Tom Hamblen's ESOP Deception, Promises, Employee Sell-out, and Cover-up Lies Revealed
In 1999 Tom Hamblen converted Hamblen Gage Corp., the company he inherited, into an ESOP.
2. The Promise:
(ESOP - Employee Stock Ownership Plan)
1. The Con:
A teary eyed Tom Hamblen at the ESOP kick-off event: "I want to preserve my father's name on the business."
He went on to explain that the best way to preserve his father's legacy was to pass the business on to the employees because he wanted to retire within the next five years and no one had more interest in seeing Hamblen Gage continue than the employees. Tom Hamblen explained that neither his children or his brother's children were interested in the business nor did he want to sell it and see his father's legacy disappear. He continued to explain that the government had extended the ESOP eligibility rules to include "S" Corporations, which Hamblen Gage had elected to be in 1993. Tom Hamblen continued his emotion filled speech saying that passing Hamblen Gage on to the employees would fulfill his goals of seeing his father's legacy preserved, allow him to retire, and give the employees of Hamblen Gage an immediate stake in the business and help secure our futures over time. Of course Tom Hamblen's stated goals were just lies that he used to lay the foundation of his scam. What Tom Hamblen did not mention was that he was taking full advantage of a legal loophole Congress had inadvertently created when they changed the Internal Revenue code to allow 'S' Corporations to become ESOPs. The loophole allowed business owners to setup "top-heavy" plans, in effect making it possible for business owners to sell their companies to themselves, defer taxes on the sale, and operate their businesses in a tax free environment. Congress eventually closed the loophole, which triggered the fire sale of Hamblen Gage. To demonstrate how concerned Tom Hamblen really was about preserving the legacy of his father, the late E. Ray Hamblen, within one week of Tom Hamblen cashing the earnest money check and the new owners invaded the property the "Hamblen Gage Corporation" name came down from the building, never to be used again.
Tom Hamblen unconditionally promised 100% Employee Ownership; "Within ten years the employees will become the owners." *
( * Tom Hamblen quote from The Indianapolis Star, Sunday, Feb. 6, 2000 )
2. The Promise:
Plus these promises made at the Hamblen Gage ESOP kick-off event: **
3. The Liar:
In addition to the entire ESOP charade being based on a collection of lies and empty promises, Tom Hamblen lied to many of us face-to-face when asked about rumors of the sale of the company. Lying is something that seems to come naturally to Tom Hamblen. We all had heard rumors of a sale, some of us had even been asked by customers who had heard we were being sold and had valid business concerns. But Tom Hamblen eased all of our fears denying all the sale rumors in such a smooth and cunning manner that we had not a clue as to what was really going on behind his office door. Many of us reported back to customers that there is no truth to the Hamblen Gage sale rumor after confirming that with Tom Hamblen himself. When Tom Hamblen gathered the employees together for the first sale announcement you could have heard a pin drop. We were shocked to say the least. After some days that shock turned to outrage when we learned more about how the ESOP was structured. We were informed by Tom Hamblen's second-in-command that; "There is Tom Hamblen the owner, and there is Tom Hamblen the employee," and the greatest portion of the 28% of the company we had been told by Tom Hamblen we owned was actually owned by "Tom Hamblen the employee." And just like the omission of a disclaimer that Tom Hamblen could sell the company regardless of his clearly stated promises, it is also curious that in the forty-five page Hamblen Gage ESOP manual there is no mention of Tom Hamblen's dual status of "Tom Hamblen the owner, and Tom Hamblen the employee." At least seventy-five copies of the Hamblen Gage ESOP manual were issued to approximately 125 employees and spouses at the ESOP kick-off event and later given to all new employees when they met the ESOP eligibility requirements. Tom Hamblen is not only a very skilled liar when talking to a person face-to-face, he stood in front of large groups of happy employees at our annual Christmas parties and was just as convincing. For five years at every Christmas party he would tell us of our ever-increasing stake in the company, the last speech touting "our" share at being "around 28%." Tom Hamblen could also spin a convincing tale to smaller groups such as the Monday morning production meetings of the Hamblen Gage sales, engineering, and office personnel where he cleverly denied the company was even for sale and turned our questions about the sale rumors into jokes that had us all laughing. Of course the real joke ended up being on the loyal employees. Were we naive?, Maybe, but for sure we all put our faith in a charlatan and trusted a con artist with our futures. The reason Tom Hamblen's broken promises hurt so many of us is because most of the long time employees turned-down many opportunities for better employment over the years. Tom Hamblen was able to minimize the turnover rate of his employees with his ESOP promises. We stayed at Hamblen Gage because we believed Tom Hamblen. The promised "10-15-?" year time frame is really not the issue. We were promised "100% employee ownership" and Tom Hamblen had no intention to ever let that happen. Like a good con artist Tom Hamblen promised us a to-good-to-be-true dream. Like a good con artist Tom Hamblen sold the ESOP dream with a forty-five page book of convincing "facts and figures." Like a good con artist Tom Hamblen built a trust that blinded us to the reality that he would never allow the employees to control the company. Like a good con artist Tom Hamblen kept us focused on the ESOP dream while he worked his true scheme behind the scenes. Like a good con artist Tom Hamblen nurtured our faith in him with exaggerated annual reports of our ever-increasing stake in the company. Like a good con artist Tom Hamblen manipulated the people around him (i.e.: The Hamblen Gage Benefits Committee) to do his bidding. Starting the ESOP and promising us the prospect of 100% employee ownership was the perfect tool to keep us happily working at the company until he could find a buyer. The dream of 100% employee ownership was plain and simple a lie Tom Hamblen used to placate the employees to keep us working at the company while he plotted and executed the company's demise.
Additionally, these promises were also made at the Hamblen Gage ESOP kick-off event: **
4. Bait & Switch:
Tom Hamblen used the imaginary ESOP "benefits" to lure and keep employees* without pay raises.
(*from The Indianapolis Star, Sunday, Feb. 6, 2000)
We received no pay raises for over 5 years. The Hamblen Gage corporate guidelines required a review every six months for all employees. In the last seven years sales and engineering employees had a total of three performance reviews. The same frequency occurred in the shop. Lead toolmakers and journeyman machinists averaged a "six month" review about once every two to three years. New hires were enticed to take a job with Hamblen Gage at well below average pay rates but were promised an evaluation and pay review within ninety days along with ownership in the company through the ESOP. Most new employees never received the ninety-day evaluation, and obviously ownership in the company through the ESOP never happened. Tom Hamblen led us to believe we were owners of the company, why would we ask for a raise? We only wanted 'our' company to be successful, and since it was 'our' company we even took pride in the fact that we were being paid well below other area machine shops because we were "owners" and our higher paid counterparts at other shops were just employees. In fact, to show how gullible we were, Tom Hamblen got us all to accept a company wide 10% pay reduction "to do our part to save 'our' company." Salaried employees lost a flat 10% of their gross pay but were required to continue to work the full 45 plus hour week as before the pay cut. Hourly employees were cut to 36 hours per week with no overtime, no exceptions. We now realize that getting us to "take one for the team" by accepting the 10% pay and hourly reduction was merely a demonstration by Tom Hamblen to show prospective buyers that the ESOP was merely an insignificant bump in the road if they purchased Hamblen Gage, and that the Hamblen Gage "employee owners" would lay down without a fight. Tom Hamblen nurtured a real "Pride Of Ownership" in all of us while at the same time he was working hard to sell us out.
Pride Of Ownership...Tommy, you really got us on that one!
5. The Corporate Raider:
Tom Hamblen drained company assets while maintaining total control. He was accountable to no one.
(personally witnessed, in fact, we unwittingly helped him load some hard assets he removed from the property in 2004)
In Tom Hamblen's mind he never believed or acted as if he was accountable to the employee shareholders. A member of the Hamblen Gage Benefits Committee actually said, "Tom has never really believed the company has ever belonged to anyone but himself." After we became an ESOP the rules changed. Hamblen Gage was now a corporation with a larger shareholder base (all company employees with at least 1,000 hours of service over one full year and 21 years of age when they completed the service requirements), which meant there were now shareholders outside of the Hamblen family. A corporation, more specifically a corporations board of directors, is legally obligated to act in the best interest of all of its' shareholders. Tom Hamblen, the only member on the board of directors, and the Hamblen Gage Benefits Committee, a group hand-picked by Tom Hamblen for their lack of knowledge of investment matters and his acute perception that they would act in any manner he desired, totally ignored the law and catered only to a shareholder named Tom Hamblen. A prime example of this was the initial setup of the ESOP. The benefits committee had the option of electing to have participants receive their first share allotment based on either years of service or the past years wages. Tom Hamblen and his second-in-command and eager 'yes man' on the committee voted for the past year's wages. It would make sense that Tom Hamblen's yes man would vote the wage option, he had the second highest salary in the company and he had only been with the company a few years at the time. It is probably not totally accurate to call him Tom Hamblen's "yes man" because we believe he really thought he was doing what was best for the company. He was used and burned by Tom Hamblen just like the rest of us. He now knows that doing Tom Hamblen's bidding and doing what was in the best interest of Hamblen Gage were two very different things. The remainder of the committee voted for years of service. Tom Hamblen insisted they change their vote, and that is exactly what they did. We now know this is because Tom Hamblen did not want any employee, even employees with over forty years with the company, to start out with a significant amount of shares. Also, recall we learned around the time of the first sale announcement that Tom Hamblen included himself as an employee participant (remember "Tom Hamblen the owner, and Tom Hamblen the employee") and he sure didn't want anyone owning more shares than himself. In order for Tom Hamblen to take full advantage of the loophole created by Congress he had to accumulate plan shares at a much faster rate than the employees. The only way to do this was to make sure the plan rewarded shares strictly on a salary basis, which he could control. If shares were distributed by years of service many in the company would have owned more shares than Tom Hamblen. Tom Hamblen manipulated the benefits committee to do his bidding regardless of his promise "To give long-term employees a real stake in the business..." Long-term employees received no more stake in the business than equally paid newcomers. A committee member recalled a Tom Hamblen comment at that benefits committee meeting: "...I'll be damned if Joe ends up with the most shares." Joe was in fact the longest serving employee with an incredible 43 years with the company when he was let go a month into the new owners reign. Joe started with the company long before Tom Hamblen. Tom Hamblen made sure the most shares went to the highest paid, and that was himself, who's salary was at least 220% over his second-in-command. And an amazing thing also came out, or actually failed to come out, of that benefits committee meeting; not a single committee member, with the exception of Tom Hamblen's yes-man who already knew, realized that Tom was an ESOP employee participant. Tom Hamblen's handpicked committee was serving him just as he had planned and they were clueless.
6. Petty Plunder:
To give you an idea of just how petty Tom Hamblen is, we witnessed the following: Just before the new owners took over Tom Hamblen spent the end of every day, after the shop people went home, loading box after box of paltry items he apparently felt he might use someday, like he couldn't afford to buy sandpaper and drills from the hardware store like the rest of us. It was a pitiful sight to see a multi-millionaire rooting around in a dirty shop crib loading boxes with cutting tools and accessories to use with the machinery he had taken earlier. When it looked like the first sale was going to happen, Tom Hamblen had us load a milling machine, surface grinder, and a lathe that he took to his house. He had taken an old E. Ray Hamblen era machine years before. The equipment he took during his exit strategy was as good as any piece of machinery being used everyday. Why he needed machinery at his house we have no idea, since his skill level with machinery is nearly non-existent. We also saw him take minor items like wrenches, aerosol cans, hand tools, bolts, nuts, washers, a thread die set, cutting oil, even a box of paper rags. You might ask the question; If Tom Hamblen is the majority shareholder what is wrong with him taking things that belong to the company? The answer is simple; Everything in the Corporation belongs to ALL of the Shareholders. When Tom Hamblen took furniture, machinery, cutting tools, shop supplies, pictures, and who knows what else, he was stealing from the rest of the shareholders, no matter how insignificant or claimed sentimental value of the items taken, or how inconsequential our ownership was in the company. And it would not make any difference if he claimed the new owners let him have the items, they were not theirs to give, those items belonged to us, all of the Hamblen Gage shareholders. Besides, Tom Hamblen's pilfering of company property took place long before the new owners came onboard. Tom Hamblen's larceny of corporate property and his petty thievery aside, the big question is how he raped the company of its' true value.
7. The Raw Deal:
As a corporate fiduciary Tom Hamblen is legally accountable to all shareholders. We would like Tom Hamblen to explain where all the money went? Was it transferred to Hamblen Farms? Was it used as a phony investment in the "horse boarding farm" that Tom Hamblen described Hamblen Gage as being on his 2005 contribution to Senator Richard Lugar? How can Tom Hamblen explain Hamblen Gage going from being worth $80 million by his own estimate in 2000, to around $3 million in the spring of 2004, and finally Tom Hamblen sells the "business" for just $800 thousand in December of 2004 with an option to buy the property over 5 more years? Just how does Tom Hamblen justify the dramatic downturn in value? How could Tom Hamblen sell us out so cheap without even an offer to sell it to the employees? In reality he actually sold the "business" for a mere $800 thousand, with an option to purchase the real estate for an additional $2.1 million within the following 5 year period because the second buyer could not afford to buy it outright, and Tommy did not have time to wait on yet another buyer. Tom Hamblen collected an additional $15,000 per month in rent until the buyer completed the purchase of the property, which took them over three years. Did we so-called "employee owners" receive any of the $15,000 monthly rent? No, that went right into Tommy's pockets. So he made another $500,000.00+ by simply cutting out the employee owners. Tom is a slick one, all legal of course. Tom Hamblen accepted the low-ball $800 thousand with $2.1 million real estate option offer because he was running out of time before the new ESOP regulations went into effect. The second buyer knew Tom Hamblen had to sell before 12/31/2004. The second buyer also knew Tom Hamblen's deal with the first buyer, The AIM group, had fallen through. Tom Hamblen had to accept the second buyers' low-ball offer to protect his own pocketbook. You ask what could be wrong with this, isn't he just using a tax advantage strategy? The problem is that Tom Hamblen has a legal responsibility to act in the best interest of all of the shareholders. Selling the "business" for a mere $800 thousand by Dec. 31, 2004 kept Tommy from ponying up to the new ESOP rules and let him escape the new taxes an penalties on top-heavy plans. Tom Hamblen acted only in his own best interest, with the cowardly approval of the Benefits Committee, who never once questioned any of Tommy's actions or motives, only to protect his pocketbook without concern for the rest of the shareholders or the promises he made. Tom Hamblen not only failed to act in the best interest of all the employee shareholders, which would have been to honor the unconditional promises he made to us, he lied to us in the process. Tom Hamblen had choices. Tom Hamblen could have restructured the Hamblen Gage ESOP to meet the revised Internal Revenue code. Tom Hamblen could have sold the company to the employees. Either of these choices would have been in keeping with his promises. Tom Hamblen could have faced new income and excise taxes and kept the current ESOP configuration. Tom Hamblen chose instead to sell the company on the open market, despite his promise to the contrary, and with a sweetheart deal for him and the buyer, to beat the IRS deadline. Tom Hamblen broke all his promises. Tom Hamblen lied.
More statements made by Tom Hamblen at the Hamblen Gage ESOP kick-off event: **
Why Talk About Long Term Saving?
Again by his own words Tom Hamblen clearly states that the company will be passed on to the employees rather than sold on the open market. Tom Hamblen also states that we as individuals must prepare for the unexpected as Tom Hamblen had prepared Hamblen Gage for the unexpected, even an unexpected event like 9-11 which affected many businesses, including Hamblen Gage. Tom Hamblen made a long-term commitment to his employees and stated that the "Time spent becoming 100% employee owned is based on company performance (10-15-? yrs)" obviously taking into account the unexpected, for which Tom Hamblen had prepared. Yet Tom Hamblen courted a buyer at a minimum only three years into his long-term ("10-15-?" year) commitment to the employees. While 9-11 did have short-term negative effect on the company, we actually saw an increase in sales soon after to our customers with military ties. There have been many real threats to the existence of Hamblen Gage in the company's history. Over the last 53 years Hamblen Gage had survived Tom Hamblen's 'downsizing' when he sold all of the companies valuable high-tech high precision machinery and used the proceeds to pay personal debts to family members, UAW outsourcing agreements, market changes, skilled labor shortages, recessions, customer closings, and even Tom Hamblen's reign as president during which we went from being the premier machine shop in Indianapolis to a working museum. No mention in Tom Hamblen's own words does he state that he has justification not to honor his many commitments to us. Tom Hamblen's commitments were made crystal clear and unconditionally. There are no written or implied conditions that preclude Tom Hamblen from fulfilling his promises to us. Not one passage in Tom Hamblen's self-written forty-five page ESOP manual is a clause that would sanction him to break his promises. No reference is made to any unexpected situation, act of war, act of God, or any other grounds that would allow Tom Hamblen to fall short of his commitments to his employees. Tom Hamblen made very clear long-term commitments to his employees through the ESOP. To sell us out is an insult. To sell the company to anyone other than the employees of Hamblen Gage for such a low-ball price, is just plain wrong. To sell the company behind our backs and lie to us in the process, in light of the many commitments he made to us, is no less than criminal. Tom Hamblen's ESOP commitments to his employees are what kept most of us working at the company. Remember Tom Hamblen had taken 10% from our pay and we were losing other benefits and privileges daily. Yet we honored our commitment to Hamblen Gage and to Tom Hamblen, based on the false 'pride of ownership' instilled in us by Tom Hamblen's commitments, by staying with the company and giving our best to make the company prosperous. Tom Hamblen thought no more of us and his commitments and promises to us than to lie to our faces when asked if he was selling the company.
8. The Spoilers:
Congress amended the Internal Revenue code in 2001, fixing the loophole they created in the 1997 move to allow 'S' Corporations to become ESOPs. The amended regulations were effective for plan years 2005 and on. The new regulations would force Tom Hamblen to either reconfigure the plan to actually give the employees a real stake in the business, like he had promised in 1999, or face new income and excise taxes. Tom Hamblen was not about to pay the taxes he worked so hard to avoid, nor did Tom Hamblen have any interest in restructuring the plan to allow the employees to one day own the company despite his unconditional promises to the contrary. Tom Hamblen, knowing the jig was up with the IRS deadline fast approaching, started shopping the company looking for a buyer, any buyer. Things changed, the new IRS rules would not allow Tom Hamblen to keep his "top-heavy" tax-advantaged ESOP and sales at Hamblen Gage were slowly dying. Hamblen Gage could no longer compete with shops that continually made real investments in modern equipment. Hamblen Gage could not hire new qualified people to run it's antiquated equipment because Tom Hamblen would not pay journeyman toolmakers' wages. Hamblen Gage's customers were making demands for lower prices and higher quality. Hamblen Gage could not efficiently deliver lower costs with the machinery we had. Some of the best machines being run everyday at Hamblen Gage were made prior to World War II. While you cannot argue with the accuracy of some of these vintage machines, the Hamblen Gage operators could not be efficient slowly hand-cranking every move on these outmoded machines. Especially when compared to modern computer controlled equipment that is as, or more, accurate and can make moves in seconds, rather than minutes. Hamblen Gage's business was changing because Tom Hamblen had severely limited our ability to be efficient, and therefore profitable, despite his promise to "Remain Technically Current." Tom Hamblen sold our efficient high-end machinery long before the ESOP and replaced them after the ESOP was in place with a few token pieces of bargain equipment to maintain his charade of being interested in the business. Tom Hamblen had taken everything from the company required to maintain Hamblen Gage as an efficient shop as he was preparing to sell us out. All Tom Hamblen needed to kill his promise of employee ownership and drive the last nail in Hamblen Gage's coffin was a buyer.
9. The Arrogance:
"Sorry guys, it just didn't work out, I've decided to sell the company" is how callously Tom Hamblen, after months of lying to us, finally admitted the sale rumor was true. Beginning sale negotiations just three years or so into his "10-15-?" year 100% employee ownership promise to us, Tom Hamblen found a buyer willing to pay over $3 million for the company. (This is the first sale he announced in the spring of 2004.) The buyer was a group of investors that hoped to put together four or five local companies in the tool and die field to form one large company to be called American Industrial Machining, or AIM for short. The five companies were Garrity Machine, Sterling Industries, AMS Production Machining, Anderson Tool, and a now-defunct software company located in Park Fletcher. There was even a rumor of sixth company from out-of-state. After a year of negotiations this deal fell through. Tom Hamblen kept secret the company was being sold and lied face-to-face to many of us when confronted with rumors of the sale to protect his secret. He even lied to us when asked about the sale rumor on behalf of our customers, some of which had legitimate concerns about the company being sold with respect to confidentiality agreements and other issues. As stated above, being "shareholders" he finally had to tell us so we could vote our proxies on the proposed sale. Tom Hamblen even told us our vote was "just a legality, and it really does not matter how you vote because my vote is the only one that counts." After all of his lying and secretive maneuvering, then finally being forced by legal requirements to admit the sale was on, Tom Hamblen never even offered an apology to any of us to whom he had lied, as a group, or face-to-face. Tom Hamblen is an arrogant liar.
10. Sold Down The River:
Tom Hamblen demonstrated a total lack of concern for his loyal employees. When it looked like the AIM deal would go through, Tom Hamblen commented on countless occasions "I just don't trust that Rollie." Rollie was involved with the buyers and organized the deal for the buying parties. We find it interesting that Tom Hamblen did not trust the buyer, but he was more than willing to sell the company, and us, out to a person he didn't trust. This is typical of Tom Hamblen's callous indifference for his loyal employees' futures.
11. The New Raw Deal:
Desperate to sell us out and "retire," Tom Hamblen sold the "business" to a second buyer for a mere $800 thousand plus $2.1 million real estate option sale price, or about our worst years sales ever, and less than the failed deal a few months earlier, and a far cry from the $80 million he personally valued the company in 2000. Tom Hamblen's valuation of the company at $80 million was also quoted in the newspaper article. The actual quote from The Indianapolis Star: "Hamblen goes one better. Last year the company instituted an employee stock ownership plan. Within 10 years, Hamblen says, the employees will become the owners. Figuring the company's value at 10 times its' $8 million in annual sales, as Hamblen does, the offer sounds very lucrative."* And lucrative it was, for Tom Hamblen. When directly asked about rumors of Hamblen Gage being sold to yet another buyer, Tom Hamblen first tried to tell us "I've already told everyone I'm confident the AIM deal with Rollie is not going to happen, they couldn't get their financing in order, and as far as I am concerned it is business as usual at Hamblen Gage." When we pressed, telling him the new rumors we had heard were about another buyer, not AIM, Tom Hamblen looked us right in the eyes and lied, saying, "There is absolutely no truth to that rumor." This is just another demonstration of Tom Hamblen's penchant for lying. The truth is, he was actually negotiating with the second buyer while the AIM deal was still on the table and lying about it while he was deep in the process of selling us out to two different buyers. Negotiating may not be a very accurate word to describe Tom Hamblen's dealings, after all, he took a company he valued at $80 million and tried to sell it for around $3 million, then later sold it for $800 thousand. We find it interesting that in 2000 Tom Hamblen valued the business at 10 times its' annual sales. Our question is: If the business was worth 10 times its' annual sales in 2000, why was it not worth 10 times its' annual sales in 2004? That would put the true value of the business closer to $30 million when Tom Hamblen sold it for the mere $800 thousand. We believe his "negotiating" was actually devising a scheme to hide the true sale price, be it $2.9 million or $29 million, from the employee-owners and crafting a sweetheart deal where he gets more than the purported sale price, something closer to the true value, and we get screwed. The $15,000 per month "rent" he collected may was in addition to the sale price which would allow Tommy to screw the employees out of any portion of the additional $500 thousand he collected for "rent." Tom Hamblen had been "negotiating" selling the company to one buyer or another for well over a year while he continually denied Hamblen Gage was even for sale. A man of his word he is not and just more proof confirming that Tom Hamblen is a liar. If Tom Hamblen can so easily and repeatedly lie to us about the sale, why is it not reasonable to assume he would lie to us, and the authorities, about the sale price if he thought he could get away with it. A liar is a liar. By the same token, if Tom Hamblen can so callously remove company property, why is it not also a reasonable assumption that he would also steal from the employees, and the taxman, with a bogus sale price. He sells the "business" for $800 thousand which is part owned by the ESOP, collects another $500 thousand in "rent," not subject to be split among the ESOP participants, and finally gets paid another $2.1 million for the "real estate," allegedly figured in the ESOP share price. Of course the ESOP had the option to pay us a share price figured before the $2.1 million was paid, so we have no idea that the value we received for our shares was anything close to what Tom Hamblen received for his shares. All we know for certain is a thief is a thief and a slick lying thief is a slick lying thief.
(* from The Indianapolis Star, Sunday, Feb. 6, 2000)
12. Saving His Pocketbook:
The reason Tom Hamblen was desperate to sell the company when he sold it really had nothing to do with his retirement. In 2001 Congress amended the ESOP law so that income and excise taxes would be imposed when the ownership of the ESOP was "top-heavy" in favor of one, or a few individuals, which the Hamblen Gage ESOP obviously was with Tom Hamblen owning by far the greatest number of shares based on his salary at least 220% higher than the next highest paid. Congress acted to correct that loophole which they created when they allowed the inclusion of 'S' Corporations in 1997. The deadline the amendment to the Internal Revenue Code went into effect was "plan years beginning after December 31, 2004." Tom Hamblen had to sell by December 31, 2004 or it would cost him a lot of money. We recall Tom Hamblen being in a panic to make sure the sale happened on that date. The new owners had Tommy over a barrel with their lowball offer of $800 thousand, but because of the changes in the tax laws it was an offer he could not afford to refuse. Tom Hamblen's promises of employee ownership meant absolutely nothing to him, not when the IRS would be dipping into his pocket if the ESOP plan continued as it was configured. Tom Hamblen had to sell the company or face paying the taxes he started the ESOP to avoid, plus additional excise taxes for having a top-heavy plan. We ask again; Was Tom Hamblen acting in the best interest of all of the employee shareholders, as was his legal obligation, when he sold us out, or was he just concerned about a shareholder named Tom Hamblen?
13. Meet The New Boss, Same As The Old Boss:
Within a year and three months under Schaefer Technologies (the new owners) control, almost all of Hamblen Gage Corp's key personnel and long-time employees had been laid-off or encouraged to leave, including Tom Hamblen's second-in-command and yes-man, who quit the first Monday after the Schaefer's took over. The Schaefer's hosted a less than cordial "get acquainted," "Hamblen Gage was run by idiots," and "We are doubling the Hamblen Gage shop rate" meeting with their newly acquired ex-Hamblen Gage sales, engineering, and management team. You could tell by the look on Tommy's yes-man's face at the pre-sale "introduction" meeting with Schaefer that even he didn't have a clue about the second sale. And that first meeting with Schaefer in charge was enough to send him packing. We give him credit for leaving after the Schaefer's showed us their true malicious nature. As it turns out, Tom Hamblen had even blindsided his lunch buddy, his second-in-command, who thought they were friends. Other Hamblen Gage employees who were eliminated by the Schaefers had over 40 years of service, some over 30 and some nearly 30 years with Hamblen Gage. Steve Schaefer actually told us they had no interest in Hamblen's business. He said "We were really only interested in the buildings." It is also a fact that Tom Hamblen knew the buildings were all they were after. Schaefer's general manager informed us that they had told Tom Hamblen on several occasions that they had no interest in the Hamblen's business plan and were only interested in a few of Hamblen's customers. The Schaefer's made little effort to continue with Hamblen's design and build business after the take-over. The only former Hamblen business they pursued was the incredibly profitable Allison GM post-process gages and equally profitable Eli Lilly projects. There is to this day no mention of any Hamblen product on the Schaefer Technologies website nor do they advertise any of Hamblen's specialties or products. It is as if Hamblen Gage Corp. never existed. Tom Hamblen knew the buildings were all the new owners wanted, but he sold us out anyway. Tom Hamblen was out of time. No time to find yet another buyer. No time to revamp the HGC ESOP. The new Internal Revenue Code governing ESOPs was about to take effect. Tom Hamblen, true to his sinister nature, chose to deceive and sell-out the very employees who had stood by him through good times and bad.
Why would Tom Hamblen go to all this trouble you might ask? The answer is simple, greed: In the last few years before the ESOP was instituted Hamblen Gage was seeing record sales. From our knowledge of project labor and material costs, the companies' burden rate, and conversations with the accountant, we estimate the profits for those years well in excess of a million dollars per year. As a Subchapter 'S' corporation that profit is all taxable income to the shareholders and must be reported on their individual tax returns. At that time there were only Hamblen family members as shareholders, and Tom Hamblen held the vast majority of shares. Tom Hamblen instituted the ESOP as a means to defer paying taxes on those huge profits. The ESOP was established by congress as a means for small business owners to sell their companies to their employees rather than close them down or sell them on the open market. It was intended to be a benefit to both the business owner and the employees. The tax benefits alone of an ESOP are substantial. In most cases the tax savings alone is adequate to fund the ESOP, and in many cases operate the business. At some point unscrupulous business owners quickly learned how to take full advantage of the loophole in the ESOP regulations and make it an even greater benefit for themselves. The following advertised ESOP "benefits" for business owners are commonly flaunted by law firms dealing in ESOPs. You should note that not one benefit listed is a benefit for the employees. Prior to Congress correcting the loophole, a business owner willing to lie to the employees and rape their own businesses could make an ESOP a very, very lucrative investment for themselves.
Actual law firm advertisement of how a business owner can use an ESOP:
Even without exploiting the loophole the ESOP affords a business owner a very favorable tax status. With the ESOP Tom Hamblen was able to put whatever monies he wanted into it and defer his taxable exposure. Any monies he put into the ESOP were not taxed. The intent is that taxes will be paid by plan participants when they retire, or leave for other reasons, and receive payment for the value of their shares. Monies put in the ESOP were used to purchase shares of the company from the business owner for the ESOP participants. Sounds like a good deal for the employees and the owner, or to quote Tom Hamblen at the ESOP kick-off event: "The ESOP is a win-win situation for you." The ESOP was certainly a win-win deal for Tom Hamblen before Congress fixed the loophole, we would differ with him on how much of a "winner" it was for us. We pose these questions: If Tom Hamblen truly desired to "Slowly move ownership of the company over to employees through a corporate funded ESOP" as promised, why did he exploit the loophole and include himself as an employee participant? Why did he insist on share distribution solely based on compensation? It is obvious why Tom Hamblen manipulated the Hamblen Gage Benefits Committee vote to issue ESOP shares strictly on a salary basis and not years of service: With his salary at least 220% higher than the next highest paid he was in effect selling the company to himself through the ESOP while he defers and minimizes his taxable exposure, which is the very reason Congress corrected the loophole. Tom Hamblen also promised to "Give long term employees a real stake in the business," but his insistence that shares be distributed strictly based on compensation and not years of service is proof positive of Tom Hamblen's true motivation from the inception of the ESOP. A compensation based share distribution plan means that the employees with over forty years with the company have no more "stake in the business" than an equally compensated employee with one year of service. You can thank the spineless Hamblen Gage Benefits Committee for that. By including himself as an ESOP employee participant Tom Hamblen also guaranteed the company could never be "100% employee owned" as he promised. When Tom Hamblen sold off all the modern equipment and failed to significantly reinvest in the company, also despite his promises, he insured Hamblen Gage could no longer be profitable. Another benefit of the ESOP to Tom Hamblen is that he avoids capital gains taxes on an immediate sale of the company. We contend that Tom Hamblen used the ESOP to buy him the time he needed and gave him the smokescreen he used to drain company assets so when he was ready to sell us out there was little value left for his loyal employee shareholders. When Congress fixed the ESOP loophole Tom Hamblen had to change his plans and the fire sale of Hamblen Gage was on. Tom Hamblen had until December 31, 2004 to sell it or face new income and excise taxes. He could have also restructured the plan to actually give "employees a real stake in business" as he promised, but he obviously deemed that option too costly.
15. The Revelation:
When Tom Hamblen sold us out and the ESOP was prematurely split up, to the surprise of everyone, Tom Hamblen the "employee" owned the most shares of stock purchased from Tom Hamblen the "owner." It was even a surprise to the members of The Hamblen Gage Benefits Committee, except for Tom Hamblen's second-in-command who had to explain Tom Hamblen's dual "owner/employee" status to us. Hamblen Gage Benefits Committee, and what a benefit they were, for Tom Hamblen. A benefits committee member actually said, "We just did what Tom wanted." After the committee members realized how they had been manipulated when they found out about Tom Hamblen's dual status many of them confessed that they wished they had held fast and didn't change their vote as Tom Hamblen insisted. Some even apologized for changing their vote to distribute ESOP shares strictly on a compensation basis. Because of Tom Hamblen's comparatively outlandish high salary, his ESOP shares, based entirely on compensation, dwarfed those of the rest of us. Pretty slick wouldn't you agree? Tom Hamblen sells the company to the ESOP of which he owns the lion's share deferring any taxes on his Subchapter S dividend compensation and most or all of the contribution is funded by the tax savings. As the biggest shareholder, he will get most of his money back, except the pittance he has to pay us for our meager amount of shares. And running an ESOP like this was legal until Congress fixed the loophole. The IRS spent the better part of a year investigating the Hamblen Gage ESOP at the request of thirty or so plan participants. We were informed that the IRS only deals with the numbers, and primarily only as they relate to tax status and taxation. The IRS explained that even though Tom Hamblen exploited a loophole, the loophole was legal at the time and his actions are within the law. The IRS informed us that they have no jurisdiction in matters of broken promises and lies. There is virtually no legal recourse for the victims of Tom Hamblen's broken promises and lies other than civil proceedings, which would require hiring our own legal team, and Tom Hamblen knows we cannot afford to do that. It is so maddening when we reflect on the five years spent believing the lies that we were actually owners of the company. It is maddening when we realize how gullible we were. It is maddening when we reflect on how much pride we had in "our" company. It is maddening when we remember how much we trusted Tom Hamblen and how he used that trust to blindside us. It is maddening to think so many of us stayed with the company because we believed we were owners. We will never forget Tom Hamblen's annual Christmas party speeches, especially the last one when he reported to hand-clapping and cheers "...and you now own roughly 28% of the company." With Tom Hamblen as an ESOP participant the only truthful statement he could have made is: "Since I include myself, we still own 100% of the company, and with my outlandish salary you will never own a majority of this company." Tom Hamblen's skills of deception are masterful.
16. Jumping Through The Loopholes:
Tom Hamblen's actions, both his ESOP management through an exploitation of a legal loophole, and selling us out breaching his promises to us, are certainly not what the U.S. Congress intended when they created the ESOP. The promises Tom Hamblen made to his employees, which were all later broken, were made to resemble a proper ESOP arrangement. Congress envisioned a great plan for small business owners to gradually give control of their businesses to their employees. The intention is that eventually the employees become the owners and in control of their own destiny while the business owner enjoys generous tax benefits through the ESOP and eventually walks away with a fair price for the business. However, as is often the case with a noble idea, a few unscrupulous business owners find a legal way to turn a great idea into even a bigger benefit for themselves. In the case of the 'S' Corporation ESOP it was finding and exploiting a loophole in the regulations. With Tom Hamblen's dual "owner/employee" status the real "non-owner" employees of Hamblen Gage could have never attained 100% ownership of the company as promised by Tom Hamblen. The annual Christmas party speeches in which Tom Hamblen would proclaim "our" ever increasing ownership share of the company were simply lies to advance the false hope of employee ownership. If you are a business owner willing to rape your own company, lie to your employees, and do not care about disrupting the lives of a group of people who are loyal to you, just follow Tom Hamblen's well designed scheme as described above.
17. Sticking To The Scam:
You are probably asking yourself the obvious question, Why did Tom Hamblen not offer to sell the company to the employees? After all, we already owned a tiny piece of it, and the new owners ended up making monthly payments anyway, so why would he not at least give us the option to buy it? Not to mention the fact that he sold it for such a small amount of money compared to the company's annual sales. When asked at the "introduction" meeting with the new owner why he didn't offer to sell it to the employees he smugly stated, "You couldn't afford it" and then he added "You should have come to me with an offer." Our collective ability to afford it, or not, may or may not be true, and as far as us coming to him with an offer, since he kept the fact he was selling us out a secret and repeatedly lied to protect his secret, we didn't even know it was for sale until he thought he had it sold. How could we have even had time to put together a viable offer? If Tom Hamblen had any sense of what is right he would have let us know his new plans when he first decided he was not going to honor the written and verbal promises he made to us at the ESOP kick-off event. We should have, at the very least, had the opportunity to decide for ourselves if we could "afford" to buy the business or not. It would have been only a common courtesy for Tom Hamblen to give us the option to buy Hamblen Gage, after all, he was taking away the dream he had promised. Of course, if Tom Hamblen let us make an offer he would have had to reveal the fact that he was selling us out before he had to. You will notice at the top of this page that Tom Hamblen had no problem telling us his plans at the ESOP kick-off event. His plans were published in the HGC ESOP Manual that was still given to eligible new employees as late as a few weeks prior to the A.I.M. sale announcement. It is obvious that Tom Hamblen's published plans were lies. For Tom Hamblen to not give the loyal employees of Hamblen Gage the option to buy the company is just plain wrong and an insult to us. Many of the employees stayed with the company through the lean times and when things were good and job offers from Allison Transmission, Rolls-Royce, and even other machine shops were the norm, yet we stayed with Tom Hamblen. It is worth stating again, we stayed because we believed. Not offering to sell to us is even more proof Tom Hamblen never intended for the employees to ever own the business. Letting us know his plans to sell would have also given us a chance to plan our own futures. Tom Hamblen was planning his future, are we not entitled to the same? Telling us his "change" in plans would have taken away the delight Tom Hamblen got from disrupting our lives. The reality is selling Hamblen Gage and us out was not a change in Tom Hamblen's plans, he knew full well what he was going to do in 1999 when he devised his plan using the loophole in the ESOP regulations as a tool to minimize his taxes on the sale of the company and to placate the workplace while he executed his plan.
Tom Hamblen used us and discarded us, and to this day he believes he owes us not even as little as an apology. Not because he believes himself to not be culpable for his broken promises and lies, but because he believes we will accept his rationalization for his actions, which is also a carefully fabricated lie. The bottom line is Tom Hamblen acted only to protect his pocketbook regardless of who was hurt or how many promises he had to break. The IRS had changed the rules and he was left with two major options: restructure the ESOP so it wasn't mostly going to him, or sell us out. Tom Hamblen wasn't about to take a chance with the IRS and end up paying the taxes he so shrewdly setup and manipulated the ESOP to avoid. Tom Hamblen's greed infested mind would only allow him to do one thing even if it meant breaking every promise he had made to us. The employees of Hamblen Gage were simply the chaff he tossed out. Tom Hamblen never intended, nor would allow, the employees to ever own a real stake in the company. Tom Hamblen's actions from the beginning bear witness to that fact. This narrative is not our word against his, it is Tom Hamblen's own word compared to what in fact transpired. Tom Hamblen has always believed we will accept his word at face value because he truly believes we are all too dim-witted to challenge his condescending self-perceived superior intellect.
The quotations above are word-for-word from The Indianapolis Star newspaper published Sunday February 6, 2000 and the Hamblen Gage ESOP manual written by Tom Hamblen, and read aloud by Tom Hamblen at the ESOP Kickoff Event in 1999. The Hamblen Gage ESOP manual was distributed to all employees and their spouses at the ESOP Kick-off event and subsequently given to all new employees when they became eligible ESOP participants as late as a month or two prior to Tom Hamblen's first (AIM) sale announcement in 2004. The recounting of events in this narrative are from the author's personal experience, the personal experiences of many employee shareholders as told to the author, and the personal experiences of some employee shareholders who were appointed to, and sat on, the Hamblen Gage Benefits Committee from 1999 through 2004.
20. Is Tom Hamblen a Thief?
Stealing his employees' loyalty and trust through false promises is one thing. Thievery of jointly owned property is another. During their investigation to allow Tom Hamblen's request to close the ESOP the IRS questioned Tom Hamblen's shady acquisition of certain company property, among other matters, and forced him to pay additional monies to the employee shareholders. The facts speak for themselves and we have our opinion, you can form yours.
21. Is Tom Hamblen a Liar?
Tom Hamblen broke all the unconditional promises he made to his employees and their spouses. Tom Hamblen sold us out for tax-based incentives in light of the newly amended ESOP regulations that would severely penalize abusive top-heavy plans. Tom Hamblen failed in his promised reinvestment in the company to "keep Hamblen Gage technically current." Tom Hamblen failed in his promised "100% employee ownership in 10-15-? yrs.," along with many other failed promises. Tom Hamblen's promises were made without condition. When the IRS rules and business conditions changed, things were not moving at the accelerated pace Tom Hamblen had come to expect, and with the threat of additional taxes, even though he had promised a "10-15-?" year time frame for 100% employee ownership, Tom Hamblen sold us out with his only concern being for his pocketbook. Broken promises are the worst kinds of lies because they nurture false hopes that influence people's life choices. Tom Hamblen broke all of his promises. Tom Hamblen disrupted all of our lives. Tom Hamblen devastated many of our lives. Tom Hamblen instituted an ESOP based upon promises he never intended to keep. Tom Hamblen manipulated a regulatory loophole just to save himself a few dollars. Tom Hamblen knowingly did it at our expense, with not the slightest regard for the employees who tried to make the company successful. The same employees who were working under a false promise, chasing a brass ring that Tom Hamblen made sure could never be reached. Tom Hamblen's actions from the very inception of the ESOP are the true testament of these facts. And as a final kick in the teeth Tom Hamblen even repeatedly lied to us about selling Hamblen Gage.
Tom Hamblen is a liar.
Thank you for your interest in our story. Use it as a warning to avoid a similar fate. Don't let anyone "Tom Hamblen" your future!
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* reference; The Indianapolis Star, February 6, 2000 A.D., Business Section (click the link on the navigation bar to read or download)
** reference; Hamblen Gage Corporation ESOP, published date not present, issued 1999-2004 A.D. (click the link on the navigation bar to read or download)
Questions or Comments? click: webmaster, or e-mail: email@example.com
* reference; The Indianapolis Star, February 6, 2000 A.D., Business Section (click the link on the navigation bar to read or download)
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