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8000 - Miscellaneous Statutes and Regulations


§ 240.16a--1 Definition of terms.

Terms defined in this rule shall apply solely to section 16 of the act and the rules thereunder. These terms shall not be limited to section 16(a) of the act but also shall apply to all other subsections under section 16 of the act.

(a)  The term beneficial owner shall have the following applications:

(1)  Solely for purposes of determining whether a person is a beneficial owner of more than ten percent of any class of equity securities registered pursuant to section 12 of the act, the term "beneficial owner" shall mean any person who is deemed a beneficial owner pursuant to section 13(d) of the act and the rules thereunder; provided, however, that the following institutions or persons shall not be deemed the beneficial owner of securities of such class held for the benefit of third parties or in customer or fiduciary accounts in the ordinary course of business (or in the case of an employee benefit plan specified in paragraph (a)(1)(vi) of this section, of securities of such class allocated to plan participants where participants have voting power) as long as such shares are acquired by such institutions or persons without the purpose or effect of changing or influencing control of the issuer or engaging in any arrangement subject to rule 13d--3(b) (§ 240.13d--3(b)):

(i)  A broker or dealer registered under section 15 of the Act (15 U.S.C. 78o);

(ii)  A bank as defined in section 3(a)(6) of the Act (15 U.S.C. 78c);

(iii)  An insurance company as defined in section 3(a)(19) of the Act (15 U.S.C. 78c);

(iv)  An investment company registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a--8);

(v)  Any person registered as an investment adviser under Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b--3) or under the laws of any state;

(vi)  An employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. 1001 et seq. ("ERISA") that is subject to the provisions of ERISA, or any such plan that is not subject to ERISA that is maintained primarily for the benefit of the employees of a state or local government or instrumentality, or an endowment fund;

(vii)  A parent holding company or control person, provided the aggregate amount held directly by the parent or control person, and directly and indirectly by their subsidiaries or affiliates that are not persons specified in paragraphs (a)(1)(i) through (ix), does not exceed one percent of the securities of the subject class;

(viii)  A savings association as defined in Section 3(b) of the Federal Deposit Insurance Act (12 U.S.C. 1813);

(ix)  A church plan that is excluded from the definition of an investment company under section 3(c)(14) of the Investment Company Act of 1940 (15 U.S.C. 80a--3); and

(x)  A group, provided that all the members are persons specified in § 240.16a--1(a)(1)(i) through (ix).

(xi)  A group, provided that all the members are persons specified in § 240.16a--1(a)(1)(i) through (vii).

Note to paragraph (a). Pursuant to this section, a person deemed a beneficial owner of more than ten percent of any class of equity securities registered under section 12 of the act would file a form 3 (§ 249.103), but the securities holdings disclosed on form 3, and changes in beneficial ownership reported on subsequent forms 4 (§ 249.104) or 5 (§ 249.105), would be determined by the definition of "beneficial owner" in paragraph (a)(2) of this section.

(2)  Other than for purposes of determining whether a person is a beneficial owner of more than ten percent of any class of equity securities registered under section 12 of the act, the term beneficial owner shall mean any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the equity securities, subject to the following:

(i)  The term pecuniary interest in any class of equity securities shall mean the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities.

(ii)  The term indirect pecuniary interest in any class of equity securities shall include, but not be limited to:

(A)  Securities held by members of a person's immediate family sharing the same household; provided, however, that the presumption of such beneficial ownership may be rebutted; see also § 240.16a--1(a)(4);

(B)  A general partner's proportionate interest in the portfolio securities held by a general or limited partnership. The general partner's proportionate interest, as evidenced by the partnership agreement in effect at the time of the transaction and the partnership's most recent financial statements, shall be the greater of:

(1)  The general partner's share of the partnership's profits, including profits attributed to any limited partnership interests held by the general partner and any other interests in profits that arise from the purchase and sale of the partnership's portfolio securities; or

(2)  The general partner's share of the partnership capital account, including the share attributable to any limited partnership interest held by the general partner.

(C)  A performance-related fee, other than an asset-based fee, received by any broker, dealer, bank, insurance company, investment company, investment adviser, investment manager, trustee or person or entity performing a similar function; provided, however, that no pecuniary interest shall be present where:

(1)  The performance-related fee, regardless of when payable, is calculated based upon net capital gains and/or net capital appreciation generated from the portfolio or from the fiduciary's overall performance over a period of one year or more; and

(2)  Equity securities of the issuer do not account for more than ten percent of the market value of the portfolio. A right to a nonperformance-related fee alone shall not represent a pecuniary interest in the securities;

(D)  A person's right to dividends that is separated or separable from the underlying securities. Otherwise, a right to dividends alone shall not represent a pecuniary interest in the securities;

(E)  A person's interest in securities held by a trust, as specified in § 240.16a--8(b); and

(F)  A person's right to acquire equity securities through the exercise or conversion of any derivative security, whether or not presently exercisable.

(iii)  A shareholder shall not be deemed to have a pecuniary interest in the portfolio securities held by a corporation or similar entity in which the person owns securities if the shareholder is not a controlling shareholder of the entity and does not have or share investment control over the entity's portfolio.

(3)  Where more than one person subject to section 16 of the act is deemed to be a beneficial owner of the same equity securities, all such persons must report as beneficial owners of the securities, either separately or jointly, as provided in § 240.16a--3(j). In such cases, the amount of short-swing profit recoverable shall not be increased above the amount recoverable if there were only one beneficial owner.

(4)  Any person filing a statement pursuant to section 16(a) of the act may state that the filing shall not be deemed an admission that such person is, for purposes of section 16 of the act or otherwise, the beneficial owner of any equity securities covered by the statement.

(5)  The following interests are deemed not to confer beneficial ownership for purposes of section 16 of the act:

(i)  Interests in portfolio securities held by any holding company registered under the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a et seq.);

(ii)  Interests in portfolio securities held by any investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a--1 et seq.); and

(iii)  Interests in securities comprising part of a broad-based, publicly traded market basket or index of stocks, approved for trading by the appropriate federal governmental authority.

(b)  The term call equivalent position shall mean a derivative security position that increases in value as the value of the underlying equity increases, including, but not limited to, a long convertible security, a long call option, and a short put option position.

(c)  The term derivative securities shall mean any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege at a price related to an equity security, or similar securities with a value derived from the value of an equity security, but shall not include:

(1)  Rights of a pledgee of securities to sell the pledged securities;

(2)  Rights of all holders of a class of securities of an issuer to receive securities pro rata, or obligations to dispose of securities, as a result of a merger, exchange offer, or consolidation involving the issuer of the securities;

(3)  Rights or obligations to surrender a security, or have a security withheld, upon the receipt or exercise of a derivative security or the receipt or vesting of equity securities, in order to satisfy the exercise price or the tax withholding consequences of receipt, exercise or vesting;

(i)  Are awarded pursuant to an employee benefit plan satisfying the provisions of § 240.16b--3(a)(1), (a)(2) and (c)(2); or

(ii)  May be redeemed or exercised only upon a fixed date or dates at least six months after award, or incident to death, retirement, disability or termination of employment;

(4)  Interests in broad-based index options, broad-based index futures, and broad-based publicly traded market baskets of stocks approved for trading by the appropriate federal governmental authority;

(5)  Interests or rights to participate in employee benefit plans of the issuer;

(6)  Rights with an exercise or conversion privilege at a price that is not fixed; or

(7)  Options granted to an underwriter in a registered public offering for the purpose of satisfying over-allotments in such offering.

(d)  The term equity security of such issuer shall mean any equity security or derivative security relating to an issuer, whether or not issued by that issuer.

(e)  The term immediate family shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships.

(f)  The term officer shall mean an issuer's president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president of the issuer in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the issuer. Officers of the issuer's parent(s) or subsidiaries shall be deemed officers of the issuer if they perform such policy-making functions for the issuer. In addition, when the issuer is a limited partnership, officers or employees of the general partner(s) who perform policy-making functions for the limited partnership are deemed officers of the limited partnership. When the issuer is a trust, officers or employees of the trustee(s) who perform policy-making functions for the trust are deemed officers of the trust.

NOTE:  "Policy-making function" is not intended to include policy-making functions that are not significant. If pursuant to item 401(b) of Regulation S--K (§ 229.401(b)) the issuer identifies a person as an ""executive officer,'' it is presumed that the Board of Directors has made that judgment and that the persons so identified are the officers for purposes of section 16 of the act, as are such other persons enumerated in this paragraph (f) but not in item 401(b).

(g)  The term portfolio securities shall mean all securities owned by an entity, other than securities issued by the entity.

(h)  The term put equivalent position shall mean a derivative security position that increases in value as the value of the underlying equity decreases, including, but not limited to, a long put option and a short call option position.

[Codified to 17 C.F.R. § 240.16a--1]

[Section 240.16a--1 added at 56 Fed. Reg. 7265, February 21, 1991, effective May 1, 1991; amended at 56 Fed. Reg. 19927, May 1, 1991; 61 Fed. Reg. 30391, June 14, 1996, effective August 15, 1996; 62 Fed. Reg. 2868, January 16, 1998, effective February 17, 1998]

§ 240.16a--2 Persons and transactions subject to section 16.

Any person who is the beneficial owner, directly or indirectly, of more than ten percent of any class of equity securities ("ten percent beneficial owner") registered pursuant to section 12 of the Act (15 U.S.C. 78l), any director or officer of the issuer of such securities, and any person specified in section 17(a) of the Public Utility Holding Company Act of 1935 (15 U.S.C. 79q(a)) or section 30(h) of the Investment Company Act of 1940 (15 U.S.C. 80a-29(h)), including any person specified in § 240.16a--8, shall be subject to the provisions of section 16 of the Act (15 U.S.C. 78p). The rules under section 16 of the act apply to any class of equity securities of an issuer whether or not registered under section 12 of the act. The rules under section 16 of the act also apply to non-equity securities as provided by the Public Utility Holding Company Act of 1935 and the Investment Company Act of 1940. With respect to transactions by persons subject to section 16 of the act:

(a)  A transaction(s) carried out by a director or officer in the six months prior to the director or officer becoming subject to section 16 of the act shall be subject to section 16 of the act and reported on the first required form 4 only if the transaction(s) occurred within six months of the transaction giving rise to the form 4 filing obligation and the director or officer became subject to section 16 of the act solely as a result of the issuer registering a class of equity securities pursuant to section 12 of the act.

(b)  A transaction(s) following the cessation of director or officer status shall be subject to section 16 of the act only if:

(1)  Executed within a period of less than six months of an opposite transaction subject to section 16(b) of the act that occurred while that person was a director or officer; and

(2)  Not otherwise exempted from section 16(b) of the act pursuant to the provisions of this chapter.

Note to Paragraph (b):  For purposes of this paragraph, an acquisition and a disposition each shall be an opposite transaction with respect to the other.

(c)  The transaction that results in a person becoming a ten percent beneficial owner is not subject to section 16 of the act unless the person otherwise is subject to section 16 of the act. A ten percent beneficial owner not otherwise subject to section 16 of the act must report only those transactions conducted while the beneficial owner of more than ten percent of a class of equity securities of the issuer registered pursuant to section 12 of the act.

(d)(1)  Transactions by a person or entity shall be exempt from the provisions of section 16 of the act for the 12 months following appointment and qualification, to the extent such person or entity is acting as:

(i)  Executor or administrator of the estate of a decedent;

(ii)  Guardian or member of a committee for an incompetent;

(iii)  Receiver, trustee in bankruptcy, assignee for the benefit of creditors, conservator, liquidating agent, or other similar person duly authorized by law to administer the estate or assets of another person; or

(iv)  Fiduciary in a similar capacity.

(2)  Transactions by such person or entity acting in a capacity specified in paragraph (d)(1) of this section after the period specified in that paragraph shall be subject to section 16 of the act only where the estate, trust or other entity is a beneficial owner of more than ten percent of any class of equity security registered pursuant to section 12 of the act.

[Codified to 17 C.F.R. § 240.16a--2]

[Section 240.16a--2 added at 56 Fed. Reg. 7265, February 21, 1991, effective May 1, 1991; 61 Fed. Reg. 30392, June 14, 1996, effective August 15, 1996; 67 Fed. Reg. 43535, June 28, 2002, effective July 8, 2002]

§ 240.16a--3  Reporting transactions and holdings.

(a)  Initial statements of beneficial ownership of equity securities required by section 16(a) of the act shall be filed on form 3. Statements of changes in beneficial ownership required by that section shall be filed on form 4. Annual statements shall be filed on form 5. At the election of the reporting person, any transaction required to be reported on form 5 may be reported on an earlier filed form 4. All such statements shall be prepared and filed in accordance with the requirements of the applicable form.

(b)  A person filing statements pursuant to section 16(a) of the act with respect to any class of equity securities registered pursuant to section 12 of the act need not file an additional statement on form 3:

(1)  When an additional class of equity securities of the same issuer becomes registered pursuant to section 12 of the act; or

(2)  When such person assumes a different or an additional relationship to the same issuer (for example, when an officer becomes a director).

(c)  Any issuer that has equity securities listed on more than one national securities exchange may designate one exchange as the only exchange with which reports pursuant to section 16(a) of the act need be filed. Such designation shall be made in writing and shall be filed with the Commission and with each national securities exchange on which any equity security of the issuer is listed at the time of such election. The reporting person's obligation to file reports with each national securities exchange on which any equity security of the issuer is listed shall be satisfied by filing with the exchange so designated.

(d)  Any person required to file a statement with respect to securities of a single issuer under both section 16(a) of the Act (15 U.S.C. 78p(a)) and either section 17(a) of the Public Utility Holding Company Act of 1935 (15 U.S.C. 79q(a)) or section 30(h) of the Investment Company Act of 1940 (15 U.S.C. 80a-29(h)) may file a single statement containing the required information, which will be deemed to be filed under both acts.

(e)  Any person required to file a statement under section 16(a) of the act shall, not later than the time the statement is transmitted for filing with the Commission, send or deliver a duplicate to the person designated by the issuer to receive such statements, or, in the absence of such a designation, to the issuer's corporate secretary or person performing equivalent functions.

(f)(1)  A form 5 shall be filed by every person who at any time during the issuer's fiscal year was subject to section 16 of the act with respect to such issuer, except as provided in paragraph (f)(2) of this section. The form shall be filed within 45 days after the issuer's fiscal year end, and shall disclose the following holdings and transactions not reported previously on forms 3, 4 or 5:

(i)  All transactions during the most recent fiscal year that were exempt from section 16(b) of the act, except:

(A)  Exercises and conversions of derivative securities exempt under either § 240.16b--3 or § 240.16b--6(b), and any transaction exempt under § 240.16b--3(d), § 240.16b--3(e), or § 240.16b--3(f) (these are required to be reported on form 4);

(B)  Transactions exempt from section 16(b) of the Act pursuant to § 240.16b--3(c), which shall be exempt from section 16(a) of the act; and

(C)  Transactions exempt from section 16(a) of the Act pursuant to another rule;

(ii)  Transactions that constituted small acquisitions pursuant to § 240.16a--6(a);

(iii)  All holdings and transactions that should have been reported during the most recent fiscal year, but were not; and

(iv)  With respect to the first form 5 requirement for a reporting person, all holdings and transactions that should have been reported in each of the issuer's last two fiscal years but were not, based on the reporting person's reasonable belief in good faith in the completeness and accuracy of the information.

(2)  Notwithstanding the above, no form 5 shall be required where all transactions otherwise required to be reported on the form 5 have been reported before the due date of the form 5.

NOTE:  Persons no longer subject to section 16 of the act, but who were subject to the Section at any time during the issuer's fiscal year, must file a form 5 unless paragraph (f)(2) is satisfied. See also § 240.16a--2(b) regarding the reporting obligations of persons ceasing to be officers or directors.

(g)(1)  A form 4 must be filed to report: All transactions not exempt from section 16(b) of the Act; All transactions exempt from section 16(b) of the Act pursuant to § 240.16b--3(d), § 240.16b--3(e), or § 240.16b--3(f); and all exercises and conversions of derivative securities, regardless of whether exempt from section 16(b) of the Act. Form 4 must be filed before the end of the second business day following the day on which the subject transaction has been executed.

(2)  Solely for purposes of section 16(a)(2)(C) of the Act and paragraph (g)(1) of this section, the date on which the executing broker, dealer or plan administrator notifies the reporting person of the execution of the transaction is deemed the date of execution for a transaction where the following conditions are satisfied:

(i)  the transaction is pursuant to a contract, instruction or written plan for the purchase or sale of equity securities of the issuer (as defined in § 16a--1(d)) that satisfies the affirmative defense conditions of § 240.10b5--1(c) of this chapter; and

(ii)  the reporting person does not select the date of execution.

(3)  Solely for purposes of section 16(a)(2)(C) of the Act and paragraph (g)(1) of this section, the date on which the plan administrator notifies the reporting person that the transaction has been executed is deemed the date of execution for a discretionary transaction (as defined in § 16b--3(b)(1)) for which the reporting person does not select the date of execution.

(4)  In the case of the transactions described in paragraphs (g)(2) and (g)(3) of this section, if the notification date is later than the third business day following the trade date of the transaction, the date of execution is deemed to be the third business day following the trade date of the transaction.

(5)  At the option of the reporting person, transactions that are reportable on form 5 may be reported on form 4, so long as the form 4 is filed no later than the due date of the form 5 on which the transaction is otherwise required to be reported.

(h)  The date of filing with the Commission shall be the date of receipt by the Commission.

(i)  Signatures. Where section 16 of the Act, or the rules or forms thereunder, require a document filed with or furnished to the Commission to be signed, such document shall be manually signed, or signed using either typed signatures or duplicated or facsimile versions of manual signatures. Where typed, duplicated or facsimile signatures are used, each signatory to the filing shall manually sign a signature page or other document authenticating, acknowledging or otherwise adopting his or her signature that appears in the filing. Such document shall be executed before or at the time the filing is made and shall be retained by the filer for a period of five years. Upon request, the filer shall furnish to the Commission or its staff a copy of any or all documents retained pursuant to this section.

(j)  Where more than one person subject to section 16 of the act is deemed to be a beneficial owner of the same equity securities, all such persons must report as beneficial owners of the securities, either separately or jointly. Where persons in a group are deemed to be beneficial owners of equity securities pursuant to § 240.16a--1(a)(1) due to the aggregation of holdings, a single form 3, 4 or 5 may be filed on behalf of all persons in the group. Joint and group filings must include all required information for each beneficial owner, and such filings must be signed by each beneficial owner, or on behalf of such owner by an authorized person.

(k)  Any issuer that maintains a corporate Web site shall post on that Web site by the end of the business day after filing any Form 3, 4 or 5 filed under section 16(a) of the Act as to the equity securities of that issuer. Each such form shall remain accessible on such issuer's Web site for at least a 12-month period. In the case of an issuer that is an investment company and that does not maintain its own Web site, if any of the issuer's investment adviser, sponsor, depositor, trustee, administrator, principal underwriter, or any affiliated person of the investment company maintains a Web site that includes the name of the issuer, the issuer shall comply with the posting requirements by posting the forms on one such Web site.

[Codified to 17 C.F.R. § 240.16a--3]

[Section 240.16a--3 added at 56 Fed. Reg. 7265, February 21, 1991, effective May 1, 1991; amended at 60 Fed. Reg. 26622, May 17, 1995, effective June 7, 1995; 61 Fed. Reg. 30404 and 30392, June 14, 1996, effective August 15, 1996; 61 Fed. Reg. 30404, June 14, 1996, effective July 15, 1996; 67 Fed. Reg. 43535, June 28, 2002, effective July 8, 2002; 67 Fed. Reg. 56467, September 3, 2002, effective August 29, 2002; 68 Fed. Reg. 25799, May 13, 2003, effective June 30, 2003]

§ 240.16a--4 Derivative securities.

(a)  For purposes of section 16 of the act, both derivative securities and the underlying securities to which they relate shall be deemed to be the same class of equity securities, except that the acquisition or disposition of any derivative security shall be separately reported.

(b)  The exercise or conversion of a call equivalent position shall be reported on form 4 and treated for reporting purposes as:

(1)  A purchase of the underlying security; and

(2)  A closing of the derivative security position.

(c)  The exercise or conversion of a put equivalent position shall be reported on form 4 and treated for reporting purposes as:

(1)  A sale of the underlying security; and

(2)  A closing of the derivative security position.

(d)  The disposition or closing of a long derivative security position, as a result of cancellation or expiration, shall be exempt from section 16(a) of the act if exempt from section 16(b) of the act pursuant to § 240.16b--6(d).

Note to § 240.16a--4:  A purchase or sale resulting from an exercise or conversion of a derivative security may be exempt from section 16(b) of the act pursuant to § 240.16b--3 or § 240.16b--6(b).

[Codified to 17 C.F.R. § 240.16a--4]

[Section 240.16a--4 added at 56 Fed. Reg. 7265, February 21, 1991, effective May 1, 1991; amended at 56 Fed. Reg. 19927, May 1, 1991; 61 Fed. Reg. 30392, June 14, 1996, effective August 15, 1996]

§ 240.16a--5 Odd-lot dealers.

Transactions by an odd-lot dealer (a) in odd-lots as reasonably necessary to carry on odd-lot transactions, or (b) in round lots to offset odd-lot transactions previously or simultaneously executed or reasonably anticipated in the usual course of business, shall be exempt from the provisions of section 16(a) of the act with respect to participation by such odd-lot dealer in such transaction.

[Codified to 17 C.F.R. § 240.16a--5]

[Section 240.16a--5 added at 56 Fed. Reg. 7265, February 21, 1991, effective May 1, 1991]

§ 240.16a--6 Small acquisitions.

(a)  Any acquisition of an equity security or the right to acquire such securities, other than an acquisition from the issuer (including an employee benefit plan sponsored by the issuer), not exceeding $10,000 in market value shall be reported on form 5, subject to the following conditions:

(1)  Such acquisition, when aggregated with other acquisitions of securities of the same class (including securities underlying derivative securities, but excluding acquisitions exempted by rule from section 16(b) or previously reported on form 4 or form 5) within the prior six months, does not exceed a total of $10,000 in market value; and

(2)  The person making the acquisition does not within six months thereafter make any disposition, other than by a transaction exempt from section 16(b) of the act.

(b)  If an acquisition no longer qualifies for the reporting deferral in paragraph (a) of this section, all such acquisitions that have not yet been reported must be reported on form 4 before the end of the second business day following the day on which the conditions of paragraph (a) of this section are no longer met.

[Codified to 17 C.F.R. § 240.16a--6]

[Section 240.16a--6 added at 56 Fed. Reg. 7265, February 21, 1991, effective May 1, 1991; 61 Fed. Reg. 30392, June 14, 1996, effective August 15, 1996; 67 Fed. Reg. 56467, September 3, 2002, effective August 29, 2002; 68 Fed. Reg. May 13, 2003, effective June 9, 2003, reporting persons must comply with the electronic filing requirements for beneficial ownership reports filed on or after June 30, 2003, issuers must comply with the Web site posting requirements as to beneficial ownership reports filed on or after June 30, 2003, and magnetic cartridges may not be used as a means of electronic filing after June 27, 2003]

§ 240.16a--7 Transactions effected in connection with a distribution.

(a)  Any purchase and sale, or sale and purchase, of a security that is made in connection with the distribution of a substantial block of securities shall be exempt from the provisions of section 16(a) of the act, to the extent specified in this rule, subject to the following conditions:

(1)  The person effecting the transaction is engaged in the business of distributing securities and is participating in good faith, in the ordinary course of such business, in the distribution of such block of securities; and

(2)  The security involved in the transaction is:

(i)  Part of such block of securities and is acquired by the person effecting the transaction, with a view to distribution thereof, from the issuer or other person on whose behalf such securities are being distributed or from a person who is participating in good faith in the distribution of such block of securities; or

(ii)  A security purchased in good faith by or for the account of the person effecting the transaction for the purpose of stabilizing the market price of securities of the class being distributed or to cover an over-allotment or other short position created in connection with such distribution.

(b)  Each person participating in the transaction must qualify on an individual basis for an exemption pursuant to this section.

[Codified to 17 C.F.R. § 240.16a--7]

[Section 240.16a--7 added at 56 Fed. Reg. 7265, February 21, 1991, effective May 1, 1991]

§ 240.16a--8 Trusts.

(a)  Persons subject to section 16. (1) Trusts. A trust shall be subject to section 16 of the Act with respect to securities of the issuer if the trust is a beneficial owner, pursuant to § 240.16a--1(a)(1), of more than ten percent of any class of equity securities of the issuer registered pursuant to section 12 of the Act ("ten percent beneficial owner").

(2)  Trustees, beneficiaries, and settlors. In determining whether a trustee, beneficiary, or settlor is a ten percent beneficial owner with respect to the issuer:

(i)  Such persons shall be deemed the beneficial owner of the issuer's securities held by the trust, to the extent specified by § 240.16a--1(a)(1); and

(ii)  Settlors shall be deemed the beneficial owner of the issuer's securities held by the trust where they have the power to revoke the trust without the consent of another person.

(b)  Trust holdings and transactions. Holdings and transactions in the issuer's securities held by a trust shall be reported by the trustee on behalf of the trust, if the trust is subject to section 16 of the Act, except as provided below. Holdings and transactions in the issuer's securities held by a trust (whether or not subject to section 16 of the Act) may be reportable by other parties as follows:

(1)  Trusts. The trust need not report holdings and transactions in the issuer's securities held by the trust in an employee benefit plan subject to the Employee Retirement Income Security Act over which no trustee exercises investment control.

(2)  Trustees. If, as provided by § 240.16a--1(a)(2), a trustee subject to section 16 of the act has a pecuniary interest in any holding or transaction in the issuer's securities held by the trust, such holding or transaction shall be attributed to the trustee and shall be reported by the trustee in the trustee's individual capacity, as well as on behalf of the trust. With respect to performance fees and holdings of the trustee's immediate family, trustees shall be deemed to have a pecuniary interest in the trust holdings and transactions in the following circumstances:

(i)  A performance fee is received that does not meet the proviso of § 240.16a--1(a)(2)(ii)(C); or

(ii)  At least one beneficiary of the trust is a member of the trustee's immediate family. The pecuniary interest of the immediate family member(s) shall be attributed to and reported by the trustee.

(3)  Beneficiaries. A beneficiary subject to section 16 of the act shall have or share reporting obligations with respect to transactions in the issuer's securities held by the trust, if the beneficiary is a beneficial owner of the securities pursuant to § 240.16a--1(a)(2), as follows:

Note to Paragraph (b)(3):  Transactions and holdings attributed to a trust beneficiary may be reported by the trustee on behalf of the beneficiary, provided that the report is signed by the beneficiary or other authorized person. Where the transactions and holdings are attributed both to the trustee and trust beneficiary, a joint report may be filed in accordance with § 240.16a--3(j).

(i)  If a beneficiary shares investment control with the trustee with respect to a trust transaction, the transaction shall be attributed to and reported by both the beneficiary and the trust;

(ii)  If a beneficiary has investment control with respect to a trust transaction without consultation with the trustee, the transaction shall be attributed to and reported by the beneficiary only; and

(iii)  In making a determination as to whether a beneficiary is the beneficial owner of the securities pursuant to § 240.16a--1(a)(2), beneficiaries shall be deemed to have a pecuniary interest in the issuer's securities held by the trust to the extent of their pro rata interest in the trust where the trustee does not exercise exclusive investment control.

(4)  Settlors. If a settlor subject to section 16 of the act reserves the right to revoke the trust without the consent of another person, the trust holdings and transactions shall be attributed to and reported by the settlor instead of the trust; Provided, however, That if the settlor does not exercise or share investment control over the issuer's securities held by the trust, the trust holdings and transactions shall be attributed to and reported by the trust instead of the settlor.

(c)  Remainder interests. Remainder interests in a trust are deemed not to confer beneficial ownership for purposes of section 16 of the act, provided that the persons with the remainder interests have no power, directly or indirectly, to exercise or share investment control over the trust.

(d)  A trust, trustee, beneficiary or settlor becoming subject to section 16(a) of the act pursuant to this rule also shall be subject to sections 16(b) and 16(c) of the Act.

[Codified to 17 C.F.R. § 240.16a--8]

[Section 240.16a--8 added at 56 Fed. Reg. 7265, February 21, 1991, effective May 1, 1991; amended at 56 Fed. Reg. 19927, May 1, 1991; 61 Fed. Reg. 30392, June 14, 1996, effective August 15, 1996; 67 Fed. Reg. 56467, September 3, 2002, effective August 29, 2002]

§ 240.16a--9 Stock splits, stock dividends, and pro rata rights.

The following shall be exempt from section 16 of the act:

(a)  The increase or decrease in the number of securities held as a result of a stock split or stock dividend applying equally to all securities of a class, including a stock dividend in which equity securities of a different issuer are distributed; and

(b)  The acquisition of rights, such as shareholder or pre-emptive rights, pursuant to a pro rata grant to all holders of the same class of equity securities registered under section 12 of the Act.

NOTE:  The exercise or sale of a pro rata right shall be reported pursuant to § 240.16a--4 and the exercise shall be eligible for exemption from section 16(b) of the Act pursuant to § 240.16b--6(b).

[Codified to 17 C.F.R. § 240.16a--9]

[Section 240.16a--9 added at 56 Fed. Reg. 7265, February 21, 1991, effective May 1, 1991; 61 Fed. Reg. 30393, June 14, 1996, effective August 15, 1996]

§ 240.16a--10 Exemptions under section 16(a).

Except as provided in § 240.16a--6, any transaction exempted from the requirements of section 16(a) of the act, insofar as it is otherwise subject to the provisions of section 16(b), shall be likewise exempt from section 16(b) of the act.

[Codified to 17 C.F.R. § 240.16a--10]

[Section 240.16a--10 added at 56 Fed. Reg. 7265, February 21, 1991, effective May 1, 1991]

§ 240.16a--11 Dividend or interest reinvestment plans.

Any acquisition of securities resulting from the reinvestment of dividends or interest on securities of the same issuer shall be exempt from section 16 of the act if the acquisition is made pursuant to a plan providing for the regular reinvestment of dividends or interest and the plan provides for broad-based participation, does not discriminate in favor of employees of the issuer, and operates on substantially the same terms for all plan participants.

[Codified to 17 C.F.R. § 240.16a--11]

[Section 240.16a--11 added at 61 Fed. Reg. 30393, June 14, 1996, effective August 15, 1996]

§ 240.16a--12 Domestic relations orders.

The acquisition or disposition of equity securities pursuant to a domestic relations order, as defined in the Internal Revenue Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder, shall be exempt from section 16 of the act.

[Codified to 17 C.F.R. § 240.16a--12]

[Section 240.16a--12 added at 61 Fed. Reg. 30393, June 14, 1996, effective August 15, 1996]

§ 240.16a--13 Change in form of beneficial ownership.

A transaction, other than the exercise or conversion of a derivative security or deposit into or withdrawal from a voting trust, that effects only a change in the form of beneficial ownership without changing a person's pecuniary interest in the subject equity securities shall be exempt from section 16 of the act.

[Codified to 17 C.F.R. § 240.16a--13]

[Section 240.16a--13 added at 61 Fed. Reg. 30393, June 14, 1996, effective August 15, 1996]

§ 240.16b--1 Transactions approved by a regulatory authority.

(a)  Any purchase and sale, or sale and purchase, of a security shall be exempt from section 16(b) of the act, if the transaction is effected by an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a--1 et seq.) and both the purchase and sale of such security have been exempted from the provisions of section 17(a) (15 U.S.C. 80a--17(a)) of the Investment Company Act of 1940, by rule or order of the Commission.

(b)  Any purchase and sale, or sale and purchase, of a security shall be exempt from the provisions of section 16(b) of the act if:

(1)  The person effecting the transaction is either a holding company registered under the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a et seq.) or a subsidiary thereof; and

(2)  Both the purchase and the sale of the security have been approved or permitted by the Commission pursuant to the applicable provisions of that act and the rules and regulations thereunder.

[Codified to 17 C.F.R. § 240.16b--1]

[Section 240.16b--1 added at 56 Fed. Reg. 7270, February 21, 1991, effective May 1, 1991; amended at 61 Fed. Reg. 30404, June 14, 1996, effective July 15, 1996]

§ 240.16b--2 [Reserved]

§ 240.16b--3 Transactions between an issuer and its officers or directors.

(a)  General. A transaction between the issuer (including an employee benefit plan sponsored by the issuer) and an officer or director of the issuer that involves issuer equity securities shall be exempt from section 16(b) of the act if the transaction satisfies the applicable conditions set forth in this section.

(b)  Definitions.

(1)  A Discretionary Transaction shall mean a transaction pursuant to an employee benefit plan that:

(i)  Is at the volition of a plan participant;

(ii)  Is not made in connection with the participant's death, disability, retirement or termination of employment;

(iii)  Is not required to be made available to a plan participant pursuant to a provision of the Internal Revenue Code; and

(iv)  Results in either an intra-plan transfer involving an issuer equity securities fund, or a cash distribution funded by a volitional disposition of an issuer equity security.

(2)  An Excess Benefit Plan shall mean an employee benefit plan that is operated in conjunction with a Qualified Plan, and provides only the benefits or contributions that would be provided under a Qualified Plan but for any benefit or contribution limitations set forth in the Internal Revenue Code of 1986, or any successor provisions thereof.

(3)(i)  A Non-Employee Director shall mean a director who:

(A)  Is not currently an officer (as defined in § 240.16a--1(f)) of the issuer or a parent or subsidiary of the issuer, or otherwise currently employed by the issuer or a parent or subsidiary of the issuer;

(B)  Does not receive compensation, either directly or indirectly, from the issuer or a parent or subsidiary of the issuer, for services rendered as a consultant or in any capacity other than as a director, except for an amount that does not exceed the dollar amount for which disclosure would be required pursuant to § 229.404(a) of this chapter;

(C)  Does not possess an interest in any other transaction for which disclosure would be required pursuant to § 229.404(a) of this chapter; and

(D)  Is not engaged in a business relationship for which disclosure would be required pursuant to § 229.404(b) of this chapter.

(ii)  Notwithstanding paragraph (b)(3)(i) of this section, a Non-Employee Director of a closed-end investment company shall mean a director who is not an "interested person" of the issuer, as that term is defined in section 2(a)(19) of the Investment Company Act of 1940.

(4)  A Qualified Plan shall mean an employee benefit plan that satisfies the coverage and participation requirements of sections 410 and 401(a)(26) of the Internal Revenue Code of 1986, or any successor provisions thereof.

(5)  A Stock Purchase Plan shall mean an employee benefit plan that satisfies the coverage and participation requirements of sections 423(b)(3) and 423(b)(5), or section 410, of the Internal Revenue Code of 1986, or any successor provisions thereof.

(c)  Tax-conditioned plans. Any transaction (other than a Discretionary Transaction) pursuant to a Qualified Plan, an Excess Benefit Plan, or a Stock Purchase Plan shall be exempt without condition.

(d)  Grants, awards and other acquisitions from the issuer. Any transaction involving a grant, award or other acquisition from the issuer (other than a Discretionary Transaction) shall be exempt if:

(1)  The transaction is approved by the board of directors of the issuer, or a committee of the board of directors that is composed solely of two or more Non-Employee Directors;

(2)  The transaction is approved or ratified, in compliance with section 14 of the act, by either: the affirmative votes of the holders of a majority of the securities of the issuer present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the state or other jurisdiction in which the issuer is incorporated; or the written consent of the holders of a majority of the securities of the issuer entitled to vote; provided that such ratification occurs no later than the date of the next annual meeting of shareholders; or

(3)  The issuer equity securities so acquired are held by the officer or director for a period of six months following the date of such acquisition, provided that this condition shall be satisfied with respect to a derivative security if at least six months elapse from the date of acquisition of the derivative security to the date of disposition of the derivative security (other than upon exercise or conversion) or its underlying equity security.

(e)  Dispositions to the issuer. Any transaction involving the disposition to the issuer of issuer equity securities (other than a Discretionary Transaction) shall be exempt, provided that the terms of such disposition are approved in advance in the manner prescribed by either paragraph (d)(1) or paragraph (d)(2) of this section.

(f)  Discretionary Transactions. A Discretionary Transaction shall be exempt only if effected pursuant to an election made at least six months following the date of the most recent election, with respect to any plan of the issuer, that effected a Discretionary Transaction that was:

(1)  An acquisition, if the transaction to be exempted would be a disposition; or

(2)  A disposition, if the transaction to be exempted would be an acquisition.

Note (1):  The exercise or conversion of a derivative security that does not satisfy the conditions of this section is eligible for exemption from section 16(b) of the act to the extent that the conditions of § 240.16b--6(b) are satisfied.

Note (2):  Section 16(a) reporting requirements applicable to transactions exempt pursuant to this section are set forth in § 240.16a--3(f) and (g) and § 240.16a--4.

Note (3):  The approval conditions of paragraphs (d)(1), (d)(2) and (e) of this section require the approval of each specific transaction, and are not satisfied by approval of a plan in its entirety except for the approval of a plan pursuant to which the terms and conditions of each transaction are fixed in advance, such as a formula plan. Where the terms of a subsequent transaction (such as the exercise price of an option, or the provision of an exercise or tax withholding right) are provided for in a transaction as initially approved pursuant to paragraphs (d)(1), (d)(2) or (e), such subsequent transaction shall not require further specific approval.

[Codified to 17 C.F.R. § 240.16b--3]

[Section 240.16b--3 added at 56 Fed. Reg. 7270, February 21, 1991, effective May 1, 1991; amended at 56 Fed. Reg. 19927, May 1, 1991; 61 Fed. Reg. 30393, June 14, 1996, effective August 15, 1996]

§ 240.16b--4 [Reserved]

[Codified to 17 C.F.R. § 240.16b--4]

[Section 240.16b--4 added at 56 Fed. Reg. 7270, February 21, 1991, effective May 1, 1991; removed and reserved at 61 Fed. Reg. 30404, June 14, 1996, effective July 15, 1996]

§ 240.16b--5 Bona fide gifts and inheritance.

Both the acquisition and the disposition of equity securities shall be exempt from the operation of section 16(b) of the act if they are: (a) Bona fide gifts; or (b) transfers of securities by will or the laws of descent and distribution.

[Codified to 17 C.F.R. § 240.16b--5]

[Section 240.16b--5 added at 56 Fed. Reg. 7270, February 21, 1991, effective May 1, 1991]

§ 240.16b--6 Derivative securities.

(a)  The establishment of or increase in a call equivalent position or liquidation of or decrease in a put equivalent position shall be deemed a purchase of the underlying security for purposes of section 16(b) of the act, and the establishment of or increase in a put equivalent position or liquidation of or decrease in a call equivalent position shall be deemed a sale of the underlying securities for purposes of section 16(b) of the act: Provided, however, That if the increase or decrease occurs as a result of the fixing of the exercise price of a right initially issued without a fixed price, where the date the price is fixed is not known in advance and is outside the control of the recipient, the increase or decrease shall be exempt from section 16(b) of the act with respect to any offsetting transaction within the six months prior to the date the price is fixed.

(b)  The closing of a derivative security position as a result of its exercise or conversion shall be exempt from the operation of section 16(b) of the act, and the acquisition of underlying securities at a fixed exercise price due to the exercise or conversion of a call equivalent position or the disposition of underlying securities at a fixed exercise price due to the exercise of a put equivalent position shall be exempt from the operation of section 16(b) of the act: Provided, however, That the acquisition of underlying securities from the exercise of an out-of-the-money option, warrant, or right shall not be exempt unless the exercise is necessary to comport with the sequential exercise provisions of the Internal Revenue Code (26 U.S.C. 422A).

Note:  The exercise or conversion of a derivative security that does not satisfy the conditions of this section is eligible for exemption from section 16(b) of the act to the extent that the conditions of § 240.16b--3 are satisfied.

(c)  In determining the short-swing profit recoverable pursuant to section 16(b) of the act from transactions involving the purchase and sale or sale and purchase of derivative and other securities, the following rules apply:

(1)  Short-swing profits in transactions involving the purchase and sale or sale and purchase of derivative securities that have identical characteristics (e.g., purchases and sales of call options of the same strike price and expiration date, or purchases and sales of the same series of convertible debentures) shall be measured by the actual prices paid or received in the short-swing transactions.

(2)  Short-swing profits in transactions involving the purchase and sale or sale and purchase of derivative securities having different characteristics but related to the same underlying security (e.g., the purchase of a call option and the sale of a convertible debenture) or derivative securities and underlying securities shall not exceed the difference in price of the underlying security on the date of purchase or sale and the date of sale or purchase. Such profits may be measured by calculating the short-swing profits that would have been realized had the subject transactions involved purchases and sales solely of the derivative security that was purchased or solely of the derivative security that was sold, valued as of the time of the matching purchase or sale, and calculated for the lesser of the number of underlying securities actually purchased or sold.

(d)  Upon cancellation or expiration of an option within six months of the writing of the option, any profit derived from writing the option shall be recoverable under section 16(b) of the act. The profit shall not exceed the premium received for writing the option. The disposition or closing of a long derivative security position, as a result of cancellation or expiration, shall be exempt from section 16(b) of the act where no value is received from the cancellation or expiration.

[Codified to 17 C.F.R. § 240.16b--6]

[Section 240.16b--6 added at 56 Fed. Reg. 7270, February 21, 1991, effective May 1, 1991; 61 Fed. Reg. 30394, June 14, 1996, effective August 15, 1996]

§ 240.16b--7 Mergers, reclassifications, and consolidations.

(a)  The following transactions shall be exempt from the provisions of section 16(b) of the act:

(1)  The acquisition of a security of a company, pursuant to a merger or consolidation, in exchange for a security of a company which, prior to the merger or consolidation, owned 85 percent or more of either--

(i)  The equity securities of all other companies involved in the merger or consolidation, or in the case of a consolidation, the resulting company; or

(ii)  The combined assets of all the companies involved in the merger or consolidation, computed according to their book values prior to the merger or consolidation as determined by reference to their most recent available financial statements for a 12 month period prior to the merger or consolidation, or such shorter time as the company has been in existence.

(2)  The disposition of a security, pursuant to a merger or consolidation, of a company which, prior to the merger or consolidation, owned 85 percent or more of either

(i)  The equity securities of all other companies involved in the merger or consolidation or, in the case of a consolidation, the resulting company; or

(ii)  The combined assets of all the companies undergoing merger or consolidation, computed according to their book values prior to the merger or consolidation as determined by reference to their most recent available financial statements for a 12 month period prior to the merger or consolidation.

(b)  A merger within the meaning of this section shall include the sale or purchase of substantially all the assets of one company by another in exchange for equity securities which are then distributed to the security holders of the company that sold its assets.

(c)  Notwithstanding the foregoing, if a person subject to section 16 of the act makes any non-exempt purchase of a security in any company involved in the merger or consolidation and any non-exempt sale of a security in any company involved in the merger or consolidation within any period of less than six months during which the merger or consolidation took place, the exemption provided by this rule shall be unavailable to the extent of such purchase and sale.

[Codified to 17 C.F.R. § 240.16b--7]

[Section 240.16b--7 added at 56 Fed. Reg. 7270, February 21, 1991, effective May 1, 1991]

§ 240.16b--8 Voting trusts.

Any acquisition or disposition of an equity security or certificate representing equity securities involved in the deposit or withdrawal from a voting trust or deposit agreement shall be exempt from section 16(b) of the act if substantially all of the assets held under the voting trust or deposit agreement immediately after the deposit or immediately prior to the withdrawal consisted of equity securities of the same class as the security deposited or withdrawn: Provided, however, That this exemption shall not apply if there is a non-exempt purchase or sale of an equity security of the class deposited within six months (including the date of withdrawal or deposit) of a non-exempt sale or purchase, respectively, of any certificate representing such equity security (other than the actual deposit or withdrawal).

[Codified to 17 C.F.R. § 240.16b--8]

[Section 240.16b--8 added at 56 Fed. Reg. 7270, February 21, 1991, effective May 1, 1991]

§ 240.16c--1 Brokers.

Any transaction shall be exempt from section 16(c) of the act to the extent necessary to render lawful the execution by a broker of an order for an account in which the broker has no direct or indirect interest.

[Codified to 17 C.F.R. § 240.16c--1]

[Section 240.16c--1 added at 56 Fed. Reg. 7273, February 21, 1991, effective May 1, 1991]

§ 240.16c--2 Transactions effected in connection with a distribution.

Any transaction shall be exempt from section 16(c) of the act to the extent necessary to render lawful any sale made by or on behalf of a dealer in connection with a distribution of a substantial block of securities, where the sale is represented by an over-allotment in which the dealer is participating as a member of an underwriting group, or the dealer or a person acting on the dealer's behalf intends in good faith to offset such sale with a security to be acquired by or on behalf of the dealer as a participant in an underwriting, selling, or soliciting-dealer group of which the dealer is a member at the time of the sale, whether or not the security to be acquired is subject to a prior offering to existing security holders or some other class of persons.

[Codified to 17 C.F.R. § 240.16c--2]

[Section 240.16c--2 added at 56 Fed. Reg. 7273, February 21, 1991, effective May 1, 1991]

§ 240.16c--3 Exemption of sales of securities to be acquired.

(a)  Whenever any person is entitled, incident to ownership of an issued security and without the payment of consideration, to receive another security "when issued" or "when distributed," the sale of the security to be acquired shall be exempt from the operation of section 16(c) of the act: Provided, That:

(1)  The sale is made subject to the same conditions as those attaching to the right of acquisition;

(2)  Such person exercises reasonable diligence to deliver such security to the purchaser promptly after the right of acquisition matures; and

(3)  Such person reports the sale on the appropriate form for reporting transactions by persons subject to section 16(a) of the act.

(b)  This section shall not exempt transactions involving both a sale of the issued security and a sale of a security "when issued" or "when distributed" if the combined transactions result in a sale of more securities than the aggregate of issued securities owned by the seller plus those to be received for the other security "when issued" or "when distributed."

[Codified to 17 C.F.R. § 240.16c--3]

[Section 240.16c--3 added at 56 Fed. Reg. 7273, February 21, 1991, effective May 1, 1991]

§ 240.16c--4 Derivative securities.

Establishing or increasing a put equivalent position shall be exempt from section 16(c) of the act, so long as the amount of securities underlying the put equivalent position does not exceed the amount of underlying securities otherwise owned.

[Codified to 17 C.F.R. § 240.16c--4]

[Section 240.16c--4 added at 56 Fed. Reg. 7273, February 21, 1991, effective May 1, 1991]

§ 240.16e--1 Arbitrage transactions under section 16.

It shall be unlawful for any director or officer of an issuer of an equity security which is registered pursuant to section 12 of the act to effect any foreign or domestic arbitrage transaction in any equity security of such issuer, whether registered or not, unless he shall include such transaction in the statements required by section 16(a) and shall account to such issuer for the profits arising from such transaction, as provided in section 16(b). The provision of section 16(c) shall not apply to such arbitrage transactions. The provisions of section 16(c) shall not apply to any bona fide foreign or domestic arbitrage transaction insofar as it is effected by any person other than such director or officer of the issuer of such security.

[Codified to 17 C.F.R. § 240.16e--1]

[Section 240.16e--1 added at 30 Fed. Reg. 2025, February 13, 1965]  


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