Family relationship and marketable employer obligations

P/OPINION 77-02

407

March 4, 1977

Dear          :

This is in response to your letter of December 16, 1975,
which requests an interpretation of section 407(e)(2)(B) of
the Employee Retirement Income Security Act of 1974 (the
Act) in connection with the (named} Company (the Company)
offer to redeem its shares either for cash or for the
Company's eight per cent debentures.

Your letter indicates that prior to the exchange offer,
Mr. and Mrs. (name), Sr., held approximately 45 per cent of
the outstanding shares of the Company. The remaining shares
were held by the Company's Retirement Benefit Trust (the
Trust), members of the (name) family and employees or former
employees of the Company. All of the Company's shareholders
except Mr. (name), Jr., his daughter, one outside employee
and the Trust have accepted the exchange offer and have
elected to receive debentures, except for two shareholders
holding 58 shares, who elected to receive cash. The Trust
is considering the exchange offer, but if the Trust exchanges its common stock for debentures, more than 50 per
cent of the Company's debentures will be held by Mr. and
Mrs. (name), Sr

It is your position that, if at least 50 per cent of the
debentures were held by persons "independent of the issuer"
within the meaning of section 407(e)(2)(8) of the Act, all
the conditions of section 407(e) would be met and such
debentures would be "marketable obligations" as defined in
that section. The debentures would then constitute
"qualifying employer securities" under section 407(d)(5) of
the Act, and an exchange by the Trust with the Company of
common stock for debentures would be exempt from the
prohibitions of section 406 of the Act by reason of section
408(e) thereof.

According to your letter, Mr. (name), Sr., formerly was
president and chief executive officer of the Company and
its major stockholder, but he has resigned as an officer
and director of the Company. His son, (name), Jr.,
presently is the chief executive officer of the Company and
a major stockholder. In your opinion, Mr. (name), Sr., and
his wife are now independent of the Company as a result of
Mr. (name)'s resignation, the lack of any interest by
Mr. (name), Sr., and his wife in the Company except as
creditors, and the compliance by Mr. and Mrs. (name), Sr.,
with section 302(c)(2) of the Internal Revenue Code.

It is our opinion, however, that on the basis of the
information provided, because Mr. (name) Sr., is a
relative, as defined in section 3(15) of the Act, of the
chief executive officer of the issuer, he would not be
deemed to be "independent of the issuer" for purposes of
section 407(e)(2)(B) of the Act.

In reaching this conclusion, we have not made any
determination as to whether the debentures are marketable
obligations as defined in section 407(e) of the Act, or
whether the other conditions of section 408(e) would be
met.

I should point out that section 408(a) gives the Secretary
authority to grant exemptions from all or part of the
restrictions imposed by sections 406 and 407(a). You may
wish to consider applying for an exemption for the
particular transaction you have discussed. In this regard,
I am enclosing a copy of ERISA Procedure 75-1, the
procedure for submitting applications for exemption under
section 408(a) of the ERISA.

I hope this information will be of assistance to you.

Sincerely,