Employee stock ownership plans (ESOPs) are plans regulated by the Employee Retirement Income Security Act (ERISA) and designed to allow employees to invest in the stock of their employer. The shareholder participants/employees as well as the sponsoring company generally receive tax benefits through the use of the plan. And while they are generally touted as designed to promote employees’ interest and efforts in maximizing the value of the company for the benefit of both employer and employees, ESOPs are often used as a method of corporate finance by the sponsoring company. This webinar discusses the potential strategies involving, and benefits and consequences to, the sponsoring corporation and employees in implementation and use of an ESOP. It highlights these aspects of tax-qualified ESOPs used in the United States by comparisons to other forms of employee ownership in the U.S. and abroad. To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/esops-101-2021/

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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

3. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial, or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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5. Meet the Faculty
MODERATOR:
Chris Cahill - Sugar Felsenthal Grais & Helsinger LLP
PANELISTS:
Alan Kandel - Husch Blackwell Sanders LLP
Darren Gleeman - MBO Ventures
Jennifer Krieger - Weaver
Carter Smith - ButcherJoseph & Co.
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6. About This Webinar
ESOPs-101
Employee stock ownership plans (ESOPs) are plans regulated by the Employee Retirement
Income Security Act (ERISA) and designed to allow employees to invest in the stock of their
employer. The shareholder participants/employees as well as the sponsoring company
generally receive tax benefits through the use of the plan. And while they are generally touted
as designed to promote employees’ interest and efforts in maximizing the value of the
company for the benefit of both employer and employees, ESOPs are often used as a method
of corporate finance by the sponsoring company.
This webinar discusses the potential strategies involving, and benefits and consequences to,
the sponsoring corporation and employees in implementation and use of an ESOP. It
highlights these aspects of tax-qualified ESOPs used in the United States by comparisons to
other forms of employee ownership in the U.S. and abroad.
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7. About This Series
Cross-Training for Business Lawyers
Looking to strengthen and condition your cross-disciplinary skills? Develop your flexibility by
increasing your familiarity with issues affecting a vast array of businesses? This series delves
into cutting edge issues in dynamic fields to help the audience understand (i) the role of local
land-use and zoning laws in property use and development; (ii) the reliance on credit
insurance by businesses to protect against non-payment of commercial debt, (iii) the use,
types and perceived benefits of employee stock ownership plans, and (iv) the complex maze
employers and employees must navigate in the quest for immigrant or non-immigrant visa
status for workers. These issues may present themselves in any number of contexts,
regardless of how you spend most of your working hours.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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8. Episodes in this Series
#1: ESOPs-101
Premiere date: 4/8/21
#2: Immigration Law-101
Premiere date: 5/6/21
#3: Zoning & Land Use-101
Premiere date: 6/3/21
#4: Credit Insurance-101
Premiere date: 7/8/21
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9. Episode #1
ESOPs-101
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10. Understand Why You are Selling: Does Selling to
Employees Make Sense?
• Liquidity / succession planning for owner
• Growth and expansion / raising capital
• Attract & retain good employees / enhance performance
• Shared entrepreneurship
• Tax benefits
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11. Employee Interests: Can Your Employees Buy the
Company?
• How many employees do you have?
• Are they capable of running the company?
• Can they raise the necessary capital?
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12. Pros of Selling to Employees
• Reduced confidentiality concerns
• Employees understand business and industry
• Reduced need for comprehensive due diligence
• Continuity with customers and vendors
• Satisfaction of succession
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13. Additional Considerations for Employee Ownership
• Governance / control issues
• Valuation issues
• Post-transaction succession planning / funding of buy-out of employee-owners
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14. Methods of Selling Company to Employees
• “Installment Sale”
• Leveraged management buyout
• Use of employee stock ownership plan
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15. “Installment Sale” Mechanics
• Parties (current owner and participant employees) agree on value of the business
• One or more employees agree to buy some/all of equity from current owners
• Little/no money paid at closing
 Current owner receives a promissory note from new owner / “Earn Out” based on
future performance of the business
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16. Pros and Cons of “Installment Sale”
• Pros
 Rewards/motivates key employees with direct ownership
 Business can be acquired with little/no money down and paid through cash flow from
business
• Cons
 Owner may not get full “strategic” value for the business
 Owner gets little/no money up front and assumes risk with no control over business
post-closing
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17. Leveraged Management Buy-Out
• Parties (current owner and participating employees) agree on value for the business
• New employees obtain capital from a third party lender to acquire equity from current
owner
• Former owner receives cash from 3rd party financing source and equity transfers from
former employees and source of financing (maybe)
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18. Pros and Cons of Leveraged Management Buy-Out
• Pros
 Rewards/motivates employees with direct ownership in company
 Provides former owner with up-front payments
 Company obtains additional capital/management expertise from outside financing
source
• Cons
 Owner may not get full “strategic” value for sale of business
 Requires outside financing which may be hard to attract
 New employee owners may need to share equity ownership and control over
business with new financial partner
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19. What is an ESOP?
• Stands for Employee Stock Ownership Plan
• A qualified “defined contribution” retirement plan sponsored by the company
• Similar to a 401(k) plan, but has several key differences:
 Must be invested primarily in the stock of the sponsor
 Employees generally do not invest their own money in the plan (with certain
exceptions depending on transaction structure)
 Unlike other qualified plans, an ESOP can borrow money to purchase the stock to be
held for funding the employee’s retirement benefits
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20. Typical Structure of an ESOP Transaction
• ESOPs are used to facilitate the transition of ownership of a company in the following
manner:
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21. Mechanics of an ESOP Transaction
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22. How ESOPs Work
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23. How ESOPs Work
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24. Benefits of an ESOP Transaction
• An ESOP allows employees to share in the growth of the company and still maintain
existing corporate culture/management structure
• An ESOP can provide tax benefits to the shareholders who sell stock to an ESOP
• An ESOP can provide tax savings and cash flow benefits to the Company/Plan Sponsor
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25. Benefits to Employees
• “Current management and operational structure of the company can be maintained
• Obtain benefits as an owner of the company stock without any personal investment
required
• ESOP benefits are an additional source of retirement
 Most ESOP companies use ESOPs to supplement existing compensation/retirement
plans (e.g., 401(k)’s)
• Stock in an ESOP is not a passive investment
 High performance by workers contributes to achievement company goals, and raises
value of ESOP-owned stock
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26. Tax Benefits to a Selling Shareholder (IRC Section
1042)
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27. Requirements of a 1042 Transaction
• Seller must have held stock for at least three years prior to the sale to the ESOP
• 30% ESOP ownership post-transaction
• Reinvestment of proceeds in “Qualified Replacement Property”
• ESOP must hold securities for three years after transaction
• Prohibited allocation rules
• Available only if Company is a C Corporation

28. Tax Benefits to ESOP Companies
• An ESOP can provide tax savings and cash flow benefits to the company / plan sponsor
 Repayment of ESOP debt with pre-tax dollars
 Potential to eliminate corporate income taxes (S corporation ESOPs)

29. Benefits of Repayment of Debt Using an ESOP

30. Benefits of an S Corporation ESOP
• Having an ESOP as a shareholder of an “S” corporation has significant tax consequences
 Since an ESOP is a “tax-exempt” shareholder, no tax is payable on ESOPs share of
taxable income

31. S Corporation ESOP Cash Flow Analysis

32. Cons of an ESOP
• Owner will not be able to recognize a “strategic” premium on sale of the business
• Ongoing costs to maintain and ESOP
• Post-transaction repurchase obligations
• ERISA fiduciary responsibilities

33. Alternatives to Selling to Employees
• Gifting equity or paying bonus compensation with equity interests
• Granting restricted stock or stock options
• Granting “Synthetic Equity” (phantom stock, stock appreciation rights, etc.)

34. About the Faculty
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35. About The Faculty
Chris Cahill - CCahill@sfgh.com
Mr. Cahill is partner at Sugar Felsenthal Grais & Helsinger LLP, in Chicago, Illinois. He guides
secured lenders, creditors, debtors, creditors’ committees, potential purchasers and others
through bankruptcy cases, out-of-court workouts, assignments for the benefit of creditors, and
receiverships. Mr. Cahill has substantial mega-case experience representing very large
debtors, and counsels and litigates on behalf of manufacturers and secured lenders in large
and middle-market cases. Mr. Cahill also publishes frequently and speaks regularly on
commercial insolvency issues. For example, he is an executive editor of Commercial
Bankruptcy Litigation, 2d Edition (Jonathan P. Friedland, Elizabeth Vandesteeg & Christopher
M. Cahill eds., 2020).
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36. About The Faculty
Alan Kandel - Alan.Kandel@huschblackwell.com
Alan counsels a wide variety of clients – publicly traded, privately held, tax-exempt and
governmental – as they navigate the highly regulated space of Employee Benefits and Executive
Compensation. He works closely with clients to design and draft durable and strategic benefit plans
that meet compliance benchmarks while aligning with business goals, including: employee stock
ownership plans (ESOPs), 401(k) and other qualified retirement plans, Internal Revenue Code
section 409A and other laws regulating nonqualified deferred compensation plans for executives,
equity and phantom equity plans for public and privately held companies, and welfare and fringe
benefit plans. Alan also advises buyers and sellers on employee benefit and executive
compensation issues in corporate transactions. When clients face unanticipated examinations or
rulings, he defends their interests before the Internal Revenue Service (IRS), Department of Labor
(DOL) and Pension Benefit Guaranty Corp (PBGC). Clients appreciate Alan’s collaboration with
labor lawyers and investment advisors across the nation thanks to the firm’s coast-to-coast
footprint.
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37. About The Faculty
Darren Gleeman - dgleeman@mboventures.com
Darren Gleeman is a financial expert. He was the founder of e-Coupons, Managing Partner of
both GMD Trading, and GB Trading. He’s highly sought after for his ESOP knowledge and
financial acumen, as well as being a prolific angel investor with early investments in
companies such as Screaming Media (NASDAQ:SCRM), Blackboard (NASDAQ:BBBB),
Social Radar and his latest investments in ClassEdu and Accelerant Manufacturing. Darren
understands finance. Beginning at Wharton, he understood the value of hard work,
quantitative modeling and the scientific method. From there, he founded a firm that took the
human element out of trading. He transitioned the company into one of the first high
frequency trading platforms in the world, trading in excess of 1/2% of the entire US Market
every day. Today, Darren is the managing partner of MBO Ventures
(www.mboventures.com). The firm provides ESOP Expertise & will invest it’s capital
alongside company owners. MBO implements exit strategies, whether it's for family
succession, a management buy-out, or a 100% sale to employees.
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38. About The Faculty
Jennifer Krieger - jennifer.krieger@weaver.com
For almost a decade, Jennifer Krieger, CVA, has provided financial reporting, analysis and
valuation for clients in a wide range of industries. She is a Certified Valuation Analyst (CVA)
with experience valuing businesses for employee stock ownership plans (ESOPs), financial
reporting compliance, tax compliance, mergers and acquisitions including fairness opinions,
entity dissolution, and litigation. Jennifer earned both master’s and bachelor’s degrees in
finance from St. Thomas University in Houston, Texas. She is a member of the National
Association of Certified Valuators and Analysts, the National Employee Ownership Center,
the ESOP Association and the Association for Corporate Growth.
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39. About The Faculty
Carter Smith - carter.smith@butcherjoseph.com
Carter Smith is a Vice President with ButcherJoseph & Co.’s investment banking team. He
has been involved in a variety of transactions including mergers and acquisitions, valuation
advisory, and leveraged recapitalizations. His investment banking experience includes
engagements for a broad range of industries including healthcare, insurance, and
homebuilding. Before joining the firm, Carter helped launch and raise capital for Arch Grants,
a 501(c)(3) initiative that awards capital grants to successful start-up businesses located in
the St. Louis area. After completing secondary education at Eton College in Berkshire,
England, Carter earned a Bachelor of Arts in biology from Princeton University. He also holds
a Master of Business Administration degree in entrepreneurship and marketing from
Washington University’s Olin School of Business.
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40. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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41. About Financial Poise
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