Warrants in ESOP Transactions
by James G. Steiker
This is one of our archived publications; specialized publications that have been removed from our main publication list and are not being updated, but are are still available for purchase, although sometimes only in digital form.
$10.00 for NCEO members; $15.00 for nonmembers
A 20% quantity discount will be applied if you are a member (or join now) and order 10 or more of this publication. If you need to order more than the maximum number in the drop-down list below, change the quantity once you have added it to your shopping cart.
This ebook may not be resold or given away to others. If you would like to share this book with another person, please purchase an additional copy for each recipient. For example, if you want a copy for yourself and two colleagues, choose the quantity 3, add it to your cart, and check out. You will then download one copy that you can also provide to your two colleagues. Thank you for respecting our rights as an independent publisher.
NCEO members who supply their members area username and password during checkout can download digital publications like this one immediately after submitting an online order. Others will immediately receive a download link that will become live within one business day.
Format: PDF, 15 pages
Dimensions: 6 x 9 inches
Edition: 1st (April 2008)
Status: Available for electronic delivery
Usage Rights for NCEO Digital Publications
When you download an NCEO digital publication that you purchase or subscribe to (or that someone purchases or sponsors for you), you may copy it to any computer or other electronic device you personally use, and you may print it for your own use. However, you may not share it with others unless you purchase a license to do so or buy a copy for each person.
Companies generally prefer to accomplish leveraged ESOP transactions through relatively inexpensive senior debt. However, using senior debt alone is often not possible in highly leveraged transactions designed to result in 100% ESOP ownership. Subordinated debt may be required. Selling shareholders often hold this subordinated debt, and the subordinated debt instrument is often structured to address the particular needs and concerns of the selling shareholder. Third-party investors may also provide subordinated debt to fund an ESOP transaction. While this article generally describes subordinated debt in ESOP transactions as seller financing, the descriptions below apply equally to third-party investors who might provide subordinated debt.
Subordinated debt is generally issued by a company as an "investment unit" consisting of the interest-paying note with a separate warrant instrument. An ESOP cannot issue a warrant directly, so seller-financed leveraged ESOP transactions using this form of investment unit must use the company as a direct participant in the ESOP financing. These transactions can be done with both S corporations and C corporations, as described below.