ESOP Succession and Liquidity Strategies for Business Owners For financial professional use only. Not for distribution to the public.

The subject matter in this communication is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Co. Plan administrative services offered by Principal Life. Securities offered through Princor Financial Services Corp., 800/ , Member SIPC and/or independent broker/dealers. Principal National, Principal Life, and Princor® are members of the Principal Financial Group®, Des Moines, IA No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage and retrieval system, without prior written permission from the Principal Financial Group ®. For producer information only. Not for use in sales situations. Copyright ©2011 Principal Financial Services, Inc. BB | 12/2015 | t to For financial professional use only. Not for distribution to the public.

The Principal Financial Group ® Managing over $28.3 billion in Employee Stock Ownership Plan (ESOP) and employer security assets. Employing over 4,000 professionals dedicated to our retirement plan services Provider of over 42,000 full-service retirement plans with 4.8 million plan participants. All statistics as of September 30, 2015 For financial professional use only. Not for distribution to the public.

A national leader in retirement plan and ESOP services ESOP consultants average 20.3 years of experience. Provide plan administrative services to nearly 900 employee-owned companies covering more than 645,000 participants All statistics as of September 30, 2015 For financial professional use only. Not for distribution to the public.

A national leader in retirement plan and ESOP services Provide services to over one-third of the nation’s top 100 majority-owned ESOP companies. Source: The Employee Ownership 100, National Center for Employee Ownership (NCEO), July For financial professional use only. Not for distribution to the public.

Business Owner & Executive Solutions For financial professional use only. Not for distribution to the public.

Business Owner & Executive Solutions Exit Planning For financial professional use only. Not for distribution to the public.

The reasons for business failures Plan for growth properly Monitor/manage their financial statements Plan for a succession of ownership Most businesses fail because they do not: For financial professional use only. Not for distribution to the public.

Fact: All business owners will exit their companies In a controlled manner while they are alive and healthy? Due to death or sickness? Distressed sale? The stakes are high! When? Under what conditions? For financial professional use only. Not for distribution to the public.

What if the business transition is not controlled and orderly? The owner The owner’s spouse and beneficiaries Partners, managers and employees Customers The community The stakes are high for: For financial professional use only. Not for distribution to the public.

ESOP value proposition to business owner Sell some or all of your company to a ready, willing and able buyer At fair market value Avoid paying capital gains tax Secure financing on a pre-tax basis “If I could show you a way to… Would you be interested?” For financial professional use only. Not for distribution to the public.

What is an ESOP? Employee Stock Ownership Plan Employee benefit plan that allows… ­ Shareholder(s) of a closely held corporation to sell their stock at fair market value to a “friendly buyer” with tax advantages ­ Employees of the corporation share in company’s profitability through stock ownership For financial professional use only. Not for distribution to the public.

An ESOP is a “qualified” benefit plan (ERISA) Contributions are deductible as an “employee benefit expense” (within limits) Plan assets are held in trust for the exclusive benefit of participants Earnings on assets in the trust don’t generate current taxes What is an ESOP? For financial professional use only. Not for distribution to the public.

What is an ESOP? All eligible employees must participate (no discrimination) Vesting schedules apply Do these features sound familiar? For financial professional use only. Not for distribution to the public.

What is an ESOP? 1.An ESOP holds primarily one security: employer stock 2.An ESOP can use the company’s credit to borrow money to buy stock from a shareholder Two important differences from other qualified employee benefit plans: For financial professional use only. Not for distribution to the public.

Is an ESOP the right choice? Exit immediately and “walk away” free and clear? Exit over time and take and active role in the transition process? Does the owner / shareholder want to: For financial professional use only. Not for distribution to the public.

Is an ESOP the right choice? “Plan A” –Exit plan implemented while you’re alive and healthy “Plan B” –Exit plan upon death or disability Contingency plans For financial professional use only. Not for distribution to the public.

What makes an ESOP unique? Sell a majority interest in your company and still maintain control No “price haggling” – the price is fair market value (or less) Avoid paying capital gains tax Purchase a shareholder’s equity interest with pre-tax dollars An ESOP enables you to: For financial professional use only. Not for distribution to the public.

What makes an ESOP unique? The timing and number of shares sold to the ESOP The day to day operations of the company during the transition process (even after the ESOP owns a majority of the shares) The business owner / shareholders control: For financial professional use only. Not for distribution to the public.

Let The Principal ® help manage the process Feasibility Analysis Seller Investment/Planning Legal Documents Financing Valuation Administrative Services Employee Communication Building blocks of an ESOP transaction Comprehensive design Preliminary design For financial professional use only. Not for distribution to the public.

“Phase I” feasibility analysis Establish current business value* ESOP design and structure to meet shareholder and company goals Financial impact Financing options Cost / Benefit *Valuation performed by an independent appraiser For financial professional use only. Not for distribution to the public.

Thank you! For financial professional use only. Not for distribution to the public.