A Cautionary Tale About Planning for the Repurchase Obligation

The Antioch Company in Yellow Springs, OH, has filed for Chapter 11 bankruptcy. Antioch is one of the more remarkable ESOP stories. A small printing company with a long history of pro-employee policies, it set up an ESOP in 1979. In the late 1980s, it bought an album company (Creative Memories) and sales took off. In the next 25 years, employment grew from about 150 to over 1,100, and the share price went up over 2,000%. But then the album market peaked. Employees started to leave, taking advantage of the company's high price and immediate cash-out provisions. Over the next few years, about 800 employees resigned. The resulting cash drain led the company to seek a buyer, but when that fell through, Chapter 11 became the only course. The company will continue to operate, but its ESOP will be terminated. Employees, however, will receive a membership interest in a trust linked to a successor limited liability company (LLC). Antioch might have been able to deal with the problems more effectively had the repurchase obligation been more accurately reflected in stock value and if it had more flexibility in its ESOP payout schedule.

While Antioch's problems are deeply distressing to its employees and leadership, who have an unusually strong commitment to ownership ideals, it's worth remembering that it paid out tens of millions to dollars to employees over time, with account balances into six figures and even seven figures common for employees with significant tenure.