18 th Annual Employee Ownership Conference Forecasting, Funding and Handling Repurchase Obligation and Age 55 Diversification BASIC RULES Lynette A. Golly, CEBS

Why do you care about Repurchase Liability Government guarantees your right to require your employer to purchase your stock from you at the then fair market value. Government guarantees your right to require your employer to purchase your stock from you at the then fair market value.

Who When you reach age 55 and you have completed at least 10 years of participation in an ESOP. When you reach age 55 and you have completed at least 10 years of participation in an ESOP. Some current proposals would change this requirement to age 35 with 5 years of service. Some current proposals would change this requirement to age 35 with 5 years of service.

What You have to receive notice from the Trustee You have to receive notice from the Trustee 25% of your stock account balance at age 55 25% of your stock account balance at age 55 Five years Five years At age 60 50% At age 60 50%

Why To avoid having all of your “eggs in one basket” for retirement. To avoid having all of your “eggs in one basket” for retirement.

How Assume 100 shares at $1.00 per share at age 55 Assume 100 shares at $1.00 per share at age 55 Can diversify 25 Shares or $25 at age 55 – which is elected Can diversify 25 Shares or $25 at age 55 – which is elected Next year, 10 shares are added to the account and the value of the shares drops to $.50 Next year, 10 shares are added to the account and the value of the shares drops to $.50 Share balance is then 85 shares Share balance is then 85 shares

Current Number of Shares: 85 Previously Diversified Shares 25 25% of All of the Shares 27 Less Amount Already Diversified 25 Amount to be diversified 2 Shares at $.50 or $1.00

How Assume 100 shares at $1.00 per share at age 55 Assume 100 shares at $1.00 per share at age 55 Can diversify 25 Shares or $25 at age 55 – which is elected Can diversify 25 Shares or $25 at age 55 – which is elected Next year, 10 shares are added to the account and the value of the shares increases to $2.00 per share Next year, 10 shares are added to the account and the value of the shares increases to $2.00 per share Share balance is then 85 shares Share balance is then 85 shares

Current Number of Shares: 85 Previously Diversified Shares 25 25% of All of the Shares 27 Less Amount Already Diversified 25 Amount to be diversified this year 2 Shares at $2.00 per share or $4.00

Can an ESOP be designed to Diversify Earlier? Yes Yes Does not eliminate the required diversification at age 55 with 10 years of participation Does not eliminate the required diversification at age 55 with 10 years of participation