ESOP Viability Assessment Information Package ESOP Advisors Group wants to provide you with a clear picture of what the implementation of an ESOP strategy will accomplish toward accomplishing the short and long-term goals of the company. ESOPs are extremely flexible in design and formation and it is this flexibility that creates an element of complexity to our assessment. Within 20 working days of receiving this completed package along with all the required documentation we will submit an ESOP Viability Assessment that discusses the following: 1. Background and Objectives of the Company 2. Preliminary Valuation of Company for ESOP Purposes 3. Analysis of Company Eligible Payroll 4. ESOP Debt Capacity of Company 5. ESOP Financing Potential 6. Tax Benefits to Shareholder(s) 7. Tax Benefits to Company for Sponsoring an ESOP Capital Strategies Group In addition to the Feasibility Questionnaire *, we need the following: 1. Overview of Company including information on Industry, Customers etc. 2. CPA Reviewed Year-End Financial Statements for last three years 3. Current Year-to-Date Financial Statement 4. Year-to-Date Financial Statement for same period last year. 5. Employee Census (MUST be completed on supplied excel spreadsheet and submitted by e-mail) Usually, we will need additional information to complete this assessment. Please let us know who filled in the questionnaire as well as whom we should contact to address any additional questions. *See Explanation of Required Information
Preliminary Assessment Information Request Tel: (650) 347-0276 Fax: (650) 347-6078 (1) Business Advisor Contact Information Name: Region: Branch: E-mail address: Phone Number: Fax Number: (2) Client Contact Information Name of Corporation: Street Address: City: State: Zip: Phone Number: ( ) Fax Number: ( ) (3) CEO: CFO: Name & Title of Contact: Name of Tax Advisor: (4) Capitalization Class of Stock Total Authorized Shares Total Outstanding Common Other Common Preferred (5) Ownership Please complete the information below on each class of stock (attach additional pages if necessary): Common Stock: Owner Shares % Of Co. Age Employee? Yes/No Years of Service
(6) Other Common Stock: Owner Shares % Of Co. Age Employee? Yes/No Years of Service (7) Preferred Stock: Owner Shares % Of Co. Age Employee? Yes/No Years of Service (8)Gross Payroll Non-Union: Union: TOTAL: Payroll Number of Employees Company Legal Status: C Corp S Corp Other If changed in the last 5 years please indicate (9) Does the company have subsidiaries or any brother/sister corporate relationships? Yes No If yes, please explain:
(10) Qualified Plan Information Type of Plan Employer Employee Current Assets Contribution Contribution Gross Revenue Operating Net Income Long Term Debt (11) Financial Data This Fiscal Year Last Fiscal Year (12) Estimated Fair Market Value of this business (FMV)? How was this derived? (13) What is the estimated growth in gross revenue over the next 3-5 years? (14) Please list potential successor management for the company with present position. 1. 2. 3. (15) Please list family members employed at the company. (16) Please prioritize the following list of objectives (1 = most important) Strategies to reduce corporate taxes Create voluntary deferral plans for a select group of employees Create supplemental retirement benefits for a select group of employees Cash out one or more shareholders immediately Cash out one or more shareholders in the next 3-5 years One or more shareholders want to diversify their personal holdings in the company Grow the company through merger or acquisition Infuse working capital into the company
Improve employee productivity through equity incentives for all employees without changing control of the company Sell the company to a select group of management Go public Go private Recruit, retain and reward productive employees Create a private market for company stock (17) Comments about objectives: (18) Initial Documents Requested 1. Three years of financial statements 2. One copy of this completed questionnaire 3. Employee Census (excel spreadsheet to be completed and sent by e-mail) (19) NOTE: Are there any adjustments that should be made to the financial statements that are not currently reflected in the statements; which might impact the stock value, or cash flow? NO YES If yes, please describe: (20) Please include anything else you feel might be helpful Please send the completed form by fax to: Home Office Address: ESOP Advisors Group, Inc. 477 Ninth Avenue, Suite 105 San Mateo, California 94402 Fax: (650) 347-6078
Explanation of Required Information It is desirable, if possible, that the business owner complete this form rather than the financial advisor. 1. Business Advisor Contact Information This is the referring party's information. This is important so that we can contact you regarding questions and get your help as needed throughout the process. 2. Client Contact Information This information is required so we can contact the client directly if we have a question. After preliminary assessment, if the case goes further, we will need to be in contact with the client. 3. CEO/CFO These are the people who are usually involved in the design of the ESOP. We need their names and titles, and will need to contact them throughout the process. 4. Capitalization How much total stock is there and how much is issued? Do they have more than one class of stock? This can have an impact, as the ESOP must own the best class of stock for the selling owner to take advantage of Section 1042. 5. Ownership We need to know everyone who owns the stock. This may influence control and other issues. If any other stockholder owns 25% or more and the selling stockholder elects 1042, then the other 25% stockholders cannot qualify for ESOP allocations, even if they remain with the company. 6. Other Common Stock Non-employee stockholders 7. Preferred Stock List if they have any 8. Gross Payroll This is CRUCIAL! It determines how much money is available to repay the ESOP loan. TOTAL W-2 income by employee. This includes salary, wages, bonuses, commissions, etc. for a full 12 months (a year end payroll computer run is usually easy for the company to get). We need to know which employees, if any, are union
employees. They can be excluded from the ESOP and this may have benefits that could affect the cash flow. 9. Subsidiaries If the owner has other companies that he owns control in (more than 50.1%), we can have a control group issue and have to include those other companies in the ESOP. VERY IMPORTANT! 10. Qualified Plan Information What do they have now? 401(k), profit sharing, etc. This will affect the amount that can be contributed to the ESOP and affect the cash flow. 11. Financial Data This is needed to do an accurate analysis as to whether the company can qualify for an ESOP. 12. Estimated Fair Market Value We need to know what the owner thinks the business is worth, and why he thinks that. Has he done a buy/sell valuation or perhaps an estate planning valuation all VERY different from an ESOP valuation? 13. What is the Estimated Growth? Is this a growing business or does the owner/cfo think it is a mature business? This will affect the valuation. 14. Potential Successor Management Who can take over for the owner/ceo? Without successor management it is difficult to do an ESOP. 15. List Family Members (direct descendants) We have to take these people out of the employee salary census data. 16. Prioritize Objectives Take your time don t rush this part. Be SURE they select all that interest them. Then get the top 2, 3 or 4 numbered. This could be the most important part of the analysis and dramatically affect the ESOP plan design. 17. Comments About Objectives These are your comments elaborating on the discussion you ve had with the owner(s). Fill us in here. Sometimes the in-between-the-lines stuff is the MOST important data.
18. Initial Documents Requested We MUST have these three things to go to the next step. The financial statements are whatever they have in the business, balance sheets and income statement. They do not need to be audited statements. 19. NOTE Will there be substantial add backs for things he/she is taking out of the business? Does the business have real estate or lots of good new equipment, etc.? 20. Personal Comments Please add anything that was not previously asked for on this assessment for that you feel will be pertinent to this case.