4000 - Advisory Opinions
Amendment of Stock Option Plan Without Shareholder Approval
October 4, 1988
Gerald J. Gervino, Senior Attorney
You have requested an opinion with respect to a bank which has securities registered under Part 335 of our regulations, 12 C.F.R. Part 335 (1988). Your client bank has adopted, with shareholder approval, a stock option plan providing for the granting of stock options as stock appreciation rights ("SARs") to key employees and officers of the bank and its subsidiaries. The stock options and SARs may have terms of up to ten years, as determined by an option committee designated under the plan. The plan provides that options and SARs would be exercised by participants in the plan during the term of their employment and in some instances for a period following termination of employment.
An employee is given a period of two years following retirement in which to exercise an option or SAR. The bank has proposed amending the plan, both prospectively and with respect to existing stock options and SARs, to extend such period to five years following retirement, provided that in no event shall any option or SAR be exercised after its term has expired. In your opinion, the plan currently meets the requirement of section 335.411(c) of our regulations for transactions under the plan to be exempt, to the extent permitted under our regulations, from the provisions of section 16(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78p (1982). One of the requirements of this regulation is that any amendment which would materially increase the benefits accruing to participants under the plan must be approved by the shareholders of the bank. 12 C.F.R. § 335.411(c)(1)(ii)(B)(1). You have advised your client bank that the extension of the period following retirement during which options and SARs can be exercised from two years to five years does not constitute a material increase in the benefits accruing to participants under the plan, and thus does not require shareholder approval. In addition, you have advised your client bank that such an amendment would not commence a new six-month holding period for the banks existing options and SARs under the plan, as provided in 12 C.F.R. § 335.411(c)(5)(ii). You request our concurrence with your view.
Under the factual situation which you have stated, we see no reason to hold a contrary view from that contained in your opinion insofar as our regulations are concerned. However, we wish to caution you that any set of facts differing from those set out above, or including relevant facts that are not stated above, might produce a very different opinion on our part.