If an ESOP is terminated in connection with a merger and the consideration for the merger was all cash - do participants in the terminated ESOP have the right to request a stock distribution? Does the answer change is the deal was part stock and part cash? Since ESOP participants were given the right to choose cash or stock merger consideration - is the company obligated to give them a second choice?

Technically, employees must be given the right to demand their distributions from an EsOP in the form of employer stock UNLESS the company is an S corporation, finanical institution, the company's bylaw's or articles of incorporation state that "all or substantially all" of the company's stock must be owned by employees. My answer may change if the company exchanges its stock for buyer's stock. You should consult an qualified ESOP attorney.

Does it really matter that the ees have the right to receive stock? If the Esop tenders the stock the employees will recieve cash which can be rolled over. If the the ees receive stock upon termination then they will have to tender the stock back to the buyer to receive the cash. Since there is no NUA which can be taxed as capital gain for a distribution upon termination of the plan there is no benefit to be gained by receiving a distribution from the plan in stock.

Look at the ESOP termination language. Many ESOPs provide for cash distributions upon termination pursuant to IRC Reg. 1.411(d)-4. Can't remember the subpart, but there is a section that refers to inkind distributions and it includes a stock bonus example which is subject to the same in-kind distribution rules as an ESOP.