BACKGROUND

• 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

GOALS

• 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