The Successful Transition
of a Closely Held Company
to a Proud ESOP
Harvey Hurvitz & His ESOP Team Share Their Story
Presented by:
Harvey Hurvitz, Cape Cod Lumber
Jeannine Pendergast, Spinnaker Trust
Mary (Stonebraker) McCooe, Maselan & Jones, P.C
Patrice Radogna, Valuation Research Corporation
AGENDA
• Introductions
• Full array of professionals
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Trustee side
Company side
Sell side
Ongoing
• Establishing the right team (with ESOP expertise)
• How professionals engage and assist after the transaction is done
Throughout the discussion you will hear:
• Harvey’s story – and what being an ESOP company means to him
• Harvey’s experience and nuggets of information regarding
selecting a team of advisors
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PRESENTERS
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Harvey Hurvitz – President of Cape Cod Lumber. Harvey’s
“partial” exit decision was to form an ESOP.
Jeannine Pendergast – Trustee at Spinnaker Trust. Jeannine is a
CPA and was an internal Trustee for a large ESOP prior to joining
the Spinnaker team in 2015.
Mary (Stonebraker) McCooe – Attorney at Maselan & Jones.
Mary is a corporate and ERISA attorney who counsels clients
regarding ESOP transaction, compliance, and fiduciary matters.
Patrice Radogna – Patrice has been appraising private
businesses for nearly 20 years. Patrice leads VRC’s national
ESOP practice and she holds the designations of CPA, ASA and
ABAR.
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POTENTIAL ESOP TEAM MEMBERS – OVERVIEW
ESSENTIAL ESOP TEAM MEMBERS – TRUSTEE SIDE
ESSENTIAL ESOP TEAM MEMBERS – COMPANY SIDE
Other potential members
• Financial advisor
• Existing attorney(s)
• Accountant
• CFO
• Board of Directors
• Key employees
ESSENTIAL ESOP TEAM MEMBERS – SELL SIDE
Other potential members
• Attorney
• Financial advisor
• Accountant / tax
advisor
• Wealth manager
• Spouse
DECISION HAS BEEN MADE TO FORM AN ESOP
PROGRESSING TO ESTABLISH TEAM OF PROFESSIONALS
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Seller decides that ESOP is the right succession tool
Properly vet all advisors – be sure to ask a lot of questions
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How many ESOP deals have you closed in the past 24 months?
Are you an active member of The ESOP Association?
Have you been a party to any legal proceedings regarding your ESOP deals?
Valuation firm to be used as on-going advisor to the Trustee must be
independent of the Company – think before you obtain a valuation!
Quarterback – Helps ensure proper advisors are in place and all
members remain informed and meet deadlines to close the deal
Education – Discuss how the GreatBanc case has illuminated the need
for seasoned professionals and for a high level of due diligence – be
protected in the event of a DOL Audit
PROFESSIONALS – ONCE ESOP ESTABLISHED
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ESOP Trustee - An ESOP Trustee serves as the legal shareholder of the shares
held by the ESOP trust and has many responsibilities, including:
• Voting ESOP shares to select Board of Directors
• Managing Assets of the ESOP Trust
• Establishing the annual ESOP stock price
• Following plan documents
• Satisfying ERISA fiduciary responsibilities
ESOP Committee
• Plan documents typically specify if there needs to be an ESOP Committee in
place (not legally required)
• Appointed by the Board of Directors
• Delegated the responsibility to oversee day-to-day operations of the plan
• Often the Committee is comprised of members of management
PROFESSIONALS – ONCE ESOP ESTABLISHED
(cont’d)
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Appraiser
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ESOP Attorney
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Updates appraisal once per year and provides advice to the Trustee. The
decision to accept the fair market value resides with the Trustee (the appraiser
serves as their financial consultant).
Advises boards of directors, tax matters, regulatory and compliance issues with
IRS and DOL and handle any ESOP litigation and governmental investigations.
Third Party Administrator
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Handles all recordkeeping and reporting requirements, including Internal
Revenue Code compliance testing, preparation of tax forms, ESOP distribution
compliance as well as employee communication services .
HARVEY’S STORY
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Harvey came to work at his parent’s business, Cape Cod Lumber (CCL) in
Abington, MA, upon his graduation from high school in 1972.
Five years later, Harvey became partners with his father and ultimately purchased
the balance of the company in 1985.
In 2014, despite other exit options, Harvey decided to sell a portion of his stock and
form an ESOP to perpetuate the company with employee ownership.
Harvey worked with his team of advisors and as of December 1, 2015, CCL is 40%
ESOP owned.
As the seller-financed loan is paid down, shares will be fully allocated to the
employees. The long term plan is to become 100% ESOP owned.
Harvey’s main role in the company is to provide opportunities to all employees and
build shareholder value.
He has initiated some interesting compensation plans and personally funds certain
college scholarships. Harvey is very passionate about his business and employees.
WHAT DOES “READY, SET…ESOP” REALLY MEAN?
HOW DID HARVEY GET THERE?
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Harvey contemplated various exit options
Harvey determined that an ESOP was best for his Company
Harvey assembled a team of advisors. Some items that the professionals provided
guidance on (since inception), included:
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ESOP Plan design
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The interest he would sell to the ESOP (he was originally going to sell a very small
interest)
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The decision to use leverage – ability to realize the tax benefits related to debt
repayments, as well as to preserve the Company’s cash position
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Discussion with Trustee on prepaying the loan and relevant ramifications
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Plan Amendment – Trust needed to be amended and relied on his attorney
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Successful DOL Audit! Harvey’s new ESOP was audited by the DOL (as is
commonplace with new ESOPs) and it now 95% complete. The professionals and
the processes in place seemed to make the difference in not having any issues
regarding his audit.
What would Harvey recommend for you, as you
contemplate if an ESOP is the right solution for you and
your company?
Questions for Harvey, or his team??
Thank you for attending the New England Chapter Spring
ESOP Conference
The NE Chapter administration has kindly asked that you complete
the presentation evaluation. Thank you!
CONTACT INFORMATION
• Harvey Hurvitz; Cape Cod Lumber
[email protected]
• Jeannine Pendergast; Spinnaker Trust
[email protected]
• Mary (Stonebraker) McCooe; Maselan & Jones
[email protected]
• Patrice Radogna; Valuation Research Corporation
[email protected]