Financial Woes Close Bakery, Anger Workers

BURBANK —  Terry Stottler was a deliveryman with hopes of one day owning a business, alongside his 126 colleagues at Martino’s Bakery, a 70-year-old Burbank institution known as much for its fragile, delectable tea cakes as for its strong community presence.

But now Stottler and the rest of Martino’s drivers, bakers and mixers are out of work. Martino’s doors closed in March and the baking equipment, the ovens and knives, cutting boards and icers were sold.

The company filed for bankruptcy earlier this week--not to reorganize the business but to liquidate every asset and pay off creditors.

All that’s left, aside from a roughly $1-million debt and the hollow shell of a once thriving operation, is the land beneath Martino’s, at the corner of Alameda Avenue and Main Street.

“In 1994, we thought we had a plan to buy out the company, all of us employees,” Stottler said, his voice a little hoarse from “talking so much about this tragedy.”

“But now we have nothing,” he continued.

“We sacrificed our own salaries, more than $3 million, to buy our company and run it. Now there’s nothing. We all are out of work.”

Martino’s had been on its way to serving as a labor model, with employees voluntarily agreeing to sacrifice 20% of their wages over three years in exchange for 75% ownership of the bakery--but with no management control, which went to the financial firm that set up the sale.

Instead, the now-defunct maker of fruit pies, layer cakes and muffins lives on as a tale of good intentions gone sour, with employees saying the hired management lowered the quality of their baked goods, driving away customers.

“It’s really sad when you consider what could’ve happened there,” said Sandra McNeill, an administrator at the Los Angeles-based Strategic Actions for a Just Economy, a nonprofit labor advocacy group that is helping the former Martino’s employees stage a protest rally in front of the shuttered Burbank bakery today beginning at 11 a.m.

The employees had arranged an employee stock ownership plan, or ESOP, which meant bringing in a venture capital firm to help transfer ownership from its corporate parent, Pepperidge Farms, to the employees and to manage the company until the transfer was completed.

“It didn’t go as planned,” McNeill said.

The plan was fairly simple, according to those involved. Pepperidge Farms, which purchased the bakery in 1983, announced plans in 1994 to close Martino’s. Upset that their jobs and baking legacy would disappear, the 127 Martino’s employees contacted their local union office to look into the possibility of buying the company themselves.

American Capital Strategies, a Maryland-based company that organizes employee buyouts, was brought in to arrange the deal, an ESOP. ACS, a venture capital firm with a stated commitment to organized labor, has a positive track record in the ESOP field, according to the U.S. Department of Labor. The company agreed to arrange a loan to buy the bakery from Pepperidge Farms, a division of Campbell Soups, and to set up a new management team.

According to the U.S. Department of Labor and the National Center for Employee Ownership, a nonprofit research and ESOP advocacy group, 1,601 ESOP plans, for some 248,000 employees, existed across the country in 1975, when the plans first began cropping up in measurable numbers. In 1996, the last year for which data are available, 10,670 ESOP plans were in place, serving 8,700,000 employees.

Some of them provide for employee ownership, although many simply distribute a minority stake in a company to its workers.

“Failure for these plans is extremely rare,” said Scott Rodrick, of the National Center for Employee Ownership, who could not cite a single example of a failed plan to implement an ESOP.

Martino’s ESOP, however, failed, and in such swift fashion that the company’s former employees are still trying to come to terms with their newfound unemployment.

“We trusted ACS 3 1/2 years ago through the ESOP program,” said Tony Herrera, 34, a 12-year baker at Martino’s and a single father of one.

“We knew nothing about ESOPs, so whatever they told us we went along with. Otherwise, they said Martino’s would close. We didn’t know better. And now it’s closed anyway.”

ACS officials, including Malon Wilkus, president of ACS and chairman of the board of Martino’s, could not be reached for comment.

“I don’t know enough about the situation to comment,” said Daniel J. Clement Jr., who in 1994 was appointed chief executive officer of Martino’s by ACS.

Under the deal, ACS agreed to arrange the ESOP plan in exchange for 25% of the company’s shares and a majority of seats on the company’s board of directors. The salaries that employees sacrificed were used to pay the interest on a loan of nearly $5 million, which ACS took out to pay Pepperidge Farms, company directors said.

When the deal was signed in August 1994, ACS controlled seven of the board’s nine seats, as well as 30% of the company’s shares, they said.

“They got the extra 5% of shares by taking shares from the employees to hire and pay for management,” McNeill said.

“The employees didn’t know that was part of the agreement.”

Nor, apparently, did the employees know that the new management team would switch Martino’s recipes, replacing time-proven ingredients with cheaper substitutes, said Stottler, 44, one of the two Martino’s employees with a seat on the board of directors.

“It destroyed our product quality, what we were famous for,” he said. “Everyone knew it. Our customers complained. We wrote letters to ACS telling them it wasn’t right, that management didn’t know how to make the business grow. But we were ignored and kept losing business.”

“We worked every corner of this bakery daily,” said Francisco Flores, a shipping department worker at the bakery for roughly a decade. “ACS should have respected our knowledge as workers and our commitment as owners of our company.”

Today’s protest at Martino’s is planned as much to demonstrate employee anger as it is to warn other employees to be careful of employee purchase plans, he said.

“It’s so sad, a tragedy,” said Ted McConkey, a Burbank city councilman who featured two Martino’s employees and McNeill on his weekly cable TV access show this week. “The employees were very naive and they had no control because management was imposed on them by ACS. They didn’t know what to do.”

McConkey said his favorite item at Martino’s, the famous tea cakes, will be missed. “But so will the jobs. It’s a tragedy for many reasons. Burbank loses, the employees lose. It’s very sad.”