Opinion ID: 794065
Heading Depth: 2
Heading Rank: 1

Heading: Assembling a Team

Text: 3 In December 1993, the sellers decided to assemble a team to develop an ESOP for CommutAir. Sullivan contacted U.S. Trust, a company with substantial experience as an ESOP trustee, and spoke with Norman Goldberg. At this time, it was the sellers' belief, based on the investment bankers' estimates, that CommutAir had a total equity value of $200 million. The owners of CommutAir wanted to sell the proposed ESOP approximately 30% of their company for $60 million. Goldberg informed Sullivan that U.S. Trust would require an independent appraisal of CommutAir if it were hired to represent the ESOP and that this process would entail significant investigation of the company. Goldberg gave Sullivan the name of several companies, including Houlihan, Lokey, Howard & Zukin (HLHZ), that provided financial appraisal services. 4 On January 14, 1994, the sellers convened a meeting with the team slated to represent the proposed ESOP; this meeting was attended by representatives of CommutAir, U.S. Trust, KMC, and HLHZ, as well as investment bankers. At this meeting, a banker from Alex Brown & Sons gave a presentation regarding CommutAir and outlined the general terms of the proposed transaction. On January 17, 1994, the sellers circulated a draft offer stating that they would sell 30% of the company to the ESOP in the form of convertible preferred stock for $60 million. The offer anticipated that the purchase would be financed by a cash loan from CommutAir to the ESOP that would be paid to the sellers and by promissory notes issued to the sellers for the balance of the purchase price. On January 19th, the sellers submitted their draft offer to Goldberg and, on January 20th, a special fiduciary committee officially engaged U.S. Trust as trustee for the proposed ESOP. 5 U.S. Trust then retained KMC as legal counsel for the transaction. KMC's primary responsibilities were to conduct a due diligence review of CommutAir and to assist in negotiating revisions in the terms of the securities to be purchased by the ESOP. U.S. Trust also retained HLHZ as an independent financial advisor. HLHZ's primary responsibility was to evaluate the financial terms of the transaction, including the value of the CommutAir securities sold to the ESOP, and to render a Fairness Opinion that provided a detailed analysis of whether the transaction was fair to the ESOP.