In re Global Home Products, LLC

• Decision Date: 06 March 2007
• Docket Number: No. 06-10340(KG).,06-10340(KG).
• Citation: 369 B.R. 778
• Parties: In re GLOBAL HOME PRODUCTS, LLC, et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

369 B.R. 778

In re GLOBAL HOME PRODUCTS, LLC, et al., Debtors.

No. 06-10340(KG).

United States Bankruptcy Court, D. Delaware.

March 6, 2007.

Bruce Grohsgal, James E. O'Neill, Laura Davis Jones, Sandra G.M. Selzer, Pachulski Stang Ziehl Young Jones & Wein, Wilmington, DE, for Debtors.

OPINION

KEVIN GROSS, Bankruptcy Judge.

INTRODUCTION

The following is the Court's decision on the Motion of the Debtors¹ for an Order Authorizing and Approving Management Incentive Plan and Sales Bonus Plan ("the Motion"). Debtors seek approval for debtors Anchor Hocking Glass Operating Company LLC, Anchor Hocking CG Operating Company and GHP Operating Company LLC (collectively, "Anchor Hocking") to implement what they refer to as a "performance and incentive based bonus plan" ("the Management Plan") and an "incentive based sales bonus plan" ("Sales Plan", collectively, "the Plans"). The Court received two objections to the Motion, one of which was subsequently withdrawn. The Court conducted an evidentiary hearing on the Motion on January 24, 2007 (the "Hearing"). At the conclusion of the Hearing, the Court announced that it would grant the Motion with the opinion to follow. Accordingly, this is the Court's opinion with its factual findings and legal conclusions.²

JURISDICTION

The Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and 1334. This proceeding is a core proceeding within the meaning of 28 U.S.C. §§ 157(b)(2)(A), (M), (N) and (0). Venue of these proceedings and this Motion is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. The statutory predicates for the relief sought herein are §§ 105(a) and 363(b).³

BACKGROUND OF THE CASE

On April 10, 2006 (the "Petition Date"), the Debtors filed voluntary petitions for relief under the Bankruptcy Code and continue to operate their businesses and manage their properties as debtors in possession pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code. On April 26, 2006, the United States Trustee appointed an official committee of unsecured creditors (the "Committee").

Global Home Products is a leading designer, manufacturer of well known, branded consumer and specialty products which it markets to retail and hospitality customers and to original equipment manufacturers. On the petition date it operated three primary businesses. Anchor Hocking produces beverageware, cookware, bakeware, home decor items, and glass components for commercial customers. Wearever produced metal bakeware, cookware and accessories and was recognized as a leading marketer and manufacturer of multi-branded metal cookware and bakeware products and accessories. The Burnes Group designed and sold ready-made picture frames, photo albums, scrapbooks and related home accessories. Debtors have sold the Burnes and Wearever operations pursuant to Court orders in the course of these cases.

THE PLANS⁴

A full description of the Plans in this Opinion would be lengthy and unnecessary for the Court's discussion and ruling. A summary of the Plans is sufficient and the Court has attached the Plans as Exhibit A to the Opinion.

a. The Management Plan

The Court will describe the Management Plan and later the Sales Plan "with liberal and often unattributed use of the descriptions in the Motion. This is a summary without arithmetic detail which is undisputed and better left to the information in Exhibit A to this Opinion and the illustrative detail Debtors have included in the Motion. In addition, Debtors presented extensive testimony at the hearing.

The Debtors' fiscal year began on April 1, 2006 (ten days before Debtors commenced their cases) and will end on March 31, 2007. The Management Plan would award each Eligible Employee, on a quarterly basis and as a percentage of their base salary, up to four (4) potential incentive payments (each a "Quarterly Payment") payable if the Management Plan's minimum EBITDAR and/or Cash Flow objectives are met at the end of each of the following periods: (i) the first six months of the 2007 fiscal year, which began on April 1, 2006 and ended on September 30, 2006, (ii) the 2007 third fiscal quarter, which period began on October 1, 2006 and ended on December 31, 2006; (iii) the 2007 fourth fiscal quarter, which period began on January 1, 2007 and will end on March 31, 2007, and (iv) the entire 2007 fiscal year, which ends on March 31, 2007 (each of these aforementioned four periods is referred to as a "Quarter"). The Plan is comprised of two components: EBITDAR ("Earnings Before Interest, Taxes, Depreciation and Rent") goal objectives and Cash Flow goal objectives. The components are both weighted to count for 50% of the potential Quarterly Payment. In order to remain eligible to receive Quarterly Payments under the Management Incentive Plan for a particular Quarter, Eligible Employees must be employed with the Debtors as of the last day of the particular Quarter on which the requisite EBITDAR and/or Cash Flow objectives are actually achieved.

Mark Eichhorn is Debtors' Interim Chief Executive Officer and President of Anchor Hocking. In lieu of Quarterly Incentive Payments, the Management Incentive Program provides for an amortization based upon a formula of Mr. Eichhorn's existing obligations owed to Debtors in the amount of $310,000 in respect of a prepetition loan and relocation allowance advanced to him prepetition in connection with expenses incurred pursuant to Mr. Eichhorn's relocation from Illinois to Ohio (the "Relocation Obligation"). Rather than pay Mr. Eichhorn Quarterly Incentive Payments, the Debtors and Mr. Eichhorn have agreed to quarterly amortizations of the Relocation Obligation based upon a formula.

Under no circumstances may the total amortization ever exceed the amount of the Relocation Obligation. In other words, Mr. Eichhorn bears the risk that the Relocation Obligation may not be fully amortized if the Debtors do not achieve 100% of the projected EBITDAR and Cash Flow objectives for the 2007 fiscal year. However, unlike other Eligible Employees, Mr. Eichhorn is not entitled to any additional benefit if the Debtors exceed 100% of the EBITDAR and Cash Flow objectives because, as noted above, the full amortization of the Relocation Obligation can never exceed $310,000.

Debtors estimate that the total cost of the Management program will range between $890,000 (if the 75% minimum EBITDAR and Cash Flow objectives are each achieved during each Quarter), up to a maximum of $2,700,000 (if Anchor Hocking achieves 125% or more of its EBITDAR and Cash Flow objectives during each Quarter of the 2007 fiscal year).

b. The Sales Bonus Plan

Debtors' Sales Plan covers certain sales managers (the "Eligible Sales Managers"). The Sales Plan is fully set forth in Exhibit A and is an updated version of the sales plan in effect at the Petition Date. Eligible Sales Managers are entitled to receive up to (i) 30% of their annual salaries based on the annual percentage increase of annual sales for their division calculated at the end of the 2007 fiscal year over the prior year, plus (ii) a 15% Target Bonus Percentage payment pursuant to the same terms and conditions applicable to the Management Plan.

The Sales Plan also is divided into three categories: (1) the Debtors' sales to Wal-Mart, (2) the Debtors' international sales, and (3) the Debtors' sales to other customers who are not included in (1) and (2) above. Each Eligible Sales Manager participating in the Sales Bonus Program falls into one (and only one) of the above three categories based on their job descriptions and the bonus calculations vary by category.

THE OBJECTION

The Court has before it the objection (the "Objection") to the Motion of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union ("USW").⁵ The stated grounds for the Objection are that "the Debtors have proposed a management compensation scheme that runs afoul of the obligations set forth in Sections 503(c)(1). and (3) of the Code, 11 U.S.C. § 503(c)(1), (3), and have elected to do so at a time when management is seeking to extract deep concessions from the employees and retirees represented by the United Steel Workers." (USW Objection at 1) USW is the bargaining agent for approximately 1,300 employees who work at Debtors' facilities in Lancaster, Ohio and Monaca, Pennsylvania. USW also represents retirees and surviving spouses receiving retirees benefits from Debtors. USW complains that the collective bargaining agreement which covers the Pennsylvania Plant, with "significant pressure from the Debtors, froze the existing defined benefit pension plan, eliminated an incentive pay program, increased employee health insurance premiums, and reduced other economic benefits paid to the bargaining unit employees!' (Id. at 2) USW further states that Debtors are pursuing a similar agreement covering the Ohio plant, including a limitation on future participation in Debtors' retiree benefits program. As discussed further below, USW argues that the Plans are disguised retention programs which fail to meet the requirements of § 503. In addition, USW contends that the Plans are "inimical to the principle of shared sacrifice that is common in chapter 11 cases." (Id. at 7)

THE HEARING

At the hearing, Debtors presented the live testimony of Mark Eichhorn, Debtors' Interim CEO and President of Anchor Hocking ("the Eichhorn Testimony"), Ronald Stengel, Debtors' Chief Restructuring Officer ("Stengel Testimony"), and Jeff Visithpanich, Debtors' expert witness ("the Expert Testimony").⁶

The testimony of Debtors' witnesses was largely unrefuted.⁷ The testimony of Debtors' witnesses established the following pertinent facts.

a. Eichhorn Testimony

1. Mr. Eichhorn has worked at Anchor Hocking since 1987, and was its President for five years beginning in 1994. (Hearing Transcript, 8-9, January 24, 2007)

2. The Plans are nearly identical to management and sales incentive...