Company specializing in several major lines of exhaust products, ranging from mufflers, glass pack mufflers, exhaust hardware, components, catalytic converters, performance mufflers, cat back systems, all made in the USA
Leader in the performance truck market, offering: bed covers, step rails, grill guards, tool boxes, and performance electronics
S Corporation with approximately 186employees
Company value $7,200,000
10 shareholders
Goal
Several shareholders close to retirement looking for an immediate exit strategy
Insufficient cash flow using after tax dollars to fund a shareholder redemption
Transition to next generation of management
Interested in retaining & motivating existing employees while having a tool to attract new employees
Reduce corporate taxes
Solution
Establish an ESOP
All shareholders will sell 100% of their stock to the ESOP
In exchange for selling their stock sellers will receive seller notes and Warrants
Accumulated Adjustment Account balances will be used as basis against the stock sale, minimizing the capital gains tax for sellers
Benefit to Client
Shareholders all received seller notes totaling $7,200,000
10 year payouts
4.5% interest rate life of loan interest= approx. $1,800,000
Shareholders received Warrants to divide between seller note holders for taking subordinated note positions
At the end of the seller note period the projected value of Warrants is estimated to be $8,000,000
As a 100% S Corp ESOP owned company, 98.5% of future profit will not be taxed from that point forward (CArequires 1.5% S Corp excise tax)
Over the next 15 years the corporate tax savings are estimated to be over$24,000,000 – more than 3x the current value of the Company
Through government tax savings alone able to buy 100% of the Company from the current shareholders, and then give the Company to the employees
New Stock Appreciation Rights Plan was simultaneously adopted for key employees
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