Non-publicly traded company with ESOP is being sold

[katieinny]

A non-publicly traded company that is owned 30% by the ESOP and 70% by the founder is being sold. According to the Plan, Participants are entitled to direct the Trustee to vote their share of company stock in the case of a sale of substantially all assets of the business, so it would seem that the sale must be disclosed sooner rather than later.  What does that disclosure consist of? At this stage, we are reluctant to provide more detail than we need to. 

[ESOP Guy]

I am not trying to dodge the question but I would recommend they go talk to an ERISA attorney that knows ESOP law.  I am constantly shocked based on how plain that language in plans/law is written how often an attorney comes back and says there doesn't need to be a vote.

When and how much you disclose can also depend on the at what stage in the sale process the company is at.  For example most of the time management is rightfully reluctant to tell about a sale if it is still in the negotiation or due diligence phase as the deal could still fall apart.  It seems like there is no duty to tell the people at those stages. 

It really is a vote to accept a valid, binding offer or not is what the rules are about.

As an aside and you might know this but it is always worth pointing out.  Be careful making any kind of distributions to people if the sale price per share could be larger than the last appraised price which is often what people are paid at.  There have been court cases over this issue where the people paid claimed had they known they could get more they would not have consented to the payment. 

All of these issues need the help of a good ERISA attorney who knows ESOP law.  No one likes to pay attorneys but in this case it is cheap insurance in my mind. 

[A Shot in the Dark]

I concur with ESOP Guy.  It is imperative that your client seek ERISA Counsel with ESOP expertise!

When it comes to pass through voting there are some very peculiar rules as ESOP Guys states.

If in fact a vote of the participants is required a "Request for Voting Instruction/Transaction Disclosure Statement" will need to be developed and delivered to the ESOP Participants in a timely fashion before the vote takes place.  This sort of document is quite detailed relating to the terms of the transaction, etc.

[katieinny]

Thank you both for your comments.  I'll start making some calls.

[JRN]

Note: If transaction is structured as a stock sale rather than an asset sale, DOL has opined that decision to sell is an investment decision that is to be made by trustee; not pass through participant voting.