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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.
{{4-28-95 p.4912}}
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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