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Judge Calls Diamond Glass "Volatile, Competitive," Approves Modified Plan

U.S. Bankruptcy Judge Christopher Sontchi called Diamond Glass a "very volatile, competitive, people incentive business [that] is really a poster child for a management incentive program" during a recent hearing in the case its bankruptcy filing. The hearing was held recently to review Diamond's motion for the court to authorize an executive incentive plan, along with an objection to the plan filed by the committee of unsecured creditors. (CLICK HERE for related story.)

Ultimately, the judge overruled the unsecured creditors' objection and approved a modified plan—citing that the plan as is allows for payments to be made to employees who retire, resign, pass away or are terminated—if the required points are met.

"What I will approve is a plan that's modified to make it clear that there's no payment after an employee retires, dies, resigns, or is terminated for cause, whether or not that payment was earned previously," he said. "So, in other words, on the date you leave the company because you retire, die, resign or terminate for cause, no further payments, period."

During the hearing, Dave Buchbinder, an attorney testifying on behalf of the office of the U.S. Trustee, told the court that there didn't seem to be documentation to support such a plan.

"Our biggest problem with this is that there is simply a lack of any sort of record to justify these requests," he said. "Beyond that, the piece of the program that simply involves being around when a sale is approved appears to be a retention program."

He also testified concerns about the fact that plan is to be financed by Guggenheim, Diamond's senior secured creditor.

"This program seems to make [management] directly beholden to Guggenheim to work in Guggenheim's best interest to earn these bonuses, as opposed to working in the debtors' and estate's best interests, and that's very troubling," Buchbinder said.

In his final testimony, Buchbinder also argued that the plan is uncessary.

"There's been no evidence that anyone indicated they were going to leave," he said. "There's been no testimony that anyone had other job offers. There's no testimony that the employees are not working at their utmost. They're being paid to do a job, and they're doing that job, and I admire them for that; however, that doesn't entitle them to an incentive program."

Michael Richman of Foley and Lardner, testifying on Diamond's behalf, argued that Diamond's business is dependent on people, making the plan imperative.

"This is a business that is very people- and relationship-intensive, and therefore, is very fragile and also very susceptible to the way human beings perform their jobs, and so, the fact is that while you may be able to pick a regional manager or an executive vice president, say, well, that person isn't really connected with the closing," he said. "The fact is that maintaining the morale and the high performance level of these people at a time of intense stress, they all know what's going on. They have no idea what their futures are going to bring. They are trying to maintain the level of the business all across the country in the field. That is important performance that does in fact relate directly to the value of the business and the ability to close the sale with Guggenheim."

Richman also noted that if Guggenheim does have the highest bid for the company, he's unaware how they will proceed with it.

"You asked me about what we know about whether Guggenheim is going to take people or not, and I have to be very careful on how I answer that question because the truth is, we really don't know. We haven't been told," he said.

"We believe that Guggenheim would try to carry on the business in substantially the same form as it is today, but no one's assured us of that, and, of course, we don't know what a competing bidder would have an interest in doing or not in that regard, and that's part of the very important reason why the performance bonus incentives are so critical here, because we have, you know, the 20 people involved in the program, not to mention the other 1,600 people in the field, [who] really do not know today what their lives, what their employment is going to be like in two months," he said. "They just don't now, and we hope, of course, that every single person continues to be employed by whoever the successor entity is if we effectuate a sale, but there's just no way of knowing that."

Bill Cogswell, Diamond's chief executive officer, also testified to the demands placed on the company's senior management since the April 1 bankruptcy filing.

"… Obviously coming into this, you think you know what may be needed and expected, but obviously until you get into it, you don't really know for sure," he said. "I spend literally, along with many other people, many, many hours every day literally from 7 or 7:30 in the morning till typically 7 or 7:30 at night, but then beyond that in e-mail traffic and doing other work, so, you know, at this point in time, I'm spending unfortunately less time in terms of running the day-to-day parts of the business that I would like to because I'm so consumed by the Chapter 11 process, and, most recently, by the process by which we're attempting to sell the company through due diligence requests [and] management meetings."

Part of this, he said, entails gathering information for potential bidders.

"Literally, the people that are looking at our company are asking us to delve into and prepare information on every single aspect of our company, which requires obviously those people that head up those responsibilities and have responsibility for oversight of those responsibilities to be involved in preparing that information for a potential buyer," Cogswell added.

According to court documents, if all of the various metrics in the incentive plan were met, Cogswell would receive 75 percent of his current salary as part of the incentive plan.

J. Scott Victor, senior managing director and co-head of the special situations group at National City Capital Markets Investment Banking, Diamond's investment banker, also testified.

When asked what consequences might result were the plan not approved, he replied, "Well, there's just disillusionment. There's disillusionment among the participants who are really running this company from the senior guys to the executive VPs to the managers out on the street all around the country. It will be a great disappointment to them because they know about it, obviously. They've all been working very hard. I think it will be very disheartening to them if they don't get it."

This Friday, a hearing will be held to review several the case, including motions submitted by Belron. (CLICK HERE for related story.)

CLICK HERE for the full text of the hearing transcript.

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