Pub. 11 2016-2017 Issue 4

November/December 2016 15 Extraordinary Service for Extraordinary Members. we’re Always CLOSE BY NetWorks is the Electronic Funds Transfer (EFT) service provider that Nebraskans have used and learned to trust like family for over 30 years. Since our offices are right here in Nebraska, you can count on us to provide quick and personalized service for all of your EFT needs. Give us a call and let’s talk about how we can simplify EFT for you. You will talk with a fellow Nebraskan and not some automated system. www.netseft.com Toll Free 800-735-6833 Local 402-434-8202 sometimes a third-party buyer can pay more for a bank than an ESOP. • The bank will be subject to repurchase liability. Employ- ees are entitled to “put” or sell their stock held through the ESOP to the bank upon retirement or termination of employment. The cash needed to compensate for the exercise of the put option will require the bank to maintain adequate cash to handle this liability. A bank’s repurchase liability should be addressed as soon as possible in the life of an ESOP to plan for future liquidity demands. • It is possible that even with the advantages of an ESOP, the company may not be able to finance the buyout. Addition- ally, increasing the bank’s debt load may lead to the bank be- coming overleveraged, which may not be in the bank’s best interest. An ESOP can serve as an advanta- geous succession planning tool for banks. As hundreds of banks across the country have learned, a well- structured ESOP benefits the bank, selling shareholders, and the bank’s employees. Banks should not delay in their succession planning. This is especially true if they are considering an ESOP, as it takes time to properly create and operate an ESOP. The key to an effective succession plan is forethought and careful analysis from the onset.  For more information, contact John Schembari at Kutak Rock LLP at (402) 346-6000 or john.schembari@kutakrock. com. Schembari is chairman of the Employee Benefits and Executive Compensation practice at Kutak Rock and has been working with ESOPs for more than 20 years. He has worked on hundreds of ESOP transactions during this time. Schembari would like to thank Alex Engelkamp, a law clerk at Kutak Rock, for his assistance in the preparation of this article. 1 Douglas L. Kruse, Richard B. Freeman, Joseph R. Blasi, Employee Ownership, Profit and Gain Sharing, and Broad- Based Stock Options , 1-37, (U. Chi. Press), (2010). 2 National Center for Employee Ownership, A Visual Guide to Employee Ownership , (2016), http://www.esopinfo.org/ maps/all-ESOPs-industry.php. 3 Despite this fact, only 16% of family firms have a written, specific succession plan. PriceWaterhouseCoopers, Global Family Business Survey , 23, (2014). 4 32% of family firms are looking to pass on ownership to a family member. Id. At 28. 5 For more information on the basics of an ESOP, see: John E. Schembari, Effective Use of ESOPs for Banks , 12-13, (Neb. Banker), (2014). 6 26 USC 409(h) (2006). 7 26 USC § 404(9)(A) (2006). 8 29 USC § 1108(b)(3) (2012). 9 Scott E. Adamson & Jay Van Heyde, Structuring Seller Financing With Warrants , (2014). 1 0 26 USC § 1042(a) (2006). 11 26 USC § 1042(c)(4) (2006). 12 26 USC § 1042(a)(2), (c)(3) (2006). 13 Michael Quarrey & Corey Rosen, How Well Is Employee Ownership Working? , (Harv. Bus. Rev.), (Sept/Oct 1987). 14 29 USC 1108(e) (2012). 15 26 USC 409(h) (2006). 16 National Center for Employee Ownership, A Visual Guide to Employee Ownership , (2016), http://www.esopinfo.org/ maps/all-ESOPs-industry.php.