In the lawsuit between Ad Populum/Sparkle Pop and Alliance Entertainment, a motion to seal documents was denied, resulting in numerous business documents to be unredacted. The documents give a deeper insight into the purchase process as well as Ad Populum/Sparkle Pop’s takeover of Diamond’s assets during the Chapter 11 process.
We’ve put together this center featuring more details as well as a timeline concerning the ongoing lawsuit.
Asset Purchase Agreement
Ad Populum/Sparkle Pop purchased Diamond for a previously reported $7,459,050 less any critical vendor payments and amounts owed to NECA, Wizkids, and their affiliates (those companies are sister companies of Ad Populum/Sparkle Pop. In reality, that $7.5 million isn’t the final amount and there’s a formula involved based on a lot of factors that isn’t yet determined and has some due dates. For instance, Sparkle Pop needs to provide a report to (old) Diamond of the “Incentive Amount” which is a formula that makes my head hurt.
There’s also a lot of who is responsible for what and basically, Sparkle Pop and (new) Diamond is not responsible for the debts of (old) Diamond.
In the APA, Sparkle Pop and (new) Diamond was to “offer continued employment to most employees who are principally engaged in Diamond’s business on the same or similar terms as their current terms of employment. Sparkle Pop doesn’t have to provide continuing employment to any of Diamond’s employees, including, without limitation, senior management or executives. (old) Diamond is responsible for any liabilities like severance earned before the closing date of the sale.” Sparkle Pop gutted key staff not long after its takeover.
There is a Termination agreement which likely covers Alliance Entertainment’s not going through with its winning bid of Diamond and its assets.
Transition Services Agreement
Also revealed is the Transition Services Agreement which covers what Diamond needed to provided Sparkle Pop in the handover. While just interesting to read, there’s nothing very juicy as far as details.
Non-Disclosure Agreement
The Non-Disclosure Agreement (NDA) is part of the lawsuit by Sparkle Pop against Alliance Entertainment. The NDA is dated October 26, 2024, almost three months before Diamond declared bankruptcy showing they knew they were in trouble for quite some time. It lays out the terms that bidders had to agree to including:
- The Evaluation Material was to only be used to evaluate the transaction, aka buying Diamond.
- Anyone that doesn’t win the bid has to return any copies of the evaluation material.
- It defines what evaluation material is and that’s basically anything one couldn’t already get other ways.
- THIS ONE IS KEY. Until the deal is done, bidders can’t initiate or maintain contact with any officer, director, employee, agent, customer, creditor, supplier, vendor, or other business associate of Diamond without the permission of Diamond’s CEO.
That last point is a key part in the argument against Alliance’s hiring of former Diamond employees. This is mentioned and highlighted in the cease-and-desist letter that was also released and you can read below.
For a period of two years from the date hereof, you shall not solicit for employment or, directly or indirectly, hire any employee of the Company or any of its subsidiaries with whom you have had contact during the period of your investigation of the Company or its subsidiaries or whose identity you learned during such period; provided, however, that the foregoing provision will not prevent you from soliciting or employing any person who: (i) responds to a general solicitation of employment through an advertisement not specifically targeted at the Company or its employees; or (ii) has not been an employee or an independent contractor of the Company for at least one hundred and eighty (180) days prior to the commencement of employment or service discussions between you and such employee or independent contractor. It is understood that all requests for information, tours and meetings, all questions or discussions relating to the procedures in making a proposal and all communications regarding the Transaction will be directed to the Company’s financial advisor, Raymond James & Associates, Inc. (“Raymond James”). The Company shall be free to conduct the process for exploring a potential Transaction as they in their sole discretion shall determine and to discontinue or change such process (including any previously announced rules or procedure) at any time without notice to you, and none of the Company, Raymond James, or any of their respective officers, directors, employees, agents or affiliates, shall have any liability to you as a result of such process.
When Alliance contacted Diamond employees or vice-versa that were hired will be key to the lawsuit.
Employee Manual
Also part of the legal dispute between Sparkle Pop and Alliance is Diamond’s Employee Manual which you can read in its entirety below.
The manual lays out some of the benefits from the company, its history, its organizational structure, and sister companies among other things to open things up.
It makes it clear that employees are “At Will” in 1.01, a key point raised in Alliance’s objection to Sparkle Pop’s lawsuit. It states that employees are free to resign at any time and Diamond can terminate employment at any time.
Use of confidential business information is also a part of the lawsuit and is first mentioned in the document at 1.06 “Non-Disclosure” and lists examples:
- compensation data
- computer processes
- computer programs and codes
- contracts
- customer information (preferences, business plans, etc)
- customer lists
- financial information
- marketing strategies
- pending projects and proposals
- vendor information and lists
1.07 “Conflicts of Interest” is also important as it specifically mentions employees can’t use company time, equipment, facilities, etc. to engage in or pursue another business or occupation. Sparkle Pop has intimated this was done by employees.
Exit Interviews
Exist Interviews of the employees who left Diamond for Alliance is also an exhibit Sparkle Pop is relying on for their case. Each is key in why individuals left but also gives us an idea of what work life was like at Diamond and thoughts of the employees about the purchase and subsequent communication/management of Sparkle Pop concerning Diamond.
What’s interesting is it features one less exit interviews than those left. Presented are six employees when seven left the company. An exit interview by Mike Schimmel isn’t present and he’s one of the former Diamond employees at the center of the lawsuit. You can read his declaration in support of Alliance that refutes some of Sparkle Pop’s key claims, with evidence.
Lee Butman left for Alliance and said that he sent out his resume for a few months and needed stability for him and his family. A lack of communication from Ad Populum led to the decision. A “Merchandise Team Manager” at Diamond, he is now the “Buyer – Consumer Product Specialist” at Alliance.
Matt Demory also said he needed to do what was best for his family and that Diamond had lost “too many employees and the core competency” and wasn’t sure how Diamond Book Distributors sales was supposed to function. An “Assistant Manager – Print Team” at Diamond, he’s now a “Buyer” with Alliance Entertainment and specifically highlights that Alliance “has their own systems and way of doing things.”
Joe Lunday who was Diamond’s “Director of Ecommerce Sales” is helping Alliance “build the collectibles and toy program.” Lunday mentions his concern over Diamond’s future as to why he was leaving and that morale was very low with Ad Populum providing no communication. Lunday also highlights a meeting with Ad Populum’s owner Joel Weinshanker that was supposed to be 15 minutes but lasted 4 minutes and felt like it was “2 minutes longer than Joel would have liked.” Lunday described the meeting as off putting and that he walked away with the impression the purchase was really just for Diamond’s warehouse. Others had the sim impression.
Trista Peterson was a “Sales Manager” for Diamond and stressed she wasn’t poached by Alliance and had applied for the company months ago which was allowed according to the above bidding agreement.
Sadie Campos was Diamond’s “Business Development Manager” and it was discovered through LinkedIn she was leaving for Alliance. There is again a mention of a lack of communication even when it came to major events like shutting down Diamond Select Toys.
Ryan Shelkett was Diamond’s “Executive Director of Applications Development” and moved to Alliance as their “Vice President of Purchasing.” Shelkett said Alliance contacted him about a job offer but he had been looking for a job since Diamond’s bankruptcy announcement but had stopped because he was told that he’d receive a retention bonus of $16,000 if he stayed which he had not received as of his exit interview. With Alliance Shelkett noted he and Mike Schimmel would be working in completely different departments than their time at Diamond and his employment with Alliance came about after running into someont.
Cease-and-Desist Letter
Finally there’s the Cease-and-Desist Letter sent to Alliance Entertainment. It highlights the section we highlighted above about contact with employees of Diamond and generally highlights what has been mentioned in Sparkle Pop’s lawsuit.
If you want to keep up with this important lawsuit, check back regularly here or our center where you can get all of the information in one handy place including a timeline.
