Contract ESOP with formula vote for union ended by premature sale of management shares.
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In 1995, at National Forge Company, in Irvine, PA, the Independent Union of National Forge Employees (IUNFE) retained Deborah Groban Olson as counsel to represent them in negotiations with the Wilder family, the lenders, and management, after they were approached by management to take wage and benefit concessions to become employee owners of a company the Wilder family wished to sell. National Forge was a leading manufacturer of very large precision machined forgings, and a market leader in the crankshaft, pipe mold, and defense market since 1915.
In June of 1995, 676 employees of National Forge Company purchased the 80 year old family-owned business utilizing an ESOP. Approximately 550 of them were represented by the IUNFE.
The Employee Stock Ownership Plan (ESOP) at National Forge was a contract ESOP with a formula vote and not a traditional leveraged ESOP. The ESOP acquired its 63.5% interest in the company over a period of 5-7 years but the ESOP participants stock had a special formula vote giving participants 63.5% of the voting rights prior to their acquisition of that stock.
The successful purchase of National Forge Company by its own employees allowed the Wilder family to retire from management of the company, obtaining a tax deferral on the capital gains, while still retaining a small interest, kept the jobs and wealth generated by National Forge in the Irvine community for a few years, and gave the National Forge employees a voice and financial interest in the continued growth and prosperity of National Forge. It created a new voice for all employees and the IUNFE in making corporate decisions.
However, when the management had the company buy back all their stock upon converting to an S corporation, the cash flow strain led to bankruptcy for National Forge. National Forge was reopened in Irvine, PA in 2005 after its assets were purchased out of bankruptcy by the Ellwood Group in 2003.