(3) Is outside the control of the participant.

(iv) Compliance with other conditions of paragraph (c) of this section. The plan under which the stock appreciation rights and any related options are granted shall meet the conditions specified above in paragraphs (c) (1), (2), (3), and (4) of this section.

(v) Limit of the exemption. Nothing in paragraph (c)(5) of this section provides an exemption from section 16(b) for the acquisition of stock upon the exercise of a stock upon the exercise of a stock appreciation right or a stock option.

(d) Exemption from section 16(b) of the Act of long-term profits incident to sales within six months of the exercise of an option. (1) To the extent specified in paragraph (d)(2) of this section, transactions involving the purchase and sale, or sale and purchase, of any equity security of a bank shall be exempt from the operation of section 16(b) of the Act, as not comprehended within the purpose of that section, if such purchase is pursuant to the exercise of an option, warrant, or right either (i) acquired more than six months before its exercise, or (ii) acquired pursuant to the terms of an employment contract entered into more than six months before its exercise.

(2) With respect to transactions specified in paragraph (d)(1) of this section, the profits inuring to the bank pursuant to section 1(6)(b) of the Act shall not exceed the difference between the proceeds of sale and the lowest market price of any security of the same class within six months before or after the date of sale. Nothing in this section shall be deemed to enlarge the amount of profit that would inure to the bank in the absence of this paragraph.

(3) The disposition of any equity security of a bank shall also be exempt from the operation of section 16(b) of the Act, as not comprehended within the purpose of that section, if purchased in a transaction specified in paragraph (d)(1) of this section, under a plan or agreement for merger or consolidation, or reclassification of the bank's securities or for the exchange of its securities for the securities of

another person that has acquired its assets, where the terms of such plan or agreement are binding upon all stockholders of the bank except to the extent that dissenting stockholders may be entitled, under statutory provisions or provisions contained in the bank's charter, to receive the appraised or fair value of their holdings.

(4) The exemptions provided by paragraph (d) of this section shall not apply to any transaction made unlawful by section 16(c) of the Act or by any regulations thereunder.

(5) The burden of establishing market price of a security for the purpose of this subsection shall rest upon the person claiming the exemption.

(e) Exemptions from section 16(b) of the Act of dispositions of equity securities pursuant to certain mergers 01 consolidations incident to formation of a bank holding company. (1) There shall be exempt from the provisions of section 16(b) of the Act, as not com prehended within the purpose of that section, the disposition of any equity security, pursuant to a merger or con solidation, of a bank which, prior to said merger or consolidation, held over 85 percent of the combined assets of all the companies undergoing merge or consolidation, as determined by ref erence to their most recent available financial statements for a 12-month period prior to the merger or consoli dation, if, in such merger or consolida tion, there are issued, in exchange fo such equity securities of such bank equity securities of a bank holding company as defined in the Bank Hold ing Company Act of 1956, as amended

(2) Notwithstanding the foregoing, i an officer, director, or stockholde shall make any purchase (other than a purchase exempted by this rule or any other rule under section 16(b) of the Act) of an equity security of any com pany involved in the merger or con solidation and any sale (other than a sale exempted by this rule or any other rule under section 16(b) of the Act) of an equity security in any othe company involved in the merger o consolidation within any period of les than six months during which the merger or consolidation took place the exemption provided by this rule shall be unavailable to such officer, di

rector, or stockholder to the extent of such purchase and sale.

(f) Exemption from section 16(b) of the Act of transactions involving the deposit or withdrawal of equity securities under a voting trust or deposit agreement. Any acquisition or disposition of an equity security involved in the deposit of such security under, or the withdrawal of such security from, a voting trust or deposit agreement, and the acquisition or disposition in connection therewith of the certificate representing such security, shall be exempt from the operation of 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 as the case may be, consisted of equity securities of the same class as the security deposited or withdrawn; Provided, however, That this paragraph shall not apply to the extent that there shall have been either: (1) A purchase of an equity security of the class deposited and a sale of any certificate representing an equity security of such class, or (2) a sale of an equity security of the class deposited and a purchase of any certificate representing an equity security of such class (otherwise than in a transaction involved in such deposit or withdrawal or in a transaction exempted by any other provision under section 16(b) of the Act within a period of less than six months which includes the date of the deposit or withdrawal.

(g) Exemption from section 16(b) of the Act of transactions involving the conversion of equity securities. (1) Any acquisition or disposition of an equity security involved in the conversion of an equity security which, by its terms or pursuant to the terms of the corporate charter or other governing instruments, is convertible immediately or after a stated period of time into another equity security of the same bank shall be exempt from the operation of section 16(b) of the Act; Provided, however, That this paragraph shall not apply to the extent that there shall have been either: (i) A purchase of any equity security of the class convertible (including any acquisition of or change in a conversion privilege)

and a sale of any equity security of the class issuable upon conversion, or (ii) a sale of any equity security of the class convertible and any purchase of any equity security issuable upon conversion (otherwise than in a transaction involved in such conversion or in a transaction exempted by any other provision under section 16(b) of the Act) within a period of less than six months which includes the date of conversion.

(2) For the purpose of this subsection, an equity security shall not be deemed to be acquired or disposed of upon conversion of an equity security in the terms of the equity security converted require the payment or entail the receipt, in connection with such conversion, of cash or other property (other than equity securities involved in the conversion) equal in value at the time of conversion to more than 15 percent of the value of the equity security issued upon conversion.

(3) For the purpose of this subsection, an equity security shall be deemed convertible if it is convertible at the option of the holder or of some other person or by operation of the terms of the security or the governing instruments.

(h) Exemption from section 16(b) of the Act of certain transactions involving the sale of subscription rights. (1) Any sale of a subscription right to acquire any subject security of the same bank shall be exempt from the provisions of section 16(b) of the Act to the extent prescribed in this section, as not comprehended within the purpose of said section of the Act, if:

(i) Such subscription right is acquired, directly or indirectly, from the bank without the payment of consideration;

(ii) Such subscription right by its terms expires within 45 days after the issuance thereof; and

(iii) Such subscription right by its terms is issued on a pro rata basis to all holders of the beneficiary security of the bank.

(2) When used within paragraph (q) of this section, the following terms shall have the meaning indicated.

(i) The term "subscription right" means any warrant or certificate evi

dencing a right to subscribe to or otherwise acquire an equity security.

(ii) The term "beneficiary security" means a security registered under section 12 of the Act to the holders of which a subscription right is granted.

(iii) The term "subject security" means a security which is the subject of a subscription right.

(3) Notwithstanding anything contained herein to the contrary, if a person purchases subscription rights for cash or other consideration, then a sale by such person of subscription rights otherwise exempted by this rule will not be so exempted to the extent of such purchases within the 6-month period preceding or following such sale.

[46 FR 25208, May 5, 1981, as amended at 48 FR 55564, Dec. 14, 1983]

§ 335.412 Exemption of certain securities from section 16(c) of the Act.

(a) Exemption of certain securities from section 16(c) of the Act. Any equity security of a bank shall be exempt from the operation of section 16(c) of the Act to the extent necessary to render lawful under such section the execution by a broker of an order for an account in which he has no direct or indirect interest.

(b) Exemption from section 16(c) of the Act of certain tranactions affected in connection with a distribution. Any equity security of a bank shall be exempt from the operation of section 16(c) of the Act to the extent necessary to render lawful under such section any sale made by or on behalf of a dealer in connection with a distribution of a substantial block of the bank's securities, upon the following conditions:

(1) The sale is made with respect to an overallotment in which the dealer is participating as a member of an underwriting group, or the dealer or a person acting on his 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 so acquired is subject to a prior offering to existing se

curity holders or some other class of persons; and

(2) Other persons not within the purview of section 16(c) of the Act are participating in the distribution of such block of securities on terms at least as favorable as those on which such dealer is participating and to an extent at least equal to the aggregate participation of all persons exempted from the provisions of section 16(c) of the Act by this paragraph. The performance of the functions of manager of a distributing group and the receipt of a bona fide payment for performing such functions shall not, however, pre clude an exemption that would other wise be available under this para graph.

(c) Exemption of sales of securitie to be acquired. (1) Whenever an person is entitled, as an incident to hi ownership of an issued equity securit of a bank and without the payment o consideration, to receive another sect rity of the bank "when issued" o "when distributed", the security to b acquired shall be exempt from the of eration of section 16(c) of the Act i (i) The sale is made subject to th same conditions as those attaching t the right of acquisition, (ii) suc person exercises reasonable diligen to deliver such security to the pu chaser promptly after his right of a quisition matures, and (iii) suc person reports the sale on the appr priate form for reporting transactio by persons subject to section 16(a) the Act.

(2) Paragraph (c) of this secti shall not be construed as exempti transactions involving both a sale of security "when issued" or "when d tributed" and a sale of the security | virtue of which the seller expects receive the "when issued" or "wh distributed" security, if the two tra actions combined result in a sale more units than the aggregate those owned by the seller plus those be received by him pursuant to right of acquisition.

(d) Arbitrage transactions under s tion 16 of the Act. It shall be unlawi for any director or officer of a bank effect any foreign or domestic ar trage transaction in any equity secu ty of the bank unless he shall inclu

such transaction in the statements required by section 16(a) of the Act and paragraph (a) of § 335.410 and shall account to such bank for the profits arising from such transaction, as provided in section 16(b) of the Act. The provisions of section 16(c) of the Act shall not apply to such arbitrage

transactions. The provisions of paragraph (a) of § 335.410 and of section 16 of the Act 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 bank issuing such security.