For Rob Johnston, who has co-owned Winslow, ME-based seed cataloger Johnny’s Selected Seeds since he founded the business in 1973, the future of the company has weighed on him. Not that Johnston, 55, plans to retire anytime soon. But he has reviewed several options relating to future ownership of the company.
“For about 20 years, I’ve been thinking that eventually there will have to be another owner,” Johnston said. “In the past five years, I’ve learned more about employee ownership options, and have been more active researching those options in the past two years.”
As a result, Johnston informed his 120 employees this week that they will become the future owners of the company through an employee stock ownership program, or ESOP.
Johnston laid out the plan whereby employees will borrow money to buy company stock from Johnson and his wife, Janika Eckert, and they will pay off the debt through tax-deductible contributions from the company. “I’m 55 and want to keep working here, but I’m also interested in having an orderly plan for the transfer of ownership,” Johnston said. “The ESOP will create a trust for the employees. When I made the announcement it was a festive atmosphere. We’ll formalize the ESOP in June or July, and change the company bylaws.”
One-third of the company will be sold to employees this summer, Johnston said, and by July 2009, they will own majority shares. “It was more complicated for an owner to do this, but I didn’t want to shop the company to a third party,” he said.
Johnston said employees were excited about the plan, but they will have to forfeit their current profit-sharing program. “Employees are being asked to give up three-quarters of their profit-sharing, which is an annual cash bonus. For senior people, that’s a significant part of their total compensation.”
Currently, he said 16% of profits are earmarked for the employee profit-sharing program, but that amount will be reduced to 8% Technically, he said, the company will borrow money for the ESOP. “We will have to continue to operate the business successfully under that kind of a debt load,” he said. “It will be a good challenge. No one feels like they’re under a dark cloud, I can assure you.”
While no employee will be forced to participate in the ESOP, Johnston said he expects everyone to take part. “Employees will have additional stock put into trust for them based on a third-party valuation,” he said.
Johnston said the company has five years after an employee retires to pay that employee for his or her share of company stock. “If an employee is 55 or older and has been with the company for at least 10 years, he or she can diversify 25% of their ownership of the company,” he said. “That means the company can pay them the value of their shares in cash if they want. When they retire, the trust is required to buy them out.”
Johnston said the sale of the company would allow him to spend less time on management and more on product development. Johnny’s Selected Seeds had $12 million in sales in 2005, and is projected to reach $13 million this year. Johnny’s Selected Seeds has offices in Winslow and a research and trial farm in Albion. Its products include seeds, tools, equipment, and gardening accessories.