If company stock is not publicly traded a participant must be given a put option. A put option gives the participant a right, but not the obligation, to require the company to repurchase the stock under a fair valuation formula as determined by an independent ESOP appraiser.
The December 1, 2011 Employee Ownership Update is online and discusses the following:
As we continue our discussion about the Interrelationship Between Stock Valuation and the Repurchase Obligation, let's start by talking about Garbage_In,_Garbage_Out or GIGO. The concept of GIGO certainly applies to preparing a repurchase obligation study. If you don't use accurate assumptions in your forecast, then you won't have an accurate repurchase obligation forecast. While I would initially say that any first attempt at preparing assumptions for a study is better than not making an attempt at all, it is essential to continuously revisit the assumptions to ensure that they are accurate. You will also find a lot of overlap between your repurchase obligation assumptions and the information involved in the financial planning process. Some companies incorporate the repurchase obligation forecasting process into their strategic planning.
