Opinion ID: 72378
Heading Depth: 3
Heading Rank: 1

Heading: The Genesis of the Polaroid ESOP

Text: 1 An employee stock ownership plan is an ERISA plan which invests primarily in the employer's stock. See 29 U.S.C. § 1107(d)(6)(A). In 1988, Polaroid was the subject of a hostile takeover attempt by Shamrock Acquisitions, III, Inc. (Shamrock). Partly in response to the takeover threat, Polaroid established an ESOP called the Polaroid Stock Equity Plan.2 Eventually Polaroid named Citizens & Southern Trust Company, later known as NationsBank, as the trustee of the ESOP. Sovran Capital Management Corporation was retained to provide investment advice to NationsBank. At its inception, the Polaroid ESOP held over 9.7 million shares of newly-issued Polaroid common stock, constituting 13.4% of Polaroid's common stock. The ESOP shares were purchased with a $15 million cash contribution from Polaroid and $285 million that Polaroid loaned the ESOP.3 Polaroid funded the ESOP by imposing a 5% pay cut and reducing benefits. ESOP shares purchased with Polaroid's cash contribution were allocated to accounts for ESOP participants in proportion to each participant's compensation. ESOP shares that were purchased with the loaned funds were held and continue to be held in a suspense account, the Unallocated Common Stock Account, as collateral for the loan. As the ESOP makes loan payments to Polaroid (with contributions from Polaroid), shares are released from the Unallocated Common Stock Account and allocated to the individual participants' accounts in proportion to each participant's compensation.