M&A
REPORT
A Newsletter from the Mergers & Acquisitions Practice Group
Editor’s Note… Supreme Court Impacts Patent
For purposes of this publication,
the term “M&A” is intended to Due Diligence Standards for
encompass such diverse
transactions as: (a) the purchase Technology Acquisitions
of entire businesses and their
assets or ownership interests; (b)
the purchase of only part of a
business or ownership interests;
Richard J. Flaster (c) the investment in existing or
start-up companies; and (d)
inter-owner transfers or redemptions.
This issue of the Flaster/Greenberg M & A Report
includes articles addressing issues raised by acquiring
patented technology and employee benefit plans,
unexpected tax recapture on sales involving
previously acquired goodwill, and an analysis of how
tax techniques traditional for acquiring private
companies were applied to the purchase of a large
public company.
We also would like to note that our existing capability
in handling complex M&A transactions has been
enhanced by the recent addition of Fred Ruttenberg,
who left Blank Rome to become a member of our law
firm in our Corporate Practice Group.
We hope you will find the Flaster/Greenberg M &
A Report to be interesting, readable and insightful,
and we welcome your comments in response.
If you provide us with your e-mail address and the
e-mail addresses of colleagues who would be interested
in receiving this Report, we would be pleased to
include that information in our data bank.
Please send that information to me at
rick.flaster@flastergreenberg.com.
In This Issue. . .
Supreme Court Impacts Patent Due Diligence
Standards for Technology Acquisitions ..........1
Acquiring a Company with
Employee Benefit Plans ...................................2
Use of S Corp Status and ESOP to Effectuate
Acquisition. .......................................................3
Depreciation Recapture on Sale for Purchase
Goodwill............................................................6
Copyright © 2007
SUMMER 2007
BY LYNDA L. CALDERONE
The Supreme Court recently issued an opinion that will
significantly impact due diligence assessments in acquisitions
involving the transfer of patented technology. KSR
International v. Teleflex, Inc. et al (Sup. Ct. 4/30/07).
The KSR case reevaluates the standard to be applied in
evaluating whether an invention is obvious and hence not
protectable. While many courts have sought to articulate tests
for evaluating obviousness, a subjective element remains which
Lynda L. Calderone
has made it a difficult standard to apply with any certainty.
Background: U.S. patent laws evaluate the “obviousness” of an invention from
the objective viewpoint of “one of ordinary skill in the art” and with a sufficient
level of proficiency in the technology at issue, and the statutory language provides
flexible guidance as to what one is to consider in making this evaluation.
Specifically, the law states that a patent may not be obtained when “the differences
between the subject matter sought to be patented and the prior art are such that
the subject matter as a whole would have been obvious at the time the invention
was made to a person having ordinary skill in the art to which said subject matter
pertains”. 35 U.S.C. §103)a.
Unfortunately, the statute does not provide a definitive workable framework for
analyzing obviousness, and case law has had to flesh out the thought. The
landmark case is Graham v. John Deere Co., (Sup. Ct. 1966)(383 U.S.1), which
instructed that the following factors should be considered to evaluate obviousness:
• Scope and content of the prior art
• Differences between the prior art and the invention
• Level of ordinary skill in the art
• Whether there were indications of nonobviousness
After Graham and the creation of the Federal Circuit Court (the “CAFC”) in
the 1980s (with sole jurisdiction over patent cases), a body of case law developed
which provided a reasonably predictable test for use in “obviousness evaluations”.
The test provided a standard to determine when there was a prima facie finding of
obviousness and then permitting such findings to be overcome by various
“secondary” factors established by the CAFC.
An obviousness analysis can arise in a number of different contexts—in a
litigation challenge to a patent’s validity; in an evaluation for legal opinion; in a
(continued on page 5)
M & A Report • Flaster/Greenberg P.C.
 2
Acquiring a Company With Employee Benefit Plans
BY MARC R. GARBER AND
Complex employee
benefit plan issues must
usually be addressed
whenever an acquiring
company (“the Buyer”)
purchases another
business (“the Target”)
and becomes the
employer of the
Richard J. Flaster Marc R. Garber
Target’s employees. If the
Buyer is to take over and continue the Target’s benefit plans, it must
address the benefits, rights and features of each plan, the funded
status of the plans, and the ability to alter or terminate the plans. If,
instead, the Target’s plans are to be discontinued, it must address
equally issues arising from integrating the Target’s employees in the
Buyer’s plans.
To address such issues, the Buyer’s acquisition team would
typically include an employee benefits lawyer, human resource
director, personnel manager and financial officer (all who and
should be, or become) familiar with the Buyer’s own plans as well
as the corporate officer and corporate attorney responsible for the
global aspects of the acquisition transaction. Further, the Buyer’s
team must be given access to the Target’s employee benefits lawyer,
plan administrator, actuary, and insurance underwriters. The
Buyer’s team should review all relevant plan documents in order to
fully understand the design, benefit structures, costs and other
financial issues associated with the Target’s plans and, to facilitate
that process, the Buyer should provide the Target with its “due
diligence request” for needed information (which will be discussed
in more detail in a later M&A Report) and consider the following.
The team should carefully analyze the reports produced by the
Target’s actuary and plan administrators but should review such
reports with caution, since the Target’s reports are prepared for
specific purposes and may be based on assumptions and projections
that do not reflect an accurate current picture of the funding status
or financial exposure of the Plans on a termination basis. Indeed,
the Buyer may find it appropriate to have its own actuary prepare a
report to ensure that it reflects an analysis from the Buyer’s
perspective.
The analysis should (at the least) indicate the types of plans, their
funded status, the classes of employees covered, the benefit
structures, annual costs, a compilation of insurance or other
products supporting the benefits made available, and whether the
assumption of the plans will either subject the Buyer to any material
liability for unfunded benefits or engender a required expansion of
coverage or benefits for the Buyer’s own employees. Further, if the
acquisition does not include all of the Target’s business or
employees, the analysis should include a separate breakdown of the
Target’s plans by location and division or class of covered employees
being acquired.
M & A Report • Flaster/Greenberg P.C.
RICHARD J. FLASTER
The employee benefits aspects of the acquisition documents
would typically include representations and warranties, covenants,
required pre-closing and post-closing actions and indemnifications
with respect to the acquired plans. These transactional provisions
should address the plan structure that will be in place post-closing
as well as the mechanics and processes that will be utilized to
achieve that structure. For example, the termination of certain plans
(whether accomplished by the Target or the Buyer), changes in
coverages and/or benefits for health or life insurance plans, the time
frame for investment election changes, and necessary curative
provisions to bring the plans into compliance with applicable tax
and labor law rules.
After the transaction is “completed”, the team should
implement the new or changed employee benefit plans and
programs as agreed to in the transactional documents. This can
involve creating new plans, merging the Target’s existing plans with
the Buyer’s plans, terminating certain plans, negotiating new or
renewal agreements with third party administrators and/or
insurance underwriters, as well as creating or revising the employee
handbook and/or summary plan descriptions and submitting
revised or newly-created plans to the IRS for approval.
The costs of employee benefits can represent a material aspect of
a transaction—especially for mature companies with a large and
geographically diverse work force. Indeed, it is not atypical for
benefit plans and programs to account for 30 or 40 percent of total
payroll costs. Such plans may include pension or savings plans,
IRAs, health expense, life and/or disability insurance, prescription
drugs, holiday pay, stock options, severance or deferred
compensation plans. Some plans are intended to be broad-based,
tax-qualified, and currently funded, while others are designed to
cover only key employees for specific benefits and are not currently
funded. However, most plans are subject to at least some Internal
Revenue Service and Department of Labor rules regarding who
must be covered, how costs may be allocated among employees or
subsidized by the employer, how benefits rights must vest, and
whether the plans may be frozen or prospectively terminated.
The following types of plans require special attention:
Multi-Employer Plans: Typically, these are traditional
retirement plans that are sponsored by a labor union or trade
association in which the employer becomes one of many sponsoring
employers. Generally, participation must continue after the
acquisition unless collective bargaining sanctions contrary action or
the transaction is structured to properly exclude covered
participants (for example, where the purchase is of a non-union
subsidiary of the Target). In addition to annual funding obligations,
an acquisition can trigger a “withdrawal liability” requiring
additional funding. Accordingly, once it is learned that a multi-
employer union plan exists and that the union employees are to
become employees of the Buyer, the Buyer should seek to ascertain
the amount of funds required to satisfy any resulting partial or
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 3
Use of S Corp Status and ESOP to Effectuate Acquisition
BY ELLIOT D. RAFF
As widely reported, The Tribune
Company (“the Company”) recently
accepted a tender offer from Sam Zell
(“Zell”), who proposed traditionally private
company acquisition techniques to effectuate
the purchase of a large public company. By a
creative use of the employee stock ownership
plan (“ESOP”) and adopting a tax structure
designed for small businesses (S corporation
Elliot D. Raff
status), Zell’s proposal would achieve a
privatizing of the Company while generating substantial tax benefits
for all parties, while giving him effective control of the Company’s
business and a large stake in its future appreciation.
Overview of Transaction
The Company is a publicly-traded corporation that owns the
Chicago Tribune newspaper, among other media and entertainment
properties. Under Zell’s proposal, the Company will be taken
private, with its sole shareholder being a newly established ESOP.
The mechanics of the transaction are complex but essentially reflect
the following transaction structure:
• The Company establishes an ESOP and the ESOP
purchases $250 million of the Company’s common
stock for $28 per share.
• Zell invests $250 million in the Company,
with $50 million devoted to purchasing
shares of the Company’s common stock
for $34 per share and $200 million
devoted to purchasing a note that is
exchangeable for the Company’s
common stock at $34 per share.
Although Zell and the ESOP would
both be simultaneously purchasing the
Company’s common stock, Zell pays a purchase
price premium, while the ESOP does not.
• The Company then launches a tender offer to repurchase
approximately 126 million shares of its common stock for
$34 per share, returning approximately $4.3 billion of capital
to its shareholders.
• The Company then merges into a wholly-owned subsidiary
of the ESOP and any remaining stock of the Company is
converted to cash at $34 per share.
• Upon completion of the merger, Zell’s initial $250 million
investment is redeemed (i.e., Zell’s stock portion is cashed-
out and his note repaid) and Zell then makes a new
investment of $315 million, which is devoted to purchasing a
$225 million subordinated note and paying $90 million for a
warrant entitling Zell to purchase 40 percent of the
Company’s stock over the next 15 years.
• Upon completion of all aspects of the transaction, the ESOP
owns 100 percent of the Company’s outstanding common
stock, subject to future dilution upon the exercise of Zell’s
warrant.
• Zell then becomes a member of the Company’s Board of
Directors, with the right to appoint another Director and to
serve as the Company’s Chairman.
• Upon completion of the foregoing, the Company (whose
stock would now be owned solely by the ESOP and with Zell
holding warrants to purchase stock) elects to be taxed as an S
corporation. As a result, all subsequent income earned by the
Company would be allocated to the ESOP (a non-taxable
entity) and would avoid current taxation—thus, allowing the
Company’s stock and Zell’s warrants to appreciate in value on
a currently tax-free basis. Indeed, this last aspect of the
acquisition structure has drawn criticism from commentators.
Import of Transaction
The transaction would privatize the
ownership of the Company’s stock (i.e., its
stock would no longer be publicly traded). This
would obviate the need to comply with the
cumbersome accounting and legal requirements
imposed by the Sarbanes-Oxley Act and would save
significant compliance costs, as well as the opportunity
to operate with greater management flexibility—with a
view to long-term results rather than a short-term strategy
that is often demanded by the equity markets’ focus on new
term profitability.
Although the Company would remain a large for-profit
corporation, it would no longer pay any corporate income taxes,
since all of its S corporation income would be attributed to the
ESOP, as the sole shareholder, which is exempt from income
taxation as a qualified retirement plan under Code Section 401.
The transaction has attracted such adverse comment because the
S corporation rules were intended to assist small businesses and the
sense that utilizing the ESOP to produce a single shareholder and
enable the election of S corporation tax status constitutes an abuse
of the tax laws. However, S corporation rules permitting an ESOP
to be a S corporation shareholder have been in effect for nearly 10
years, and have allowed an ESOP to be treated as one shareholder
regardless of how many employees participate in the ESOP. Thus,
from a technical viewpoint, it would appear that the ESOP and the
transaction structure comport with existing tax rules—even if this
particular application is not within the original spirit of the rules.
Observations:
• ESOP participants (i.e., the Company’s employees who are
covered by the ESOP) would pay income taxes only on ESOP
distributions, although the participant can avoid such
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 4
Acquiring a Company With Employee Benefit Plans
(CONTINUED FROM PAGE 2)
complete withdrawal liability. The Buyer can then determine
whether to structure the transaction so as to avoid the withdrawal
liability, absorb it as a transaction cost, or negotiate the Buyer’s
participation in bearing such costs.
Traditional Defined Benefit Plans: These plans usually provide
an annuity benefit upon retirement in an amount based on a
formula reflecting one or more factors, such as age, years of
employment, level of compensation, and alternative formula
definitions of benefit levels. Although an actuary determines each
year’s current funding amount, there can be significant differences
between the amount actually contributed annually and the amount
required to achieve full funding. The actuary can determine whether
the plan is fully funded or will require make-up contributions if
terminated. Indeed, under complex tax rules, a plan may be
considered to be fully funded on an on-going basis yet be materially
under-funded upon termination and require a substantial catch-up
contribution. Accordingly, it must be determined whether the
Target’s plan is to be terminated, continue unchanged after closing,
continue only with a revised benefit structure, or perhaps merged
into the Buyer’s plan (or vice versa).
Retiree Health Plans: GAAP (Generally Accepted Accounting
Principles) accounting requirements for the Target providing
subsidized health expense benefits to retirees should ensure that the
Target’s financial statements reflect realistic indications as to the
present value of future plan costs. If the Target does not utilize
GAAP, the Buyer’s actuary should determine the present value of
such future liability. Further, since prevailing law may preclude the
termination or revision of plans so as to reduce benefit levels or
increase participant costs, the Buyer should assume that (at the very
least) this level of expenses will continue. Indeed, in an environment
where health benefits costs have been rising far beyond general
COLA (Cost of Living Allowance) changes, such future costs
should be realistically projected, and the transaction documents
should include appropriate protective covenants and
indemnification. Indeed, in appropriate circumstances, the Buyer
may request a substantial payment holdback in the purchase price to
protect the Buyer from any surprise costs.
Severance: In many cases, severance pay programs represent off-
balance sheet liabilities (i.e., not reflected in the Target’s financial
statements) and, since they are rarely pre-funded, their potential
cost must be realistically calculated. In reviewing such programs, the
threshold issues are whether the severance benefit is triggered on
sale or is to continue thereafter. If the program is to continue
thereafter, the Buyer must address issues as to whether the benefit
is to include prior service with the Target, at what formula level, and
whether the Buyer should seek some participation in funding from
the Target through an adjustment to the purchase price. Most
importantly, thought should be given to the risk that the acquisition
might encourage the employees to resign their employment prior to
closing (or maybe worse, shortly thereafter) in order to collect the
severance. Such issues raise material human resources issues and the
appropriate approach depends on the facts and circumstances of
M & A Report • Flaster/Greenberg P.C.
each situation. For example, in some cases, these issues may be
addressed by providing that any severance payments must be repaid
if the Buyer re-employs a worker, and in other situations, the Buyer
should condition the acquisition on the continued employment of
the Target’s workers. In each case, the “right” approach is
determined by the circumstances, but always must reflect an
approach ensuring the continuity of desired employees.
Savings Plans: These plans may take many forms (such as 401(k),
profit sharing and thrift plans). Since they must be tax qualified, they
are subject to stringent anti-discrimination coverage and benefit rules.
Accordingly, it is essential to integrate the Target’s and the Buyer’s
plans—first testing each plan separately for
qualification and then testing them together,
to ensure that the single integrated plan
satisfies the non-discrimination
rules. Further, if a determination
is made to terminate the Target’s
plan, it may be best to
require that this be
accomplished before
closing and then to allow
direct plan-to-plan transfers
of account balances to the
Buyer’s plan or rollovers
post-termination. However,
such inter-plan transfers should be undertaken only if there are no
concerns about the tax compliance of the Target’s plans which might
taint the status of the Buyer’s own plans.
Health Programs: Most employers provide some sort of
subsidized health benefits for its employees and sometimes also for
their dependents. Some plans are fully insured and some are self-
insured (usually with some reinsurance arrangements for
catastrophic claims). Although tax and labor laws are less
burdensome for insured health programs, their costs may be much
higher and less predictable. In all likelihood, some changes in these
plans will be appropriate after the acquisition. The changes may be
to simply substitute one insurer for another with the same benefit
structure or may entail a complete change to structure (for example,
changing from a traditional 80/20 major medical plan to an HMO
only arrangement). It is critical to address these issues before closing
the acquisition and to properly communicate with the Target’s
employees so that the changeover does not create a dispiriting
surprise or foment employee unrest. ◆
Marc R. Garber, of counsel, focuses his practice on employee
benefits law, executive compensation matters, ERISA litigation
and business transactions utilizing employee plan assets, such as
Employee Stock Ownership Plans (ESOP).
Richard J. Flaster, shareholder and president of
Flaster/Greenberg P.C., counsels professionals and business owners
on matters involving taxation, pensions, estate and asset planning,
contracts, corporations, partnerships, limited liability companies,
and has handled hundreds of purchases and sales of businesses.
 5
Supreme Court Impacts Patent Due Diligence Standards for Technology Acquisitions
(CONTINUED FROM PAGE 1)
due diligence evaluation or patent valuation analysis; or during a
patent application examination to determine whether a patent
should be granted. In each of these situations, a finding of
obviousness may be asserted based on (a) a single piece of prior art
(such as a patent or prior product) or (b) a combination of two or
more pieces of prior art.
The CAFC criteria called for evaluating whether:
• the prior art teaches or suggests all elements of the patented
invention;
• the prior art relied upon to challenge the patent’s validity
provides a reasonable expectation of success in achieving the
invention; and/or
• there is a “teaching, suggestion or motivation” in the prior
art to combine prior art references to arrive at the invention
(the so-called “TSM test”). Indeed, this last test became the
legal standard for obviousness evaluations for many years,
lending predictability and reliability, and is supported by a
significant body of case law.
New Development: In the recent KSR case, the Supreme
Court did not eliminate the TSM test altogether but did refocus on
the Graham rule, holding that the TSM test should not be applied
rigidly and should not be the sole method to evaluate obviousness.
The opinion reflects the ongoing struggle to balance the interests of
those who seek to overturn the TSM test (making patents harder to
obtain and defend) and those who strongly believe in the test as the
only existing analytical tool to ensure that the evaluation reflects the
circumstances at the time of the invention and thus avoid an
evaluation wrongly made with “20:20 hindsight” (making patents
somewhat easier to obtain and defend). Certainly, at some level,
inventions are all combinations of known items, but it is all too easy
to look back in time once a problem in a technology has been solved
by an inventor and then see the bits and pieces of the invention in
a different context and conclude that the solution was “obvious”.
To better address this concern, the Supreme Court indicated in
KSR that the CAFC’s rigid use of the TSM test could be
detrimental in circumstances where an invention that would be
obvious under the Graham standard would be found not to be
obvious based on the absence of an explicit finding (under the TSM
test) that there was an intention to combine existing references. The
Court instead focused the analysis on whether an invention
“manifests the extraordinary level of innovation” deserving of a
patent and overtly attempted to establish a standard that would
reduce patent issuance. However, little in the KSR fact pattern
supports the Court’s allegation that the TSM test (in and of itself)
had caused patents to be issued that would otherwise have been
legally invalid for obviousness. Rather, the opinion seems to reflect
a lot of conjecture and little analysis to support its view of the
“detrimental effects” of the TSM test.
In all events, while the TSM test is still in place after KSR, it is
now only one way to evaluate “obviousness”. Although the
Supreme Court noted other factors of importance in evaluating
obviousness under the Graham holding, it did not adopt a new
approach, but offered only the following additional general
guidelines of whether:
• the invention provides synergistic results, shows unexpected
results or results far surpassing existing art;
• the invention introduces new or different functions;
• there has been a period of time without achieving success in
view of the art relied upon for invalidity;
• there were failed attempts to achieve the invention; and/or
• the inventor went in a direction contrary to the teachings of
the prior art.
These factors have been adopted by
the Patent and Trademark Office
(“PTO”) in a May 3, 2007
memorandum regarding examination,
which acknowledged KSR and
instructed that until the new
examination guidelines are issued,
patent examiners should continue to
find a “reason why a person of ordinary
skill in the art would have combined
the prior art elements in the manner
claimed”. However, it is significant to
note that since the KSR decision, the Board of Patent Appeals and
Interferences has issued three opinions applying the new KSR
standards and each has confirmed the obviousness of the patented
technology at issue. See Ex Parte Kubin (May 31, 2007), Ex Parte
Smith (June 25, 2007) and Ex Parte Catan (July 3, 2007). This
sends a reasonably clear signal of what standard the PTO will likely
apply going forward.
Observations: The KSR opinion creates further uncertainty on
this issue, and it will now be more difficult to predict how a finding
rejecting obviousness will ultimately turn out after examination.
Indeed, in assessing the record of an issued patent, an attorney may
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 6
Supreme Court Impacts Patent Due Diligence Standards for Technology Acquisitions
(CONTINUED FROM PAGE 5)
not feel comfortable that a rejection was strongly overcome if the
primary basis for granting a patent was based on the TSM factor.
Evaluators of patents for purchase or in due diligence should more
carefully question the value or strength of a patent issued pre-KSR,
when weaker arguments (and/or those lacking factual support)
were made of record to overcome obviousness. Regrettably, this
creates an environment of uncertainty when faced with a patent that
appears to have been improperly evaluated by a patent examiner;
and/or when the evaluator’s prior art due diligence search turns up
numerous potential prima facie obviousness combinations.
The KSR case signals a basis for proceeding with caution and
taking a closer look at a patent portfolio’s strength and value as well
as in forming litigation strategies. It may also warrant revisitation of
invalidity opinions based on non-obviousness grounds (which
opinions are themselves often the subject of due diligence
assessments). Even if the evaluation were recently undertaken, a
Depreciation Recapture on Sale for Purchase Goodwill
BY MICHAEL P. SPIRO
Most sellers of business assets are aware
that section 1245 of the Internal Revenue
Code (the “Code”) requires that where
depreciation deductions have been
previously taken with respect to “personal
property” or “other tangible property”
(other than real estate), amounts received in
payment for such property must be
Michael P. Spiro
recognized as ordinary income to the extent
of the previous depreciation deductions (so-
called “depreciation recapture”). What many sellers fail to realize
however, is that for purposes of section 1245, “personal property”
includes purchased goodwill and other amortized section 197
intangibles.
Most casual readers of the Code (if such people exist) would
think on a first reading that section 1245 does not apply to
intangibles, since the term “personal property” means tangible
property in every other commercial context. However, when
section 197 was added to the Code as part of the Omnibus Budget
Reconciliation Act of 1993, it included a new subsection 197(f)(7),
which defines “amortizable section 197 intangible” as “depreciable
property which is of a character subject to the allowance for
depreciation provided in section 167”—the same language used by
section 1245 in its definition of “section 1245 property”. Although
that language alone would not indicate that the depreciation
recapture rules of section 1245 or section 1250 would apply, the
legislative history set forth in the Joint Committee Report indicated
M & A Report • Flaster/Greenberg P.C.
new review and reconsideration is recommended based on the KSR
case rationale—particularly if the TSM test was a material basis for
the original assessment.
Observation: Of course, as with all new Supreme Court cases,
the CAFC will re-apply KSR over time and a new and modified
body of case law regarding the evaluation of obviousness will arise
to reduce the uncertainty KSR has created. ◆
Lynda L. Calderone, shareholder and chair of the Intellectual
Property Practice Group at Flaster/Greenberg, concentrates her
practice in the preparation and prosecution of U.S. patent
applications as well as intellectual property litigation. She also has
experience with reexamination of U.S. patents, interference
practice, prosecution of foreign patent applications, appeals before
the Board of Patent Appeals and Interferences, and European
opposition practice.
that this provision of section 197 was specifically intended to make
section 1245 applicable to section 197 intangibles. In an example of
what some might call legislative laziness, Congress did not change
the language of section 1245 to reflect this new reality, but simply
relied on Treasury Regulations to define “personal property” to
thereafter include “intangible personal property,” and the
Regulations under section 197 were written to clarify that meaning.
Observations. Buyers should beware that allocating purchase
price to purchased goodwill may in the short term produce
favorable long term capital gain to the Seller, and an amortizable
asset for their tax position, but it may ultimately result in ordinary
income depreciation recapture if and when they sell the business.
Similarly, sellers should be aware that since allocating a portion
of the purchase price to purchased goodwill may saddle them with
ordinary income depreciation recapture, they should consider either
“abandoning” such assets before sale (if possible) or at least
allocating the price to other types of assets that are not subject to
depreciation recapture. ◆
Michael P. Spiro, a member of the Corporate Law, Taxation
and Estate Planning Practice Groups, advises clients on issues
relating to: personal estate planning and asset protection;
structuring business transactions to maximize federal and state
tax savings and efficiency; tax efficient formation of businesses,
and choice of entity; employee benefits and executive compensation;
and forming and maintaining tax exempt entities.
 7

Use of S Corp Status and ESOP to

Effective Acquisition
(CONTINUED FROM PAGE 3)
taxation simply by making a tax-free rollover of such ESOP
distributions to his or her personal IRA.
• So-called synthetic equity strategies are often very attractive
to S corporations and limited liability companies, which
want to limit ownership but yet provide incentive
compensation based on the Company’s performance.
• If the Company ultimately fails, the employees will lose the
value of their ESOP accounts. However, unlike retirement
plans at companies like Enron and Worldcom, which held
substantial amounts of company stock and were wiped out,
the ESOP here will be funded completely with the
Company’s contributions and not with 401(k) elective
deferrals. ◆
Elliot D. Raff, shareholder and member of the Corporate,
Employee Benefits and Executive Compensation Practice Groups,
concentrates his practice in the areas of executive compensation,
employee benefits, and ERISA counseling. He advises clients
ranging from local family owned businesses to Fortune 500
companies concerning the design, implementation,
administration, and compliance of qualified retirement plans,
non-qualified deferred compensation plans, health, welfare and
fringe benefit plans and arrangements.
Save the Date
October 16th
2007 Rutgers Quarterly Business Outlook
Free breakfast conference: 7:45 a.m. - 9:30 a.m.
Clarion Hotel and Conference Center
on Rt. 70 in Cherry Hill
A distinguished panel of industry leaders will
forecast what bodes
for the Southern New Jersey economy each quarter of ’07.
Moderator: Rutgers University School
of Business-Camden Dean Mitchell Koza
Supported by Flaster/Greenberg P.C. and
the Chamber of Commerce Southern New Jersey
in partnership with the Rutgers University
School of Business-Camden
Advance registration is required. To register, contact the
Chamber of Commerce Southern New Jersey
at (856) 424-7776, register online at www.chambersnj.com/calendar.mv,
or send an email with your name and company to
firm@flastergreenberg.com.
This report is for general use and information, and the content
should not be interpreted as rendering legal advice on any matter.
Specific situations may raise additional or different issues and such
information should be coordinated with professional legal advice.

Office Locations
1810 Chapel Avenue West 190 South Main Road
Cherry Hill, NJ 08002-4609 Vineland, NJ 08360 MORRISTOWN
Tel 856-661-1900 Tel 856-691-6200
Fax 856-661-1919 Fax 856-696-8150
PA
2900 Fire Road, Suite 102A 8 Penn Center
Egg Harbor Twp., NJ 08234 1628 JFK Boulevard
Tel 609-645-1881 Philadelphia, PA 19103
Fax 609-645-9932 Tel 215-279-9393 TRENTON

Fax 215-279-9394
89 Headquarters Plaza North
PHILADELPHIA NJ
14th Floor, Suite 1472 913 North Market Street
Morristown, NJ 07960 Suite 1001
Tel 973-605-1799 CHERRY HILL
Wilmington, DE 19801
Fax 973-605-1344 Tel 302-351-1910
Fax 302-351-1919 VINELAND
200 American Metro Blvd.
Suite 126
Trenton, NJ 08619 DE EGG HARBOR TOWNSHIP

Tel 609 858 5900

Fax 609 858 5919

www.flastergreenberg.com
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1810 Chapel Avenue West Return Service Requested

Cherry Hill, NJ 08002-4609

MERGERS & ACQUISITIONS PRACTICE GROUP

The following tax and corporate lawyers will usually lead the M&A transaction but will integrate their services with others in
the firm who concentrate their practices in the fields of real estate, environmental law, employment and labor law, pensions and
employee benefits, securities law, litigation, banking, creditor/debtor rights, bankruptcy law and, when appropriate, estate and
charitable planning and divorce law.
Allen P. Fineberg Elliot D. Raff Peter R. Spirgel
allen.fineberg@flastergreenberg.com elliot.raff@flastergreenberg.com peter.spirgel@flastergreenberg.com
856-551-2264 856-382-2241 856-661-2267

Richard J. Flaster Markley S. Roderick Michael P. Spiro

rick.flaster@flastergreenberg.com mark.roderick@flastergreenberg.com michael.spiro@flastergreenberg.com
856-661-2260 856-661-2265 856-382-2203

Stephen M. Greenberg A. Fred Ruttenberg Laura B. Wallenstein

steve.greenberg@flastergreenberg.com fred.ruttenberg@flastergreenberg.com laura.wallenstein@flastergreenberg.com
856-661-2261 856-382-2257 856-661-2263

Elaine J. Petruzziello William S. Skinner Alan H. Zuckerman

elaine.petruzziello@flastergreenberg.com william.skinner@flastergreenberg.com alan.zuckerman@flastergreenberg.com
856-661-2287 856-661-2262 856-661-2266

PRACTICE AREAS
Alternative Dispute Resolution; Bankruptcy; Business & Corporate Services; Closely-Held Businesses; Construction Law; E-Commerce & Internet;
Emerging Business; Employee Benefits & Executive Compensation; Environmental Law & Litigation; Estate Planning & Administration; Family Law &
Adoption; Financial Restructuring; Health Care; Intellectual Property; Labor & Employment; Litigation; Mergers & Acquisitions; Real Estate & Land
Use; Redevelopment; Risk Management; Securities Law; Taxation; Technology.