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4000 - Advisory Opinions


Change in Bank Control Act: Applicability to a Transaction Involving ESOP

FDIC--94--57

December 8, 1994

Barbara A. Monheit, Deputy Regional Counsel

This responds to your letter of November 4, 1994 in which you request an opinion from the FDIC concerning the applicability of the Change in Bank Control Act ("CBCA") to a transaction involving your client, Company "A", and Company "B" which Company "A" controls. On August 14, 1993 you sought an opinion from the FDIC about certain proposed transactions involving the securities of Company "A", the Co. "A" Employee Stock Ownership Plan ("ESOP") and the Company "A" employee benefit plan trust ("Funding Trust"). In response, an FDIC staff opinion was issued to you on September 8, 1993.

Your letter of November 4, 1994 indicates that since August 13, 1993, the total number of voting common securities of Co. "A" ("Common Shares") issued and outstanding has increased due to the exercise of various stock options. As a result, the number of Common Shares attributable to the Funding Trust and ESOP now represents a smaller percentage of the total outstanding shares than it did in 1993. Specifically, today the ESOP/Funding Trust Common Shares represent 20.35% of the potentially outstanding shares, compared to 21.16% of the potentially outstanding shares as of September 8, 1993. You also indicated that two of the three earlier proposed transactions have not occurred to date.

As indicated in your November 4, 1994 letter, the ESOP now seeks to acquire additional Common Shares in open market transactions so as to accumulate Common Shares at a market price that is currently perceived to be attractive. This would be accomplished through two proposed transactions. Prior to consummating these transactions, however, you wish to obtain our concurrence that two proposed transactions can occur without causing a change of control which would require a notice under CBCA.

Your November 4, 1993 letter reaffirms that all Common Shares held by the ESOP or Funding Trust would continue to have "pass through" voting rights as described in prior correspondence. Without limitations, we understand this to mean the following: Although voting and non-voting shares will be held in the names of the ESOP and the Funding Trust, neither entity will have the power to vote such shares. Voting shares, including those that are converted, would not be voted as a block, but in accordance with voting instructions given by the ESOP participants to whom shares have been allocated. No single allocated shareholder holds, or, under the proposed transactions, will hold an amount of allocated shares that would create a presumption of control. No employees have agreed to vote, or are voting, their respective allocated shares in concert. Unallocated shares are voted on a pro rata basis in the same manner as the allocated shares, not as a block.

In the first proposed transaction, the Funding Trust would purchase 800,000 Common Shares in open market transactions. Prior to the purchase, the funding Trust would surrender 200,000 Preferred Shares to Co "A" in exchange for debt reduction. The effect of these transactions would be that the total number of Common Shares into which the Preferred Shares held by the Funding Trust can be converted is reduced by 800,000, and the number of Common Shares actually held by the Funding Trust is increased by 800,000. The ESOP and Funding Trust would not hold, in the aggregate, any larger position than they held before the transactions. Consequently, the aggregate number of Common Shares that may potentially be held by the ESOP and the Funding Trust would not be increased from the number addressed in our September 8, 1993 letter.

In reliance on the representations in your correspondence, it is our view that the purchase of the 800,000 Common Shares in conjunction with the surrender of 200,000 Preferred Shares would not require a CBCA notice.

In the second proposed transaction, the ESOP would purchase 215,000 Common Shares in open market transactions. Such purchase would result in the ESOP/Funding Trust holding a total number of Common Shares (and Preferred Shares convertible into a number of Common Shares) that is the same percentage as addressed in our September 8, 1993 letter.

In reliance on the representations in your correspondence, it is our view that the purchase of the 215,000 Common Shares in open market transactions would not require a CBCA notice.

These conclusions are limited to the facts discussed and should not be interpreted as an endorsement of any transaction or an indication of our views on any other transaction or other issues arising from the proposed transactions. They are the views of the FDIC staff and therefore are advisory in nature. If you have any questions, please call Sandra Comenetz at (202) 898-3582.


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