CLEWISTON, Fla. — Thousands of workers at
U.S. Sugar thought they were getting a good deal when the company
shelved their pension plan and gave them stock for their retirement
instead. They had a heady sense of controlling their own destiny as
they became the company’s biggest shareholders, Vic McCorvey, a former
farm manager there, said.

“It was always stressed to me, as manager of that 20,000-acre farm,
that the better you do, the higher your stock will be and the more
retirement you could get,” Mr. McCorvey said. “That’s why I worked six
and seven days a week, 14 hours a day,” slogging through wet and buggy
cane fields, doing whatever it took.

Now that many U.S. Sugar
workers are reaching retirement age, though, the company has been
cashing them out of the retirement plan at a much lower price than they
could have received. Unknown to them, an outside investor was offering
to buy the company — and their shares — for far more. Longtime
employees say they have lost out on tens of thousands of dollars each
and millions of dollars as a group, while insiders of the company came
out ahead.

Some former U.S. Sugar employees have since filed a
lawsuit accusing company insiders of cheating them out of money that
was rightfully theirs. Throughout, the worker-owners have been shut out
of information about the company’s finances and unable to challenge
management’s moves or vote because their shares were held through a
retirement plan, not directly.

What has happened at U.S. Sugar
could happen at many other companies because of a type of retirement
plan that proliferated in the 1980s, after powerful members of Congress
took an interest in “worker ownership” as a way to improve
productivity.

Thousands of companies, large and small, embraced
the ensuing tax benefits by creating employee stock ownership plans,
known as ESOPs. U.S. Sugar, the largest American producer of cane
sugar, took its stock off the public market in the transaction that
created its ESOP, in 1983.

Nearly 95 percent of the country’s
10,000 ESOPs are now at privately held companies, like U.S. Sugar.
Because their shares are not publicly traded, there is no market price.
So workers cash out shares without knowing what the price would be on
an open market.

The former employees accuse U.S. Sugar insiders
— descendants of the industrialist Charles Stewart Mott — of scheming
to enrich themselves by buying back workers’ shares on the cheap. They
say “the principal actor” is William S. White, the company’s longtime
chairman, who is married to Mr. Mott’s granddaughter. They also say he
improperly exerted his influence as chairman of the Charles Stewart
Mott Foundation, whose mission is to advance human rights and fight
poverty and which holds a big stake in U.S. Sugar.

“They robbed
us,” said Loretta Weeks, who worked in U.S. Sugar’s lab, testing
sucrose levels in cane juice. “It’s like the last 15 years we were
working for nothing.”

U.S. Sugar said in a statement that the
lawsuit had no merit and that the company would vigorously contest it,
but it did not respond to any specific accusations.

Through his
lawyer, Mr. White denied that he had improperly exerted control over
the U.S. Sugar board, or that the Mott Foundation had anything to do
with the decision not to sell to the outside investor. The lawyer, H.
Douglas Hinson, also said that Mr. White and the Mott Foundation had no
role in deciding what price employees received for their stock, because
the price was set in an independent appraisal.

Members of
Congress tried to prevent disputes over the fair market value of shares
in employee stock plans by requiring private companies to get
independent appraisals each year. But workers at U.S. Sugar say the
chairman and his allies withheld crucial information from the appraiser
and artificially depressed the share price, something the chairman
denies. The employees do not accuse the appraiser of wrongdoing.

Missed Opportunities

To
document their claims, the former workers cite two offers to buy U.S.
Sugar for $293 a share — offers that came as the workers were being
cashed out of their shares by the company for as little as $194 a
share. The worker-owners were not told about these outside offers and
had no chance to tender their shares. They found out only through word
of mouth, after the board of U.S. Sugar had rejected both offers.

As
retiring workers cash out their shares, the company then retires their
stock. That leaves fewer shares outstanding over time, the lawsuit
says, allowing the insiders’ control of U.S. Sugar to grow, without
their having to spend a penny buying stock. In this way, Mr. White’s
immediate family increased its stake in U.S. Sugar by 19 percent from
2000 to 2005, the lawsuit says.

The Charles Stewart Mott
Foundation issued a statement saying that as a major U.S. Sugar
shareholder, it was confident that U.S. Sugar’s board had “acted
responsibly and within its duties.” It also said the workers’ lawsuit
contained accusations that were inaccurate.

While they wait for
their lawsuit to inch through federal court, U.S. Sugar’s former
employees say they are struggling to get by on fewer retirement dollars
than they should have received. Many are former field workers, machine
operators and mechanics, paid by the hour and living in one of
Florida’s poorest counties. Some said the disputed stock plan was their
sole retirement nest egg.

“I had to go back to work,” said Randy
Smith, who retired last year after 25 years as a welder and machinist.
He was only 55, but said U.S. Sugar had forced him to retire after
declaring him no longer qualified to do his job. The company has been
cutting staff aggressively for several years.

Mr. Smith said he
cashed out of the retirement plan for about $90,000, but could have
received about $53,000 more, if he had had the chance to tender his
shares and the company had accepted the outside offers. The extra money
would help a lot, he said, because his wife, Sandra, has rheumatoid
arthritis, and after he retired, U.S. Sugar canceled its retiree health
plan.

Mr. Smith has since found a new job, with health benefits
— but it pays $10 an hour, compared with the $23 an hour he once earned
at U.S. Sugar.

“My wife, she’s having to work two jobs just to make ends meet,” he said.

Mr.
McCorvey said that he and his wife, Marilyn, also a former employee,
have calculated that the outside offers would have been worth $137,000
more to them. He was laid off in 2004; an executive assistant, she was
laid off in 2002.

Even though they no longer work at the company, they cannot cash out their stock, because of plan vesting rules, they said.

Meanwhile, the stock price has been falling, based on appraisals and cash-out values supplied by the company.

“I’m scared I’m going to lose it all,” Mr. McCorvey said.

Owners, but Excluded

To
make matters worse, U.S. Sugar announced in April that it was
eliminating its dividend. The McCorveys had been receiving dividends
worth about $7,000 a year on their shares.

They and other
former U.S. Sugar workers said they had planned to attend the company’s
annual meeting this month, so they could tell management their
complaints as shareholders.

But this year, for the first time,
the company announced that employee-shareholders would not be allowed
to attend the annual meeting. It said that they were not the
shareholders of record, and that as a result they would be represented
by the trustee of their plan, the U.S. Trust Company.

A spokeswoman for Bank of America, which owns U.S. Trust, said the company believed it had fulfilled all of its duties as the trustee.

Experts said it was unusual to bar participants in employee stock plans from shareholders’ meetings.

“It
is legal,” said Loren Rodgers, project director for the National Center
for Employee Ownership. But he cited research indicating that
worker-owned companies tended to have better results when workers had a
say in operations.

Mr. Rodgers said that Congress had decided
to limit the workers’ powers as shareholders out of concern that
companies might avoid the structure if workers received full rights.

Many
former workers at U.S. Sugar acknowledged that they had never tried to
attend an annual meeting until now. But that did not quell their anger
at discovering they could not. “It was real nasty, the company to do us
like they did us,” said Tommy Miller, who retired last fall after 32
years as a supervisor in a locomotive repair shop. He was only 56 but
was caught in a mass layoff.

He said he cashed out his shares
and invested in an individual retirement account, only to learn that a
bidder had been willing to pay him a lot more.

“So you took my job and you took my stock, too,” Mr. Miller said.

The
workers describe a harsh new face on a company once known as
paternalistic. U.S. Sugar was bought out of bankruptcy during the Great
Depression by Mr. Mott, an entrepreneur who said companies should
strengthen the towns where they did business.

Mr. Mott, who started out making bicycle wheels and ended up with the largest single block of General Motors stock, created charities in Flint, Mich., and also provided Clewiston with swimming pools, libraries and a youth center.

“When
somebody’s child got hurt or was seriously ill, the company would fly
that child to a hospital in Tampa, or wherever they needed to go,” John
Perry, a former mayor of Clewiston, said. “This was a wonderful,
wonderful place to live.”

But that homey culture did not survive the tide of globalization. The North American Free Trade Agreement
raised the prospect of a flood of cheap sugar from Mexico and other
countries with low wages. U.S. Sugar scrambled to lower its costs.

Ellen
Simms, U.S. Sugar’s former comptroller, said that when the company had
to trim its payroll, it seemed to choose people with many years at the
company.

“It was very obvious, with few exceptions, that they
were targeting the employees who had been there the most time and who
had the most ESOP shares,” she said. She resigned in protest in 2004.

Meanwhile,
the falling stock price reported in the appraisals was a boon to the
company, she said, because it made it cheaper to buy out the workers.

Conspicuous Offers

The
reported declines in the stock price might not have been questioned,
had it not been for two offers to acquire U.S. Sugar, one in the summer
of 2005 and the other in early 2007. Both were made by the Lawrence
Group, a large father-son agribusiness concern in Sikeston, Mo., for
$293 a share in cash. Gaylon Lawrence Jr. confirmed the price but
declined to comment further.

The worker-shareholders were being paid $205 to $194 a share at the time, based on ESOP appraisals.

But
to help vet the Lawrence Group’s offer, U.S. Sugar hired a second
appraisal firm to calculate the company’s breakup value. This appraiser
came up with $2.5 billion, or about $1,273 a share.

U.S. Sugar then rejected the Lawrence Group’s offer as inadequate.

Mr.
McCorvey said he would have tendered his shares to the Lawrence Group
without a moment’s hesitation. “But we were never given the
opportunity,” he said.

John Logue, an ESOP specialist at Kent State University,
said federal law does not require worker-owners to vote on acquisition
offers. But, he said, “when you’re in doubt, let the participants vote.
We have kind of an innate sense in the United States that people are
entitled to do what they want with the property they own.”