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2000 - Rules and Regulations
{{8-31-98 p.3079}}
PART 359GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS
Sec. 359.0
Scope.
359.1
Definitions.
359.2
Golden parachute payments prohibited.
359.3
Prohibited indemnification payments.
359.4
Permissible golden parachute payments.
359.5
Permissible indemnification payments.
359.6
Filing instructions.
359.7
Applicability in the event of receivership.
Authority: 12
U.S.C. 1828(k).
SOURCE: The provisions of this part 359 appear at 61 Fed.
Reg. 5930, February 5, 1996, except as otherwise
noted.
§ 359.0 Scope.
(a) This part limits and/or prohibits, in certain circumstances,
the ability of insured depository institutions, their subsidiaries and
affiliated depository institution holding companies to enter into
contracts to pay and to make golden parachute and indemnification
payments to institution-affiliated parties (IAPs).
(b) The limitations on golden parachute payments apply to troubled
insured depository institutions which seek to enter into contracts to
pay or to make golden parachute payments to their IAPs. The limitations
also apply to depository institution holding companies which are
troubled and seek to enter into contracts to pay or to make golden
parachute payments to their IAPs as well as healthy holding companies
which seek to enter into contracts to pay or to make golden parachute
payments to IAPs of a troubled insured depository institution
subsidiary. A "golden parachute payment" is generally considered
to be any payment to an IAP which is contingent on the termination of
that person's employment and is received when the insured depository
institution making the payment is troubled or, if the payment is being
made by an affiliated holding company, either the holding company
itself or the insured depository institution employing the IAP, is
troubled. The definition of golden parachute payment does not include
payments pursuant to qualified retirement plans, nonqualified bona fide
deferred compensation plans, nondiscriminatory severance pay plans,
other types of common benefits plans, state statutes and death
benefits. Certain limited exceptions to the golden parachute payment
prohibition are provided for in cases involving the hiring of a white
knight and unassisted changes in control. A procedure is also set forth
whereby an institution or IAP can request permission to make what would
otherwise be a prohibited golden parachute payment.
(c) The limitations on indemnification payments apply to all
insured depository institutions, their subsidiaries and affiliated
depository institution holding companies regardless of their financial
health. Generally, this part prohibits insured depository institutions,
their subsidiaries and affiliated holding companies from indemnifying
an IAP for that portion of the costs sustained with regard to an
administrative or civil enforcement action commenced by any federal
banking agency which results in a final order or settlement pursuant to
which the IAP is assessed a civil money penalty, removed from office,
prohibited from participating in the affairs of an insured depository
institution or required to cease and desist from or take an affirmative
action described in section 8(b) (12
U.S.C. 1818(b)) of the Federal Deposit Insurance Act (FDI Act).
However, there are exceptions to this general prohibition. First, an
institution or holding company may purchase commercial insurance to
cover such expenses, except judgments and penalties. Second, the
institution or holding company may advance legal and other professional
expenses to an IAP directly (except for judgments and penalties) if its
board of directors makes certain specific findings and the IAP agrees
in writing to reimburse the institution if it is ultimately determined
that the IAP violated a law, regulation or other fiduciary
duty.
{{8-31-98 p.3080}}
[Codified to 12 C.F.R. § 359.0]
§ 359.1 Definitions.
(a) Act means the Federal Deposit Insurance Act, as
amended (12 U.S.C. 1811, et seq.).
(b) Appropriate federal banking agency, bank holding company,
depository institution holding company and savings and loan
holding company have the meanings given to such terms in section 3
of the Act.
(c) Benefit plan means any plan, contract, agreement or
other arrangement which is an "employee welfare benefit plan" as
that term is defined in section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended (29 U.S.C. 1002(1)), or other usual
and customary plans such as dependent care, tuition reimbursement,
group legal services or cafeteria plans; provided however, that such
term shall not include any plan intended to be subject to paragraphs
(f)(2) (iii) and (v) of this section.
(d) Bona fide deferred compensation plan or arrangement
means any plan, contract, agreement or other arrangement whereby:
(1) An IAP voluntarily elects to defer all or a portion of the
reasonable compensation, wages or fees paid for services rendered which
otherwise would have been paid to such party at the time the services
were rendered (including a plan that provides for the crediting of a
reasonable investment return on such elective deferrals) and the
insured depository institution or depository institution holding
company either:
(i) Recognizes compensation expense and accrues a liability for
the benefit payments according to generally accepted accounting
principles (GAAP); or
(ii) Segregates or otherwise sets aside assets in a trust which
may only be used to pay plan and other benefits, except that the assets
of such trust may be available to satisfy claims of the institution's
or holding company's creditors in the case of insolvency; or
(2) An insured depository institution or depository institution
holding company establishes a nonqualified deferred compensation or
supplemental retirement plan, other than an elective deferral plan
described in paragraph (e)(1) of this section:
(i) Primarily for the purpose of providing benefits for certain
IAPS in excess of the limitations on contributions and benefits imposed
by sections 415, 401(a)(17), 402(g) or any other applicable provision
of the Internal Revenue Code of 1986 (26 U.S.C. 415, 401(a)(17),
402(g)); or
(ii) Primarily for the purpose of providing supplemental
retirement benefits or other deferred compensation for a select group
of directors, management or highly compensated employees (excluding
severance payments described in paragraph (f)(2)(v) of this section and
permissible golden parachute payments described in § 359.4); and
(3) In the case of any nonqualified deferred compensation or
supplemental retirement plans as described in paragraphs (d) (1) and
(2) of this section, the following requirements shall apply:
(i) The plan was in effect at least one year prior to any of the
events described in paragraph (f)(1)(ii) of this section;
(ii) Any payment made pursuant to such plan is made in accordance
with the terms of the plan as in effect no later than one year prior to
any of the events described in paragraph (f)(1)(ii) of this section and
in accordance with any amendments to such plan during such one year
period that do not increase the benefits payable thereunder;
(iii) The IAP has a vested right, as defined under the applicable
plan document, at the time of termination of employment to payments
under such plan;
(iv) Benefits under such plan are accrued each period only for
current or prior service rendered to the employer (except that an
allowance may be made for service with a predecessor employer);
(v) Any payment made pursuant to such plan is not based on any
discretionary acceleration of vesting or accrual of benefits which
occurs at any time later than one year prior to any of the events
described in paragraph (f)(i)(ii) of this section;
{{8-29-03 p.3081}}
(vi) The insured depository institution or depository institution
holding company has previously recognized compensation expense and
accrued a liability for the benefit payments according to GAAP or
segregated or otherwise set aside assets in a trust which may only be
used to pay plan benefits, except that the assets of such trust may be
available to satisfy claims of the institution's or holding company's
creditors in the case of insolvency; and
(vii) Payments pursuant to such plans shall not be in excess of
the accrued liability computed in accordance with GAAP.
(e) Corporation means the Federal Deposit Insurance
Corporation, in its corporate capacity.
(f) Golden parachute payment. (1) The term golden
parachute payment means any payment (or any agreement to make any
payment) in the nature of compensation by any insured depository
institution or an affiliated depository institution holding company for
the benefit of any current or former IAP pursuant to an obligation of
such institution or holding company that:
(i) Is contingent on, or by its terms is payable on or after, the
termination of such party's primary employment or affiliation with the
institution or holding company; and
(ii) Is received on or after, or is made in contemplation of, any
of the following events:
(A) The insolvency (or similar event) of the insured depository
institution which is making the payment or bankruptcy or insolvency (or
similar event) of the depository institution holding company which is
making the payment; or
(B) The appointment of any conservator or receiver for such
insured depository institution; or
(C) A determination by the insured depository institution's or
depository institution holding company's appropriate federal banking
agency, respectively, that the insured depository institution or
depository institution holding company is in a troubled condition, as
defined in the applicable regulations of the appropriate federal
banking agency (§ 303.101(c) of this chapter); or
(D) The insured depository institution is assigned a composite
rating of 4 or 5 by the appropriate federal banking agency or informed
in writing by the Corporation that it is rated a 4 or 5 under the
Uniform Financial Institutions Rating System of the Federal Financial
Institutions Examination Council, or the depository institution holding
company is assigned a composite rating of 4 or 5 or unsatisfactory by
its appropriate federal banking agency; or
(E) The insured depository institution is subject to a proceeding
to terminate or suspend deposit insurance for such institution; and
(iii)(A) Is payable to an IAP whose employment by or affiliation
with an insured depository institution is terminated at a time when the
insured depository institution by which the IAP is employed or with
which the IAP is affiliated satisfies any of the conditions enumerated
in paragraphs (f)(i)(ii) (A) through (E) of this section, or in
contemplation of any of these conditions; or
(B) Is payable to an IAP whose employment by or affiliation with
an insured depository institution holding company is terminated at a
time when the insured depository institution holding company by which
the IAP is affiliated satisfies any of the conditions enumerated in
paragraphs (f)(1)(ii)(A),(C) or (D) of this section, or in
contemplation of any of these conditions.
(2) Exceptions. The term golden parachute
payment shall not include:
(i) Any payment made pursuant to a pension or retirement plan
which is qualified (or is intended within a reasonable period of time
to be qualified) under section 401 of the Internal Revenue Code of 1986
(26 U.S.C. 401) or pursuant to a pension or other retirement plan which
is governed by the laws of any foreign country; or
(ii) Any payment made pursuant to a benefit plan as that term is
defined in paragraph (c) of this section; or
{{8-29-03 p.3082}}
(iii) Any payment made pursuant to a bona fide
deferred compensation plan or arrangement as defined in paragraph
(d) of this section; or
(iv) Any payment made by reason of death or by reason of
termination caused by the disability of an institution-affiliated
party; or
(v) Any payment made pursuant to a nondiscriminatory severance
pay plan or arrangement which provides for payment of severance
benefits to all eligible employees upon involuntary termination other
than for cause, voluntary resignation, or early retirement;
provided, however, that no employee shall receive any such
payment which exceeds the base compensation paid to such employee
during the twelve months (or such longer period or greater benefit as
the Corporation shall consent to) immediately preceding termination of
employment, resignation or early retirement, and such severance pay
plan or arrangement shall not have been adopted or modified to increase
the amount or scope of severance benefits at a time when the insured
depository institution or depository institution holding company was in
a condition specified in paragraph (f)(1)(ii) of this section or in
contemplation of such a condition without the prior written consent of
the appropriate federal banking agency; or
(vi) Any severance or similar payment which is required to be
made pursuant to a state statute or foreign law which is applicable to
all employers within the appropriate jurisdiction (with the exception
of employers that may be exempt due to their small number of employees
or other similar criteria); or
(vii) Any other payment which the Corporation determines to be
permissible in accordance with § 359.4.
(g) Insured depository institution means any bank or
savings association the deposits of which are insured by the
Corporation pursuant to the Act, or any subsidiary thereof.
(h) Institution-affiliated party (IAP) means:
(1) Any director, officer, employee, or controlling stockholder
(other than a depository institution holding company) of, or agent for,
an insured depository institution or depository institution holding
company;
(2) Any other person who has filed or is required to file a
change-in- control notice with the appropriate federal banking agency
under section 7(j) of the Act (12
U.S.C. 1817(j));
(3) Any shareholder (other than a depository institution holding
company), consultant, joint venture partner, and any other person as
determined by the appropriate federal banking agency (by regulation or
case-by-case) who participates in the conduct of the affairs of an
insured depository institution or depository institution holding
company; and
(4) Any independent contractor (including any attorney,
appraiser, or accountant) who knowingly or recklessly participates in:
Any violation of any law or regulation, any breach of fiduciary duty,
or any unsafe or unsound practice, which caused or is likely to cause
more than a minimal financial loss to, or a significant adverse effect
on, the insured depository institution or depository institution
holding company.
(i) Liability or legal expense means:
(1) Any legal or other professional fees and expenses incurred in
connection with any claim, proceeding, or action;
(2) The amount of, and any cost incurred in connection with, any
settlement of any claim, proceeding, or action; and
(3) The amount of, and any cost incurred in connection with, any
judgment or penalty imposed with respect to any claim, proceeding, or
action.
(j) Nondiscriminatory means that the plan, contract or
arrangement in question applies to all employees of an insured
depository institution or depository institution holding company who
meet reasonable and customary eligibility requirements applicable to
all employees, such as minimum length of service requirements. A
nondiscriminatory plan, contract or arrangement may provide different
benefits based only on objective criteria such as salary, total
compensation, length of service, job grade or classification, which are
applied on a proportionate basis (with a variance in severance benefits
relating to any
{{8-29-03 p.3082.01}}criterion of plus or minus ten
percent) to groups of employees consisting of not less than the lesser
of 33 percent of employees or 1,000 employees.
(k) Payment means:
(1) Any direct or indirect transfer of any funds or any asset;
(2) Any forgiveness of any debt or other obligation;
(3) The conferring of any benefit, including but not limited to
stock options and stock appreciation rights; and
(4) Any segregation of any funds or assets, the establishment or
funding of any trust or the purchase of or arrangement for any letter
of credit or other instrument, for the purpose of making, or pursuant
to any agreement to make, any payment on or after the date on which
such funds or assets are segregated, or at the time of or after such
trust is established or letter of credit or other instrument is made
available, without regard to whether the obligation to make such
payment is contingent on:
(i) The determination, after such date, of the liability for the
payment of such amount; or
(ii) The liquidation, after such date, of the amount of such
payment.
(1) Prohibited indemnification payment. (1) The term
prohibited indemnification payment means any payment (or any
agreement or arrangement to make any payment) by any insured depository
institution or an affiliated depository institution holding company for
the benefit of any person who is or was an IAP of such insured
depository institution or holding company, to pay or reimburse such
person for any civil money penalty or judgment resulting from any
administrative or civil action instituted by any federal banking
agency, or any other liability or legal expense with regard to any
administrative proceeding or civil action instituted by any federal
banking agency which results in a final order or settlement pursuant to
which such person:
(i) Is assessed a civil money penalty;
(ii) Is removed from office or prohibited from participating in
the conduct of the affairs of the insured depository institution; or
(iii) Is required to cease and desist from or take any
affirmative action described in section 8(b) of the Act with respect to
such institution.
(2) Exceptions. (i)The term prohibited
indemnification payment shall not include any reasonable payment
by an insured depository institution or depository institution holding
company which is used to purchase any commercial insurance policy of
fidelity bond, provided that such insurance policy or bond shall not be
used to pay or reimburse an IAP for the cost of any judgment or civil
money penalty assessed against such person in an administrative
proceeding or civil action commenced by any federal banking agency, but
may pay any legal or professional expenses incurred in connection with
such proceeding or action or the amount of any restitution, to the
insured depository institution, depository institution holding company
or receiver.
(ii) The term prohibited indemnification payment shall
not include any reasonable payment by an insured depository institution
or depository institution holding company that represents partial
indemnification for legal or professional expenses specifically
attributable to particular charges for which there has been a formal
and final adjudication or finding in connection with a settlement that
the IAP has not violated certain banking laws or regulations or has not
engaged in certain unsafe or unsound banking practices or breaches of
fiduciary duty, unless the administrative action or civil proceeding
has resulted in a final prohibition order against the IAP.
[Codified to 12 C.F.R. § 359.1]
[Section 359.1 amended at 68 Fed. Reg. 50461, August 21, 2003,
effective September 22, 2003]
§ 359.2 Golden parachute payments prohibited.
No insured depository institution or depository institution holding
company shall make or agree to make any golden parachute payment,
except as provided in this part.
[Codified to 12 C.F.R. § 359.2]
{{8-29-03 p.3082.02}}
§ 359.3 Prohibited indemnification payments.
No insured depository institution or depository institution holding
company shall make or agree to make any prohibited indemnification
payment, except as provided in this part.
[Codified to 12 C.F.R.
§ 359.3]
§ 359.4 Permissible golden parachute payments.
(a) An insured depository institution or depository institution
holding company may agree to make or may make a golden parachute
payment if and to the extent that:
(1) The appropriate federal banking agency, with the written
concurrence of the Corporation, determines that such a payment or
agreement is permissible; or
(2) Such an agreement is made in order to hire a person to become
an IAP either at a time when the insured depository institution or
depository institution holding company satisfies or in an effort to
prevent it from imminently satisfying any of the criteria set forth in
§ 359.1(f)(1) (ii), and the institution's appropriate federal banking
agency and the Corporation consent in writing to the amount and terms
of the golden parachute payment. Such consent by the FDIC and the
institution's appropriate federal banking agency shall not improve the
IAP's position in the event of the insolvency of the institution since
such consent can neither bind a receiver nor affect the provability of
receivership claims. In the event that the institution is placed into
receivership or conservatorship, the FDIC and/or the institution's
appropriate federal banking agency shall not be obligated to pay the
promised golden parachute and the IAP shall not be accorded
preferential treatment on the basis of such prior approval; or
(3) Such a payment is made pursuant to an agreement which
provides for a reasonable severance payment, not to exceed twelve
months salary, to an IAP in the event of a change in control of the
insured depository institution; provided, however, that an
insured depository institution or depository institution holding
company shall obtain the consent of the appropriate federal banking
agency prior to making such a payment and this paragraph (a)(3) shall
not apply to any change in control of an insured depository institution
which results from an assisted transaction as described in section 13
of the Act (12 U.S.C. 1823)
or the insured depository institution being placed into conservatorship
or receivership; and
(4) An insured depository institution, depository institution
holding company or IAP making a request pursuant to paragraphs (a)(1)
through (3) of this section shall demonstrate that it does not possess
and is not aware of any information, evidence, documents or other
materials which would indicate that there is a reasonable basis to
believe, at the time such payment is proposed to be made, that:
(i) The IAP has committed any fraudulent act or omission, breach
of trust or fiduciary duty, or insider abuse with regard to the
depository institution or depository institution holding company that
has had or is likely to have a material adverse effect on the
institution or holding company;
(ii) The IAP is substantially responsible for the insolvency of,
the appointment of a conservator or receiver for, or the troubled
condition, as defined by applicable regulations of the appropriate
federal banking agency, of the insured depository institution,
dispository institution holding company or any insured depository
institution subsidiary of such holding company;
(iii) The IAP has materially violated any applicable federal or
state banking law or regulation that has had or is likely to have a
material effect on the insured depository institution or depository
institution holding company; and
(iv) The IAP has violated or conspired to violate section
215,
656,
657,
1005,
1006,
1007,
1014,
1032, or
1344 of title 18 of the
United States Code, or section
1341 or
1343 of such title affecting
a federally insured financial institution as defined in title 18 of the
United States Code.
{{8-31-98 p.3082.03}}
(b) In making a determination under paragraphs (a) (1) through (3)
of this section, the appropriate federal banking agency and the
Corporation may consider:
(1) Whether, and to what degree, the IAP was in a position of
managerial or fiduciary responsibility;
(2) The length of time the IAP was affiliated with the insured
depository institution or depository institution holding company, and
the degree to which the proposed payment represents a reasonable
payment for services rendered over the period of employment; and
(3) Any other factors or circumstances which would indicate that
the proposed payment would be contrary to the intent of
section 18(k) of the Act or
this part.
[Codified to 12 C.F.R.
§ 359.4]
§ 359.5 Permissible indemnification payments.
(a) An insured depository institution or depository institution
holding company may make or agree to make reasonable indemnification
payments to an IAP with respect to an administrative proceeding or
civil action initiated by any federal banking agency if:
(1) The insured depository institution's or depository
institution holding company's board of directors, in good faith,
determines in writing after due investigation and consideration that
the institution- affiliated party acted in good faith and in a manner
he/she believed to be in the best interests of the institution;
(2) The insured depository institution's or depository
institution holding company's board of directors, respectively, in good
faith, determines in writing after due investigation and consideration
that the payment of such expenses will not materially adversely affect
the institution's or holding company's safety and soundness;
(3) The indemnification payments do not constitute prohibited
indemnification payments as that term is defined in § 359.1(1); and
(4) The IAP agrees in writing to reimburse the insured depository
institution or depository institution holding company, to the extent
not covered by payments from insurance or bonds purchased pursuant to
§ 359.1(1)(2), for that portion of the advanced indemnification
payments which subsequently become prohibited indemnification payments,
as defined in § 359.1(1).
(b) An IAP requesting indemnification payments shall not
participate in any way in the board's discussion and approval of such
payments; provided, however, that such IAP may present
his/her request to the board and respond to any inquiries from the
board concerning his/her involvement in the circumstances giving rise
to the administrative proceeding or civil action.
(c) In the event that a majority of the members of the board of
directors are named as respondents in an administrative proceeding or
civil action and request indemnification, the remaining members of the
board may authorize independent legal counsel to review the
indemnification request and provide the remaining members of the board
with a written opinion of counsel as to whether the conditions
delineated in paragraph (a) of this section have been met. If
independent legal counsel opines that said conditions have been met,
the remaining members of the board of directors may rely on such
opinion in authorizing the requested indemnification.
(d) In the event that all of the members of the board of directors
are named as respondents in an administrative proceeding or civil
action and request indemnification, the board shall authorize
independent legal counsel to review the indemnification request and
provide the board with a written opinion of counsel as to whether the
conditions delineated in paragraph (a) of this section have been met.
If independent legal counsel opines that said conditions have been met,
the board of directors may rely on such opinion in authorizing the
requested indemnification.
[Codified to 12 C.F.R. § 359.5]
{{8-31-98 p.3082.04}}
§ 359.6 Filing instructions.
Requests to make excess nondiscriminatory severance plan payments
pursuant to § 359.1(f)(2)(v) and golden parachute payments permitted
by § 359.4 shall be submitted in writing to the appropriate regional
director (DOS). For filing requirements, consult
12 CFR 303.244. In the
event that the consent of the institution's primary federal regulator
is required in addition to that of the FDIC, the requesting party shall
submit a copy of its letter to the FDIC to the institution's primary
federal regulator. In the case of national banks, such written requests
shall be submitted to the OCC. In the case of state member banks and
bank holding companies, such written requests shall be submitted to the
Federal Reserve district bank where the institution or holding company,
respectively, is located. In the case of savings associations and
savings association holding companies, such written requests shall be
submitted to the OTS regional office where the institution or holding
company, respectively, is located. In cases where only the prior
consent of the institution's primary federal regulator is required and
that agency is not the FDIC, a written request satisfying the
requirements of this section shall be submitted to the primary federal
regulator as described in this section.
[Codified to 12 C.F.R. § 359.6]
[Section 359.6 amended at 63 Fed. Reg. 44751 August 20,
1998, effective October 1, 1998]
§ 359.7 Applicability in the event of receivership.
The provisions of this part, or any consent or approval granted
under the provisions of this part by the FDIC (in its corporate
capacity), shall not in any way bind any receiver of a failed insured
depository institution. Any consent or approval granted under the
provisions of this part by the FDIC or any other federal banking agency
shall not in any way obligate such agency or receiver to pay any claim
or obligation pursuant to any golden parachute, severance
indemnification or other agreement. Claims for employee welfare
benefits or other benefits which are contingent, even if otherwise
vested, when the FDIC is appointed as receiver for any depository
institution, including any contingency for termination of employment,
are not provable claims or actual, direct compensatory damage claims
against such receiver. Nothing in this part may be construed to permit
the payment of salary or any liability or legal expense of any IAP
contrary to 12 U.S.C.
1828(k)(3).
[Codified to 12 C.F.R. § 359.7]
[The page following this is 3083.]
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