Strategies to Deal with ESOP Repurchase Obligation
Handling ESOP repurchase obligation is not easy. Appropriate planning is needed to make ESOP repurchase obligation a lot manageable whilst minimizing its impact on the firm’s stock value.
The Knowledge Group has assembled a panel of distinguished experts to help you navigate through the thorny process of ESOP Repurchase Obligation. Our speakers will offer strategic ways on how to handle ESOP repurchase obligation. In addition, they will also provide practical guidance in designing a plan to make the repurchase obligation convenient, projecting repurchase obligations and dealing with legal issues. The program will cover the topics above along with a Q&A panel in which the attendees will be invited to ask the speakers questions.
Tim Jochim, Director,
Kegler, Brown, Hill & Ritter Co, LPA
- Importance of Repurchase Obligation.
- Effective management of repurchase obligation will determine whether or not the ESOP business model is short-term or perpetual.
- April, 2007, survey by NCEO on ESOP terminations indicated repurchase obligation was a major factor for 67% of companies and sale of company was a major factor for 45% of companies.
- Legal Basis of Repurchase Obligation.
- The legal obligation of corporation under ERISA and the Code to maintain a market for any of its securities held by any qualified plan sponsored by the corporation.
- Prudence and exclusive purpose requirements of ERISA section 404(a)(1), the “adequate consideration” requirement of ERISA section 408(e).
- Code section 4975(e)(2) fair market value requirement, the 409(h) “fair valuation formula “requirement, and the 401(a)(28)(C) independent appraiser requirement.
- Financial Basis of Repurchase Obligation.
- Lagging drag effect upon company cash flow (phrase initiated by David Light).
- Market clearing concept relating company value to repurchase obligation.
- Recycle strategy: proportionate reduction to company value and value per share with offset by tax shield.
- Redemption strategy: significant reduction to company value (no tax shield offset) with no change to value per share.
- Valuation adjustments include discount for lack of marketability (“DLOM”), discount for lack of liquidity (“DLOL”) and net cash flow adjustment in CCF or DCF.
- Distribution Tools for Managing Repurchase Obligation.
- Five year delay for distribution commencement for terminations other than Big 3 (death, disability and retirement).
- Statutory diversification election out of stock account: 25% at age 55 with 10 years of participation and 50% in year 6).
- Early conversion into cash for stock accounts not held by employees (aka, reshuffling).
- Substantially equal annual installments not to exceed five years (can be longer to extent annual installments exceed $200,000).
- Insolvency limitations under applicable state corporation law.
Gregory K. Brown, Partner,
Katten Muchin Rosenman LLP
** Speaker Talking Points to be added soon.. **
Daniel P. Callanan, Director,
Western Reserve Valuation Services
** Speaker Talking Points to be added soon.. **
Stephen A. Martin, SVP, Manager, ERISA Special Fiduciary Services & Fiduciary Administration,
** Speaker Talking Points to be added soon.. **
Who Should Attend:
- Financial Officers
- Employee Benefits and Executive Compensation Practicing Lawyers
- Compensation and Benefits Consultants
- Stock Plan Consultants
- HR Executives
- Benefits Managers
Tim Jochim, Chair of the Business Succession/ESOP Group at Kegler Brown Hill & Ritter, Columbus, Ohio, is a national authority on employee stock ownership plans (ESOPs) and business succession. Other practice areas include corporate finance, merger/acquisition, corporate tax and employee benefits.
Mr. Jochim is a former adjunct professor of corporate finance at the Capital University School of Law, former counsel to Walter & Haverfield, LLP, Cleveland, former General Counsel of Ironton Iron, Inc., former Manager of Industrial Development for the Ohio Department of Development, and former adjunct professor of business policy at the Ohio State University.
Mr. Jochim is a trusted business advisor to corporate boards and executive officers. He has assisted clients in developing and implementing professional boards of directors and has lectured frequently to business and trade organizations on business succession and corporate governance.
Mr. Jochim is the author of Employee Stock Ownership and Related Plans, published by Greenwood Press in 1982. His articles on business transactions, corporate finance and ESOPs have been published in The Academy of Management Review (July, 1979); Personnel (November – December, 1978); Public Utilities Fortnightly (January 21, 1982), Ohio Business (October, 1988), The Journal of Employee Ownership Law and Finance (Fall, 1998), Taxation for Lawyers (September-October, 1998) and Financier Worldwide (February, 2011).
Tim Jochim is co-founder of the Ohio Chapter of The ESOP Association and a member of the legislative and regulatory committee of The ESOP Association. He has been active in the Columbus Bar Association, the Ohio State Bar Association and the American Bar Association. He is a member of various professional organizations including the Association for Corporate Growth and the National Center for Employee Ownership. He has been recognized in Marquis Who’s Who in the Midwest and in Benton’s Who’s Who and was named professional member of the year at the 25th Annual Conference of The ESOP Association in May, 2002.
Tim Jochim, Chair of the Business Succession/ESOP Group at Kegler Brown Hill & Ritter, Columbus, Ohio, is a national authority …
Katten Muchin Rosenman LLP, Partner, Chicago, Illinois. Mr. Brown has 36 years of experience in Employee Benefits and Executive Compensation, including extensive work with ESOPs and ERISA; he has authored and co-authored numerous articles; is a frequent speaker on ESOPs and all areas of employee benefits and executive compensation; and has represented clients as an expert witness on behalf of client(s)’ ESOP/Employee Benefits Plans both regionally and nationally.
J.D., University of Illinois (1976); B.S., University of Kentucky (1973).
Katten Muchin Rosenman LLP, Partner, Chicago, Illinois. Mr. Brown has 36 years of experience in Employee Benefits and Executive Compensation, …
Mr. Callanan is a seasoned valuation professional, having advised privately held and publicly traded companies on valuation and other financial matters for nearly 20 years.
Upon graduating from DePauw University, he joined Arthur Andersen and Company in their Litigation Support and Specialty Consulting groups, primarily performing intangible asset valuations. Mr. Callanan was then recruited by Willamette Management Associates in their Chicago office. At Willamette, he performed numerous valuation assignments for domestic and international clients. After earning his MBA at The University of Chicago, JP Morgan/Chase (formerly Bank One) relocated Mr. Callanan to Columbus, OH to oversee the valuation for hundreds of trust accounts that owned minority and controlling interests in privately held companies. Mr. Callanan then spent nearly 14 years running a full-service, local office for ComStock Advisors, headquartered in Newport, KY.
For more than 15 years, he has been an Accredited Senior Appraiser in Business Valuation granted by The American Society of Appraisers (“ASA”). Mr. Callanan has been a member of the Columbus Estate Planning Council and is currently a member of the Employee Stock Ownership Association. He has lectured on valuation topics for the ASA, led seminars at banks, law firms and accounting practices, served as a guest lecturer at Capital University Law School and taught executive education for the Fisher College of Business at The Ohio State University.
Mr. Callanan is a seasoned valuation professional, having advised privately held and publicly traded companies on valuation and other financial …
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About Kegler, Brown, Hill & Ritter Co, LPA
Kegler, Brown, Hill & Ritter is a full-service corporate law firm based in Columbus, Ohio. With a renowned practice in Business Succession and ESOPs, the firm has developed a reputation for representing private companies and their owners in all aspects of succession planning. Business succession at Kegler Brown is a comprehensive, dynamic and integrated system of business solutions that includes management succession, executive compensation, merger/acquisition, ownership transfers, tax reduction and estate planning.
About Katten Muchin Rosenman LLP
Katten Muchin Rosenman LLP offers an extensive range of legal services across numerous industries, our core areas of practice are corporate, financial services, bankruptcy and creditors’ rights, litigation, real estate, commercial finance, intellectual property and trusts and estates. The firm has a uniquely flexible and entrepreneurial culture that fosters partnerships with our clients. Knowing the law is not enough. We understand our clients’ business objectives and address their legal needs in a manner that is consistent with the big picture. We have earned a reputation for being trusted business advisors, and we demonstrate our value every day in the successful results we achieve.
About Western Reserve Valuation Services
Western Reserve Valuation Services LLC, based in Columbus, Ohio, is a leading provider of valuation services and financial opinions relating to corporate finance transactions, corporate tax planning and compliance, succession planning and wealth preservation, employee stock ownership plans (“ESOPs”), financial reporting and portfolio / fund valuations. Western Reserve Valuation Services is an affiliate of Western Reserve Partners LLC, a FINRA-member investment banking firm offering financial advisory services relating to mergers and acquisitions, capital raising and financial restructuring.