Sues Levine for Allegedly Delaying Diamond's Chapter 11 Filing
Plainfield Special Situations Master Fund Ltd., a creditor of Diamond
Glass, has filed a complaint against Ken Levine, former chief executive
officer of Diamond Glass and the company's largest shareholder, for allegedly
delaying the company's bankruptcy filing in an effort to preserve $10
million he invested in the company.
The complaint, filed in the U.S. Bankruptcy Court for the District of
Delaware on Friday, September 5, alleges that Levine had originally contributed
$6 million in equity to Diamond in January 2007, as part of the agreement
with Guggenheim. The agreement also made it possible for Guggenheim to
provide commitments for up to a $20 million term loan and a $15 million
revolving line of credit; it also granted Guggenheim a lien on Diamond's
In late April and early May 2007, Diamond requested that Guggenheim "relax
the liquidity requirements contained in the Credit Agreement, thereby
allowing the Debtors to borrow more money without increasing their total
debt commitment under the Credit Agreement." According to court documents,
Guggenheim agreed to do so only if Levine would "increase his equity
by making another $4 million capital contribution."
In July 2007, Guggenheim issued a notice of default to Diamond, "stating
that the Debtors had breached a covenant regarding [their] cumulative
According to the complaint, as a result of the default on the Guggenheim
loan, the company could have at any time collected Levine's $10 million
contribution-but did not, and continued financing the company, despite
Though Levine resigned from his post as chairman of the Board of Directors
and chief executive officer of the company in October 2007 (CLICK
HERE for related story), Levine remained on the company's three-person
Board. In December 2007, Levine met with fellow directors Bill Cogswell,
who was then president of the company, and Myron Levine, Ken Levine's
father. The three at that time passed a resolution authorizing filing
for bankruptcy protection, according to the complaint, but delayed filing
until April 1, 2008, "in order to protect Levine and his Capital
According to Plainfield, had Diamond filed for bankruptcy within 90 days
of the decision to do so, Guggenheim could have been classified as an
unsecured creditor. Likewise, the company alleges that despite his possible
concern for Guggenheim, "Levine was primarily motivated by self-interest,
since the Debtors' decision to delay filing for bankruptcy protection
until after the 90-day period greatly improved his changes of recovering
his $10 million capital investment."
In June 2008, Levine filed a claim for more than $10 million (the amount
of his contribution plus interest) against the Diamond estate, claiming
rights as a "secured creditor," according to the complaint.
Via the complaint, Plainfield both objects to the filing of Levine's claim
and "seeks to have the claims re-characterized as equity." The
company also requests that Levine's claim be disallowed, "because
they reflect not claims of a creditor, but equity interests in the Debtors."
As an alternative, the plaintiff requests that if Levine's claims are
not recharacterized as equity, that the claims should be "equitably
subordinated to the claims of all unsecured creditors."
"The complaint completely lacks any merit whatsoever and we will
vigorously defend [our client]," says Russell C. Silberglied of Richards
Layton & Finger, which represents Levine.
Robert J. Dehney, who represents Plainfield and is with the firm of Morris,
Nichols, Arsht & Tunnell LLP, was not available for comment.
for full text of complaint.
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