November 28, 1997
To: Examiner Contomichalos Thrift Division
From: Associate Attorney Wall
Subject: [ ]- Additional Purchases of Stock By Trustee of Certain Bank Stock Option Plans
This memorandum will serve to confirm the previous oral response by the Legal Division on whether [ ] (the "Bank") is required to submit an application under the New York Banking Law Section 143-b for additional purchases of stock by the trustee of certain of its employee stock option plans. As you are aware, the Legal Division previously has orally indicated to you that such an application under Section 143-b of the Banking Law is not required under the circumstances and facts as described in a letter, dated September 4, 1997, from John R. Hall, Esq., Muldoon, Murphy & Faucette, counsel to the Bank.
As way of background, the Bank currently has trusts set up for [ ] (the "ESOP"), The [ ] 401(k) Savings Plan (the "401(k) Plan") and the Retirement Plan of [ ] (the "Retirement Plan"). The trustee for the ESOP and the portion of the 401(k) Plan holding employer securities is Marine Midland Bank ("Marine Midland"). The trusts for the ESOP and the 401(k) Plan currently hold, in the aggregate, less than 10 percent of the issued and outstanding stock of [ ] Bancorp, Inc., which owns all of the issued and outstanding stock of the Bank. Marine Midland, as Retirement Plan trustee, also anticipates purchases of stock in [ ] Bancorp in amounts up to 10 percent of the total assets of the Retirement Plan.
The Legal Division previously has opined that, with regard to shares held in a fiduciary capacity, such shares need not be aggregated with shares held in a non-fiduciary capacity for purposes of determining whether a control application is required under Section 143-b if the trust agreement which establishes the duties of the fiduciary and the rights of the beneficiary mandates "pass-through voting"- under which the beneficiary is given the right to vote the shares of stock.
A review of the ESOP trust agreement indicates that "pass-through voting" provisions are present under section 2.3-10. Therefore, Section 143-b would not apply to shares held by Marine Midland in its capacity as trustee under the ESOP.
The trust agreements for both the 401(k) Plan and the Retirement Plan allow the trustee discretion with regard to voting rights and their exercise. Therefore, a control application would be necessary under Section 143-b if Marine Midland controlled at least 10 percent of the voting shares under either the 401(k) Plan alone, the Retirement Plan alone or the sum of the 401(k) Plan and the Retirement Plan. However, in this situation, Marine Midland currently owns less than 1 percent of the shares of [ ] Bancorp under the 401(k) Plan and no shares under the Retirement Plan. Therefore, at the present time, there is no control issue and the Bank would not have to file a control application under Section 143-b.