Under Sleep Train's ESOP, employees acquired 26% of the shares of the company. Sleep Train had contributed funds out of its profits to purchase shares for employees under the ESOP, the intention being that this would be part of the investments for the employee retirement plan. When Mattress Firm approached Sleep Train with an offer to purchase its shares, the ESOP Board of Trustees voted unanimously in favour of the deal.

Once the acquisition was complete, the ESOP was terminated. The employees received funds which could be rolled into a qualified retirement plan. A portion of the payout was Mattress Firm stocks.

Read the article here.

Takeaway:

• An ESOP can be used creatively to both share company profits with employees and provide assets for a retirement plan.