Eliminating Right to Employer Stock Distribution

[Guest friedbrain]

I'm working on a merger where one of the companies has a leveraged ESOP. In connection with the merger, can the ESOP eliminate the participant's right to demand a distribution of employer stock under Reg. 1.411(d)-1 Q-2(d)(1)(iv)? Specifically, does a merger qualifies as a "sale of substantially all of the stock of the employer"? I assume it does but was hoping for a second set of eyeballs on this issue. Also, would the general right to modify distribution options on a non-discrim. basis under Sec. 411(d)(6)© also is enough to support eliminating the participants' right to demand a distribution of employer stock?

[RLL]

friedbrain ---

You can eliminate the right of ESOP participants to demand benefit distributions in employer stock under IRC section 411(d)(6)© only if the ESOP receives its merger consideration in the form of cash. If the merger results in the ESOP's exchanging its stock for stock of the merger survivor, that stock becomes the employer stock which is subject to IRC section 409(h)(1).