Company Name: Bourns. Inc.
Public Availability Date:  Jan. 28, 1974

SEC Staff Response Letter

December 27, 1973

William L. Yerkes, Esq.
Kindel & Anderson
Twenty-Sixth Floor
555 South Flower Street
Los Angeles, California 90071

Re: Bourns, Inc.

Dear Mr. Yerkes:

This is in response to your letter of September 20, 1973 concerning the determination for purposes of Rule 144(d) under the Securities Act of 1933, as amended, of the holding period for restricted securities purchased by employees of Bourns, Inc. ("Bourns") under a Restricted Stock Plan ("the Bourns Plan") designed to qualify under Section 83 of the Internal Revenue Code of 1954, as amended. You refer to your previous letter of December 6, 1972 on this subject and to our response dated January 23, 1973. You note apparent inconsistencies in staff treatment of the Bourns Plan and other similar plans and request reconsideration of the staff position with respect to the holding period applicable to the Bourns Plan.

The Bourns Plan provides that shares of common stock of Bourns, Inc. may be purchased by certain key employees at not less than $1.00 per share. Shares purchased by an employee under the Bourns Plan may not be transferred, sold or hypothecated for three years. These restrictions lapse as to one fifth of the shares upon expiration of each of the third through seventh years following purchase. If the employee's employment is terminated within three years after purchase of the shares for reasons other than death, disability or retirement, Bourns has the option for 30 days after termination to repurchase the shares at the employee's cost plus interest. If employment is terminated in the fourth through the seventh year other than for the aforementioned reasons, Bourns has the same option as to any shares still subject to the transfer restrictions. During the period in which transfer is restricted, the employee is entitled to vote the shares and receive any dividends declared thereon.

The staff has reviewed the positions taken with respect to the Rule 144 holding period applicable to the Bourns Plan and other similar plans designed to qualify under Section 83 of the Internal Revenue Code.

We have concluded that the two year holding period for stock purchased under such plans does not begin to run as to each portion of the shares until the restrictions on disposition by the purchaser on that portion of the shares has been lifted.

The general rule as to the holding period for restricted securities under Rule 144, subparagraph 144(d)(1), requires that "if the securities were purchased, the full purchase price or other consideration shall have been paid or given at least two years prior to the sale. . ." Section 83 of the Internal Revenue Code provides that tax liabilities for transferred property may be deferred so long as the rights in such property are subject to a substantial risk of forfeiture. Section 83(c)(1) of the Code defines substantial risk of forfeiture as a conditioning of rights in property "upon the future performance of substantial services by any individual." Read in light of Section 83 your view that the holding period for the Bourns Plan begins to run at the time of purchase requires adopting the position that the holding period under Rule 144 can begin to run when additional consideration - i.e. "the future performance of substantial services" remains to be given for the stock. The staff believes such a position would be inconsistent with the plain meaning of subparagraph 144(d)(1).

Since the restrictions on disposition of the stock purchased under the Bourns Plan are not to be lifted as to each portion of the shares until additional consideration is forthcoming, the holding period for purposes of Rule 144 for stock purchased under the Bourns Plan will begin to run as to such portions only when full consideration has been provided by the purchaser as evidenced by the lifting of the restrictions.

Sincerely,

Neal S. McCoy
Chief Counsel

Incoming Letter

KINDEL & ANDERSON
TWENTY-SIXTH FLOOR, 555 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
(213) 680-2222

September 20, 1973

2348-00-02

Securities and Exchange Commission
500 North Capitol Street, N.W.
Washington, D.C. 20549
Attention: Mr. J. Rowland Cook

Re: BOURNS, INC. -

Restricted Stock Plan

Gentlemen:

I am writing to request that the staff reconsider the position taken in its letter of January 23, 1973 in response to our letter of December 6, 1972. Copies of both letters and a copy of Bourns' Restricted Stock Plan are enclosed.

In our letter of December 6, 1972 we asked whether under Rule 144(d) the holding period for shares purchased by an employee under Bourns' Restricted Stock Plan would begin with payment for the shares or with the lapse of the transfer restrictions contained in the Plan. We submitted that, for several reasons, it would be more appropriate to conclude that the holding period would commence with payment. The staff, however, indicated that the holding period would begin at the start of the fourth year after the purchase, that being the time at which the transfer restrictions begin to lapse. The staff quoted the portion of Securities Act Release No. 5223 which indicates that the holding period requirement is designed to avoid circumvention of the registration provisions of the Act by persons acting as conduits for an issuer in connection with resales and that must be subject to the full economic risks of investment during the holding period.

This request is prompted by the fact that on July 16, 1973, the staff issued an interpretive letter (available August 15, 1973) indicating that with regard to the Key Employees Restricted Stock Plan of Warner Communications, Inc., the holding period would begin to run at the time the stock is acquired rather than the date on which transfer restrictions lapse. While we have not seen that Plan, it appears from the correspondence that in many respects it is similar to Bourns', the principal difference apparently being that under certain circumstances Bourns has the option to repurchase an employee's shares. Also, for convenience, Bourns has retained custody of the stock certificates, but it would be willing to change this practice.

We respectfully submit, and would ask that the staff now concur, that for purposes of Rule 144(d), the holding period for shares purchased pursuant to Bourns' Restricted Stock Plan commences on the date of purchase. We believe that it is clear that employees acquiring shares under the Plan will not be acting as conduits for Bourns in connection with resales. There is an absolute prohibition on transfers for three years and the restrictions lapse as to one fifth of the shares over each of the next five years. Repurchase is optional on the part of Bourns. The employee thus is not assured of getting his money back and will have subjected himself to the economic risk of investment. On the other hand, the employee obtains significant attributes of beneficial ownership immediately upon purchase in that he can vote the shares and receive dividends; moreover, Bourns does not have the repurchase option if termination is occasioned by death, disability or retirement. For additional factors supporting our conclusion, we refer to our letter of December 6, 1972.

As Bourns soon will have to decide whether it should register certain shares which have been issued under the Plan, your early response to this letter would be appreciated. If additional information is needed, please feel free to contact me by telephone collect at (213) 680-2222.

Very truly yours,

William L. Yerkes
of KINDEL & ANDERSON

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