1042 & ESOP termination

[Guest tcroscut]

An ESOP obtained stock from 2 shareholders in a 1042 transaction in 2001. The sponsor company has recently hit hard times and is contemplating the termination of the ESOP. Participants would become 100% vested upon termination and distributions would be made in cash. My question is whether termination of the ESOP and distribution to Participants in cash would be a "disposition" under section 1042 , such that the sponsor company would incur an excise tax on the original 1042 transaction (because the stock will not have been held for the required 3 year period)? I would appreciate any input anyone has on this issue. Thanks.