HOWLAND, Ohio -It had been another tense week at Ajax Magnethermic Corp. But after 35 years at the struggling company, Jim Necastro was glad just to have his job, especially with retirement a few years away.
Certainly that was worth a toast on this June afternoon. He cracked open a cold beer and stretched out on his backyard patio.
Then Don, a neighbor who worked for a local security company, came trotting across the lawn.
"Hey, Jimmy," the neighbor half-shouted. "My guard just called me from Ajax. He said they just closed and he's supposed to lock the gates."
By evening, the windows of the plant on Overland Avenue were dark, the gates were padlocked and a sign hung from the chain-link: "Closed Until Further Notice."
The shutdown was so sudden and unexplained that even the following Monday, 90 of Ajax's 138 employees showed up for work.
Necastro's job was gone, but that was hardly his only worry.
Somewhere behind the padlocks, alongside the stilled machines and vacant desks, could his pension be in there too?
A pension is a promise. And through the years, Ajax's workers had no reason to doubt the word of the company's owners, three men who knew each worker by name.
But then the company changed hands. And changed hands again. And then again. By 2002, Ajax was owned by a subsidiary of Citigroup Inc., the nation's biggest bank. And when Citigroup decided to walk away from Ajax, that promise was lost.
Nobody ever explained to Ajax workers nearing retirement just how that could be the case. They would have to figure it out on their own. It would take three years of waiting, of sifting through clues and wrestling with bureaucracies.
Three years to learn that thousands of dollars they'd been counting on would not be coming.
Necastro was just 22 when he returned home in 1967 after serving on an aircraft carrier off Vietnam. He had been back a week when he found work in the test lab at Ajax.
The company, housed in a former military tank factory - a box of red brick and murky glass just outside the manufacturing town of Warren, Ohio - employed a hundred or so people then. Its president, John Logan, and his two partners often strode the plant floor, greeting workers by name.
"You could talk to those guys," an Ajax veteran, Art Racco, said. "They knew what you built. They knew how complicated it was."
The company wasn't big, but it played a key role in the Mahoning River Valley's gritty, thriving economy, making electric melting equipment for the area's steel mills.
Necastro didn't expect to stay long. But it was a comfortable place where co-workers became his closest friends, sharing poolside barbecues and Caribbean cruises together. Long after Necastro's first marriage failed, his friendships at Ajax remained strong.
But by the time he finished a third decade at Ajax, things were changing. Most of the steel mills in this valley 50 miles southeast of Cleveland had been shuttered. Many storefronts east of Warren's historic courthouse square had gone dark. Logan and his partners were gone too, selling out to a British conglomerate, BBA Group PLC.
And by the 1990s, business was flagging.
But a venture capital company owned by Citigroup Inc. looked at Ajax and saw opportunity. In 1998, with a few Ajax executives as minority partners, it bought the company with $135 million borrowed from a consortium of banks, and put the debt on Ajax's books.
The plan: build the business, pay down the debt, and sell the company at a profit.
At the time, Ajax was still a going concern. But could it do well enough to survive this huge new debt? As the months dragged on, office workers who got glimpses of Ajax's books whispered that profits were not increasing fast enough to pay it down.
As months ticked by without a sale of Ajax, workers nearing retirement started worrying whether that might affect their pensions. The company tried to reassure them.
"There have been a number of rumors and discussions circulating regarding the possibility that either Ajax or its new parent, Citicorp Venture Capital, might modify the pension plans," it told workers in a 1999 memo. "It is important that each of you be aware that ... plan benefits earned as of any given date (known as accrued benefits) cannot be eliminated, changed or removed by any company."
But the rumors persisted. So in 2001, David Holmquist, a company lawyer, gathered workers in the Ajax lunchroom to soothe concerns. One worker captured it on videotape.
"What happens if we go bankrupt?" a worker shouted from the back of the room.
Holmquist paused, as if pondering his answer.
"Our bankruptcy lawyers will do just fine," he said. "The company has no right to any of the money in the pension plan except if the plan is terminated and there are more funds than needed to give everybody ... all the money that they have earned."
At the time, Holmquist assured them, money the company had set aside for their pensions was sufficient to pay them what they had coming to them. That was true, in part, because much of the pension money was invested in the stock market, which had been booming. But what had gone up would soon come down.
Meanwhile, workers found new reasons to worry.
In 2002, the company shut Ajax's satellite plant in Richmond, Ky.
"What about our retirement benefits?" workers there wrote to the CEO. "Will we be left with nothing?"
Dave Hanton, a midlevel manager in Howland, began stopping by the desks or calling the homes of co-workers over 55, asking them to chip in to hire a lawyer to check on their pensions. About 100 workers kicked in $50 each.
A few workers, including Tom Kearney, who had 28 years with the company, asked if they could get the value of their pension in a lump sum if they retired immediately. As Kearney remembers it, the answer was no.
Then, more bad news.
In May 2002, the company announced it was scrapping severance pay. Two days later, nearly 60 employees were called into the cafeteria and told they were terminated. Two weeks later, the company announced that "due to unforeseen events" it was eliminating health insurance.
Finally, on the afternoon of June 28, Ajax ran out of rope. It was out of cash and its lenders would give it no more.
"I and a few others sniffed it out," says Lou Moliterno, a former Ajax vice president. "At 3 o'clock, I actually threw together a box of some stuff ... and rushed it out to my car."
By evening, the gates were shackled.
"Ajax Magnethermic," says Tom Illencik, then an Ajax middle manager, "closed and ceases to exist."
Abandoned employees puzzled over what to do.
"Not sold. Not bankrupt? How do I get pension?" Necastro scribbled in a note to himself.
As it turned out, money set aside for the pensions was still safe, but there wasn't as much of it now. The stock market had plummeted and interest rates had dropped, leaving the pension accounts holding less than half of what was needed to pay promised benefits.
In their search for answers, workers flocked to Mother-Ajax, an Internet discussion board set up by Mike Smith, a salesman who lost his job in the May layoffs.
That's where many first heard about a deal to resurrect Ajax. It was complex, and some elements of it are still unclear. But the paper trail - contained in county court papers, state incorporation records, federal pension files obtained through a Freedom of Information Act request, and securities filings - tells much of the story.
The banks that were Ajax's main creditors decided to get out of the business with what they could. In July 2002, they sold the right to collect the debt for pennies on the dollar.
Park-Ohio Holdings Corp., a Cleveland company, was the buyer, in a deal that essentially gave it control over how Ajax would be liquidated. Park-Ohio reopened the plant, gradually rehired many workers and then acquired Ajax's equipment and assets.
But Park-Ohio did not buy Ajax itself - so it had no legal responsibility for the promised pensions.
Those responsibilities remained with Ajax, now an empty vessel, still owned almost entirely by Citigroup's venture capital company. But not for long.
Citigroup sold most of its interest in Ajax to a shell company set up just for that purpose by Jerry Crawford, brother of Park-Ohio's chairman and CEO.
When the deal was done, ownership in Ajax was dispersed, with no one owning 80 percent of it.
The figure is important. Under federal law, no company could be held responsible for funding the $9 million pension shortfall unless it owned at least 80 percent of Ajax.
That raises some questions: Why was a shell company formed to buy control of a worthless Ajax? Was the sale structured intentionally to avoid responsibility for funding the pensions?
Structuring a deal specifically to evade responsibility for pensions is illegal. The federal Pension Benefit Guaranty Corporation, which is responsible for enforcement, investigated, filing an administrative subpoena in late 2002 for access to company files still held in the Howland Avenue building. For reasons that are still unclear, the PBGC was not able to see the records for 15 months.
A PBGC staffer who worked on the later stages of the case, said the agency apparently was unaware that the shell company that bought the largest share of Ajax was owned by the brother of Park-Ohio's CEO. That might merit a second look, he said.
The PBGC has a big stake in how this all turns out. Its main role is to insure pensions, covering the shortfall when companies default on their obligations.
That has been happening with increasing frequency, pushing the agency into record deficits. In just the past year, the agency has shouldered 120 terminated pension plans, assuming responsibility for the benefits of 235,000 workers and retirees. The problem has grown so serious that the Bush administration and Congress have been working to craft a law that would require companies to fully fund their pension plans.
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