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A $100 million lawsuit: two Burlington Industries employees from Monticello file suit over ESOP.

Two employees of Burlington Industries Inc., a Greensboro, N.C.-based textile manufacturer, recently filed one of the largest class-action lawsuits ever involving an employee stock ownership plan.

Damages sought are estimated at $100 million.

The suit was filed June 3 in U.S. District Court at Pine Bluff by two long-time employees of Burlington's House Area Rugs division at Monticello. The company has more than 1,000 employees at Monticello.

The employees, Janice Corneal and Daniel Atwood, allege that Burlington's management and Morgan Stanley & Co., a New York investment house, manipulated the ESOP program, resulting in substantial losses for Burlington's 24,000 workers. The company operates 41 plants.

In March, Burlington launched a public offering of 57 million shares of voting common stock in attempt to raise capital. Almost $3 billion in debt was assumed when the company went private in 1987 to avoid a hostile takeover.

The suit alleges that Burlington's executive mismanagement caused the ESOP's value to decline by 74 percent. About 3 million shares of stock were purchased for $37.80 per share in 1989 when the ESOP was created. At the time, the company halted payments to its profit-sharing plan.

The March offering brought $10 per share for the ESOP stock, prior to an adjustment for a three-for-two stock split that was part of the offering.

The ESOP's share of voting control fell from 49 percent to about 3 percent.

Two Sides

Atwood and Corneal filed their suit on behalf of all participants in the ESOP, according to Michael Zucker, national field director for the Amalgamated Clothing and Textile Workers Union. Although there is no union membership among Burlington employees, ACTWU is advising the workers.

"It's a warning to any management that is planning on going public," Zucker says of the suit. "Any company that has an employee stock ownership plan must act in the best interest of all its employees, not just in the best interest of its executives and bankers."

"We believe the lawsuit is a continuation of the union's unsuccessful attempts to gain support |among Burlington employees~," says Doug Windham, director of public relations for the company.

Burlington officials say failed efforts to unionize the Monticello operation earlier this year prompted ACTWU's involvement with Arkansas employees.

According to Windham, Burlington's ESOP loan was scheduled to be paid off in 1999. Because Burlington "prepaid the remaining ESOP loan at the time of the public offering, employees received the total amount of shares six years ahead of schedule. It's like you complaining that the house I gave you isn't worth as much as when I bought it for you."

While Windham admits the shares currently are trading for significantly less than in 1989, he advises ESOP participants to hold onto their stock.

Meanwhile, union representatives continue to advise Burlington employees in Arkansas.

Windham says Burlington is "contesting the lawsuit vigorously."
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Title Annotation:employee stock ownership plans
Author:Harper, Kim
Publication:Arkansas Business
Date:Jun 29, 1992
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