Historical Perspective

(1)

ESOP

Cash

Management,

ESOP

Cash

Management,

g

,

Secret

Innovations

in

Secret

Innovations

in

Repurchase

Obligations

Repurchase

Obligations

1

Repurchase

Obligation

Repurchase

Obligation

i

t

h fl

d

i

t

h fl

d

impacts

on

cash

flow

and

impacts

on

cash

flow

and

the

attributable

valuation

the

attributable

valuation

discount

Scott

Miller,

Enterprise

Services,

Inc.

Scott

Miller,

Enterprise

Services,

Inc.

2



Prior

to

1998:

ESOPs

“C”

Corp



Most

ESOPs

minority

position



IRC

Sect.

1042

Rollover



F

if

100% ESOP

Historical

Perspective



Few

if

any

100%

ESOPs



Repurchase

obligation

immaterial



Employee

owned

company

not

the

end

destination

(2)



ESOPs

in

“S”

Corporations



EGTRRA

(2001)

breakout

period



Discover

that

100%

S

ESOP

is

free

of

i

t

bli ti

i

t

bli ti

ESOP

Renaissance

in

1998

income

tax

obligations

income

tax

obligations



Estimated

80

80 ‐‐

90%

ESOPs

are

“S”



Most

ESOP

“S”

Corps

are

100%

(or

migrating

toward

100%)

migrating

toward

100%)

4



Repurchase

obligation

(RO)

issues



RO

now

material

for

most

ESOPs



ESOPs

should

have

RO

study



Ab

t RO t d FMV

ld b i

t d

Many

ESOPs

control

position



Absent

RO

study,

FMV

could

be

impacted

by

lack

of

planning

by

lack

of

planning



Many

ESOPs

have

excess

liquidity



Volatile

economy

(since

2008)



Ignoring

RO

could

negatively

impact

BV

5

Funding

repurchase

Funding

repurchase

obligations

through

obligations

through

traditional

investments

traditional

investments

6

(3)

1. 1. Use

Use

cash

flow

to

handle

liability

2. 2. Use

Use

leverage

to

handle

liability

3. 3. Rare

Rare

instances

money

would

be

put

away,

sinking

fund, to handle liability

Historical

ESOP

RO

Liability

Solution

fund,

to

handle

liability

fund,

to

handle

liability

4. 4. Rarely

Rarely

was

an

Investment

policy

Statement

created

or

used

7

1. 1. Use

Use

of

a

Repurchase

Liability

study

is

common

2. 2. Creation

Creation

and

use

of

an

Investment

Policy

Statement

is

common

is

common

3. 3. We

We commonly see a mixture of different strategies

commonly see a mixture of different strategies

Common

ESOP

Repurchase

Liability

Solutions

3. 3. We

We

commonly

see

a

mixture

of

different

strategies

to

address

the

repurchase

Liability

issue

i.e.

a)

a) Life

Life

Insurance

b)

b) CD’s

CD’s

and

different

Fixed

Income

Investments

c)

c) Equities

Equities

(i.e

(i.e.

.

ETF’s,

Structured

Products

or

Ind.

Equities)

4. 4. The

The

Repurchase

issue

is

part

of

regular

meetings

now.

(i.e

now.

(i.e.

.

Quarterly

Board

meetings)

8

Recently

approved

application for managing

application

for

managing

and

monitoring

cash

flows

for

repurchase

obligations

(4)

New

Investment

Application

for

ESOPs



Preserve

purchasing

power

(inflation)



Align

other

investment

account

to

mirror

economic

performance

of

public

companies



Prudent

behavior

to

match

investments

with

repurchase

obligations



Market

based

investment

with

FDIC

principle

protection

10

Suggested

Key

Features

of

Market

Linked

Deposits

(MLD)



FDIC

Principle

Protection



Link

returns

to

a

market

index

o

S&P

500,

Dow,

etc…



i

l

l l i



Simple

return

calculation

o

Point

to

point

return

X

Participation

%



Fee

Transparency



Pre

‐

approved

liquidity

options

11

FDIC

Issued

Favorable

Ruling

– Sep

13,

2013

FDIC

Ruling

Summary:

Each

ESOP

Plan

Participant’s

FDIC

Insurance

Coverage

passes through to the

passes

through

to

the

ESOP

Trust.

Calculation

Example:

Largest

owner

%

=

10%

$250,000

/

10%

=

$2,500,000

of

available

FDIC

Coverage

per

FDIC

(5)

$166K $156K 56% Gain $150 $175 )

$100,000

invested

at

85%

Participation

(12/31/03

to

12/31/13)

S&P 500 (w/o div) Projected Investment

10 Year

S&P

500 MLD

@

85%

Participation

Example

1

$50 $75 $100 $125 $100k In ve st m e n t (T housand s) Maturity Value

FDIC

Insurance

(floor)

13

S&P500 (without dividends) performance data from Bloomberg. Market Linked Deposit data is hypothetical performance data. Please see Disclosures at the end of this presentation.

$100K 0% Loss $100 $125 s)

$100,000

invested

at

85%

Participation

(2/28/1999

to

2/28/2009)

10 Year

S&P

500 MLD

@

85%

Participation

Example

2 FDIC

Insurance

(floor)

$59K – Not Applicable $‐ $25 $50 $75 $100k In ve st m e n t (T housand s

S&P 500 (w/o div) Projected Investment

Maturity Value

14

S&P500 (without dividends) performance data from Bloomberg. Market Linked Deposit data is hypothetical performance data. Please see Disclosures at the end of this presentation.

Archford

FDIC

Coverage

Calculator

– Provisional

Patent

Go

to

www.fdiccalc.com

for

more

information

(6)

Disclosures

Archford Capital Strategies ("Archford") is a registered investment advisor. Information contained in this report is for informational purposes only and should not be considered investment advice or recommendations. Advice may only be provided after entering into an advisory agreement with Archford. This document is for informational purposes only. The information and data presented herein has been prepared on the basis of the publicly available information, internally developed data or other third party sources. No guarantee is given as to the accuracy, completeness, or reasonableness of the contents

t i d h i

16

contained herein.

Investing involves risk, including the possible loss of all principal and returns thereon. The investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. There is no guarantee that investment objectives will be met.

This material contains hypothetical performance data. Hypothetical performance results have many inherent limitations. No representation is being made that any account will achieve profits or losses similar to those shown. In fact, there are frequently material differences between hypothetical performance results and the actual results subsequently achieved by any particular portfolio strategy.

Speaker

Information

Speaker

p

Information

17

James

D. Maher

CEPA®,

CRPC®,

CRPS®

Archford Capital Strategies

Chief Executive Office and Founder

In addition to focusing on wealth management, estate planning, concentrated stock strategies and investment management at Archford Capital Strategies, Jim focuses on the needs of closely‐held business owners. He has worked to create a network of professionals to assist business owners with a range of solutions to business continuation – from ESOPs to buyouts and sales. A Certified Exit Plan Advisor (CEPA), he works with outsourced – as well as the group’s own – attorneys, CPA's, business valuation specialists and marketing/employee education companies establishing resources

f b i i t iti Th t h l d t b i d t l di Fi i l

18 for business owners in transition. The team has evolved to be industry‐leading Financial Consultants.

Jim is an award‐winning, nationally‐recognized authority in estate planning, business transition and philanthropy for closely held businesses, and a sought after trainer and presenter on a range of topics. He holds a BS and JD from the University of Missouri‐ Columbia. He is a member of the Missouri Bar, The Exit Planning Institute, The National Center for Employee Ownership and the St. Louis Estate Planning Council. Jim holds the designations of Chartered Retirement Planning CounselorSM(CRPC®), Certified Exit Plan Advisor (CEPA) and Chartered Retirement Planning Specialist (CRPS).

Contact Information:

Phone: (618) 416‐7081 or (855) 293‐5125 (toll free) Email: [email protected]

(7)

Scott

Miller

CPA/ABV,

CVA

Enterprise Services, Inc.

President

As an entrepreneur himself, Scott understands closely held and family‐owned businesses. He balances that perspective with years of corporate experience, starting his career at a national public accounting firm, going on to serve as a VP of Finance and plan fiduciary for a large ESOP company. He then served as a principal in several family businesses, and founded ESI in 1993. At ESI, he’s helped hundreds of businesses through transition planning, including valuations,

t t i l i fi i f i i i t i ti d liti ti t

19 strategic planning, financing, fairness opinions, terminations and litigation support. As a nationally recognized authority on business valuations, he’s published widely in professional journals and is a sought‐after speaker for professional and industry groups. He’s authored technical seminars for the American Institute of Certified Public Accountants and the National Association of Certified Valuation Analysts. Scott has an undergraduate degree from Kenyon College and an MBA from the Cornell University Johnson Graduate School of Management. He is a CPA with additional business valuation accreditation from the AICPA and NACVA.

Contact Information:

Phone: (262) 646‐6490 Email: esi@esi‐enterprise.com