Copyright © 2019 TRC Financial. All rights reserved.

TRC Financial Insurance Services and affiliates are presently licensed to sell insurance and annuity products, as well as other securities products in the following states: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Idaho, Illinois, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Washington, West Virginia and Wisconsin. Residents of other states should consult with a local registered representative for insurance services and securities products. Proper state registration is mandatory prior to conducting business in that state. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and a client suitability review. CA License - #0E14614 \ CA License #0B40789 \ CA License #0B52893 - The principle place of business and the state of domicile for TRC Financial is: 1 Post, Suite 150, Irvine, CA 92618. Securities offered through Registered Representatives of M Holdings Securities, Inc., a Registered Broker/Dealer Member FINRA / SIPC. Check the background of this Firm and/or investment professional on FINRA's BrokerCheck. TRC Financial is independently owned and operated and is a Member Firm of M Financial Group. Please go to www.mfin.com and click on “Disclosure Statement” at the bottom of the home page for further details regarding this relationship.

(949) 509-2940

Highly Leveraged Company Seeks Protection from Hostile Takeover

A highly leveraged tech manufacturing company was in management transition with a group of a few owning a majority of the company. The leverage created an environment where the company was exposed to a potential hostile takeover.

Challenge

The ownership of the company was maintained among a few key executives and owners exposing each shareholder to a hostile takeover if there was an untimely death of a shareholder. The debt added another element of risk. How can the shareholders fund, on a cost-efficient and equal basis, the risk of death for each shareholder?

Solution

Corporate Owned Life Insurance (COLI) provided a cost-effective and equal funding plan to eliminate the early death risk to one of its shareholders. In conjunction with buy-sell agreements, the funding of a COLI plan provided an approach to insuring the risk that resulted in a positive impact to earnings and consistent coverage across each shareholder. The coverage delivered death benefits of $15,000,000 to $3,000,000 based on ownership.

  • The COLI structure maintained liquidity and provided a funding vehicle that was a positive impact to earnings vs. other premium alternatives
     

  • The policies are owned by the company with the death benefits paid to the company
     

  • The liquidity at death, along side the buy-sell agreement, allowed each shareholder to avoid the risks associated with a potential hostile takeover resulting from the untimely death of a key shareholder

Results

For the Company

  • Liquidity to protect against a hostile takeover
     

  • Funded with a product chassis to provide an immediate positive earnings result rather than varying expenses per insured (employee)
     

  • Immediate liquidity and flexibility as the company needs change over time

For the Shareholder (Founder-Executive)

  • The heirs receive immediate liquidity for the fair market-value of the stock ownership

The above client case study is based on the economic results for one of TRC Financial's clients. The economics associated with each individual client are unique and impacted by the insurance product acquired, the performance of the life insurance policy, timing of premium payments, medical underwriting for the insured(s), and the actual life expectancy of the insured(s). The client case study is not intended to be opinion or advice on legal, tax, accounting or investment matters. Private counsel should be consulted prior to application of this general information to specific situations.