Employee stock ownership trust buying insider shares

                                              ERISA OPINION
                      U.S DEPARTMENT OF LABOR
                    Pension and Welfare Benefit Programs
                          Washington, D.C. 20216

                                                           77-30
   MAR 21 1977


Homer L. Elliott, Esquire
Steptoe and Johnson
[Recipient address omitted]

Dear Mr. Elliott:

This is in reply to your letter concerning the provisions of
the Employee Retirement Income Security Act of 1974 (ERISA).
I regret that our heavy workload has resulted in a delay in
responding to your letter.

Specifically you request opinions that (l) the proposed sales
by Mr. Robert J. Pond and Mrs. Barbara Pond Allen of class B
common stock of Advance Machine Company (AMC) to the AMC
Employee Stock Ownership Trust (the Trust) will not constitute
transactions described in ERISA section 406 by reason of the
application of ERISA section 408(e), provided that the Trust
acquires the stock for "adequate consideration" and (2) in
determining whether "adequate consideration" has been paid, the
shareholders and trustee may rely in good faith on an appraisal
of the fair market value of the stock by a reputable, indepen-
dent, outside organization as establishing adequate considera-
tion to be paid.

You state the following facts. It is proposed that Mr. R. J.
Pond and Mrs. B. P. Allen will sell to the Trust, for cash,
approximately 15,000 shares and 5,000 shares, respectively,
of $.50 par value class B nonvoting common stock. There is
no trading in this stock. The above named shareholders are
directors of AMC, and Mr. R. J. Pond is also the president of
AMC. All shares to be sold to the Trust will be sold at a
price not in excess of their fair market value on the date of
transfer as determined through appraisal. The appraisal will
be conducted by a reputable, independent, outside organization.
There will be no commission charged with respect to any sale.
It is also anticipated that in future years AMC shareholders,
who may or may not be parties in interest with respect to the
Trust, will sell additional shares of AMC common stock to the
Trust for cash and/or notes. Section 6 of the AMC Employee
Stock Ownership Plan (the Plan) permits the Trust to acquire
AMC stock from AMC or its shareholders with funds contributed
by AMC or borrowed by the Trust.

Homer L. Elliott, Esquire                             - 2


A copy of a letter from the Internal Revenue Service (the
Service) which you submitted to this office shows that the
Service has determined that the Plan, established December 18,
1974, will qualify under section 401(a) of the Internal Revenue
Code of 1954 if the proposed amendments submitted to the Service
by letter dated February 4, 1976, are adopted. However, you
believe that the Plan has at all times been a qualified plan
under section 40l(a) of the Code. You also believe that the
Plan is an eligible individual account plan under section
407(d)(3) of ERISA because it is an individual account plan
under section 3(34) and is a stock bonus plan or employee stock
ownership plan. No copies of the Plan or of the proposed sales
agreement have been submitted to this office.

Under section 3(14)(H) of ERISA, an employee, officer, director
(or an individual having powers or responsibilities similar to
those of officers or directors), or a ten per cent or more share-
holder directly or indirectly, of an employer any of whose
employees are covered by an employee benefit plan is a party in
interest with respect to such plan. As Mr. R. J. Pond and
Mrs. B. P. Allen are directors of AMC, some of whose employees
are covered by the Plan, we agree with your conclusion that
Mr. R. J. Pond and Mrs. B. P. Allen are parties in interest with
respect to the Plan.

Section 406(a)(l)(A) of ERISA prohibits a fiduciary with respect
to a plan from causing the plan to engage in a transaction, if
he knows or should know that such transaction constitutes a
direct or indirect sale or exchange, or leasing, of any property
between the plan and a party in interest. However, section 408(e)
provides that sections 406 and 407 shall not apply to the acquisi-
tion or sale by a plan of qualifying employer securities (as
defined in section 407(d)(5)) or acquisition, sale or lease by a
plan of qualifying employer real property (as defined in section
407(d)(4)) (1) if such acquisition, sale, or lease is for adequate
consideration (with a special rule in the case of a marketable
obligation, not applicable to this case), (2) if no commission is
charged with respect thereto, and (3) if (A) the plan is an
eligible individual account plan (as defined in section 407(d)(3))
or (B) in the case of an acquisition or lease of qualifying
employer real property by a plan which is not an eligible individ-
ual account plan, or of an acquisition of qualifying employer
securities by such a plan, the lease or acquisition is not
prohibited by section 407(a) (relating to the ten per cent
limitation with respect to acquisition and holding of employer
securities and employer real property by certain plans).

Homer L. Elliott, Esquire                              - 3


Common stock issued by an employer of employees covered by an
employee benefit plan constitutes qualifying employer securi-
ties within the meaning of section 407(d)(5) of ERISA. Under
section 3(18)(B), the term "adequate consideration," for pur-
poses of the above-mentioned ERISA sections, means, in the case
of an asset other than a security for which there is a generally
recognized market, the fair market value of the asset as deter-
mined in good faith by the trustee or named fiduciary pursuant
to the terms of the plan and in accordance with regulations
promulgated by the Secretary of Labor. Such regulations have
not yet been issued.

Section 407(d)(3) classifies stock bonus plans and employee
stock ownership plans, among others, as eligible individual
account plans if they are individual account plans. The term
"individual account plan" is defined by section 3(34) as a
pension plan which provides for an individual account for each
participant and for benefits based solely upon the amount con-
tributed to the participant's account, and any income, expenses,
gains, and losses, and any forfeitures of accounts of other
participants which may be allocated to such participant's account.
The term "employee stock ownership plan" is defined by section
407(d)(6) as an individual account plan (A) which is a stock
bonus plan which is qualified, or a stock bonus plan and money
purchase plan both of which are qualified, under section 401 of
the Code, and which is designed to invest primarily in qualify-
ing employer securities and (B) which meets such other require-
ments as the Secretary of the Treasury may prescribe by regula-
tion. Proposed regulations under section 407(d)(6) were published
on July 30, 1976 (copy enclosed), but have not yet been finalized.

Based upon the foregoing, we conclude that the proposed sales by
Mr. R. J. Pond and Mrs. B. P. Allen to the Plan will meet the
requirements of section 408(e) of ERISA if the Plan is an eligi-
ble individual account plan within the meaning of section 407(d)
(3) or if the acquisition is not prohibited by section 407(a),
and if the Trust acquires the stock for adequate consideration
within the meaning of section 3(18).

Pursuant to section 5.02(a) of the Department's Advisory Opinion
Procedure (ERISA Procedure 76-1, copy enclosed) the Department
ordinarily will not issue advisory opinions with respect to,
among other things, section 3(18) of ERISA relating to whether
certain consideration constitutes adequate consideration.

Homer L. Elliott, Esquire                             - 4


Accordingly, we cannot issue an opinion on the second issue
stated above. In the absence of regulations under section
3(18), determination as to adequate consideration must be made
on a case by case basis by the plan trustees or other appropri-
ate named fiduciaries in light of all relevant facts and circum-
stances.

In addition, no opinion is provided as to whether the proposed
sale is consistent with the fiduciary requirements of section
404(a)(l) of ERISA.

Sincerely,



Fred W. Stuckwisch
Director
Office of Regulatory
  Standards and Exceptions



Enclosures