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.