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termination that BVS made in its 1997 appraisal of BCC for
purposes of the ESOP. While Mr. Fodor provided an analysis at
trial in support of his use of the BVS termination liability
estimate for this purpose, neither his written report nor his
trial testimony offered any analysis of how BCC would satisfy any
ESOP repurchase obligation or how the method employed to satisfy
the obligation would affect the fair market value of BCC or
decedent’s BCC shares.
According to a business valuation treatise on which both
parties relied in this case, there are two methods that companies
generally use to satisfy the obligation to repurchase the shares
of retiring ESOP participants: (i) A so-called recycling
transaction, in which the ESOP purchases the shares of retiring
participants and “recycles” them to other participants, using
employer contributions to the ESOP to fund its purchases; or (ii)
a redemption transaction, in which the company directly purchases
(and then cancels) the shares of retiring participants. See
Pratt et al., Valuing a Business 712-713 (2000). Mr. Fodor does
not explain or even disclose which method he assumed BCC would
employ. The available evidence in the record-–namely, the
Summary Plan Description for the ESOP-–indicates that BCC’s ESOP
was designed to employ the redemption method. Assuming that is
the case, the redemption method’s “net effect on fair market
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