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4000 - Advisory Opinions

12 C.F.R. Part 335--Insider Trading--Employee Savings Plan


May 12, 1989

Gerald J. Gervino, Senior Attorney

In your letter of April 14, 1989, you request our confirmation of your interpretation of section 16(a) and 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et. seq, (1982) ("Exchange Act"), that they apply to two of *** ("Bank") employee-benefit plans.

The Bank's employee savings plan ("ESP") is a tax-qualified defined contribution plan under section 401(k) of the Internal Revenue Code of 1986, as amended (Code). ESP is administered by a committee of individuals ("committee") appointed by the Bank's board of directors.

Participants' rights are vested immediately. Benefits are payable as a result of the participant's death, disability, retirement or other termination of employment. Certain in-service withdrawals are permitted if a participant incurs substantial hardship (as defined in the Code) or the plan provides for investment choices between an equity fund, a guaranteed fund, and a fund consisting entirely of stock. Non-participants may change their investment percentages accordingly. Participants direct the voting of the stock. Distributions are generally made in cash, although a participant may elect to receive in kind distributions. A second supplemental savings plan is maintained by the bank. However, no actual investments, purchases or sales of securities are ever made under that plan.

You request our concurrence with the following conclusions:

1. Corporate insiders participating in the ESP need not file reports pursuant to section 16(a) with respect to their interests in stock held in the ESP trust (other than in a footnote to reports otherwise required under that section).

2. Corporate insiders need not report under section 16(a) the following transactions taking place within the ESP trust:

a.  participant and company contributions under the ESP (including rollovers from another plan);

b.  ESP trustee purchases of stock for use in connection with the plan;

c.  allocations of stock to the individual accounts of corporate insiders and vesting of their rights;

d.  elections by corporate insiders to reallocate their investments among different ESP funds quarterly;

e.  elections to defer distributions, elections to take distributions as a lump sum, in installments, or in the form of an annuity, and elections by corporate insiders to make cash withdrawals from the ESP and the sale of stock by the trustee to fund such withdrawals;

f.  elections by corporate insiders to obtain loans from the ESP;

g.  the constructive use by a corporate insider of stock beneficially owned under the ESOP to pay the purchase price upon the exercise of stock options; and

h.  the exercise of voting rights of the stock by ESP participants.

3. The bank's corporate insiders are exempt from the liability provisions of section 16(b) for the transactions described in conclusions 1 and 2 by virtue of 12 C.F.R. § 335.410(i).

4. As *** a Supplemental Savings Plan does not involve the purchase or sale of stock, corporate insiders may participate in the supplemental plan without the necessity of filing any section 16(a) reports (not even in a footnote to reports otherwise required under that section).

We will not object if the bank's officers and directors, in reliance on your opinion as counsel that § 335.410(g)(2) is applicable, do not file reports with respect to intra-plan transactions. Our position is conditioned upon the factual circumstance that the aggregate interest of statutory insiders held under the plan is less than 20% of the value of the securities having a regularly ascertainable market value held by the plan. It is understood that any other reports filed by a participant under section 16(a) of the Exchange Act will indicate the person's participation in the plan and state that such report does not include shares that may have accrued under the plan. On withdrawal or distribution of shares, the ownership reports required by section 16(a) should be filed. Further, in the event that the plan should ever hold more than 10% of the outstanding common stock of the company in trust, the trust and trustee will be required to file the reports required by section 16(a). We express no view concerning the availability of section 335.410(i) of our regulations since it is designed to be self-effecting. We also note that in some circumstances filings might be required under section 13(d) of the Exchange Act.

Because these positions are based upon representations made to us in your letter, we note that any different facts or conditions might require a different conclusion. Since we have made no independent examination of the facts presented here, this letter should not be construed as setting forth a legal conclusion.

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