CONNECT

Address:

425 N. Martingale Rd, Suite 200
Schaumburg, IL 60173

Phone:

Mike McCarthy 847-944-7920,Elias Friedman 847-944-7922,Cynthia Bridges Jones 847-944-7944,Meredith Fiocchi 847-944-7921,Kim Smith 847-944-7923,Jennifer Shulman 847-944-7912Toll-Free 844-378-5237

Fax/Other:

847-944-7933

ESOP basics

An ESOP purchases shares from existing shareholders and allocates those shares to ESOP participants’ accounts over time, giving employees ownership in the company.  An ESOP may purchase shares from the existing shareholder in a number of ways. If the company has enough cash on hand, it may lend that cash to the ESOP trust, which will then buy the shares with that money. Most of the time, leverage is needed to generate the capital required to buy the shares. A bank familiar with leveraged ESOP transactions can provide all or some of that up front lending. In addition to bank lending, either mezzanine lending or seller financing may also be used as a secondary source for liquidity to facilitate the transaction.

In a leveraged transaction, cash is lent to the company, in the form of an outside loan. The company then lends those same funds to the ESOP trust, known as the inside loan. The trust in turn gives that cash to the selling shareholder in exchange for the shares of stock. On the day of the transaction, the value of the shares of stock in the trust and the amount of the inside loan to the stock are equal. Over time, as the internal loan is paid down, shares are allocated within the trust to employee accounts based upon compensation and years in the plan.

Please see page 5 of The ESOP Opportunity for an illustration of this transaction.

ESOP Brochure

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