General Rules and Regulations
Securities Exchange Act of 1934
Rule 16b-3 -- Transactions Between an Issuer and its Officers or Directors
Transactions between an issuer and its officers or directors.
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.
A Discretionary Transaction shall mean a transaction
pursuant to an employee benefit plan that:
Is at the volition of a plan participant;
Is not made in connection with the participantís death,
disability, retirement or termination of employment;
Is not required to be made available to a plan participant
pursuant to a provision of the Internal Revenue Code; and
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.
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.
A Non-Employee Director shall mean a director who:
Is not currently an officer (as defined in Rule
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;
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 Item 404(a) of Regulation S-K and
Does not possess an interest in any other transaction for
which disclosure would be required pursuant to Item
404(a) of Regulation S-K.
Notwithstanding paragraph (b)(3)(i) of this section,
a Non-Employee Director of a closedend investment company shall mean a director
who is not an ěinterested personî of the issuer, as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940.
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.
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
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.
Acquisitions from the issuer. Any transaction, other than a Discretionary
Transaction, involving an acquisition from the issuer (including without limitation a grant
or award), whether or not intended for a compensatory or other particular purpose, shall
be exempt if:
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;
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
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 exercises or
conversion) or its underlying equity security.
Dispositions to the issuer. Any transaction, other than a Discretionary
Transaction, involving the disposition to the issuer of issuer equity securities, whether or
not intended for a compensatory or other particular purpose, 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.
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:
An acquisition, if the transaction to be exempted would be
a disposition; or
A disposition, if the transaction to be exempted would be
Notes to Rule 16b-3:
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 Rule 16b-6(b) are satisfied.
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 with-holding 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.
For purposes of determining a director's status under those portions of paragraph
(b)(3)(i) that reference Item 229.404(a) of this chapter, an issuer may rely on the disclosure provided under
Item 229.404(a) of this chapter for the issuer's most recent fiscal year contained in the most recent filing
in which disclosure required under Item 229.404(a) is presented. Where a transaction disclosed in that filing
was terminated before the director's proposed service as a Non-Employee Director, that transaction will not
bar such service. The issuer must believe in good faith that any current or contemplated transaction in
which the director participates will not be required to be disclosed under Item 229.404(a) of this chapter,
based on information readily available to the issuer and the director at the time such director proposes
to act as a Non-Employee Director. At such time as the issuer believes in good faith, based on readily
available information, that a current or contemplated transaction with a director will be required to be
disclosed under Item 229.404(a) in a future filing, the director no longer is eligible to serve as a
Non-Employee Director; provided, however, that this determination does not result in retroactive
loss of a Rule 16b-3 exemption for a transaction previously approved by the director while serving
as a Non-Employee Director consistent with this note. In making the determinations specified in this
Note, the issuer may rely on information it obtains from the director, for example, pursuant to a
response to an inquiry.
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