82-5

October 26, 1982

Dear Mr. ________:
This is in reference to your letter of August 25, 1982 requesting a determination as to whether the ________ (“phantom stock appreciation plan”) and granting of “share units” thereto constitutes the sale of a security under Financial Code Section 690 et seq.
In summary, the phantom stock appreciation plan as we understand it, provides that ________ (“Bank”) allocate to certain employees “share units” representing a right eventually to receive cash (but not stock) measured by the market value of shares of capital stock of the issuer in a “phantom stock plan.” Each unit granted is worth the difference between its initial value (which is defined by the grantee as either the market value or the book value of one share of the Bank’s common stock as of the date of the grant) and the maturity value (which is defined by the grantee as either the market value or the book value of one share of the Bank’s common stock as of the anniversary date of grant or the day on which the grantee is entitled to receive payment). On each anniversary date of the grant, a grantee is entitled to elect (with respect to his vested interest) to receive cash value of the difference between the initial value and the maturity value, or the grantee may elect to defer such payment until some later anniversary date. The phantom stock appreciation plan specifically provides that payment to the grantee “shall be made wholly in cash.” As we understand it, the purpose of the phantom stock appreciation plan is to enable the Bank to hire and retain employees of outstanding competence and to promote the shareholder point of view among key employees of the Bank. Only full-time salaried employees are eligible to take part in the phantom stock appreciation plan. According to your letter, only ________, President of the Bank, is so far a participant and about 10,000 units have been granted to ________. These are presently the only share units granted under the phantom stock appreciation plan according to your letter
This is to confirm my earlier oral advice to you that we have reviewed the Plan and have concluded that the “share units” granted under the phantom stock appreciation plan do not constitute securities as defined in Article 6 (commencing with Section 690), Chapter 5 of the banking Law. Consequently, there is no need for a permit or order of exemption in a case where a bank proposes to grant a share unit under a phantom stock appreciation plan such as the one you have submitted to us for review with your letter of August 25, 1982.
Should you have any further questions regarding this matter, please do not hesitate to contact us.

Very truly yours,
RICHARD M. DOMINGUEZ
Superintendent of Banks
By
DIANA H. NISHIURA
Counsel
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