Calls Diamond Glass "Volatile, Competitive," Approves
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 planciting that the plan as is allows
for payments to be made to employees who retire, resign, pass away
or are terminatedif 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
"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
"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
Part of this, he said, entails gathering information for potential
"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.)
HERE for the full text of the hearing transcript.
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