EOT Advisors Client - ShopBot Tools is First Employee Ownership Trust (EOT) in North Carolina

EOT Advisors’ client Ted Hall discusses the sale of his business, ShopBot Tools, to an Employee Ownership Trust.

In this video, ShopBot Tools founder Ted Hall explains why the company transitioned to an Employee Ownership Trust (EOT) as part of its long-term commitment to employee engagement, community impact, and sustainable manufacturing. Hall describes how ShopBot’s culture of open-book management, profit sharing, and employee involvement made employee ownership a natural next step. Rather than concentrating ownership in individuals, the EOT structure holds the company in trust for the benefit of all employees, helping preserve the business, its mission, and its local roots for future generations. The discussion highlights how EOTs can align the interests of employees, customers, communities, and shareholders while providing a flexible and cost-effective succession solution for privately held businesses.

• Transcription

  TED HALL: One of my missions in life is feeling like if we can bring some manufacturing back to our communities, we'll have brought a lot of value back to our communities. We make tools that empower small businesses and small manufacturing operations. And so, we're really keenly interested in the problem of small business and particularly small manufacturing. This emphasis on getting employees, getting everyone involved in the business, engaging them and thinking about how we develop, how we grow, how we help our customers develop and grow has been pretty important to us. We see that employee ownership can actually play a big role in helping reinforce that kind of engagement. An employee ownership trust, or an EOT, which we frequently refer to it as, is an employee ownership arrangement where all of the shares of the company are owned by a trust for the employees. Employees don't as individuals hold equity in the company, they don't have individual shares in the company, but rather a trust holds all the shares in perpetuity for the benefit of employees.

  The idea of that kind of structure is that what you want to do is maximize the likelihood the company continues to operate profitably and attractively within the community that it's grown up in. It's easy to make the case for an employee ownership trust for small businesses, simply because it's so much less administratively involved and so much less expensive and offers so much freedom in how you lay out the nature of the deal and the final arrangement. I think you could ask the question, well, as the company gets bigger and there are more employees involved, maybe you could argue that an ESOP makes more sense. But frankly, I see no reason, everybody should be doing employee ownership trusts rather than ESOPs. They are so well-suited to the 21st century, to the way we're operating, to people's lives, that they make a lot of sense to me.

  ShopBot has always promoted the idea of engagement––involvement of employees in the company. We've been profit sharing all along and open books all along. And that meant in our early years that we would discuss the books and how we were doing quarterly. More recently, probably, in the last five or six years, we got involved with a program called the Great Game of Business, that emphasizes using open books and more actively using them, engaging people, such that at ShopBot nowadays, we talk about ShopBot's P&L and how we're doing every week. And employees actually contribute to mapping the data out and discussing it.

  ADAM HORTON: Every week as a company we forecast to identify our resources, identify problems before they become a problem and to reach our goal.

  DREW HAINS: You know, we're striving to be a very successful company and at its roots, the EOT, it's a profit-sharing model, where if we're ultimately very successful in what we do, day-in, day-out, year-in, year-out, then the employees are going to greatly benefit from that because they'll be more profit-sharing to go along.

  JEN NIX: By moving to the employee ownership model, it allowed us to move forward with what the vision for the company is, both the way we function now, as well as the way we want to move forward into the future.

  TED HALL: There are four groups really that an EOT, employee ownership trust, serves. First, the employees who really are intended to be the primary beneficiaries. But there is also the community that the business is situated in, there are the customers who the equipment is being produced for, and hope to be able to maintain their tools, and continue using them, and be supported in the way that ShopBot already supports people. Finally, there are the shareholders. Each of these groups can benefit in an EOT and I think we have with EOTs, it’s the opportunity to design, grow a kind of organizational functionality that really serves everyone well. We like to think that we're going to thrive and we're going to grow in the community, bring value to it, and all our employees are going to be outrageously well paid. We hope that's going to happen.

  DREW HAINS: We have so many people here that do care about the product, and we've got employees that own ShopBots, and we want to put our best into it because that's how we want to treat our customers, the same way, because we think it's such a great product. And we think that they're going to think it's a great product.

  ADAM HORTON: As an EOT, we empower people. We listen to the ideas and we work together as a team.

  JEN NIX: On our own we each have our own strengths and weaknesses, but when you put us all together, we are ShopBot. We all feel invested in the business. We all have a stake in the business and becoming an employee ownership trust actually reinforces that more than anything else.

  TED HALL: Everybody's kind of grown up with us, you know, they're part of the approach. They're part of the mindset that we have here. And it's very easy for me to be very confident that things will go well, and that ShopBot will be around for a long time helping people make cool stuff.

EOT Advisors Client - Bioworks Transitions to an Employee Ownership Trust (EOT)

Webinar for the NJ/NY Center for Employee Ownership with EOT Advisors’ Chris Michael and our client Bill Foster of BioWorks.

In this interview, Bill Foster, CEO of BioWorks, discusses the company's transition to an Employee Ownership Trust (EOT) and the factors that led management to choose employee ownership as its succession strategy. Foster explains how the EOT structure aligned with BioWorks' values, preserved the company's independence, and created long-term benefits for employees while providing a fair exit path for shareholders. The conversation explores the transaction process, governance considerations, and lessons learned, offering practical insights for business owners evaluating employee ownership as an alternative to a third-party sale or private equity transaction.

• Transcription

  BETHANY DENNIS: All right, welcome everybody. My name is Bethany Dennis. I'm with the Rutgers New Jersey/New York Center for Employee Ownership. Thank you for joining us this afternoon. I'm going to be your host and moderator. So, this is employee ownership trusts. Many of you might already be familiar with employee stock ownership plans as a form of employee ownership. However, selling to an employee ownership trust, or an EOT, can be a strong alternative to an ESOP. Where the cost of an ESOP is a major consideration, where the sustainability of the employee ownership structure is a major goal. So, today we're going to learn why and when an EOT might be the right option for business succession. So this webinar is scheduled for about 45 minutes and with 15 minutes allotted for Q & A at the end. Participants, please stay muted, you can keep your cameras on if you like and submit any questions you have in the Zoom chat. And then Chris will answer them at the end. So now I'm going to turn things over to Jim Terez. He is the associate director of the New Jersey/New York Center for Employee Ownership. And he's going to speak briefly about some of the Center's major accomplishments from this past year, as well as introduce our new employee ownership online education program, which is launching February 1st. All right, Jim, over to you.

  JIM TEREZ: Thanks very much, Bethany. Welcome everyone. Thank you for joining us and thank you too, Chris and Bill for joining us today. I'm really excited to hear what you have to say about employee ownership trusts today. I'm Jim Terez, I'm the associate director of the Center for Employee Ownership. And I just wanted to mention a couple of projects that we've been working on and that you can check out both today and in the near-term future. The first project is a report that the Center did based on Prudential sponsorship. It's studying opportunities for employee ownership among minority veteran-owned businesses. And the report that was generated from our research is available on our website. So, you can go to our website and find it there. And then I also wanted to mention that we had a conference in November. Well, I think that we had a really great set of sessions. It's archived on our website as well. And so you can go there and check out any of those particular sessions. I was thinking that, some of the sessions in particular provided an incredible foundational sense of some of the features and requirements for employee ownership.

  And then the other project, which is upcoming, that I wanted to mention is thanks to great sponsorship from the Kellogg foundation. People in our Center have put together a new online educational program to provide information in particular to minority and female business owners about employee ownership strategies. And, it's going to be free. It's not available yet, but it will be available in the next maybe two to three weeks on our site. And so, you'll hear more about that. We're really looking forward to being able to spread the word a little bit about employee ownership. So, stay tuned basically. We're excited about all these developments. Anyway, I want to introduce our two speakers for today. I'm so glad that they were able to join us.

  Chris Michael is the founder and managing director of EOT advisors. He himself is basically responsible for developing the employee ownership trust as a financial and legal mechanism in the United States for employee ownership. And he has published a lot of articles introducing the concept into leading peer review journals, including journals like Tax Notes and Probate & Property. Chris also teaches at Rutgers. He's a professor at Rutgers in the School of Management and Labor Relations, and he was recently named as managing director for the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers, of which the Center is a part.

  Chris is joined today by Bill Foster. Bill's chief executive officer of BioWorks, located in Rochester, New York. For over 25 years, BioWorks has been helping growers in the horticulture and specialty agriculture markets, which successfully deliver crops to market with biologically based solutions and support. Bill and Chris are going to discuss the sale of Bill's company to an employee ownership trust. Bill and Chris, thank you so much for joining us, we really appreciate it. Thank you.

  CHRIS MICHAEL: Thanks so much, Jim and Bethany, and to the New Jersey/New York Center for Employee Ownership and to Rutgers, as well. I can't wait to have an interview with Bill, and we’re going to talk about his sale and transition to an employee ownership trust. I thought it might help though, initially, to do a run through in about 10 or 15 minutes, what an employee ownership trust is. Because it's still a new concept here in the United States. So, it's hard to even begin to talk about employee ownership trusts before first speaking about John Lewis Partnership. It's kind of the north star for employee ownership trusts the world over. It's basically like a Macy's in the UK. They also have a large supermarket chain attached at the hip. All of it is an employee ownership trust that has about 90,000 employees. They did 14 billion revenue in 2020. They've been under employee ownership for almost a hundred years using the EOT model. And in the UK are EOTs are the mainstream form of employee ownership. ESOPs aren't the thing in the UK. People refer to this model as the EOT model or the John Lewis model. And politicians on both sides of the aisle in the UK speak about possibilities for a John Lewis economy.

  So what is an employee ownership trust? An EOT is a trust that holds the shares of a company on behalf of most or all of the employees of the company. Just like an employee stock ownership plan it offers employee ownership, which is to say that the profits and gains of the company are shared by the whole team in an equitable manner. Also, that the corporate governance is directed towards the best interests of the whole team of employee-owners. And also it provides an opportunity to develop an ownership culture at the company, that enhances and improves the quality of work life.

  Now I can't help also but, here in the United States, to discuss how an EOT is different from an ESOP, because ESOPs here in the US are the norm for employee ownership, right? There have been tens of thousands of ESOP businesses over the last half century. An EOT is different from an ESOP for a few reasons. So one is an EOT is not a retirement plan. It's not a way of deferring payment of tax. It doesn't offer a way to defer payment of taxes like an ESOP does. It's also not regulated by ERISA or under ERISA. For those same reasons, because it's not a retirement plan, because it's not regulated under ERISA, there's no need for annual valuations, there are no repurchase obligations, there's no third party ERISA administrator required to keep track of employee share accounts, right? So that substantially reduces the complexity. These features substantially reduce the complexity and burden of operating an EOT company. One way to think about EOTs might be that EOTs are employee ownership just without the ESOP piece. Another way to think about EOTs––and I'll return to this concept later on in the presentation––is that EOTs are a private, flexible, low-cost, easy-to-understand, and I might add sustainable alternative to the ESOP. So if you remember nothing else from today, there are two key points. If you start from these two key points, you can almost figure out for yourself what the differences are. EOTs are different because once the shares is gone into the trust, they stay in the trust generally speaking. And the employees, as they say in the UK are “naked in, naked out.” The employees aren't buying shares. And when they leave the company, they're not being bought out of any shares. The benefits, the financial rewards to the employees come while they're working at the company, typically in the form of profit sharing. That again, I have to say, is speaking in general terms using a default approach to structuring an EOT. As actually you'll hear later today with Bill, there are other approaches that you can use.

  At this point in my typical presentation, I like to stop, pause, and say, well, if EOTs are neat, different, cool, offer these benefits and advantages, how come we haven't heard of them before? “E – O – T” looks like the name of a fraternity. So here's my quick “1-2-3” answer to the question of why we haven't heard about EOTs much in the US before. And I think the answer really boils down to that guy in the black and white photo with the bow tie at the bottom of the page. Louis Kelso, in the 1950s, leveraged tax code that was put on the books back in the 1920s and created something called the––what he called the “Kelso plan.” It's what we now know as the ESOP. It was called the Kelso plan at that time. And he and his wife, Patricia Heller, marketed the Kelso plan. They went all over the country, wrote books, went on TV, flew all over the country, and pushed the concept, pushed the concept, pushed the concept for decades before it ultimately landed in federal law when ERISA was legislated.

  If you go further back in US history, it turns out that we had EOTs in the past in the US. In fact, it's quite possible that John Lewis got the idea for an EOT from a US company called Columbia Conserve Company. The structuring for that deal was actually done by a University of Chicago economics professor who later became the US Senator from Illinois. A few years later after that company was formed is when John Lewis did his EOT. I can't establish the connection firmly, but the dates make it seem like there really might be something there. So, you could imagine an alternative history where the US follows the trajectory that the UK followed. Which is that EOT becomes the mainstream form of employee ownership. But some people have an outsized impact on history. And I think Louis Kelso at least in the employee ownership sphere, certainly was that person for us in the US.

  And after the ESOP was legislated in under ERISA and additional tax benefits were conferred on the ESOP in 1984. Well, the rest was history. John Menke who was a senior tax associate with Louis Kelso set up the first ESOP shop and has done thousands of ESOP companies. Corey Rosen founded the NCEO in 1978 and has also helped facilitate thousands of ESOP companies. And, again, the rest was history. So things have only changed in the last few years as Jim mentioned earlier. I published a few articles explaining how the employee ownership trust is an alternative structure for employee ownership, an alternative to the ESOP that we can do today, that we don't need any new laws for, published in Tax Notes and Probate & Property, back in 2015 and early 2017. And I started doing the first EOT transitions back at that time as well. I launched EOT Advisors properly in 2017. And in this published research I show that the traditional EOT is not subject to ERISA. That existing US trust law works. You can do this in any state if need be using another state's trust law, which is totally common when it comes to trust law, picking a jurisdiction that is best for your purposes. And I also, if I have any minor contribution here, it's showing that you can use something called a noncharitable purpose trust, which is a new development specific to US trust law, that is a very handy tool when you're structuring an employee ownership trust. And some of the advantages are listed there. So, EOT Advisors then is the first investment banking and financial advisory firm in the country dedicated to assisting business owners selling to an EOT. We work all around the country. We've been involved in about 15 closed US EOT transactions––that's about all of the EOTs to date, and we're on track to double that number by the end of the year.

  Here are some sample clients, actually got to get BioWorks up there on the slide. You can use an EOT with really any company that is a sustainable viable business with a leadership team in place. Nevertheless, you could go down to 10 employees with a million or two in revenue––that can work. You could do this with a billion dollar company and anywhere in between. That being said, people often want to know what the typical company looks like for an EOT transition. And, at the moment, typical client enterprise value is in about the $10 to $20 million range. Now it certainly can go again below that. So, down into the single digit millions enterprise value. But it can also go significantly above that. I'm working with a client right now that's probably about a half a billion enterprise value. Typical workforce size again, it can be lower than this. It can be down to a dozen employees, it could be up to hundreds, or thousands of employees. But a typical client is about fifty to one hundred employees. Typical time to close, although you could push this down to as quickly as two months, if we're all on the same page and we're working quickly and closely together. It can take longer than this as well if it's preferred, but a typical client takes about six months to close working at a very measured pace, not working too hurriedly.

  Why would you want to do an EOT as a business owner? I'll repeat again that, it's best to think of EOTs as a private, flexible, low-cost, easy-to-understand, and I'll add sustainable alternative to the ESOP. So, most business owners, especially my clients, I find in my experience as a company advisor, really value privacy. A lot of my clients, they've been operating their business for a couple decades. The only person that really has full access to company financials are them and their CPA that's it. If you're interested in employee ownership and I have to say, I'm a big fan of the ESOP, so this is not a––in fact, I always say I wrote a 300+ page PhD dissertation saying how great ESOPs are. So I think the ESOP is a fantastic tool. I'm a big advocate for the ESOP, but that being said, if you're planning on selling to employee ownership, if you do that to an ESOP, you have to know that ESOPs are kind of quasi-public transactions. Where you're involving a lot of different service providers, investment bankers, lawyers, trustee, multiple valuation firms, multiple lawyers, multiple law firms, and you can easily wind up on calls with 35 people, all picking through your company's financial records. That's just not comfortable for a lot of business owners and with an EOT you can just hire me and I can get you there from A to Z. I'm the only firm that you need to work with. I'm the only firm that you need to hire to sell to an EOT. That's one advantage.

  If you're flexible with an ESOP, you have a clear menu of options and you have to pick from those options. And if you deviate too much from those options, you might lose the qualified tax status of the ESOP. With an EOT, and you'll hear this a bit with Bill as well, you can really choose what you want to do. I mean, I will give you, what international ethical standards to use, if you want to call it employee ownership. I'll provide you with information so that you don't stray from the very broadly defined international ethical standards for employee ownership. But, once we get past those very broad standards, you can really do what you want in terms of structuring the employee ownership trust. And actually, if you're somebody who in interested in environmental goals or other social goals or community goals, you can factor that into the trust and you can include those goals in the trust. So, if you're going to call it employee ownership, you'd have that as the highest goal of the trust, but you can also have these alternative goals layered in. You can't do that with the ESOP. You can combine an employee ownership trust with a family trust. So that's another thing you can't really do at least inside of the ESOP.

  Low-cost, just suffice it to say that EOTs cost a fraction of what an ESOP costs to implement and to maintain over time. ESOPs have very high installation costs and the annual year-after-year cost of keeping the ESOP is also very high. Whereas with an EOT the year-after-year maintenance cost can be nothing depending on how you structure it.

  I always like the phrase “Keep It Simple Student.” All other things being equal, it’s generally speaking better to take the simple course and the EOT’s much easier to understand for you as the selling owner. You don't need to do a one-year crash course in ESOPs. It can be much quicker than that. Likewise, for your employees, for the employee-owners, it's much easier to understand. Every ESOP practitioner worth their salt will be forthright and honest about the fact that explaining what ESOPs are to your team is a very challenging process. And ultimately, it can take years to really help your team understand what an ESOP is. I've heard it said, and I think this makes perfect sense, that it's really not until the first generation of employees retires and gets paid out of the ESOP that the team really feels like it's real.

  EOTs are more sustainable than the ESOP and ESOPs can always get bought out by a third party if there's a sufficiently high offer. With an EOT you can customize when, how, under what terms you would want to allow for the company to be sold out from under employee ownership. And if you're somebody who prefers to preserve the company and the legacy of the company under employee ownership for the long haul, you can also program that in the design of your employee ownership trust.

  So with all of those advantages, let me also say that in the current environment, as in right now, I think it's even better to do an EOT. For one thing, if you're savvy to the specific tax benefit that's, granted to an ESOP, when you're using a C corporation structure, it's known as the 1042 rollover  that allows you to defer payment of capital gains tax. Fewer sellers to an ESOP are even using that strategy. And so, the use of that 1042 tax deferral strategy for the seller––this is a longer discussion, and glad to have it with you on a one-on-one basis, but it's really not clear what the big picture, what the financial advantage to the seller of doing an ESOP would be.

  Another factor in the current environment is that investment bankers and private equity firms have really gotten laser-focused on the opportunities in the lower middle market right now, in a way that they have never been before. And so, all of my clients say to me, and these are again, $10 to $20 million firms. These are firms that a decade or two ago would not have been on the radar of investment bankers and private equity. They're now getting calls every day, once a week, with an offer to buy. And if you're somebody that wants to preserve employee ownership of the firm, then right now, if you sell to an ESOP, it's very likely that the company's going to continue to get offers. Even just a few years after the sale to an ESOP, it’s not guaranteed to happen, but it might have an offer that's too good to refuse. And where the ESOP trustee feels compelled, even against perhaps the employees’ wishes. Unfortunately, there's also an increased level of litigation right now. That's not a great thing to have to deal with. There’s substantially less litigation risk with an EOT. And because of the increased litigation risk, there are even higher costs today than in previous years, in establishing an ESOP. And again, that's a factor that I think would encourage choosing an EOT.

  So with that said, we're going to now go to our case study with Bill Foster. So let me just stop the share here. BioWorks. So, Bill, welcome, and thank you so much for agreeing to do this webinar for the New Jersey/New York Center for Employee Ownership.

  BILL FOSTER: Absolutely, Chris happy to.

  MICHAEL: Oh, so glad. And, Bill and I worked together about a year or two ago to help structure his EOT. And so just to first get a sense of what, what you guys do. I thought we might begin at the beginning and find out a little bit about how you got into the specialty agriculture industry.

  FOSTER: Sure, happy to. I'll try to make the story short. The company was started in 1993 based on some technology that came from a Cornell University research station in Geneva. If you want to end a cocktail conversation you tell them about what you actually do. So, we grow mold. So the professor at Cornell found some plants that were living under certain conditions and isolated this fungus. And we can actually start to, we can grow the fungus commercially. It's regulated by the Environmental Protection Agency. So our products are EPA registered. So the company was started in 1993. I joined the company in 1998. So I try to be really clear that I'm not a founder of the company, not that that matters, but I don't want to give credit where credit isn't due. And then we were growing slowly. A lot of companies in that same space, that were trying to provide alternatives to chemical pesticides used in agriculture. A lot of private equity money went in. BioWorks was one of those. As my story goes, luckily I wasn't very good at raising money, or we wouldn't have been able to buy the company, which I'll talk about. But there's this whole idea of instead of using chemical insecticides or pesticides to control insects or diseases, you can actually do it biologically using organisms that mother nature produces for us. But being fairly observant about when they work and when they don't work. And so, there's this whole industry called the biological products industry that was formed in the 1980s and has been growing significantly ever since and we're part of that industry. So yeah, it's been a blast. I love it.

  MICHAEL: That's fantastic. And what got you to the point in terms of your tenure at the company that, that facilitated the transition so that you actually became the owner? That's not my typical client by the way––typically my clients are the company founders.

  FOSTER: Yeah. We were growing, 10-ish percent a year, but we had 220 shareholders at one point in time. And we never felt that we would become the investors' dream. Even today compared to what the original expectations were, we’re not the investor's dream. And so in 2007, we approached––there were five of us back then. We approached the board of directors at BioWorks and said, "Hey, we're interested in buying the company," a management buyout. As I recognized later on, a highly leveraged management buyout. But we approached the board, we negotiated with the board for an excruciating 28 months. As I joke with someone, at some point in time I'll write the book on it. Although I don't know if I want to relive the whole scenario again, but the outcome was fantastic. We ended up in 2010 buying the company, five of us, and then over the next about five years, we slowly paid off the debt that we incurred from the original management buyout.

  MICHAEL: And are those––I can't recall, have you since then bought out some of those other partners?

  FOSTER: Yes. So, there's now just two owners of BioWorks, myself and another gentleman and we bought out the previous three.

  MICHAEL: Okay. That's fantastic. So, you finally own the company and now you're going to give it all away.

  FOSTER: Exactly. Yeah. Again, if you talk to traditional business owners, they look at me and say, "What is wrong with you?" Because one of the slides you put in there is so true. I still get calls if not every week, probably every other week from some private equity company, someone interested in looking at buying the company. I remember the day the management buyout closed. I slept, I think, the best I've ever slept because every time the phone rang up to that point in time, I figured, hey, it's my fiduciary responsibility to talk to them. And I just kept on envisioning the employees. I think back then we probably had maybe 30 or so. What am I going to tell them? They have committed their career to BioWorks and I have to go tell them and say, "Oh, by the way, I know you've been working with us for 10 years, but it really doesn't matter anymore because the owners wanted to...." I'm not going to fault the shareholders at all, but that's just not part of my DNA. I just didn't want to do that. So when we bought the company, it was just a nice relaxing moment for me. So, I no longer had a Pavlov’s dog response and cringe every time the phone would ring.

  MICHAEL: And, of course the Rochester region has its own saga with, firm closing, etc. I mean, what would happen if you had sold, instead of working with me, if you had sold to another, a third party––what would be the most likely scenario? I mean, would...

  FOSTER: It's tough for me to say. Sometimes, I've talked to the companies that had expressed interest in acquiring us and still do. And it's wonderful to tell them, to say, we use the term perpetual purpose trust.

  MICHAEL: Yeah.

  FOSTER: Because when I say EOT, most everyone hears ESOP. So, I say no, it's different and I go into explaining why a little bit. But, we still get companies interested in buying us. And again, it's just wonderful to be able to say––I could say no, starting in 2010––it’s now more fun to say no, and tell the story behind it and why. Like typically what they'll tell you is, "Okay, for the first five years, we're going to treat you as a standalone. And then after five years you're coming under, our company, the mothership.” And for us––you've talked about legacy––the culture at BioWorks is the most important thing to me, retaining that culture. We have a fairly unique culture and we attract high quality team members because of our culture. And the last thing I wanted to do was destroy that culture. The potential buyers would say, don't worry about it, we're going to leave you alone and everything else. It's like, I'm sorry I just don't believe that...

  MICHAEL: That was my next question, would they really leave you alone for five years?

  FOSTER: Exactly. Yeah. They'd leave you alone for five years. Because that's what the earn-out probably would be––over a five-year period.

  MICHAEL: Right.

  FOSTER: And then after you're gone, thank you very much. And they take the technology, and some good people, what they perceive as good people, and then everyone else would be out looking for another job. And that's, again, that’s part of why we are where we are with BioWorks. That wasn't the intent originally, the intent was––I was just joking the other day with someone, "Why did they bring you in as CEO, Bill?” I started with the company in 1998. And my job was to do deals and sell the company. My job was figure out how I can increase the value of the company and give a profit to the shareholders, not the stakeholders, the shareholders. And, I was okay with that until, my story goes, I fell in love with the company and the people and said, there's got to be a better way. There's just got to be a better way to run a company.

  MICHAEL: Right. Well, that speaks then to what was it that had you gravitate from that role as CEO and shareholder? What specifically made you think about employee ownership? Or is it more––and this is again, absolutely fine––is it more the perpetual purpose aspect of things and the business legacy aspect of things? Or is it the employee ownership side of things? Or is it some combination of those?

  FOSTER: It really goes back to the purpose why we exist and it's––we share this readily––it's three parts: grow our team, serve others, and save our earth. And I won't spend a whole lot of time going into that. It's funny I looked at an ESOP. I went to an ESOP conference in Arizona probably seven or eight years ago thinking ESOP, ESOP, ESOP. And I remember, I read a press release about New Belgium Brewing company being acquired. It's like naively, I kept on thinking, well, that, that, that doesn't seem possible. And luckily in Rochester, we had connected with Rob Brown, who's an ESOP expert and I said, "Rob, is it possible that an ESOP company can be acquired?" He was probably rolling his eyes at me at that point in time, and he said, "Yeah, if the valuation is significantly higher, and then it's the fiduciary responsibility to recommend to the shareholders to sell.” I remember that just created a pit in my stomach thinking, well, I can't go down that way. To me, it's the people that helped build the company that should be rewarded with ownership, not necessarily maybe stock ownership, but owning where the company's going to go. And funny enough I called our corporate attorney and he was working with a client of yours who I know fairly well and he said, "Bill, your timing is perfect. I'm working with this other company on an employee ownership trust. Here's what it is." It's like, that's it. That's exactly what we want to do, and so I learn more about it, and it's been a great story.

  MICHAEL: I understand that you have made some changes there. So maybe you could speak to some of the changes that you've already introduced at the company.

  FOSTER: Sure. And so we created the trust. We had two board members. We've actually added a third board member. He's elected by the employees and this year, actually, we're just starting this quarterly rhythm of board meetings reviewing how the company's doing. Prior to the management buyout, I was reporting to the board of directors and every quarter, I would give them a board update. Well, I liked that process of communication and sharing. So we continued that even after the management buyout and we're going to continue that going forward. So I envision myself at some point in time, stepping away, being a trustee, but stepping away saying, okay, I want to know what's going on with the company. We're going to have these regularly scheduled board meetings that overlap with companywide updates. They last about an hour and a half. And we talk about the status of the company. We'll add some other things about how we're doing regarding our core purpose, how we're doing with our core values, employee satisfaction, we'll be adding some things to that. But they'll be quarterly board meetings where we talk about that. And that's the way to share information, not only with the trustees, but also with everyone in that company.

  Probably the two biggest things is we added an employee to the board, and the second part is we'd always had this variable compensation plan bonus that we modified not so much because of the perpetual purpose trust, but again, because we thought it was the right thing to do. And that is, we have a profit sharing plan and we used to share it based on your compensation. So, if there were 10 people in the company and the highest person made five times as much as the other person, that person would get five times as much in their bonus variable compensation plan. And we said, well, that's interesting. We did that for a few years. We said, "but, from a fairness standpoint, what if we shared the profits equally?" At the end of the year, we made a hundred bucks and there are 10 people in the company. Now everyone gets $10. And so regardless of your position in the company, there is a component of tenure as far as when you started in that year. But once you've been with the company for a year, you're participating in getting a bonus at the same level that everyone else is. So that's a second thing, but it's just consistent with this idea of people. The purpose of the company, going back, it's the team that's creating the value of the company, value that will not be recognized, which is perfectly fine. Except in stock appreciation rights. So that's the third part we're doing––we're modifying and enhancing our stock appreciation rights plan. So that the opportunity for wealth is created by everyone, on a regular and ongoing basis.

  MICHAEL: So that's a really interesting point, a lot of interesting stuff there. I mean, one is of course, you don't need to have any employee voting rights at the company with an EOT. But you, you guys chose to have an employee-elected board member. Although it's much more common to use a compensation basis for profit sharing, it's certainly a more egalitarian approach to use equal profit sharing. I mean, everybody's working full time and the modest differential between compensation levels at the end of the day might be simpler and easier and a better feeling in a way to just make it equal for the profit share. Again, that's going to be structured differently at different companies. And then the last point I think is fantastic because there are some folks particularly in the ESOP community––to them employee ownership means capital gains.

  FOSTER: Uh-hum.

  MICHAEL: It’s the way that they've been doing it in the UK for decades, but it's almost as if it's been difficult for some practitioners to accept the notion that you can actually combine EOT ownership and equity ownership in capital gains. And of course we have examples of this in the US already, but here's another example where you're layering on an existing SARS program in conjunction with the EOT and it can work perfectly well together.

  FOSTER: Yeah. When someone joins BioWorks, we give them 25 SARS units right up front, vested over five years. And then every year we give everyone the opportunity to buy up to an additional hundred SARS units. We do go through a formal third-party valuation process. The banks like it. We like it just because it gives us an outsider's perspective of how things are going. What I liked about an ESOP was this idea of, you could create, I'll say, significant employee wealth at that point in time. And 25 SARS units are nice, but they’re not going to create significant employee wealth. And we're still in the process of working it out, but we want to figure out a way of how we can give regular tranches of grants––we don't know what that number is. There might be some responsibility component to how many SARS unit grants we'll give you, and we're still working through those details. But we want to be able to create this opportunity that when someone leaves BioWorks after working here for, 15, 20 years, they're looking at anywhere between $100,000 to $250,000 of appreciation in value so that, it just allows them to live a lifestyle that they want to live. So that's what we're targeting right now.

  MICHAEL: And that's fantastic. And that's actually right on par with the account values that you see on average with ESOPs. This has been such a fantastic conversation, Bill.

  FOSTER: Fantastic.

  DENNIS: Chris, this is great. And Bill, thank you so much. Listening to your story helps educate me as I learn even more about the ESOP and employee ownership process and EOTs. So thank you everybody for being here. If you would like to know more about what we're doing and view past webinars go to ownership.rutgers.edu. Chris, can you throw up that slide if you can? If not, I'll just say it slower. There we go. Perfect. So it's ownership.rutgers.edu. There's contact information for our executive director, Bill Castellano, and Jim Terez, who's here with us today, and myself. If there's a topic that you would like us to do a webinar on, or you want to know more about, you can contact us for that. I will reiterate that we are going to be doing a marketing blast and announcing our new employee ownership online program, which is going to be focusing on minority and female business owners. But it's open to anybody and it's free. It's going to be really exciting. So you'll hear more about that from us very soon. This was a recording so we're going to be sending out the recording to everybody who was here and who wasn't able to make it today. So look for that in the next day or two, and Jim, if you have any final words for us.

  TEREZ: Thanks, Bethany. I just wanted to thank you, Bill and Chris, for joining us today. That was really great. Really appreciate it. And thank you to all our participants. We really appreciate you joining us. I hope everyone has a good day.

EOT Advisors Client - Bicycle Technologies International is First Employee Ownership Trust (EOT) in New Mexico

Webinar for the NJ/NY Center for Employee Ownership with EOT Advisors’ Chris Michael and our client Preston Martin of Bicycle Technologies International.

In this interview, Preston Martin, founder of Bicycle Technologies International (BTI), discusses the company's transition to an Employee Ownership Trust (EOT). BTI became one of the first U.S. businesses to adopt the EOT model, ensuring that ownership remains aligned with employees while preserving the company's independence, culture, and long-term mission. Martin shares why he chose employee ownership over a traditional sale, how the transaction was structured, and the benefits for employees, customers, and the business. The discussion offers valuable insights for owners exploring succession planning and sustainable employee ownership alternatives.

• Transcription

  Chris Michael: Okay. Hello to New Jersey and New York. My name is Chris Michael from EOT Advisors. So happy to present to everyone here the world-exclusive premiere video interview with Preston Martin, founder of Bicycle Technologies International, which is, I think, possibly the country's largest employee ownership trust, by our estimation. He's beaming in from Santa Fe, New Mexico.

  Preston Martin: Hi. How is it going Chris?

  Michael: Good. Good to see you. Good to see you. Okay, so the way the format of the presentation today is going to go, it's about half an hour long all together. Then we'll cut over to live Q&A via Zoom and the link above. I'm going to give as quick as possible an overview on what an employee ownership trust actually is. And then we'll cut back to our interview with Preston. Okay, here we go.

  So, again, everyone, my name is Chris Michael from EOT advisors. It's always an honor to present at state employee ownership center conferences and the National Center for Employee Ownership conference. I have to say that I have a special affinity for the New Jersey/New York Center for Employee Ownership for a number of reasons. But one of them, one of the top reasons, is that I'm from New Jersey and New York. I was born in New York City, and raised in New Jersey in Bergen County, in Teaneck, New Jersey in particular, although I do live in New York City now. So, I'm the Founder and Managing Director of EOT Advisors. We've helped to really develop, really put the employee ownership trust on the map in the United States. In the contemporary period, we're the only EOT shop and dedicated EOT shop in the country. Some of the kind of foundational research supporting the use of EOT in the United States was some pieces republished in Tax Notes and Probate & Property back in ‘15 and ’17. As you'll see there, I’m also a professor at Rutgers. So, that's another connection that I have with New Jersey and the Center.

  So, very excited about getting as quickly as possible to the interview with Preston Martin. This is intended to be a brief overview of the employee ownership trust. You can't really begin to speak about the EOT without first talking about John Lewis Partnership, which is sort of like the Macy's of the UK, a really large fancy department store, except that it's not just a Macy's, they also have a supermarket chain attached to it. So, John Lewis partnership is both John Lewis department store and also Waitrose Supermarkets. So, that's why you see the Waitrose and John Lewis on the sign on the cards there. These are some pictures from their annual end-of-year meeting where they announce the annual profit share as a percentage of compensation. So, everybody at those events is getting an 11% or 17% year-end bonus as a part of their EOT profit share. It's the largest and oldest EOT in the world. It has currently about 83,000 employee-owners. Each employee is an employee-owner from day one, although that's not a requirement to do it that way. But at that company, they choose to make employees into owners on day one. They did US$14 billion in 2020 revenue. They've been employee-owned for almost 100 years. They transitioned to a partial EOT in about 1929. And they went to full 100% EOT ownership in 1950.

  And I should also add that EOTs have always been the mainstream form of employee ownership in the United Kingdom. The US went down the ESOP path, but the UK has been and continues to be a place where EOTs are the main structure, the main approach towards employee ownership.

  So, what is an EOT? An EOT is a trust that holds some or all of the shares of a company on behalf of most or all of the employees of the company. It’s just like an ESOP, in the sense that all of the things that make something employee-owned are there. There are three main components to employee ownership––and these components are agreed upon nationally and internationally for 150 years. If you're talking about employee ownership, employee ownership means these three things: it means you're sharing the financial rewards of the company, be that profits or gains; that the corporate governance at the highest level of the company has a mandate to act in the best interests of the employee-owners; and then finally, it's a great place to work, it's a really wonderful culture at the workplace. So, the ESOP has all these things and the EOT also has all of these qualities.

  The difference though, is that an EOT does not have the share accounts, the per-employee, broken-out, individual employee share accounts that the ESOP has. And so, all the differences really, between the ESOP and an EOT, if you can keep in mind this fundamental difference, I think you can kind of almost figure out the rest of the differences. So, because an EOT does not have individual employee share accounts where you're looking to buy an employee's shares back when they retire, it's not a retirement plan. The ESOP is regulated retirement plan. The EOT is not. The ESOP, because it's a regulated retirement plan has some tax differences that allow it to act as a tax shield. You have to pay taxes at the end of the day, but those taxes are deferred. With an EOT, you don't have any special tax shield difference. At the same time, an EOT is not regulated under ERISA. EOTs are regulated under state trust law.

  EOTs, because you're not looking to repurchase shares in any given year, there's no need for an annual evaluation. Again, you're not going to be repurchasing employee shares. So, there's no future schedule of repurchase obligations. In good years, you reward employee-owners with profits, in bad years, if there's no extra profit sharing that can be done in any given year, then there's no profit sharing done in that year. You can decide year by year how much to share with the employee-owners. Likewise, it's not a regulated retirement plan, ERISA plan, there's no need for a third-party administrator with an EOT. One way to think about it, if it's helpful, is that, EOTs are employee ownership but without the ESOP piece. Another way to think about it, which I'll come back to later on in the session, is that EOTs are a private, flexible, low-cost and easy-to-understand alternative to the ESOP. I'll add a fifth element here, which is that they're a sustainable alternative to the ESOP.

  Two key points to remember, similar to earlier, once the shares go in, they stay in. So, once the shares go in to the EOT, they tend to stay in there. And another way to think about it from the employee side is that employees, and this is the British expression, employees are “naked in, naked out.” So, they're not buying shares to come into the employee ownership, and they're also not getting bought out of shares, when they leave the ownership trust. It functions really quite like any law partnership, or any professional partnership. You are made a partner because of the value that you bring to the firm. There may or may not be a kind of a nominal buy-in. But that's sort of beside the point. Your benefit is getting a share of the profits while you work with the law partnership, with a professional partnership. And when you leave, you're not expecting to get a fortune. When you leave the company, rather, you're bought out, if at all, at that nominal level that you bought in. The benefits are while you work at the company.

  So, if the EOTs are so great, how come we haven't heard of them before? How come they haven't been used in the United States for the past 50, 100 years, etc.? If I see the letters EOT, I just think of some strange new Greek fraternity. Okay, very fair question. Here's my answer. This is a timeline of the use of the EOT in American history. Now, turns out, in another part of my life, I'm an academic and do historical research. And it turns out that the EOT was used in the distant US past. So, we have a case of an EOT company in 1897, in the state of Washington. In the 1920s, the most famous employee-owned business in the United States was an EOT. In fact, the founder was a Harvard grad, he was advised by a University of Chicago economics professor who later went on to be US senator from Illinois, Paul Douglas. They did tours all over the country. There are write-ups about them in newspapers all over the country. I don't have any evidence of this, but I imagine that it might have served as some inspiration actually, for the John Lewis company in the UK, or for John Lewis himself, in adopting this approach in the UK.

  Things were looking good for the EOT model, certainly in the UK, but in the US as well. So, what changed? And I think the answer to that question, why did the ESOP become the predominant model in the US? And I think the answer to that question is easy enough. The answer boils down to the man in the bowtie on the bottom of the screen. His name is Louis Kelso. He invented something called the Kelso plan, first with Peninsula newspapers in 1956. He was leveraging tax code that already existed since, I think about the early 20s, for employee retirement benefits. And he was like a nuclear power plant in a human body. He went all over the country, flew all over the country, proselytizing what was called the “Kelso plan.” Ultimately, his second wife, Patricia, joined him in the crusade, they published books, very high-profile figures, convinced companies all over the country just with their own steam, the two of them. For one reason or another, the Kelso plan wound up getting formalized as a part of tax code when ERISA passed in ’73, ‘74. And from that point forward, you had a whole generation of practitioners who were now able to leverage something that wasn't just driven by the kind of charisma of Louis Kelso, but was now in federal law and legitimized by federal law.

  And so, to begin with people like John Menke, who was actually a senior tax associate for Louis Kelso, opening up the first ESOP shop in 1974, to Corey Rosen opening up the NCEO in 1978, which is, of course focused on employee ownership, but naturally, would tend to, has and continues to focus on ESOPs, because it was the main thing, the main way to do employee ownership in the US. So, from that point forward, from the mid ‘70s forward, the rest is history. For decades now, the ESOP because of federal law, and because of a whole generation of wonderful service providers, who were able to make a living by helping businesses become employee-owned, that's been the main story of employee ownership in the United States.

  Now, I'm a big fan of employee ownership and I'm a big fan of the ESOP. At the same time, I believe that you can like something, right, you can be a fan and advocate of something, but you can also critique it, you can be aware of its limitations. And I think that, for my part, I was just kind of at the right place at the right time, coming into this field a decade ago, in 2009 and early 2010, aware of how wonderful the ESOP was, as a device, to create employee ownership, that nothing like it ever existed. I wrote a 300+ page PhD dissertation arguing that point, but at the same time, I was aware of the limitations of the ESOP, as most of the people in the field are aware that the ESOP isn't the right fit for every company. And I started to invent, what I thought was out of whole cloth, the employee ownership trust approach. I wasn't aware that it existed in US history or in the UK yet, and I published an article in Tax Notes. A little bit later, after that, I discovered that actually this exists, it's the mainstream form in the UK and sort of did a second article crystallizing my thinking on the employee ownership trust in 2017, in an American Bar Association publication Probate & Property, a trust attorney publication, and started doing EOTs, launched EOT Advisors in 2017.

  So, our published research shows that the employee ownership trust is not subject to ERISA, that existing US trust law works. We don't need any new laws to do an employee ownership trust. And in fact, you can do an employee ownership trust in any state in the country. You would keep your corporate domicile where it is at the moment. And if trust law in your state is not perfectly ideal or perfectly suitable for the creation of an EOT, you would simply use another state’s trust law to create the trust. I mean, this is extremely common, for example, with family trusts. You live in New York, you live in New Jersey, but you might want to use trust law from Delaware or New Hampshire or something like that.

  My only minor contribution, if there is any, is to note that there's been a development in trust law in the last 20 or 30 years, something that didn't really exist in the Anglo-American tradition, in the 1,000 years or so that we've had trust law. Since 2004, in the United States, you can now create a trust for a purpose. Trusts do not any longer have to have human beneficiaries. You might recall the Leona Helmsley case with the trust for her dog. There's more to talk about there. But for the moment, we can say that you can now have something called a non-charitable purpose trust, where you identify a purpose as the overriding goal of the trust, and human beneficiaries, if there are any, can be made secondary to that purpose. And so, for example, adopting this concept to the context of employee ownership, you can decide now whether or not you want to have employees as legal beneficiaries with standing to sue. You can create your own customized enforcement mechanism that doesn't rely on the employee-owners themselves being the beneficiaries entitled to sue the company, or to sue the trust, I should say, and you can thereby minimize litigation risk.

  So, we launched in 2017. EOT Advisors is the first financial advisory and investment banking firm in the country focused on assisting business owner selling to an EOT. We work in all 50 states. We provide a one stop shop for EOTs. So, we structure the transaction, we design the employee ownership, we help provide legal forms, and we also do valuation, pointing the right direction on ownership culture, and get you to a close. To date, we've worked on close to about 15 US EOTs. We've worked with every US EOT in the contemporary period. We're on track to get that number up to 20 by the end of this year. And I think the future is very bright at this moment for EOTs. Here are some representative clients. You see BTI is in the upper left there. We've done some video interviews with Optimax, with Paras and Associates, with more interviews on the way.

  So, what are the deal characteristics for an EOT? These are not requirements or limitations. I've done EOT transactions where the enterprise was down to between just a little north of a million dollars. And I've done EOT transactions that were significantly above the range on the screen there [i.e., 50 million dollars]. But the kinds of companies that I'm finding are coming to me to ask about EOTs, or who have become my clients, tend to have enterprise values in the range of $10 to $20 million, and a typical workforce size in the range of 50 to 100 employees. And again, these aren't requirements. Some clients have been down to just a dozen employees. Other clients have been up to hundreds of employees and I’m working with a company now that's in the thousands. But the typical company coming to speak with me tends to be in that 50 to 100 employee range.

  Typical time to close is about six months. Again, there's flexibility here. I've closed an EOT transaction in under two months, and I’ve taken up to a year and a half in another case where we were just really taking our time with the transaction and making sure every single detail was exactly to specification. But six months feels like a nice, I don't know if it's a leisurely pace, but very comfortable pace to complete an EOT transaction.

  So, what are the advantages of an EOT for the seller? EOTs are a private, flexible, low-cost and easy-to-understand alternative to the ESOP and I'd add a sustainable alternative to the ESOP. EOTs are private. So, when you do an ESOP transaction, you're going to be sharing your, first of all, it's a quasi-public transaction with Department of Labour oversight, you're hiring a trustee, you're giving that trustee money to hire an attorney to hire a valuation firm and then you're now bargaining with the trustee that you just hired and with their attorney and with their valuation person. You have to involve probably about six or seven firms all to help you get through the ESOP transaction. Each firm probably has a number of representatives from each firm. So, it's not uncommon when you're doing an ESOP transaction to have 20 people on a call fleshing out how the ESOP is going to proceed. EOTs couldn't be more different. With an EOT, I'm getting you there, A to Z, soup to nuts, I'm the only person that you have to hire. In my experience, when I set out to do EOTs, I wasn't thinking privacy is the main concern, but more and more with business owner clients of mine, I'm noticing, and it makes sense what a value people put on privacy. For most of my clients for the last 20 years, the only people that have seen their books has been them and their CPA. That's it. So, I think privacy, it's an important value. And it's, again, I think the ESOP is a great tool, it's just that the ESOP doesn't speak as closely to that value of privacy as the EOT does.

  EOTS are also flexible. Most business owners that I've encountered are pretty independent spirits. They like to do things their way. A lot of business owners become the boss, because they don't want anybody to tell them how to do things. Right. So, again, as great a tool as the ESOP is, it's a retirement plan, there's no getting around that. There are a set of sort of options that you have when it comes time to structuring an ESOP. And there's some variation, certainly, there's certainly a good amount of customization that can be done with an ESOP. But with an EOT, it's just really wide open, it’s an extremely flexible tool. I mean, you have companies that adopt an EOT and want equity compensation, equity sharing to be a big part of the EOT. So, notwithstanding everything that I just said earlier in the presentation about EOTs and the shares going in and staying in an EOT, you can always layer on equity compensation programs, broad-based equity sharing, broad-based share ownership, you can always add that on to the EOT, on top of it. So, if you want to do broad-based stock options, if you want to have a phantom stock plan, if you want to do actual shares outside of the EOT, you're not limited in that. You're not limited to a purely profit sharing approach to employee ownership. It's lots of flexibility. And you can see that in the different clients that we've worked with in the past. And you can also see that in the UK as well.

  Low-cost EOTs are, it's still somewhat in flux, the pricing around EOTs, but it's at the moment looking like EOTs are coming in at about 20% of the cost of an ESOP to implement, and about 20% of the cost of an ESOP to maintain on an annual basis. EOTs are also easy to understand. It's easy to understand for you as the seller. You don't have to spend a year and a half learning what ESOPs are in order to create employee ownership at your company. Again, six months on a fairly sort of even basis, meeting every couple of weeks, will get us to any EOT. It's also easier for the employee-owners to understand. Everybody understands a profit sharing program. And you don't have to train employees on what it means to have share accounts and what it means to value the company's shares. Again, there's flexibility here, but by default an EOT would involve a profit sharing program and annual bonuses.

  So, as great as all of these advantages are for the EOT, I think that there are a few additional points to mention in the current climate. One is that, fewer sellers to an ESOP are using a 1042 tax deferral option. So, from the seller’s perspective, that's the real benefit to doing an ESOP. It's that you get to defer taxes, invest the sale proceeds in the stock market, and get the appreciation on what would have gone to the tax collector. And when you sell the stock, you still have to pay taxes, but you get to defer capital gains for a period. Fewer sellers are using that option for a number of reasons. Some sellers prefer to invest in, for example, real estate than operating companies, other sellers might be interested in international securities. There are a host of reasons they might also not be interested in the complexity, the added complexity, a host of reasons why sellers aren't using 1042s on ESOP transactions. But the fact of the matter is that only about a third of sellers even use the 1042 on ESOP transactions.

  Another important thing to note is that private equity firms are more and more targeting lower middle market businesses. So, all the business owners that I speak with, they say they're getting a call every day from a private equity firm or an investment bank with bids or offers to buy them out. That's relevant for us in the employee ownership community because it now means that privately held ESOP companies in a lower middle market that simply not have been on the radar for private equity firms, for conglomerates, are now on the radar. And because of ERISA rules, because of the requirements or mandate, I should say, that ERISA trustee consider offers for purchase of the business. And there's even a requirement that if the offer is good enough that they might have to sell the ESOP out, even if the employee-owners don't want that sale to occur.

  There's a real concern that if your goal is to, not necessarily create employee ownership forever, but at the very least, to have some kind of sustainable employee ownership program that might last at least a few decades, let's say. It’s not necessarily an imminent threat. It really depends on your company, your industry, what's happening in the market around you. But it's a real concern, at the very least, that ESOP companies are being bought out. And so, if your goal is to create sustainable employee ownership, then again, an EOT is something that you might want to think about.

  Another factor here is that, unfortunately, there's been more ESOP litigation in recent years. That's a burden that I think not many people want to have to contend with. Again your, I think, litigation risk is minimized with the EOT and as a result of the increased litigation, ESOP costs have gone up, and again, points to perhaps doing an EOT.

  So, that's it on my presentation. Here is my case study slide for Bicycle Technologies International. You can see the warehouse there, you can see the inside, you can see some bikers, and they're based in Santa Fe, New Mexico. And don't have to do anything more here because we're going to turn it back to our interview with Preston.

  First of all, I'd like to thank you so much, again, for being here for this world-exclusive interview with you as founder of largest EOT in the United States, Bicycle Technologies International. And I'd like to start off the interview by asking just kind of your origin story. What was the founding origin story of BTI? I know, of course, you had a partner originally. Tell us some of that.

  Martin: Right. BTI started in Ashland, Oregon, fresh out of college, bike racing and thought, “Wow, suspension, bicycle suspension is taking off right now, we're going to do bicycle suspension service.” So, me and my partner fixed up my garage with its dirt floor and basically renovated the whole shack into a space where we could do our repairs, and also warehouse parts. And that was the beginning of our distribution company BTI, Bicycle Technologies International. So, that was 1993, in Ashland, Oregon, and then we moved to Santa Fe, New Mexico in 1996. And then…

  Michael: What brought about that move? Is that like a personal lifestyle decision for you and your partner to move down there, or it was a business decision or?

  Martin: It was a combination. We were looking for a more centralized location for the company to operate somewhere with a longer riding season, and not to mention the great weather and great food and southwest.

  Michael: Awesome, awesome. And then tell us about the company's growth over the years since the founding, and since the move. I mean, how have sales been? How's your distribution network grown over the years?

  Martin: Well, it's been perpetual growth since we started. The move to the Southwest was really helpful for the company to become established with shops all across the US and not just the West Coast. We ended up adding a second warehouse in Sparks, Nevada in 2017. And that gave us one-day shipping in the whole west coast. So, our business only blossomed, especially in the West, and we'll continue to look at opportunities for expansion with more warehouses.

  Michael: Fantastic. And we're heading into talking in a few minutes about your employee ownership trust. It occurs to me to ask what was the transition like, I guess, both to Santa Fe, but then also and then in terms of opening up the new warehouse in Sparks in terms of employees? Did you have employees come with you? Did you have to do new hires down in Santa Fe or what was that process like? Or was this still a kind of a growth stage where it wasn't so much of an issue?

  Martin: We were fairly small when we moved to Santa Fe. So, it was primarily my partner and I who moved down and then hired staff here in Santa Fe. And then when we opened up the warehouse in Sparks, it was a whole fresh staff who started that. Some coming from competing distributors, bringing their you know knowledge and background to help us get established there.

  Michael: Fantastic. So, let's shift into talking a bit about employee ownership. How far back in this journey did you begin to think about something that might––you might not have even known the term employee ownership––but you just you might have known you wanted to do something kind of good with your business when it was time to exit, or maybe even that you'd want to do something that was good for your employees when it was time to exit? How far back was that? Or how did that enter the thought process?

  Martin: Well, I really think the journey for the EOTs started with thinking about a succession plan. And that came about in early 2020. And honestly, it's one of those things that every business owner with a mature businesses is told, “You should be thinking about your succession plan.” And, well, it's one of those things that you just keep pushing off and say, “I'll get to that tomorrow.” And ultimately, with how rapidly the world changed in 2020, everything kind of became clear that I needed to change my priority. So, I read a survey of our employees in mid-2020 and it revealed their strong desire for a more defined career path and greater earning potential. And it was with those remarks that I really said, “Okay, this requires special handling. How, how do I combine a succession plan with these goals, the employees’ goals?” And so, that's where employee ownership became a priority, rather than just polishing up the books and selling to the highest bidder and, and that made more sense to look at the options out there in the employee ownership world: ESOPs, worker coops. We looked at those, they didn't really check all the boxes for us. And doing a leveraged buyout with the employees presented its own debt challenges. So, here, I was poking around on the internet, and came across some articles by Chris Michael. And you helped me understand the simplicity and the value of the employee ownership trust. So, that's, in a nutshell, that's how we ended up looking at the EOT.

  Michael: Got it. And if you don't mind stating a few more words about some of the other options for employee ownership. I mean, it is clear that you wanted to exit the business, at the same time you saw this desire on the part of the employees to have opportunities for growth within the company, and for more earnings, growing their salaries inside of the company. You said you looked at other options. And of course, these are all great options. I'm a big fan of them. Everybody who knows me knows I'm a big fan of all kinds of employee ownership. I just see the EOT as one tool in the tool belt. What made you sort of think that maybe the ESOP or the coop wasn't the right fit for you, versus the EOT being the right fit for your company?

  Martin: Well, the ESOP was probably the best known, and I was fairly certain that that would be the direction we might go. And at the end of the day, I did the interviews, several ESOP attorneys who could help provide those services and came to understand the cost structure, and the number of people involved, and the annual requirements to maintain an ESOP, and it just became clear that the formula wasn't right for our company. Alternatively, worker coops, another interesting model, it really, to me, spoke to decentralized decision making that kind of wasn't exactly what we wanted. We wanted a strong management culture that still encouraged individual achievement amongst the employee-owners. And so, that's why we ended up going towards the EOT, which, really, does keep that emphasis on the current management structure and keeping that largely unchanged, but bringing in more of a voice for the employee-owners and members of the trust.

  Michael: That's perfect. One of the things that you said before on a prior occasion is just to kind of the difference between the ESOP approach to employee ownership, which is that the ESOP is a retirement plan versus, the default, I keep saying the default mode of structuring financial rewards in an EOT, because EOTs are so flexible. You can do it different ways, but the default mode of structuring financial rewards sharing in an EOT is profit shares. So, if you could speak a little bit about your thoughts about that?

  Martin: Well, the ESOP, like you said, is a retirement program. So, the company would give the employee a share in the company, and then when they leave the company, they're able to cash out. And it depends on how well the company performed as to whether they actually gained or lost when they were with the company. Our big challenge there was, we didn't want to basically incentivize an employee to leave. An ESOP is giving the employee a reward only at the point that they depart the company. And so, when things get rough in a year where things aren't going great, when your cash might not be that great, it's not a good time for employees to leave, but that's exactly what might happen under an ESOP.

  Michael: It's an interesting point that you raise, and I don't hear that discussed very often in the employee ownership community. I mean, it's clear, on the one hand, that ESOP companies tend to have a lower turnover than the typical company, but it is curious to think about what the potential effects might be of having that incentive of the buyout for individual employees, and what effect that might have on turnover, and whether or not it might look different in an EOT context. We'd have to look at data from the UK. And over time, as we have more EOT companies in the US, we'd have data that we can use here as well. So, now, I know that a part of your idea of bringing in the EOT and transitioning to EOT ownership was precisely your aspirations for BTI to continue to really grow quite strongly in the future. And so, let's get to that in a moment or two. But before we get to that, those kinds of sort of future plans for BTI, just if you could share a few thoughts or experiences over the last year. You guys transitioned end-of-year, between 2020 and 2021. You spent about a year, you've had the EOT in place. How has it been since the transition?

  Martin: Right. It’s November now, we started in January of this year. And we made an announcement, first day of the year, welcoming everybody back from New Year's break, and surprised the heck out of everybody. That was not something that I had prepared anybody for. But well received, the employees were full of questions naturally, “How does this work? What are the benefits? Explain its perpetual trust model.” The legacy and culture of BTI is intended to be maintained in perpetuity, provided that's the will of the employee-owners, the members of the trust. In return, the members are partaking in the profits each year. There's a formula that we use to split up the profit between reinvesting in the company and in profit sharing.

  Michael: And so, the employees have received it well. How has business been? Any particular experiences with the employee-owners, the members since the launch, so to speak?

  Martin: Right. I think what I'm seeing is a lot more engagement with the employee members, that they're asking the right questions about our expenses, about how to increase sales, improve margin, they generally care about the bottom line in a way that they did before, but now they're very tuned in, so to speak.

  Michael: Good, good, good. I know, of course, the company is going to be paying off the note for a number of years, because it was seller-financed, you financed the transaction yourselves, are you going to be doing a little profit share for this year to kind of get things going? And what do you expect that to look like or plans for that?

  Martin: Correct. So, for 2021, we're on a fiscal year that runs through December 31st. And therefore, we’ll wait until our financials are completed, and then we issue profit sharing checks. And the employees, of course, they might have been used to seeing something in the December timeframe from the company in the past. And so, this first year, this transition year, we're going to keep some of the bonus in December, and then the remainder will come out in the spring.

  Michael: Awesome, awesome. And so, then getting back to the sort of the issue of sort of BTI’s future and your kind of plans in the design phase of putting together the EOT, how do you think about the future growth of the company, even beyond your involvement with the company, and the EOT, how those things work together?

  Martin: Right. Well, like I said earlier on, we're more interested in encouraging individual achievement over just top-down control. And so, I’m really excited about the new engagement I spoke of, but really, it's the management here that is keen to make sure that the values behind the employee ownership trust are understood, not just by the members, but by the whole company, that this is a different type of culture they're working in now. And that DIY spirit, do it yourself, is now kind of percolating through the pores of the company. BTI’s innovations over time have occurred internally, that we are one of those companies who doesn't always hire out just to accomplish every task. We like to do it ourselves. So, we have a broad IT department that solves problems on the go. Our marketing department, it takes some videos, and photography, we’re very…

  Michael: It’s pretty cool! Actually, you got a lot of content out there!

  Martin: That's right. And so, the EOT dovetails really nicely with BTI’s number one core value, which is, take care of each other. We're really concerned not just about the co-workers, but also our customers, our vendors, and the community at large. We're trying to make sure that this company is going to be around for the long term, creating jobs and wealth for our community, and as well as, obviously, the members of the trust.

  Michael: That's a good point, I think, to--. We'll have to record more of these discussions for the future. We're limited in our time for the New York Conference. But that might be a good point to end on, which is that, although, of course, employee ownership is at the core of all of this, I feel like every time I call you, you're on the way to some big bike giveaway for kids or something like that. So, if you could talk a little bit about how some of that kind of community giveback element kind of can stay with BTI?

  Martin: Well, it's interesting that you mentioned that because as part of developing the EOT, we also developed a non-profit called Bicycle Harvest. And part of the annual profit-sharing formula includes, not just reinvestment and the share for the employees but also part going to our non-profit. Part of the profits are reinvested in this non-profit to help build our community, not just in Santa Fe, but around the state and many other areas where BTI has a presence. So, one of our programs Free Bikes for Kids, in its first year, collected and repaired, over 1,000 bicycles, donated all over the state. We also do Thanksgiving and that national program that collects food on bicycles, donates it to the local food banks. And that's been around for over 20 years now.

  Michael: Awesome, Preston, that's just amazing stuff. Thank you so much for agreeing to participate in this interview and this event, the New Jersey/New York Standard Employee Ownership Conference. Thank you so much. And we're gonna move to live Q&A right now and invite everybody to click on the link on the top of the page there. Okay, see you guys in the Zoom meeting.

EOT Advisors Client - Paras and Associates is First Employee Ownership Trust (EOT) in California

EOT Advisors’ client Melinda Paras discusses the sale of her business, Paras and Associates, to an Employee Ownership Trust.

In this interview, Melinda Paras, founder of Paras and Associates, explains why she chose to sell her company to an Employee Ownership Trust (EOT) as part of her retirement and succession plan. Paras and Associates, a technology company that supports healthcare interpreter networks, was built around a mission of social good rather than profit alone. As retirement approached, Paras sought a way to realize the value she had created while preserving the company’s purpose, culture, and commitment to its employees and customers. She discusses how the EOT structure enabled employee ownership, ensured long-term continuity, and even allowed her to maintain certain protections over the company’s future direction and legacy.

• Transcription

  Hi. My name is Melinda Paras and I’m the founder of Paras and Associates. Our company was incorporated in 2006 and we sold the company to the employees in 2019 in an Employee Ownership Trust, an EOT. Let me tell you a little bit about the company and our background and how we came to this decision.

  Our company is a technology company that manages a video interpreting platform that mostly healthcare systems use to utilize their own interpreters in a seated position from a call center and broadcast their interpreting capabilities throughout their hospital system. And in our network, the hospitals also share interpreters with each other. And so when we formed the company, it was really not thinking about the question of profit, although it is a for-profit company. We were really trying to do social good and improve the access to quality healthcare interpreting to many hospital systems that really couldn’t afford to have large numbers of in-person interpreters in their facilities.

  And so it’s with that goal of social good that we founded the company, and then as myself and the CFO were approaching retirement age, we began to think about what we could do to facilitate our retirement. We wanted to capture some of the value we had created in the company, but we also wanted to retain the social good that the company had facilitated. Paras and Associates has a gross profit annually of about six to seven million dollars, and it has about ten employees. And so it’s a small company, but it operates nationwide.

  And so as we began to look at some of the options of retirement and sale of the company, we thought about selling the company to our competitors. There are a lot of for-profit language agencies and we thought probably there would be some interest in purchasing PAA. But we thought about what would happen if we did that, and a lot of the social good we had created we thought would be diminished. The competitors would be mainly seeking our client base, would probably let go of our employees, and really change the vision and the value of the company.

  And so in the course of our considering these options, I heard about employee stock ownership plans, ESOPs, from a friend. And conveniently, the National Center for Employee Ownership I found was located in Oakland really just down the street from our offices. And I went and visited them and found out more about the ESOP option, and myself and my CFO attended one of the national conferences of the National Center for Employee Ownership.

  First I want to say how valuable I think the National Center is for companies who are looking at employee ownership options. They hold two to three conferences a year, or they did before the coronavirus pandemic. I’m sure they will return eventually. And at these conferences, companies share their experiences about what it took to form an ESOP and manage an ESOP going forward. So I attended the conference, but what I found was that an ESOP option was not going to work well for our company. First of all, you really need more than ten employees. You need, I don’t know, fourteen, fifteen. The ESOPs are under restrictions related to the Labor Department because they are considered retirement programs. And there were just a lot of management processes that were required in an ESOP. And I greatly appreciate that at the National Center’s conferences you meet a lot of really good vendors who are lawyers and trustees who know how to manage an ESOP. And if you are a larger company and the ESOP option is good for you, I really recommend attending one of their conferences and getting introduced to many of the people in the field.

  But as I sat through that conference and I looked at the size of our company and what would be required for oversight, it just felt like too much. So I was feeling kind of discouraged about it, and I left a little bit early and I missed the last presentation of the conference, which was a big mistake. Chris Michael, an attorney who is knowledgeable about employee ownership trusts was the last speaker of the conference, and my CFO stayed and heard him speak and spoke to him afterwards.

  And as we followed up with Chris, we found that an Employee Ownership Trust was much more suitable for what kind of company we were. First of all, the size of the company, it wouldn’t require us adding employees or merging. At the National Center conference I even met with another company whose CEO said hey, maybe we should merge and then we could be able to do an ESOP. But it was a company completely unrelated to what we do.

  So as my CFO and I talked more with Chris, we found a lot of advantages to the EOT type formation. I think the first thing that drew me to it is that there was an immediate value to the employees. In an ESOP, really the employees don’t see the value of their shares in the ESOP until they retire. It’s really a retirement plan essentially, and as they leave the company then they get paid for their stocks, for their ownership portion. In the EOT, Employee Ownership Trust model, the employees profit share at the end of every fiscal year, which means that they see the immediate result of becoming an employee-owner. In our model, we decided to distribute the profits to the employees based on their salary proportions. So if we’re giving out $100,000 in profits to the employees, it will be divided based on salaries. That way, those who have more responsibility and greater leadership in the company, who have higher salaries, are going to get a little bit more of the profits than others. But frankly, the distance between our lowest paid employee and our highest paid employee is not that high, so frankly it’s pretty good sharing of the profit.

  And so we managed the process of that sale. It took about, I would say four months, five months altogether between beginning investigating it and accomplishing the sale. We had to do a valuation of the company, and the basic concept was we would create a valuation of the company, the company would pay back the original owners over the course of ten years utilizing the profits that the company made, and then after the distribution to the original owners the remaining profits could be divided then among the employees.

  So the employees did not have to put up any of their own funds to become owners of the company. And the original owners of the company would be paid off over ten years, which we believed was economically feasible for the company to be able to afford.

  A lot of people have asked me how the company is managed. Is it a co-op, does everyone have a vote? And we’ve had at our company a board of directors really since the beginning, which was a leadership structure of four to five staff members who were the CFO, the CEO, the chief technology officer. And so we’ve had that management process in place and that continues under the Employee Ownership Trust. So the board of directors makes the main management decisions. For example, at the end of the fiscal year, determining how much of the profits would be distributed to the employees. What the board of directors cannot do is they cannot decide to award all the profits to themselves. In our EOT structure, we have a trustee whose responsibility is limited and does not involve management of the company, but it involves an oversight to make sure that the goal of the Employee Ownership Trust is retained by the future management of the company. So the board of directors really has to make those profit distributions based on the bylaws of the company and the vision of it being an Employee Ownership Trust.

  Some other special arrangements, if you will, as the founder of the company, I wanted to have just a little bit of say about the future of the company even after I no longer own it. And so I was able to make an arrangement in the legal process of the trustee transfer to say that any future sale of the company would need my approval, partly because my name is on the company still. I’m the Melinda Paras in the Paras and Associates. And I just wanted to make sure that the company didn’t go in any directions that I wasn’t comfortable with in the future.

  So I guess in conclusion, I wanted to say that the Employee Ownership Trust I think has great value as a mechanism for the transfer in ownership from the original owners to the employees. One of the things I really value about our company is the team that we’ve been able to put together. They’re great people, they’re very invested in the social good that the company was trying to create, and I can’t feel better about leaving the company than having it be in their hands. And having them see the results of their ownership very immediately and being rewarded a portion of the profits each year, even though a profit is not, I think, the main driving force in our team’s interest in the company. It was the social good and remains the social good. But still, it’s an important part of the process, and if there’s going to be profit, having it distributed among the employees in a fair and reasonable way, I think is a good way to go.

  So I want to say that Chris Michael has been an invaluable resource in understanding the EOT and informing business owners of this as an option. Chris was not only our lawyer for the transaction, but he’s also our trustee, and so we really appreciate that he understands what we were trying to accomplish through the process. I want to just close and say that anyone with more questions or more thoughts about Employee Ownership Trusts who would like to speak further with me are welcome to contact Chris and he’ll put you in touch with me.

  Just one thing about who the original owners were. I was the majority stockholder. I had more than 51% of the shares of the company. But there were three other of our senior leaders in the company who also owned stock. The CFO was also interested in retiring, but two other senior leaders in our company are staying with the company, and so we’re glad to have that continuity in place. One of the biggest challenges about thinking about retirement is you have to find a replacement. So really it took me about a year to find a replacement CEO for myself and also a replacement for our CFO. And we’re now in the process of transitioning out of our roles in the company and our new leadership is taking over. So thank you all for your interest, and good luck with whatever transitions you’re seeking in terms of your business ownership.

EOT Advisors Client - Optimax Systems Preserves Local Ownership Through Sale to Employee Ownership Trust (EOT)

CEO Rick Plympton describes the transition of his business, Optimax Systems, to an Employee Ownership Trust (EOT) as part of a webinar for the National Center for Employee Ownership.

In this webinar, Rick Plympton, CEO of Optimax Systems, explains why the precision optics manufacturer chose an Employee Ownership Trust (EOT) as its long-term succession strategy. After evaluating family succession, management buyouts, ESOPs, and other alternatives, Optimax selected an EOT combined with a Perpetual Purpose Trust to preserve employee ownership, share wealth with employees, strengthen the local community, and prevent a future sale of the company. Plympton discusses Optimax's commitment to distributing 25% of profits to employees, maintaining independent ownership, and creating long-term prosperity for future generations. The case study provides valuable insights into how EOTs can align business succession planning with employee ownership, community stewardship, and perpetual company independence.

• Transcription

  Hello, I’m Rick Plympton with Optimax, and I want to thank NCEO and Chris Michael for the opportunity to share our journey with you today and why we selected an Employee Ownership Trust as our succession plan. But before I get into that, let me give you a little backstory on who we are.

  Optimax is a manufacturer of precision optics for research and industry. We’re a key supplier to NASA, we’ve made optics for each of the Mars Rovers and super proud of the work that we do there. Optimax was founded in 1991 just outside Rochester, New York, and we’ve grown to just about 400 employees, 120,000 square feet of manufacturing facility, and we’re doing about $50 million annual revenue. Through the years we’ve averaged 20 percent revenue growth per year. Projections going forward are that we may slow that down a little bit somewhere closer to 10 percent, but still a pretty healthy clip.

  So let’s go ahead and jump into this. We looked at several different exit scenarios, including family members, management buy-out. We looked at ESOPs and we really thought that looked like a good option for us for a while. And also a trust. But before we get into those, let me just share with you what our objectives were for a succession plan.

  So we made sure there was a fair payout for the exiting shareholders, and wanted to make sure that we continued to share the wealth with our employees. Through the years we’ve closed the books at the end of each month and taken 25 percent of the profit and shared it with our employees, and that’s worked out really well for us in reinforcing team performance.

  We want to make sure that we continue to grow our team and strengthen our community. We looked at a timeframe of 100 years. And we really want to make sure that the company never gets sold. Here in the Rochester region, there’s a lot of great small companies that occasionally get purchased by multinationals and they take the technology they’re interested in and then shut down the Rochester division, which causes our community to lose a hundred or a few hundred local jobs. So we want to try to avoid that.

  So to go to family succession, it’s really wonderful when this option plays out and there are capable younger family members that can run the business. This option requires longer term payouts for exiting members, which can be worked out. It can be very emotional trying to work things out with family. Businesses rarely survive beyond a few generations when they choose this option. It can be really challenging. And there’s always the risk that the company can be sold. Whoever the current generation is, they might decide that they want to sell and make big bucks in their lifetime.

  Another option we looked at was a management buy-out. This requires a capable younger leadership team and often requires third-party financing for a leveraged management buy-out. But when we looked at this, this is really kind of like kicking the problem down the road. We might be able to make this happen at the size that we are today, but by the time our young professionals, 20, 25 years from now, are looking to retire, the business would probably be worth so much that they wouldn’t be able to parlay it again and do another management buy-out. So there’s a really high risk of the company being sold at that point.

  When you go to ESOP, there’s a lot of good advantages here. Tax advantages for exiting shareholders, employees get a share of stock. When I was younger I thought just owning one share of stock would be really cool. There is, however, some ERISA oversight, risk of repurchase obligations, risk of the company being sold. With regard to employees having all their eggs in one basket, what we’ve seen here in the Rochester community is that’s not always a wonderful thing. Many families where the spouses worked at Kodak or Bausch & Lomb and Xerox, those were our big three companies in town. All of them have fallen on hard times in the last 20 years, and so there’s literally thousands of families here in our community not realizing the retirement that they expected, and that’s really unfortunate.

  When I first looked at trusts it was kind of nice that it was a different piece of law. It’s trust law as opposed to the laws that govern ESOPs. So there’s no ERISA regulations that apply to trusts. In the early investigation it seemed that there needed to be beneficiaries, and so there was a risk of the company being sold. The grandchildren or great-grandchildren could band together and say hey, let’s sell this, sell this business and get away from it.

  But then I met Chris Michael, and he started talking to me about an Employee Ownership Trust and something called a Perpetual Purpose Trust within that book of trust law. And that seemed to, that really seemed to hit on all the metrics for us. So as we talked that through, we started talking about well, what would the, what would we need to do with the business to structure it to support this and what would the Perpetual Purpose Trust do for us? So we sat down and started thinking about what would the tenets of the Perpetual Purpose Trust be? One would be never sell the business. Two, always share 25% of profits with the workforce. And three, ensure that the leadership is strengthening the team and growing the company. So investing in innovation, investing in workforce development, and continuing to grow the company and create jobs and careers for the folks in our community.

  Structurally what we did, and we actually did this earlier this year in 2020, Optimax operates as a for-profit business with the owner being the Perpetual Purpose Trust. So myself and my business partner, the only two owners in Optimax, we sold shares to the Perpetual Purpose Trust. So going forward, the only voting shares will be owned by the Perpetual Purpose Trust. And within Optimax, there’s a board of directors. We have some oversight and we have some long term incentives in terms of, in the form of Class B shares that are non-voting, but they have distribution rights, and some family stock options so that as we have leaders developing in the organization they got some. There are some incentives that can be put in place rewarding a longer view.

  So to get into our succession objectives, we want to make sure there’s a fair payout to the exiting shareholders, share the wealth with our employees, grow our team and strengthen our community. Let me talk a little bit about that. So with regard to Optimax and what we’ve done in the past 20 years, we’ve generated about $300 million in revenue, and about half of each revenue dollar goes to our workforce in payroll and bonuses. So $150 million has been given out to our workforce in the past 20 years and then spent within the community at auto dealerships, grocery stores, what have you. In the next 20 years with the growth path that we have, Optimax will generate $2 billion in revenue. $1 billion of that will be given out to our workforce and then spent in our community. And that’s how you strengthen a community. You work on growing your small- to medium-size businesses and ensuring that they have continuity as they go from one leadership team to the next.

  So we wanted to look at 100 years of prosperity. We really believe this Employee Ownership Trust provides that for us, and we never want to see the company get sold. So those are our objectives, and we think that we’ve been able to achieve that. With that, I’ll take any questions that you might have. Thank you very much.