GAAS, directed at considering the Plan’s compliance with applicable Internal Revenue Code (“IRC”) requirements for tax-exempt status. As we conduct our audit, we will be aware of the possibility that events affecting the Plan’s tax status may have occurred. Similarly, we will be aware of the possibility that events affecting the Plan’s compliance with the requirements of ERISA may have occurred. We will inform you of any instances of tax or ERISA noncompliance that come to our attention during the course of our audit. You should recognize, however, that our audit is not designed to nor is it intended to determine the Plan’s overall compliance with applicable provisions of the IRC or ERISA.

The Responsibilities of Management and Identification of the Applicable Financial Reporting Framework

Our audit will be conducted on the basis that those charged with governance acknowledge and understand that they have responsibility:^

I. For the preparation and fair presentation of the financial statements in accordance with GAAP which includes determining if the certification from the qualified institution includes the fair value of investments as of the Plan’s year end;

For the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error;

2.

For the supplemental schedules and that they were derived from, and relate directly to, the underlying accounting and other records used to prepare the fmaneial statements;

3.

4. For informing us of any known or suspected fraud affecting the Plan involving management, employees, with significant role in internal control and others where fraud could have a material effect on the financial statements;

For the accuracy and completeness of all information provided;5.


Mr. Richard Levin Firestar Diamond, Inc.


For identifying and determining that the Plan complies with the laws and regulations applicable to its activities;

6.

7. For maintaining adequate records, selecting and applying accounting principles and safeguarding assets; and

To provide us with:8.

Access to all information of which management is aware that is relevant to the preparation and fair presentation of the financial statements, such as records, documentation, and other matters;

a.

Additional information that we may request from management for the purpose of the audit; and

b.

Unrestricted access to persons within the Plan from whom we determine it necessary to obtain audit evidence.

c.

With respect to any nonattest services we perform, the Plan’s management is responsible for (a) making all management decisions and performing all management functions; (b) assigning a competent individual to oversee the services; (c) evaluating the adequacy of the services performed; (d) evaluating and accepting responsibility for the results of the services performed; and (e) establishing and maintaining internal controls, including monitoring ongoing activities.

9.

As part of our audit process, we will request from management and, when appropriate, those charged with governance, written confirmation concerning representations made to us in connection with the audit of the financial statements and to report on the supplemental schedules.

Management is responsible for informing us about related party transactions, including transactions with parties in interest, as defined in Section 3(14) of ERISA and the regulations thereunder.

Management is responsible for adjusting the financial statements to correct material misstatements and for affirming to us in the representation letter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements as a whole.

We will not assume management responsibilities on your behalf However, we will provide advice and recommendations to assist you in performing your responsibilities.




Other Relevant Information

You have not engaged us to prepare the Plan’s Form 5500 filing with the DOL. Because the audited financial statements are required to be filed with Form 5500, professional standards require that we read the Form 5500 prior to its filing. The purpose of this procedure is to consider whether information, or the manner of its presentation in Form 5500, is materially inconsistent with the information, or the manner of its presentation, appearing in the financial statements. These procedures are not sufficient nor are they intended to ensure that the form is completely and accurately prepared. In the event that our report is issued prior to our having read Form 5500, you agree not to attach our report to the financial statements included with the Form 5500 filing until we have read the completed Form 5500.

The audit documentation for this engagement is the property of Whitley Penn LLP (“Whitley Penn”) and constitutes confidential information. Except as discussed below, any requests for access to our working papers will be discussed with you prior to making them available to requesting parties.

Our firm, as well as other accounting firms, participates in a peer review program covering our audit and accounting practices. This program requires that once every three years, we subject our system of quality control to an examination by another accounting firm. As part of this process, the other firm will review a sample of our work. It is possible that the work we perform for you may be selected for its review. If it is, the firm is bound by professional standards to keep all information confidential.

We may be requested to make certain audit documentation available to the DOL pursuant to authority given to it by law or regulation, or to peer reviewers. If requested, access to such audit documentation will be provided under the supervision of Whitley Penn’s personnel. Furthermore, upon request, we may provide copies of selected audit documentation to the DOL. We wilt mark all information as confidential and maintain control over the duplication of such information. Flowever, the DOL may intend, or decide, to distribute the photocopies or information contained therein to others, including other governmental agencies.

We understand that Firestar’s employees will prepare all confirmations we request and will locate any documents or invoices selected by us for testing.

Terry Cosand is the engagement partner for the audit services specified in this letter. Her responsibilities include supervising Whitley Penn’s services performed as part of this engagement and signing or authorizing another qualified firm representative to sign the audit report. We began preliminary planning procedures effective July 22, 2019 and expect to begin our audit fieldwork procedures on approximately August 12, 2019, and issue our report no later than October 15, 2019. We understand that you will seek the Court’s approval of this engagement letter nunc pro tunc to August 12, 2019, but that the applicable order might not be entered by that date.

Our engagement ends on delivery of our audit report. Any follow-up services that might be required will be a separate, new engagement. The terms and conditions of that new engagement will be governed by a new, specific engagement letter for that service.




Our fees for these services will be based on the amount of time required and the difficulty of the work involved which we estimate to be $17,000 to $20,000.

To the extent permitted by the Court, Firestar will also be billed for travel and other out-of-pocket costs such as mileage, report production, word processing, postage, etc. The fee estimate is based on anticipated cooperation from Firestar’s personnel and the assumption that unexpected circumstances will not be encountered during the audit. If significant additional time is necessary, we will keep you informed of any problems we encounter and our fees will be adjusted accordingly.

Our invoices for these fees will be rendered each month as work progresses and are payable on presentation and payment is due in Tarrant County, Texas. You agree to pay reasonable attorney’s fees and collection costs incurred relating to collection of fees for services performed under the terms of this engagement. In accordance with Whitley Penn policy, work may be suspended if your account becomes 30 days or more past due and will not resume until your account is paid in full. In addition, invoices not paid in full, per bankruptcy court compliance, by the last day of the month will be assessed interest at a rate of one percent per month. We understand that payment will require compliance with certain bankruptcy court procedures and that the payment of all fees and expenses are subject to the compensation procedures established in the Chapter 11 Case. You agree to assist Whitley Penn in complying with all submissions or procedural elements of the bankruptcy court. If we elect to terminate our services for nonpayment, our engagement will be deemed to have been complete even if we have not issued our report. You will be obligated to compensate us for all time expended and to reimburse us for all out-of-pocket expenditures through the date of termination.

You may request that we perform additional services not addressed in this engagement letter. If this occurs, we will communicate with you concerning the scope of the additional services and the estimated fees. We also may issue a separate engagement letter covering the additional services. In the absence of any other written communication from us documenting such additional services, our services will continue to be governed by the terms of this engagement letter.

We would like to make the following comments regarding the fee estimate:

I. Our fee estimate is based on the assumption that we will be able to obtain internal control reports from the Plan’s or Firestar’s record keeper/trustee, payroll service provider (if applicable) and/or other service providers (where necessary), more commonly referred to as a SOC 1 Report and that we will be able to place reliance on these reports for internal control purposes in conjunction with the internal controls present in the administration of the Plan by Firestar. Any weaknesses noted in the internal control may affect the nature, timing, and extent of our procedures and accordingly our fees will be adjusted to reflect such changes.

2. Our fee estimate has not considered the effects of any changes to auditing standards and accounting principles, which may be promulgated by the American Institute of Certified Public Accountants (“AICPA”), Congress, Internal Revenue Service, or any other regulatory body in the future and are unknown to us at this time. If significant additional time is necessary resulting in increased fees, we will endeavor to notify management of any such circumstances as they are assessed.




Firestar’s personnel are responsible for the preparation of all items requested in the Prepared by Client (“PBC”) listing and received by the date requested. Any delays caused by not preparing the items when requested may result in additional fees, as well as the possibility of postponing our fieldwork. The PBC listing will be provided to you during the planning process of the engagement.

3.

Time incurred for audit adjustments identified during the audit and the related additional testing required has not been considered in our fee estimate. Prior to performing any additional testing, we will notify you of the exceptions and obtain approval for any additional fees which may be incurred.

4.

5. Our fee estimate also assumes the accounting records (personnel files, custodial reports, and individual participant salary deferrals) for the Plan have been reconciled with the accounts of the record keeper/trustee and that the accounting information is maintained in accordance with GAAP and that we do not incur any exceptions in our participant data testing or in the operation of the Plan in accordance with the Plan document.

If we are required to prepare: (1) a roll forward of individual participant account balances and reconcile to net assets available for benefits from the trustee reports to the individual participant’s account reports; (2) a reconciliation of participant contributions from Firestar’s payroll records to the trustee statements and the individual participant’s account reports, or (3) a reconciliation of benefit distributions from the trust statements to the individual participant’s account reports, our fee will be based on the amount of time required and the difficulty of the work, plus any travel and other out-of-pocket costs.

6.

Our fee estimate assumes, based on representations from management, that the Plan has not violated any ERISA compliance requirements from an operational or reporting standpoint during the period covered by our audit or for the period through the date of our auditor’s report. We will inform management and those charged with governance of the Plan of any operational or reporting violations identified during the course of the audit and our fee will be adjusted accordingly.

7.

The ethics of our profession prohibit the rendering of professional services where the fee for such services is contingent, or has the appearance of being contingent, upon the results of such services. However, we understand that our compensation remains subject to the Court’s approval. Accordingly, it is important that our bills be paid promptly in accordance with the Compensation Procedures Order. If a situation arises in which it may appear that our independence would be questioned because of significant unpaid bills, we may be prohibited from issuing our auditor’s report.




In the unlikely event that differences concerning our services or fees should arise that are not resolved by mutual agreement, to facilitate judicial resolution and save time and expense of both parties, Firestar and Whitley Penn agree not to demand a trial by jury in any action, proceeding, or counterclaim arising out of or relating to our services and fees for this engagement. Any controversy, dispute, or questions arising out of or in connection with this agreement or our engagement shall be determined by arbitration conducted in accordance with the rules of the American Arbitration Association, and any decision rendered by the American Arbitration Association shall be binding on both parties to this agreement. The costs of any arbitration shall be borne equally by the parties. Any and all controversy, dispute, or claims relating to or arising out of this agreement shall be governed by the laws of the State of Texas and to the extent any issue regarding the arbitration is submitted to a court, including the appointment of arbitrators or confirmation of an award, the District courts in Tarrant County shall have exclusive jurisdiction. Any action arising out of this agreement or the services provided shall be initiated within two years of the service provided.

This letter replaces and supersedes any previous proposals, correspondence, and understanding, whether written or oral. The agreements eontained in this engagement letter shall survive the completion or termination of this engagement.

If you intend to publish or otherwise reproduee the financial statements and make reference to our firm, you agree to provide us with printers’ proofs or masters for our review and approval before printing. You also agree to provide us with a copy of the final reproduced material for our approval before it is distributed.

During the course of the engagement, we may communicate with you or your personnel via fax or e-mail, and you should be aware that communication in those mediums contains a risk of misdirected or intercepted communications.

During the course of the audit we may observe opportunities for economy in, or improved controls over, your operations. We will bring such matters to the attention of the appropriate level of management, either orally or in writing.

To ensure that Whitley Penn’s independence is not impaired under the AICPA’s Code of Professional Conduct, you agree to inform the engagement partner before entering into any substantive employment discussions with any of our personnel.

Reporting

We will issue a written report upon completion of our audit of the Plan’s financial statements. Our report will be addressed to you as administrator of the Plan. We cannot provide assurance that a limited-scope opinion as permitted by Regulation 2520.103-8 of the DOL’s Rules and Regulations for Reporting and Disclosure under ERISA will be expressed. Circumstances may arise in which it is necessary for us to modify our opinion, add an emphasis-of-matter or other-matter paragraphs, or withdraw from the engagement.

You agree to inform us of facts that may affect the financial statements of which you may become aware during the period from the date of the auditor’s report to the date the financial statements are issued.



August 8, 2019 Pages

Please sign and return the attached copy of this letter to indicate your acknowledgment of, and agreement with, the arrangements for our audit of the financial statements Including our respective responsibilities.

We appreciate the opportunity to be your certified public accountants and look forward to working with you and your staff.

Respectfully,

LLp

ACCEPTED:

This letter correctly sets forth the understanding of Firestar Diamond, Inc.

■mM—Mr. Richard Levin, not individually but solely as chapter 11 trustee of Firestar Diamond, Inc.

Date


Documents

18-10509-shl Doc 1002 Filed 08/08/19 Entered 08/08/19 15 ...€¦ · 12. WP is a distinguished public accounting firm with 61 partners throughout offices located Austin, Dallas, Fort