Vitro Sale to Sun Closes; Court Denies Motion for Million-Dollar Incentive Program
June 17, 2011

A federal Texas bankruptcy court has denied a motion by Vitro America and related Vitro subsidiaries for a key employee incentive program (KEIP) that would have provided bonus compensation to certain employees, for their work in closing the sale of their assets to American Glass Enterprises LLC, an affiliate of Sun Capital Partners. The court approved the sale of Vitro America’s assets to the private equity firm earlier this week, and USGNN.com™ has confirmed that the sale closed today.

According to Ben Thomas, director of strategic marketing for Arch Aluminum and Glass, also part of Sun Capital, "We will begin the integration process now that the deal has been completed.”

The incentive program would have compensated two key officers, president and chief executive officer Arturo Carrillo and vice president and chief financial officer Ricardo Maiz, and 15 essential non-executive level employees. The incentive payments to Carrillo and Maiz would have been based on the gross proceeds from the sale, and could have ranged from $0 (for gross sale proceeds less than or equal to $44 million) to a total of $1 million (for gross sale proceeds of more than $50 million) to be split among the two of them. The KEIP also proposed that each of the 15 essential non-executive employees receive a bonus of 12.5 percent of their annual base salaries—equaling a total of more than $267,000.

However, the committee of unsecured creditors had objected to the plan, calling it a “disguised retention plan that does not satisfy the requirements” of the Chapter 11 bankruptcy code. In addition, the committee objects to the bonus payments to the non-executive level employees noted in the plan, saying that they are “inappropriate … because the debtors have failed to provide adequate justification for these payments under the facts and circumstances of these cases, particularly given the limited amount of work remaining to close the sale of the debtors’ assets.”

The court affirms these allegations in its denial. “While the debtor makes a case for the KEIP as an incentive plan, it does not set out enhanced job duties and/or goals, but is based on the amount received at the auction that had already passed the minimum requirements of the plan, and seems to largely [be] based on retaining the two top executives through the sale process … ,” writes the court. The judge goes on to say that Vitro America and the related subsidiaries “have failed to demonstrate how these individual participants have enhanced the value of the debtors’ assets to improve the sales price, or a justification for these additional payments for a sale that will soon close to a going concern that may employ these key individuals post-closing.”

 

Need more info and analysis about the issues?
CLICK HERE to subscribe to USGlass magazine.