sale of company with nonleveraged ESOP

[Guest JBeck]

Company B maintains an ESOP. Company A buys company B, including the stock in the ESOP for all cash. What is the obligation of Trustee of company B's ESOP to purchase stock of company A? Can the ESOP be terminated and only cash be distributed to participants notwithstanding the fact the ESOP refers to stock distributions? After the sale, can the ESOP be amended to eliminate the stock distribution option and just provide for cash distributions?

[RLL]

The Trustee of the Company B ESOP would be "obligated" to buy Company A stock only if the ESOP were amended to so provide and if there is Company A stock available for purchase (it might not be available to the Trustee if Company A is not publicly traded).

The ESOP can be terminated in connection with the transaction, with cash distributions being provided to participants. The ESOP should be amended to eliminate the right of participants to receive distributions in the form of Company stock, as permitted under IRC Sec. 411(d)(6)©.