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Antioch Company files for bankruptcy protection

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After almost a year of considering alternative paths, leaders of The Antioch Company last Wednesday, Nov. 12, filed for chapter 11 bankruptcy and reached an agreement with lenders on how to handle the company’s debt. The decision does not affect normal business operations or the number of employees, which is currently 80 in Yellow Springs and 500 in St. Cloud, Minn., or their salaries.

However, the bankruptcy filing does mean that the former value of the company’s Employee Stock Ownership Plan, or ESOP, which many employees thought of as their retirement, has collapsed, according to President and CEO Asha Morgan Moran. Last week many current and former employees found out that their retirement savings had vanished.

Employees now must choose whether to buy into a new stock structure, as Creative Memories, the company’s main subsidiary, moves ahead.

The Antioch Company filed a prepackaged reorganization plan with the U.S. Bankruptcy Court for the Southern District of Ohio and on Friday was granted a first-day motion, which assures that employees’ pay is secure, customer needs will be met, suppliers will be paid and business can continue much as it was before, Moran stated in a letter to company vendors last week. And the company expects to complete the transition with its suppliers, lenders and employees by the end of this year, she said.

“It was not an easy decision that we reached, but the whole purpose was to allow us to take the good business and shed the bad balance sheet,” Moran said during an interview on Monday.

The company’s problems are linked to debt and excessive revenue. This week Moran said she had no way of knowing exactly how much debt the company is carrying. Former employee Lynda Hardman clearly remembers former CEO Lee Morgan announcing at quarterly staff meetings in 2007 and early 2008 precisely how much debt the company had accrued and the progress it was making toward paying it down. But Hardman did not know the exact amount of the debt in April when she was laid off, along with 21 other employees, due to the sale of Antioch Publishing, a subsidiary of The Antioch Company.

Moran also declined to say specifically how The Antioch Company had accrued its debt. Part of it may have been due to the company’s decision to become an S corporation in 2003, which allowed its employees a one-time opportunity to resign and sell their ESOPs back to the company. The number of employees who exercised the option was much higher than the company had expected, Morgan told the News in an interview in August. According to an industry Web site called “Scrapbook Update,” The Antioch Company’s chapter 11 documents claim that between 2004 and 2007, the company made share repurchases of $190 million for the approximately 800 employees who either left or were laid off.

Over the same five-year period, Creative Memories, the company’s most profitable subsidiary, has seen a decline in sales revenue. In 2003, the direct sales company was set to reach $340 million in sales revenues, according to a News article that year. But this year, according to “Scrapbook Update,” the company is on track to make $200 million in sales.

According to Moran, who took over the company when Morgan retired last spring, there were in fact many forces working against the business, and the recent economic downturn didn’t help matters.

“There are a lot of factors that led to the balance sheet getting over leveraged, and the main thing is we want to prevent that from happening again,” she said.

The terms of the restructuring allow the company to exchange its debt for equity and stock, Moran said. According to a letter that employee-owners and stock holders received on Monday, the deal allows the company’s senior lenders (its banks) the option to participate in 80 percent of the company’s preferred stock, while employee-owners can choose to participate in 20 percent of the common stock. While the former ESOP value no longer exists, Moran said that it was difficult to know the value of shares in the new structure because their worth will be based on the performance of the business.

But trading an ESOP with a known value in exchange for 20 percent of the company’s unknown future profit does not seem like a very good option to stockholder Hardman, a Yellow Springs resident who was laid off after 11 years with the company. As a senior production planner, her ESOP at one time was worth close to $118,000, but is now worth nothing because of the bankruptcy claim. And she has little hope that opting back into the new plan and waiting for her shares to grow at just 20 percent of their former rate will yield much worth, she said. Hardman also has doubts about the company’s long-term survival, which depends heavily on Creative Memories’ direct sales consultants to keep selling with reduced security and paybacks, she said.

For many employee-owners, the ESOP was a significant part of their retirement. The Antioch Company paid into its employees’ retirements by matching their 401K contributions with an equal amount of employee ownership stock. Because the stock is now worth nothing, employee-owners are now missing about half of their retirement funds, Hardman said.

Former employee Christel Borden of Springfield estimates she had about $70,000 in her ESOP after over seven years with the company, and Stephanie Kaelin, a Yellow Springs resident, said that after nine years, hers was worth over $100,000. They were both laid off with Hardman in the spring and are feeling the heavy toll of losing their jobs along with half their retirement.

“It’s very disappointing, with all the values Antioch was supposed to stand for,” Borden said. “The ESOP was the driving force for us to stay there, and I feel like they lied to us because they told us it would be there for us.”

In addition, the job market has been prohibitively tough for the three former employees, none of whom have been able to find work. Especially for Borden, who is a single parent with three young children, it has been a hard time.

To exercise the option of buying into the new stock structure, employees were asked to sign a release form in favor of the company and its lenders, according to the letter to employee-owners, which to Hardman means basically agreeing not to sue them.

“Because of the bad decisions they’ve made, we’re now paying the price,” Hardman said.

Under Moran’s new leadership, the company’s new debt structure will allow Creative Memories to get out from underneath its burden and start investing in the profitable markets of digital scrapbooking. Creative Memories also plans to expand its markets in Japan and Germany, where studies have shown there is a growing demand for the types of products it distributes and an openness to the direct sales model, Moran said.

For Moran, the goal is to keep driving the business forward, and she has faith that success will follow. But for the employees who took a risk on their company, the future is less certain than they once thought.


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