Overview of ESOP Services Practice

Pedersen & Houpt is nationally recognized as a leader in providing employee stock ownership plan (ESOP) services.  Our firm formed its first ESOP in 1976 and we continue to be strong advocates of using an ESOP as an effective tool for leveraged buyouts, ownership successions and for other financing and capital formation activities.  Our attorneys are experienced in handling the legal and financial issues involved in ESOP formation and administration and we represent selling stockholders, fiduciaries and lenders in ESOP transactions.

The ESOP companies we have represented over the past twenty five years have included manufacturing, construction, refining, chemical, gaming and interior decorating companies ranging in size from 35-400 employees.  We also have experience in assisting ESOP companies to convert to an S corporation in order to utilize the special benefits available to S corporation ESOPs.

The following are some examples of our ESOP experience:

• We acted as counsel in a multi-step transaction where an ESOP became the 100% owner of a Chicago-based company which designs and manufactures injection molds and a separate company which is the manufacturer of thermoplastic injection molded products. We initially represented the original owners of the companies to reorganize their business into a new holding company capitalized with both voting and non-voting common stock. We then assisted the new holding company in forming a new ESOP. After the ESOP was formed, we negotiated and consummated a redemption transaction where the new holding company redeemed 100% of the non-voting stock from the founding shareholders and represented the founding shareholders in the sale of 100% of the voting stock of the new holding company to the ESOP. We also represented the holding company in connection with a new senior credit facility to provide the funds necessary to consummate the redemption transaction for the non-voting stock and the sale of the voting stock to the ESOP.
  
  
• We acted as special ESOP counsel in a transaction where a Chicago-based air conditioning and heating systems independent manufacturer's representative merged with an affiliated company prior to the sale of 30% of the company's stock by a family trust formed by the company's founder to a newly formed ESOP in a transaction which qualified for favorable tax treatment under Section 1042 of the Internal Revenue Code.  In our role as special ESOP counsel, we reviewed the documentation relating the merger, assisted the board of directors of the company in forming an ESOP committee to analyze the fairness of the transaction, drafted all of the ESOP plan documents and negotiated the terms of the purchase agreement and the financing for the transaction with counsel for the founding shareholder.  We also advised the founding shareholder regarding the requirements of Section 1042 of the Internal Revenue Code relating to the deferral of capital gains upon the sale of his stock to the ESOP.
  
  
• We represented the majority shareholder in a 100% ESOP leveraged buyout of a Chicago-based metal stamping company.  After the transaction, we continued to represent the company.  In the course of our representation, we assisted the company in analyzing the feasibility of an S corporation conversion and worked with the company on various other corporate and employee benefit issues.
  
  
• We represented a former executive officer of a large Midwestern construction company who served as an independent fiduciary of an ESOP in the acquisition of the majority of the stock of the Company's founder.
  
  
• We acted as special ESOP counsel to the board of directors of an ESOP-owned company that received an offer to purchase the company from a private equity firm. For this matter, we assisted the ESOP company's corporate attorney in negotiating the terms of the offer and counseled the client regarding the special terms of the purchase contracts applicable to the ESOP. We also prepared various ESOP plan document amendments to address the sale of the company and the post-closing administration of the ESOP.
  
  
• We have acted as ESOP counsel to a Chicago-based investment management firm which is a 100% ESOP-owned S corporation. We have recently amended and restated the client's plan document and submitted the plan for favorable determination with the Internal Revenue Service. We also regularly counsel this client regarding various administrative matters and have assisted them in developing a new distribution policy. In addition, we represented this client in a transaction in which the client redeemed shares of company stock allocated to the ESOP accounts of terminated participants in order to reallocate those shares to new employees. For this transaction, Pedersen & Houpt negotiated the terms of the redemption transaction with the plan trustee and its other advisors, amended the plan document to address various administrative issues involved in the redemption transaction and advised the ESOP committee regarding the issues associated with investing the proceeds of the redemption of the stock pending distribution of the proceeds to terminated participants.
  
  
• We have worked with an ESOP-owned company with respect to several ESOP administration matters and have consulted with this client on various plan design issues. The Pedersen & Houpt employee benefits attorneys amended the plan document to ensure compliance with recent changes in the law and the various regulations governing the plan. In addition, we represented this client in a transaction in which the stock held by the ESOP was redeemed by the company. For this transaction, Pedersen & Houpt negotiated the terms of the purchase of the stock held by the ESOP with the plan trustee and its advisors. In addition, Pedersen & Houpt prepared an application to the Internal Revenue Service for a favorable determination letter as a result of the termination of the ESOP which occurred after the stock redemption transaction was consummated.
  
  
• We represented a nationally-recognized trust company which was engaged to serve as an independent fiduciary for an ESOP sponsored by a construction company located in Northwest Indiana in connection with a transaction under which the remaining non-ESOP shares were sold to the ESOP by the company's chief executive officer and where the company converted to an S corporation after the closing of the transaction.
  
  
• We represented a nationally-recognized trust company which served as the trustee for an ESOP which purchased 100% of the stock of a family-owned wholesale florist based in Chicago.
  
  
• We represented a nationally-recognized trust company which served as trustee of an ESOP sponsored by a Chicago-based bank holding company in the sale of 100% of the stock held by the ESOP to a St. Louis-based bank holding company.
  
  
• We represented a nationally-recognized trust company which served as trustee of an ESOP sponsored by a diversified safety products manufacturing company headquartered in Oconomoc, Wisconsin in the sale of 100% of the stock held by the ESOP to a publicly-traded company.
  
  
• We represented an Arkansas-based trust company which served as trustee in two separate transactions where the ESOP acquired shares of company stock from management shareholders of a structural engineering firm based in the Southeast in order to facilitate the conversion of the company to a 100% ESOP-owned S corporation.
  
  
• We represented a former executive officer of a large Midwestern construction company who served as an independent fiduciary of an ESOP in the acquisition of the majority of the stock of the Company's founder.
  
  
• We represented a Chicago-based lender who provided all of the financing for a 100% ESOP leveraged buyout transaction involving a nationally-recognized manufacturer of maps and topographical information used by the travel and construction industries. In this transaction, we prepared and negotiated all of the loan documentation for the initial transaction as well as a series of subsequent amendments to the initial documentation to provide for additional credit facilities used to finance subsequent acquisitions of new businesses after the ESOP transaction and the purchase of additional real estate assets used in the business.
  
  
• We represented a Chicago-based lender who provided a $25,000,000 credit facility to refinance prior loans by company shareholders to an ESOP and to enable the company to obtain additional funds for working capital and to make future acquisitions.
  
  
• We represented a Chicago-based lender who has made a series of loans to an existing ESOP in order to provide financing for subsequent purchases of stock from various third-party shareholders and retiring company executives with stock holdings outside the ESOP.
  
  
• We represented a Chicago-based lender who participated in a $90 million credit facility which was used to finance a 100% ESOP leveraged buyout transaction. In this transaction, we were allocated the responsibility by counsel for the agent bank for the credit facility to review and negotiate all of the ESOP-related provisions of the Credit Agreement and borrower's counsel's legal opinion for the transaction.

Our ESOP attorneys are members of the ESOP Association and the National Center For Employee Ownership (NCEO).  We have also lectured frequently on ESOPs and other employee benefit topics and have authored a treatise discussing the benefits of S corporation ESOPs and were contributing authors of the NCEO's Equity Compensation Update publication.