[Federal Register Volume 67, Number 68 (Tuesday, April 9, 2002)]
[Proposed Rules]
[Pages 17228-17255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7979]
[[Page 17227]]
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Part III
Department of the Treasury
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Office of Thrift Supervision
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12 CFR Parts 563b, 574, and 575
Mutual Savings Associations, Mutual Holding Company Reorganizations,
and Conversions From Mutual to Stock Form; Proposed Rule
Federal Register / Vol. 67, No. 68 / Tuesday, April 9, 2002 /
Proposed Rules
[[Page 17228]]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 563b, 574, and 575
[No. 2002-11]
RIN 1550-AB24
Mutual Savings Associations, Mutual Holding Company
Reorganizations, and Conversions From Mutual to Stock Form
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of Thrift Supervision (OTS) proposes to amend its
regulations on the mutual-to-stock conversion process and portions of
its regulations on mutual holding company reorganizations. This
document is a re-proposal (Re-proposal) of the Notice of Proposed
Rulemaking (First Proposal) published July 12, 2000. OTS extensively
modified the First Proposal as a result of the public comments it
received and seeks public comment on those revisions. As part of a
wholesale review of treatment of mutual institutions, OTS separately
has modified its examination and supervisory policies to address many
of the concerns mutual institutions have raised with OTS over the
years.
This Re-proposal includes modifications to the provisions
addressing business plans. In addition, it addresses certain matters
involving conversions from the mutual to the stock form, by, among
other things, adding demand account holders to the definition of
savings account holders, allowing accelerated vesting in management
benefit plans for changes of control, adding rules to establish
charitable organizations, and clarifying the policy on the amount of
proceeds allowed to be retained at the holding company level. We are
also requesting comment regarding certain additional proposed changes
to the OTS Mutual Holding Company Regulations.
DATES: Written comments must be received on or before May 9, 2002.
ADDRESSES: Mail: Send comments to Regulation Comments, Chief Counsel's
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington,
DC 20552, Attention Docket No. 2002-11.
Delivery: Hand deliver comments to the Guard's Desk, East Lobby
Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days,
Attention Regulation Comments, Chief Counsel's Office, Docket No. 2002-
11.
Facsimiles: Send facsimile transmissions to FAX Number (202) 906-
6518, Attention Docket No. 2002-11.
E-Mail: Send e-mails to [email protected], Attention
Docket No. 2002-11, and include your name and telephone number.
Public Inspection: Comments and the related index will also be
posted on the OTS Internet Site at http://www.ots.treas.gov. In
addition, interested persons may inspect comments at the Public
Reference Room, 1700 G Street, NW., by appointment. To make an
appointment for access, call (202) 906-5922, send an e-mail to
public.info@ots.treas.gov">public.info@ots.treas.gov, or send a facsimile transmission to (202)
906-7755. (Prior notice identifying the materials you will be
requesting will assist us in serving you.) Appointments will be
scheduled on business days between 10 a.m. and 4 p.m. In most cases,
appointments will be available the next business day following the date
a request is received.
FOR FURTHER INFORMATION CONTACT: David A. Permut, Senior Attorney,
(202) 906-7505; Gary Jeffers, Senior Attorney, (202) 906-6457, Business
Transactions Division, Chief Counsel's Office; or Mary Jo Johnson,
Project Manager, (202) 906-5739, Supervision Policy, Office of Thrift
Supervision, 1700 G Street, NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
Pursuant to its broad authority to regulate mutual savings
associations, authorize mutual holding company (MHC) reorganizations,
and regulate mutual-to-stock conversions of savings associations under
the Home Owners' Loan Act (HOLA),\1\ on July 12, 2000, OTS published an
Interim Final Rule (Interim Rule), revising OTS repurchase restrictions
applicable to recently converted institutions, changing OTS policy on
waivers of dividends by MHCs and making certain technical changes to
the regulations as a result of the passage of the Gramm-Leach-Bliley
Act of 1999 (GLB Act).\2\ On the same day, OTS published a Notice of
Proposed Rulemaking, proposing changes to OTS rules governing stock
conversions and MHCs.\3\
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\1\ 12 U.S.C. 1464(a), (i) and (p) and 1467a(o).
\2\ 65 FR 43088.
\3\ 65 FR 43092.
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OTS undertook these actions based on numerous discussions with the
management of mutual institutions, its experience with the conversion
process, and developments in the marketplace regarding MHC
reorganizations and mutual-to-stock conversions. OTS also reviewed its
policies, practices, and regulations to assess whether additions or
revisions were necessary.
To respond completely to all the suggestions for change, OTS
developed a comprehensive regulatory strategy governing mutual
institutions, MHC reorganizations, and the mutual-to-stock conversion
process. This comprehensive strategy includes: (1) New policy and
examination guidance; (2) these re-proposed regulations for the mutual-
to-stock conversion process and MHC minority stock offerings; and (3)
revisions to the application forms used for the mutual-to-stock
conversion process.
Since the First Proposal was published over 18 months ago, OTS has
issued guidance covering several areas of concern to commenters. To
enable the public to consider the interaction between that guidance and
the changes OTS is making to the First Proposal, OTS is publishing this
Re-proposal to seek further comment.
II. Policy Guidance
In the First Proposal, OTS indicated it would issue policy guidance
in certain areas regarding mutual associations in connection with the
changes to the MHC and conversion regulations. OTS has developed new
examination guidance to address many of the concerns mutual
associations raised, within the context of safe and sound operations.
OTS has also enhanced its off-site monitoring systems to provide
examiners with comparative peer groups of similarly situated mutual
associations.
Accordingly, OTS has separately issued the following new or revised
guidance:
Regulatory Bulletin 27b on Compensation. This revised
bulletin clarifies that mutual associations are subject to and governed
by the same prudential standards as stock associations. OTS intends
this guidance to enhance the ability of mutual associations to provide
competitive compensation plans to attract and retain qualified
management and staff.
Thrift Activities Handbook Section 110, Capital Stock and
Ownership. This revised handbook section includes a new section on
mutual associations that differentiates them from stock associations,
particularly by discussing member rights and ownership differences.
Thrift Activities Handbook Section 430, Operations
Analysis. This revised handbook section includes: a new section on the
importance of capital for mutual associations; information on
[[Page 17229]]
Return On Assets (ROA) for all savings associations; a new section on
evaluation of earnings in different structures (mutual associations,
stock associations, subchapter S corporations, Internet operations);
and information on the new mutual-only ratios in the Uniform Thrift
Performance Report (UTPR) and how examiners can appropriately compare
mutual and stock associations so that peer groups are more appropriate.
The revised examination procedures will improve supervision of
mutual associations. They will be targeted more directly to the quality
of operations, risk management, capital needs and formation, and
internal controls, enabling examiners to gauge the overall financial
condition of mutual associations more effectively. OTS is changing its
off-site monitoring systems to allow examiners to conduct financial
analyses for mutual institutions by comparing them with mutual
institutions instead of stock institutions.
In addition, for mutual associations seeking to augment their
capital base, OTS is exploring the feasibility and utility of various
capital-raising alternatives, such as the use of subordinated debt
instruments, mutual capital certificates, non-withdrawable accounts,
trust preferred securities, and other financing transactions.
III. Summary of Comments
OTS received 46 comment letters on the First Proposal and the
Interim Rule. Three were requests to extend the comment period.\4\ Five
individuals, ten law firms, 14 thrifts, 15 trade groups, and the
Federal Deposit Insurance Corporation (FDIC) submitted comments. OTS
participated in meetings on the regulations sponsored by America's
Community Bankers on September 12 (attended by 24 attorneys), September
28 (conference telephone call with representatives from 45 mutual
institutions, two outside counsel, representatives of the FDIC and the
Board of Governors of the Federal Reserve System (Federal Reserve)),
and November 3 (with representatives of the FDIC and the Federal
Reserve). OTS also held focus group meetings with executives from
mutual savings associations in Washington on January 8, 2001, and in
Boston on February 26, 2001, to listen to the views of mutual
institutions on specific questions raised in the preamble to the
proposed regulation. Issues raised by commenters are discussed in the
item-by-item summary below.
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\4\ On October 10, 2000, OTS extended the comment period on the
two regulations from October 10, 2000 to November 9, 2000. 65 FR
60123.
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IV. Item-by-Item Summary
A. General
The greatest number of comments on the First Proposal and the most
substantial concerns expressed by the commenters involved the business
plan, Regional Office non-objection to the business plan, and the pre-
filing meeting requirements. While the Re-proposal requires pre-filing
meetings, in response to the comments, OTS has revised when pre-filing
meetings must be held and has eliminated the requirement to obtain OTS
non-objection to conversion business plans before filing. Similarly,
OTS has revised the business plan standards to be addressed by
converting associations and considered in OTS review in response to the
comments.
B. Pre-filing Meeting
Under the First Proposal, OTS would have required each association
contemplating a conversion to meet with the appropriate Regional
Office, in a pre-filing meeting, to discuss the proposed business plan.
The board of directors, or a committee of the board including outside
directors, were encouraged to attend the meeting. The association would
then have submitted the proposed business plan at least 30 days prior
to submitting its conversion application, and would have needed to
receive the non-objection of the Regional Director to the business plan
before submitting either an application to convert to stock form or a
notice to reorganize to MHC form if the reorganization included a stock
issuance.
A number of commenters opposed the pre-filing meeting in its
entirety, although two commenters, both regulators, supported such
meetings. One commenter suggested that depositors, consumer advocates,
or other interested parties be invited to the pre-filing meeting.
Several commenters opposed both the pre-filing meeting and the pre-
approval of the business plan as intrusive and a source of unnecessary
delay and expense. A number of commenters thought OTS was requiring the
whole board to attend the pre-filing meeting at the Regional Office
with all of the costs of attending such a meeting falling on the
association.
It has been OTS' normal practice to discuss a savings association's
conversion plans with the board of directors. Therefore, a pre-filing
meeting does not result in any additional burden. In response to the
concerns expressed by the commenters about the expense of the meeting,
OTS notes that, if the board desires, OTS will send a representative
from the Regional Office to the association to meet with the board of
directors. To ensure that such a meeting occurs early in the process,
however, OTS expects to meet with the board of directors at least ten
days prior to the passage of a Plan of Conversion or Plan of
Reorganization. At that time, OTS would expect the board of directors
to have prepared a short, written strategic plan for OTS to review and
discuss with the board at the meeting. OTS reiterates that the purpose
of this meeting is not to substitute the agency's judgment for that of
the directors. OTS merely proposes to require the board to articulate
its plans for the association and the implications of those plans
before any process actually begins and before the institution spends
significant funds.
C. Prior OTS Non-Objection to Business Plan
The First Proposal provided that applicants could not submit a
conversion application until the converting association had submitted,
and OTS had advised the association that it had not objected to, the
association's business plan. Many commenters objected to this
requirement, asserting that the requirement added delay and expense to
the conversion process, was unduly burdensome, or gave the Regional
Director the ability to prevent a conversion if the Regional Director
disagreed with the business plan.
Although OTS does not believe the prior non-objection requirement
would be as burdensome in practice as anticipated by certain
commenters, the Re-proposal does not require OTS non-objection to the
business plan prior to an association filing a conversion application.
Under the Re-proposal, business plans must be filed at the time a
conversion application is submitted, or the application will be
rejected as materially deficient. As a practical matter, however, OTS
strongly encourages submission of business plans before the application
filing to help ensure timely approval of the conversion application.
D. Business Plan Standards
The First Proposal provided that a converting association's
business plan must, among other things: (i) Clearly and completely
describe projected operations, including the deployment of conversion
proceeds; (ii) demonstrate that the plan of conversion will
substantially serve to meet credit and
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lending needs in the proposed market area; (iii) demonstrate a
reasonable need for new capital to support projected operations and
activities; (iv) describe the association's experience with prior
growth, expansion, or other activities similar to those proposed in the
business plan; (v) describe the risks associated with the plan; (vi)
demonstrate adequate expertise and staffing to manage growth prudently;
and (vii) demonstrate that the association will achieve a reasonable
return on equity. The First Proposal also provided that the association
could not project stock repurchases, returns of capital, or
extraordinary dividends in the business plan.
All commenters who discussed the business plan opposed the proposed
business plan requirements. Four commenters supported the concept of
business plan guidance in the regulations but were opposed to the
specific guidance OTS provided. The various commenters asserted: (i)
The creation of a business plan is management's responsibility, and OTS
should not second-guess management, further, a limited number of
commenters questioned OTS's authority to impose business plan
standards; (ii) business plans based on Return On Equity (ROE) are
inappropriate and would not work for most associations, and the
proposed ROE criterion would have caused 85 percent of conversions
prior to 2000 to be disapproved; (iii) it is inappropriate for OTS to
determine how much capital must be invested in what type of community
development activities; (iv) the business plan standards were seriously
flawed, unattainable, arbitrary, unrealistic, or protectionist; (v) the
business plan created a ``needs'' test for conversions; (vi) the First
Proposal would chill management decision making; (vii) the First
Proposal would create a moratorium on conversions; (viii) the First
Proposal would cause unnecessary delays or would be unduly burdensome;
(ix) the business plan requirements would penalize associations in slow
growth areas, would not work for small thrifts, would prejudice capital
raising, or ignore investor needs; (x) the business plan disallows use
of stock repurchases as a legitimate business management tool, which is
inconsistent with the Interim Rule eliminating restrictions on
repurchases during the second and third years after conversion; (xi)
the First Proposal penalizes management for lack of experience; and
(xii) the First Proposal lacks flexibility.
Neither the First Proposal nor the Re-proposal were intended to
create a ``needs'' test or a moratorium on conversions, and in OTS'
view, the regulations do not establish such a test or impose a
moratorium. As to the comments regarding OTS' conversion authority in
general, OTS has for decades had significant regulations governing all
aspects of the conversion process, and the HOLA explicitly provides
that ``conversions shall be subject to such regulations as the Director
shall prescribe.'' \5\
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\5\ 12 U.S.C. 1464(i)(1).
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OTS, as the safety and soundness regulator of savings associations,
believes the specific requirements are appropriate to ensure that an
association contemplating such a significant transaction, with
considerable ramifications regarding capital, management, and business
operations, has considered the consequences of the transaction in its
business plan. Accordingly, the Re-proposal continues to include a
business plan requirement, and sets forth the factors OTS will consider
in evaluating business plans.\6\
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\6\ OTS notes that there is no requirement to submit a business
plan for an MHC reorganization without a stock issuance.
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Several of the comments demonstrate that commenters believed the
various factors in the First Proposal were separate standards that had
to be satisfied for approval of a conversion. The Re-proposal clarifies
that OTS will weigh all of the factors together, and no single factor
will determine whether a business plan is acceptable. For example, lack
of management experience with past growth will not be as significant if
the business plan demonstrates realistic deployment of the conversion
proceeds for new growth, such as enhancing ways to meet increased
credit and lending needs in the market.
OTS recognizes that commenters were concerned about reliance on ROE
as a test to determine whether to approve a business plan. OTS
reiterates that in evaluating ROE as a factor in the business plan, ROE
in the first years after conversion will not be given as much weight as
the association's ROE near the end of the three-year business plan
period, when the association has had time to deploy most, if not all of
the conversion proceeds.
As for stock repurchases, today's Re-proposal permits stock
repurchases to be included in the business plan. A business plan that
contemplates stock repurchases as the primary use of new capital,
however, will not be regarded favorably. OTS recognizes that some stock
repurchases may occur, although the Re-proposal continues to limit
stock repurchases in the first year following conversion. OTS will view
a return of capital to shareholders (such as a special dividend) in the
first year following conversion to be a material deviation from the
business plan that requires the prior written approval of the Regional
Director.
E. MHCs and Mutuality
In the preamble to the First Proposal, OTS asked a series of
questions about what OTS could do to enhance the attractiveness of the
MHC charter. OTS also specifically stated that it encouraged savings
associations that were considering conversion to stock form to first
carefully consider the choice of an MHC charter as an interim step. In
addition, OTS specifically proposed certain changes to the MHC
regulations to permit the issuance of additional stock benefit plans,
easier voting requirements, and a number of other innovations that OTS
thought would enhance the attractiveness of the MHC option. Taken
together, these steps appeared to many commenters as expressing an
agency bias for the MHC form. Many commenters expressed their
disagreement with this perceived agency bias, believed OTS was putting
a moratorium on stock conversions, or argued OTS was impinging on the
freedom of savings associations to choose their form of charter.
OTS suggestions on enhancing the MHC charter were intended to
expand the options available to a mutual association, not to give
preference to one form of charter over another.
The MHC is an alternative for mutual associations that are
contemplating conversion to stock form. The MHC structure retains the
benefits and essential nature of the mutual charter, while providing
greater access to capital markets. In addition, in section 401(b) of
the GLB Act,\7\ Congress expanded the investment and activities
authority of MHCs to include the activities of financial holding
companies. OTS amended the MHC regulations to reflect those changes.\8\
OTS is re-proposing significant enhancements to the MHC form to make it
a long-term alternative to full conversion.
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\7\ Pub. L. 106-102, 113 Stat. 1338 (1999).
\8\ 65 FR 43088, Jul. 12, 2000.
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OTS also continues to encourage mutual associations seeking new
capital to seriously consider the MHC form of reorganization with a
limited stock issuance, rather than a full conversion. This is a
particularly useful alternative for mutual associations that have no
immediate plans for deployment of substantial amounts of new capital.
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F. Mutual Capital Questions
OTS asked a number of questions in the preamble to the First
Proposal regarding capital for mutual associations. OTS observed that
mutual associations could currently raise additional capital in a
number of ways that did not involve conversion to stock form. These
methods included mutual capital certificates, subordinated debt, trust
preferred securities, or the formation of real estate investment trusts
(REITs). OTS asked if there were other methods of raising capital and
why the methods mentioned were not widely used. While no written
comments were received on this issue, attendees at the two focus group
meetings indicated these methods of raising additional capital were
generally considered too expensive for a mutual association to
undertake, particularly for smaller associations. OTS is exploring,
among other approaches, the possibility of mutual associations
participating with other mutual associations in larger capital
offerings to reduce the costs.
The preamble to the First Proposal requested comment on whether OTS
should issue guidance regarding capital distributions by mutual
associations. A number of commenters addressed this issue, all
suggesting OTS not issue guidance in this area because they felt this
should be a business decision of the association. OTS generally agrees
and, therefore, OTS does not propose to issue guidance on capital
distributions by mutual associations as part of this proposal.\9\
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\9\ Any capital distribution by mutual associations remains
subject to the capital distribution regulations at 12 CFR part 563,
subpart E.
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G. Stock Repurchases
In the Interim Rule, OTS revised its regulations to eliminate
restrictions on stock repurchases by converted savings associations
after the first year following conversion. The rule change was made in
part to bring OTS policy closer to that of the FDIC on this subject.
Several commenters expressed appreciation that the rules of the two
agencies would now be similar. Almost all the other commenters on this
issue supported OTS changes, although one commenter suggested
repurchase limitations should be eliminated completely. A number of the
commenters suggested that there should be no restrictions on
repurchases for associations completing second step stock conversions,
because those companies had been public for some period of time prior
to full conversion to stock form.
The Re-proposal is consistent with the Interim Rule. See
Secs. 563b.510 and 563b.515. OTS is also re-proposing corresponding
amendments to the MHC regulations at Sec. 575.11(c). In response to the
comment that associations that engage in second step stock conversions
should receive different treatment, OTS believes that fully converted
companies should receive the same treatment whether they reach that
status in one step or two. In addition, OTS believes it is in the best
interest of applicants to have similar treatment of stock repurchases
among the agencies regulating the conversion process.
As a matter of policy, OTS has taken the position that stock
repurchases for management benefit plans that have been ratified by
shareholders in the first year following conversion do not count toward
the repurchase limitations in Sec. 563b.3(g). The Re-proposal, at new
Sec. 563b.510, clarifies this point. However, OTS would still require
prior notification of any repurchases in the first year following
conversion, even if they are not subject to OTS approval under the
repurchase limitations. One commenter inquired whether a stock
repurchase more than one year after conversion would require Regional
Director approval as a material deviation from the business plan. OTS
believes that it may constitute a material deviation, depending on what
the business plan disclosed. However, current MHC regulations permit
purchases of stock in the open market for tax-qualified or non-tax-
qualified employee stock benefit plans to be excluded from the
repurchase limitations.\10\ The Re-proposal will extend this exclusion
from the repurchase limitations to fully converted companies. OTS notes
that the FDIC permits purchases for employee stock benefit plans to be
excluded from the repurchase limitations for fully converted companies.
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\10\ See 12 CFR 575.11(c)(1)(iv).
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H. Dividend Waivers
The Interim Rule revised OTS policy on dividend waivers for MHCs.
Prior OTS policy had adjusted exchange ratios for excessive dividends
in conversions of MHCs to stock form. No adjustment is now required,
and Sec. 575.11(d)(3) was amended to reflect this change in OTS policy.
Most commenters supported this change in OTS policy although two
opposed the change because of the potential conflict of interest for
directors and officers making the decision to waive or not waive
dividends. The Re-proposal is unchanged from the Interim Rule. OTS
believes there is always a potential conflict of interest for directors
and officers who make financial decisions where they may personally
benefit. OTS may take enforcement action if it discovers wrongdoing.
OTS notes that the waiver of dividends results in more capital at the
savings association, enhancing the safety and soundness of the savings
association.
I. Charitable Organizations
The First Proposal included provisions regarding the establishment
of a charitable organization in connection with a mutual-to-stock
conversion. The provisions included discussing the purpose of the
charitable organization, voting foundation shares in the same ratio as
all other shares voted on proposals considered by shareholders,
reserving board seats for an independent director and a director from
the association, and dealing with conflicts of interest. The Re-
proposal also specifies the conditions for approval including
examination by OTS at foundation expense, submission of annual reports,
and compliance with all laws necessary to maintain the foundation's
tax-exempt status.
All commenters on this aspect of the First Proposal were in favor
of the proposed regulations, although one commenter thought OTS should
require a separate vote of the minority shareholders to establish a
foundation in second step conversions. OTS already requires a separate
minority shareholder vote in such transactions and has included that
requirement in the Re-proposal. One commenter asserted that 10-25% of
the proceeds from every mutual-to-stock conversion should be required
to be placed in a charitable organization. OTS does not believe it is a
regulatory function to determine the amount of proceeds that must be
placed in a charitable organization. In response to the comments, OTS
has included the charitable organization provisions in the Re-proposal,
and proposes several technical amendments suggested by one commenter to
clarify that annual reports and the percentage of contributed proceeds
must comply with the Internal Revenue Code (IRC). Upon effectiveness of
a final regulation, waivers from certain provisions in the current
conversion regulations now routinely requested in a conversion with a
charitable foundation would no longer be necessary.
OTS takes this opportunity to state that in situations where a
foundation becomes a holder of more than 10% of an institution's common
stock, e.g., if the institution repurchases stock, causing the
foundation's ownership percentage to increase, OTS will
[[Page 17232]]
consider waivers of the Control Regulations, 12 CFR part 574 and the
concerted action presumptions in those regulations.
J. Policy on Acquisitions
Current OTS regulation Sec. 563b.3(i)(3) provides that no person or
company may acquire more than 10 percent of any class of equity
security of a recently converted association for three years following
conversion without OTS approval. OTS enacted this rule principally to
provide a reasonable period of time for a recently converted
association to deploy its new capital prudently according to the plan
described in the offering documents, to acclimate to operating as a
public company, and to do both without the distraction of considering
takeover proposals. (See approval standards at current
Sec. 563b.3(i)(5) or proposed Sec. 563b.525(d).)
In the First Proposal, OTS noted that it intended to closely review
applications under the existing standards to make sure all criteria are
fully met before approving acquisitions within the first three years
following conversion.
A number of commenters suggested that the OTS statement that it
intended to implement its current regulation was inappropriate, that
these decisions were the responsibility of the board of directors, not
the regulator, and that a three-year restriction on acquisitions was
too inflexible. Three commenters thought OTS should implement a five-
year restriction on acquisitions. After considering the comments, for
the reasons stated above, OTS is re-proposing the regulation as
originally proposed.
K. Demand Account Holders
In the First Proposal, OTS proposed to allow demand account holders
to be considered eligible account holders for purposes of determining
subscription rights in a conversion. Many applicants incorrectly
believe that demand account holders are already eligible account
holders. Others have requested OTS waivers to allow demand account
holders to be included in the subscription. OTS routinely granted the
waivers. In order to end the confusion regarding this issue, OTS
proposed revising the regulations to include demand account holders in
the subscription priorities. None of the commenters objected to this
provision. OTS has included the original proposal in this Re-proposal.
L. Management Stock Benefit Plans
In the First Proposal, OTS proposed changing the regulations to
allow for accelerated vesting for management stock benefit plans in the
event of a change of control. Currently, the regulations only allow
acceleration for death or disability. Most commenters in this area
agreed with this change, although three suggested OTS add retirement at
least one year following conversion as another reason for allowing
acceleration.
The Re-proposal is unchanged from the First Proposal. OTS believes
that it is appropriate that the bases for acceleration, such as death,
disability, or change of control of the savings association, not be
within the individual's control. Therefore, the Re-proposal does not
provide for accelerated vesting based on retirement.
One commenter suggested that because the National Association of
Securities Dealers Automated Quotation system (NASDAQ) requires a vote
for certain stock benefit plans, OTS did not need to duplicate that
requirement.\11\ OTS notes, however, that not all converting
associations and MHCs engaging in stock issuances are listed on the
NASDAQ. Smaller associations, in particular, cannot meet NASDAQ listing
requirements. Therefore, OTS believes it is appropriate to continue to
include voting requirements in OTS regulations. Several commenters
suggested that OTS should follow NASDAQ voting requirements (a majority
of those voting at a legally called meeting) to approve benefit plans.
OTS believes, however, that a majority of shareholders (not merely a
majority of those voting) must ratify stock benefit plans because
issuance of stock to such plans dilutes their ownership interests. OTS
notes that while NASD Rule Sec. 4350 requires shareholder ratification
of certain stock benefit plans, OTS currently requires shareholder
ratification of plans adopted only within the first year following
conversion. The First Proposal revised the section on management
benefit plans to clarify that an association must present to
shareholders for ratification any material amendments to previously
approved management recognition plans, stock option plans, or other
benefit plans that occur more than one year after conversion and that
are inconsistent with the regulation. One commenter objected to this
proposed revision as overly intrusive. However, OTS believes the
regulation is an appropriate measure of regulatory oversight and is re-
proposing it as proposed.
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\11\ See NASD Manual & Notices to Members, Sec. 4350(i),
Qualitative Listing Requirements for Nasdaq National Market and
Nasdaq SmallCap Market Issues Except for Limited Partnerships traded
on the Nasdaq National Market, Shareholder Approval (2001).
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To reduce burden, the First Proposal had proposed a possible check-
off box on stock order forms to vote for or against stock benefit
plans, when purchasing stock in MHC stock issuances. One of the
commenters pointed out that a check-off box would violate NASD rules
requiring NASD notification for stock benefit plans.\12\ Accordingly,
the Re-proposal does not include that feature of the First Proposal.
---------------------------------------------------------------------------
\12\ See NASD Manual & Notices to Members, Sec. 4310(c)(17),
Qualification Requirements for Domestic and Canadian Securities
(2001).
---------------------------------------------------------------------------
While most commenters supported expansion of option plan
opportunities for MHCs, several commenters were opposed to any options
for management based on conflicts of interest or a view that benefit
plans were a way for management to enrich itself. One commenter
suggested management benefit plans should be limited to 2% of the stock
issued. In response to those comments, OTS is adding a clarification to
the Re-proposal that OTS will not approve management benefit plans that
in the aggregate award more than 25% of the number of shares ultimately
issued in the public offering to minority shareholders. The 25%
restriction does not include ESOP shares allocated to managers. OTS
believes management benefit plans that are reasonable, present no
safety or soundness concerns, and are ratified by the shareholders, are
not objectionable. Most companies use such plans to attract qualified
executives and to reward management for performing well. Therefore, OTS
is re-proposing most of the proposed changes except as noted above. One
commenter asked if treasury stock could be used to fund benefit plans.
OTS allows treasury stock to be used for this purpose.
OTS received no comments on the First Proposal's revisions to the
regulations to clarify that OTS will allow dividend equivalent rights,
dividend adjustment rights, or other similar provisions that permit
cash payments, adjustment of the number of shares, or exercise price of
options as a result of stock dividends or splits, in management
recognition plans, stock option plans, or other stock benefit plans.
OTS is including these revisions in the Re-proposal. OTS does not
believe these types of provisions, which are common in option plans,
unduly
[[Page 17233]]
benefit recipients, as long as these provisions do not violate OTS
vesting requirements or pricing requirements for options. See proposed
Sec. 563b.500.
OTS also proposes to add a provision that clarifies a supervisory
policy requiring exercise or forfeiture of stock benefits in certain
circumstances, such as if an association becomes critically
undercapitalized. See proposed Sec. 563b.500.
M. Holding Company Proceeds
The First Proposal stated that at least 50% of the gross proceeds
in a mutual-to-stock conversion must be infused into the converting
savings association, and more must be infused if OTS concludes, for
supervisory reasons, that a larger capital infusion is necessary. The
First Proposal inadvertently referenced 50% of gross proceeds, instead
of net proceeds. The Re-proposal clarifies that 50% of the net proceeds
must be infused into the savings association. One commenter suggested
that all the proceeds should go to the savings association. Several
others suggested OTS should maintain more flexibility and make a
determination on an acceptable amount of proceeds retained by the
holding company, based upon what the business plan proposed. OTS has
determined that the 50% limitation works well, but will examine every
conversion on a case-by-case basis to determine if the limitation is
appropriate in that case.
N. Mutual Holding Company Revisions
1. General
The Interim Rule revised the MHC regulations in accordance with the
GLB Act and revised OTS treatment of MHC dividend waivers. The First
Proposal included changes to the MHC regulations conforming to changes
made to the conversion regulations. In the First Proposal, OTS also
proposed to increase the size of stock benefit plans that associations
(or mid-tier holding companies) under the MHC format could enact. Most
commenters were in favor of this idea although two opposed any benefit
plans for management. OTS is re-proposing the changes as proposed, with
certain technical revisions, and with the additional 25% limitation
discussed earlier. One commenter asked OTS to clarify that the proposed
rules, if finalized, would apply to existing MHCs. In response to that
comment, OTS takes this opportunity to indicate that the Re-proposal,
if finalized, will be applicable to future stock issuances by existing
associations or mid-tier holding companies in the MHC format. OTS will
also permit the use of repurchased shares to attain the new limits.
In the First Proposal, OTS also proposed allowing the adoption of
additional stock option plans without the need to issue stock to all
categories of subscribers. The Re-proposal retains this provision. OTS
notes that adoption of additional plans still requires filing an
application with OTS, registering additional stock where appropriate,
and shareholder ratification of additional plans. Among the factors OTS
will consider when reviewing additional plans are the purpose for
creating the additional plans, management ratings, or supervisory
problems at the converted savings association. As noted earlier,
commenters were in favor of a check-off approval for benefit plans, but
OTS is not re-proposing this item because of the NASD rule
restrictions.
Three commenters urged OTS to change its policy on the chartering
of savings association subsidiaries of MHCs, or holding companies
inserted in between MHCs and their savings association subsidiaries
(Mid-tiers). Currently Mid-tiers must be chartered by OTS. The
commenters argued that regular holding companies are state-chartered,
so Mid-tiers should also be state-chartered. OTS notes, however, that
Mid-tiers are MHCs, and MHCs, by statute, must be federally
chartered.\13\ One commenter asked if OTS would allow Mid-tiers to
adopt limited liability bylaws. Although such institutions are
federally chartered, OTS has allowed the adoption of limited liability
bylaws on a case-by-case basis for other federal associations and,
therefore, would consider this for Mid-tiers.
---------------------------------------------------------------------------
\13\ See 12 U.S.C. 1467a(o)(7).
---------------------------------------------------------------------------
OTS also asked for comments on the possibility of not requiring a
vote of the members for a simple reorganization to MHC form, without a
stock issuance. Nine commenters favored such a change and three opposed
it. OTS believes such a change may be beneficial to associations
considering a charter change to MHC form, but believes a statutory
change is necessary to accomplish this objective. OTS will consider
seeking statutory changes in this area.
One commenter asked if OTS would consider an abbreviated
application for MHC reorganizations without a stock issuance. OTS
already allows abbreviated applications for such reorganizations. These
applications, however, are subject to the Bank Merger Act, which
contains statutory time frames.
2. Acquisitions of Mutual Holding Company Structures
Recently, companies in several MHC structures have entered into
transactions, or have received offers to enter into transactions, in
which an unrelated mutual savings association, mutual savings bank, or
MHC would acquire the target MHC, mid-tier holding company, and
subsidiary association. In these transactions, the mid-tier
association's minority shareholders have been offered cash, and the
majority mutual interest would become part of the acquiring mutual
entity. Some of these transactions have been friendly, and others have
been hostile acquisition proposals. In the context of these
transactions, MHCs and their subsidiary entities have asked: (i)
whether mid-tier holding companies (or, if there is no mid-tier holding
company, the subsidiary savings association) may adopt the pre-approved
charter provisions set forth at 12 CFR 552.4(b)(8), such as the charter
provision prohibiting acquisitions of, and offers to acquire, more than
ten percent of any class of equity security of the entity for five
years; and (ii) whether OTS applies 12 CFR 563b.3(i)(3) to savings
association subsidiaries or mid-tier holding companies that have issued
stock within the previous three years.
The purposes of the regulatory post-conversion acquisition
restriction at 12 CFR 563b.3(i)(3) and the charter provisions in 12 CFR
552.4(a)(8) are to provide recently converted associations a period of
time in which to deploy conversion proceeds into productive assets, to
permit management to focus on the task of investing conversion proceeds
and managing their institution, and to protect against acquisition
efforts that may have the potential to disrupt operations in the
critical time period after conversion.\14\ In addition, the charter
provisions are designed to allow converted associations more discretion
in managing their affairs.\15\
---------------------------------------------------------------------------
\14\ See, e.g., Federal Home Loan Bank Board (FHLBB) Resolution
No. 85-80 (Jan. 31, 1985), Resolution No, 84-400 (Aug. 2, 1984),
Resolution No. 84-90 (Feb. 23, 1984), and Resolution No. 76-848
(Nov. 10, 1976).
\15\ FHLBB Resolution No. 84-90 (Aug. 2, 1984).
---------------------------------------------------------------------------
Recently completed or proposed transactions have demonstrated that
takeover pressures now exist in the context of MHC structures. Minority
stockholders have sought to pressure MHC structures to be acquired by
mutual institutions or other MHC structures. In light of recent
takeover attempts, and particularly in light of the hostile situations
that have developed, OTS has determined to allow the post-
[[Page 17234]]
conversion anti-takeover restrictions in the charter of a mid-tier
stock holding company. These restrictions would be consistent with the
purposes of those provisions generally and give a newly converted MHC
time to deploy its new capital and adjust to managing its institution
in the MHC environment.\16\
---------------------------------------------------------------------------
\16\ The MHC regulations provide that the procedural and
substantive requirements of 12 CFR 563b.3 through 563b.8 apply to
all MHC stock issuances under Sec. 575.7 unless clearly
inapplicable. In the past, OTS staff has informally advised certain
acquirors that it has not considered Sec. 563b.3(i)(3) to be clearly
applicable in the MHC context.
---------------------------------------------------------------------------
Accordingly, OTS is allowing mid-tier holding companies to include
the provisions set forth at 12 CFR 552.4(b)(8) in their charters. In
addition, OTS proposes to apply Sec. 563b.3(i)(3) to mid-tier holding
companies and subsidiary stock institutions that complete initial stock
offerings under Sec. 575.7. OTS requests comment on whether it should
apply Sec. 563b.3(i)(3) in the context of Mid-tiers and MHC savings
association subsidiaries.
3. ``Second Step Conversions'' of MHCs
Section 575.12 of the MHC regulations generally governs the
conversion of MHCs to stock form (frequently called ``second step
conversions''). In all such transactions to date, OTS staff has
required that the majority of the minority shares of the Mid-tier or
savings association subsidiary, as the case may be, vote in favor of
the second step conversion, in addition to votes otherwise required.
OTS staff has imposed this requirement because the minority
shareholders received different treatment in the second step conversion
than the majority interest. The minority shareholders received stock in
an amount to be determined under an ``exchange ratio'', while the
majority interest (the mutual depositors) received rights to subscribe
to the remaining shares to be issued in the transaction, at the
offering price. OTS staff concluded that the requirement was
appropriate in order to help ensure the fairness of the transaction.
OTS proposes to include this requirement, which has been applicable to
every second step conversion to date, in the MHC regulations, at 12 CFR
575.12(a)(3).
O. Supervisory Conversions
To conform the language in OTS regulations more closely to sec.
5(o) of the HOLA, the statute governing supervisory conversions, OTS
proposed certain changes to the regulatory language regarding Voluntary
Supervisory Conversions. The revised language can be found at
Secs. 563b.625 and 563b.630 of the Re-proposal.
P. Merger Conversions
One commenter requested OTS to address whether there is any change
in OTS policy on merger conversions. OTS policy on merger conversions
was articulated in the preamble to the OTS conversion regulation of
1994, 59 FR 61247, 61254, Nov. 30, 1994. In that regulation, OTS stated
that it would limit merger conversions to cases involving financially
weak institutions. In addition, OTS indicated it would consider
allowing merger conversions where a converting institution could
demonstrate by clear and convincing evidence that a standard conversion
would not be economically feasible, based on the ratio of expenses to
gross proceeds, because of the asset size of the institution.\17\
---------------------------------------------------------------------------
\17\ See 59 FR 61247, at 61255. OTS gave an example of
institutions with assets of less than $25 million as more likely to
be able to establish a justification for doing a merger conversion.
---------------------------------------------------------------------------
In the last eight years OTS has approved only one merger
conversion. That approval was based on the criteria articulated in the
1994 regulation. OTS reiterates the guidelines it established in the
1994 regulation and wishes to clarify that institutions proposing
merger conversions should not propose plans where management of the
disappearing institution would receive anything more than they could if
they had undertaken a standard conversion. In addition, institutions
contemplating a merger conversion must demonstrate a merger conversion
is the only viable alternative, and document what other proposed
solutions the company pursued, that the proposed distribution of assets
is fair to all parties, and that the institution used independent
counsel to represent the interests of the institution.
Q. Plain Language
The First Proposal converted OTS rules on mutual-to-stock
conversions into a plain language format. All six commenters who
addressed this change commented favorably. One commenter asked if OTS
intended to make the same changes to the MHC regulations. OTS intends
to make similar changes to the MHC regulations in a future project.
R. Miscellaneous Revisions
In addition to the revisions described above, the First Proposal
proposed a number of miscellaneous revisions to filing and other
requirements. OTS received no comments on these revisions and is re-
proposing them as originally proposed. The miscellaneous changes will:
Revise the definition section of the regulation to include
only those definitions that are not defined elsewhere in OTS
regulations, or to move specific definitions to the appropriate section
of the regulation. See proposed Sec. 563b.25.
Reduce the number of copies of applications that a savings
association must file with OTS from ten to seven. See proposed
Sec. 563b.155.
Revise the filing requirements to coordinate the place of
filing and number of copies filed, for the application for conversion
and any amendments to the application for conversion. See proposed
Secs. 563b.115, 563b.155, 563b.180, and 563b.185.
Codify the current informal standard requiring a legal
opinion indicating that any marketing materials comply with all
applicable securities laws. See proposed Sec. 563b.150.
Delete the requirement for a legal opinion regarding
insured accounts. See proposed Sec. 563b.100, Exhibit 3(d).
One commenter also asked for clarification on whether community
offerings must occur in conversions. If all the stock is sold in the
subscription phase of a conversion, a community offering is
unnecessary. Another commenter asked if transfer restrictions applied
in second step stock conversions. Transfer restrictions apply to newly
purchased stock in second step stock conversions, but not to exchange
shares presuming the appropriate transfer restriction time frames have
already expired.
S. Forms
The First Proposal contained revisions to all of the forms
currently in the conversion regulations, and drafted a new form that
facilitates the conversion process (Form OF for the Order Form). In
drafting these forms, OTS moved a number of requirements currently in
the regulations to the related forms. OTS received one comment on the
forms with some minor technical suggestions for revisions. OTS concurs
with some of the technical revisions and has revised the forms
accordingly. The forms will continue to be available through OTS
Washington and Regional Offices and will be accessible on OTS's
website.
V. Disposition of Existing Rules
[[Page 17235]]
------------------------------------------------------------------------
Re-proposed
Original provision provision Comment
------------------------------------------------------------------------
12 CFR 563b.1................... 12 CFR 563b.5..... Nonsubstantive
revision, moved.
12 CFR 563b.2(a)................ 12 CFR 563b.25.... Substantive
revisions,
deletions, and
moved.
12 CFR 563b.2(b)................ .................. Deleted.
12 CFR 563b.3(a)................ 12 CFR 563b.5(a).. Nonsubstantive
revision, moved.
12 CFR 563b.3(b)................ 12 CFR 563b.200(a) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(1)............. 12 CFR 563b.330(a) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(2)............. 12 CFR 563b.355(a) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(2)(i)-(ii)..... 12 CFR Nonsubstantive
563b.375(a), (d). revision, moved.
12 CFR 563b.3(c)(3)............. 12 CFR 563b.360... Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(4)............. 12 CFR Nonsubstantive
563b.335(b), (c). revision, moved.
12 CFR 563b.3(c)(4)(i).......... 12 CFR 563b.320(c) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(4)(ii)......... 12 CFR 563b.375(c) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(4)(iii)........ 12 CFR 563b.375(b) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(4)(iv)......... 12 CFR 563b.375(d) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(5)............. 12 CFR Nonsubstantive
563b.320(d), 365. revision, moved.
12 CFR 563b.3(c)(6)............. 12 CFR Nonsubstantive
563b.320(e), revision,
335(b), (d). deletions, and
moved.
12 CFR 563b.3(c)(6)(i).......... 12 CFR Substantive
563b.385(a), (c), revision,
380(a). deletions, and
moved.
12 CFR 563b.3(c)(6)(ii)-(iii)... 12 CFR 563b.395... Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(6)(iv)......... 12 CFR 563b.390(b) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(7)............. 12 CFR Nonsubstantive
563b.385(a), (c). revision, moved.
12 CFR 563b.3(c)(8)............. 12 CFR 563b.370... Nonsubstantive
revision,
deletions, and
moved.
12 CFR 563b.3(c)(9)............. 12 CFR 563b.505(d) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(10)............ 12 CFR Nonsubstantive
563b.330(a), revision, moved.
335(b).
12 CFR 563b.3(c)(11)............ 12 CFR 563b.420(a) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(12)............ 12 CFR 563b.445(a) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(13)............ 12 CFR Nonsubstantive
563b.430(d), revision, moved.
445(b), 465, 485.
12 CFR 563b.3(c)(14)............ 12 CFR 563b.25.... Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(15)............ 12 CFR 563b.440, Nonsubstantive
445(c). revision, moved.
12 CFR 563b.3(c)(16)............ 12 CFR 563b.140, Nonsubstantive
425. revision, moved.
12 CFR 563b.3(c)(17)............ 12 CFR 563b.505(a) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(18)............ 12 CFR 563b.505(b)- Nonsubstantive
(c). revision, moved.
12 CFR 563b.3(c)(19)............ 12 CFR 563b.530(a)- Nonsubstantive
(c). revision, moved.
12 CFR 563b.3(c)(20)............ 12 CFR 563b.150(b) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(21)............ 12 CFR 563b.130... Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(22)............ 12 CFR 563b.345(b) Nonsubstantive
revision, moved.
12 CFR 563b.3(c)(23)............ 12 CFR 563b.320(a)- Nonsubstantive
(d), 380(a)-(c). revision, moved.
12 CFR 563b.3(c)(24)............ 12 CFR 563b.520(a)- Nonsubstantive
(b). revision, moved.
12 CFR 563b.3(d)(1)-(7)......... .................. Deleted.
12 CFR 563b.3(d)(8)............. 12 CFR 563b.385(a) Nonsubstantive
revision, moved.
12 CFR 563b.3(d)(9)............. 12 CFR 563b.385(b) Nonsubstantive
revision, moved.
12 CFR 563b.3(d)(10)-(11)....... .................. Deleted.
12 CFR 563b.3(d)(12)............ 12 CFR 563b.390(a) Nonsubstantive
revision, moved.
12 CFR 563b.3(d)(13)............ .................. Deleted.
12 CFR 563b.3(e)(1)............. 12 CFR 563b.25.... Nonsubstantive
revision, moved.
12 CFR 563b.3(e)(2)............. .................. Deleted.
12 CFR 563b.3(f)(1)............. 12 CFR Nonsubstantive
563b.445(b), 450, revision, moved.
455, 480.
12 CFR 563b.3(f)(2)............. 12 CFR Nonsubstantive
563b.445(b), 450. revision, moved.
12 CFR 563b.3(f)(3)............. 12 CFR Revision with
563b.470(e), 475. partial deletion,
moved.
12 CFR 563b.3(f)(4)............. 12 CFR 563b.460... Nonsubstantive
revision, moved.
12 CFR 563b.3(f)(5)............. 12 CFR 563b.470(a)- Nonsubstantive
(d). revision, moved
12 CFR 563b.3(g)(1)............. 12 CFR 563b.510... Revision with
deletion, moved.
12 CFR 563b.3(g)(2)............. 12 CFR 563b.510, Nonsubstantive
520(a). revision, moved.
12 CFR 563b.3(g)(3)............. 12 CFR 563b.510, Substantive
515. revision with
deletion, moved.
12 CFR 563b.3(g)(4)............. 12 CFR 563b.500... Substantive
revision, moved.
12 CFR 563b.3(h)................ 12 CFR 563b.340(a) Nonsubstantive
revision, moved.
12 CFR 563b.3(i)(1)-(2)......... 12 CFR Nonsubstantive
563b.340(b)(1). revision, moved.
12 CFR 563b.3(i)(3)(i).......... 12 CFR 563b.525... Nonsubstantive
revision, moved.
12 CFR 563b.3(i)(3)(ii)......... 12 CFR 563b.420(b) Nonsubstantive
revision, moved.
12 CFR 563b.3(i)(3)(iii)........ 12 CFR 563b.525(b) Nonsubstantive
revision, moved.
12 CFR 563b.3(i)(4)(i).......... .................. Deleted.
12 CFR 563b.3(i)(4)(ii)-(iv).... 12 CFR Nonsubstantive
563b.525(c)(1)-(3 revision, moved.
).
12 CFR 563b.3(i)(4)(v).......... 12 CFR Nonsubstantive
563b.525(c)(4). revision, moved.
12 CFR 563b.3(i)(4)(vi)-(5)..... 12 CFR Nonsubstantive
563b.525(d)(1)-(2 revision, moved.
).
12 CFR 563b.3(i)(6)............. 12 CFR Nonsubstantive
563b.430(a), (b). revision, moved.
12 CFR 563b.3(i)(7)(i)-(ii)..... 12 CFR 563b.25, Nonsubstantive
525(b). revision, moved.
12 CFR 563b.3(i)(7)(iii)-(iv)... .................. Deleted.
12 CFR 563b.3(j)................ 12 CFR 563b.5(a).. Nonsubstantive
revision, moved.
12 CFR 563b.4(a)(1)............. 12 CFR 563b.120... Nonsubstantive
revision, moved.
12 CFR 563b.4(a)(2)............. .................. Deleted.
12 CFR 563b.4(a)(3)............. 12 CFR 563b.125... Nonsubstantive
revision, moved.
12 CFR 563b.4(a)(3)(i)-(ii), 12 CFR Nonsubstantive
(4)(i)-(xviii). 563b.135(a), (b). revision, moved.
12 CFR 563b.4(a)(4)(xix)........ .................. Deleted.
[[Page 17236]]
12 CFR 563b.4(a)(5)............. 12 CFR 563b.135(c) Nonsubstantive
revision, moved.
12 CFR 563b.4(b)(1)(i).......... 12 CFR 563b.180... Nonsubstantive
revision, moved.
12 CFR 563b.4(b)(1)(ii)......... 12 CFR 563b.185... Nonsubstantive
revision, moved.
12 CFR 563b.4(b)(2)............. .................. Deleted.
12 CFR 563b.4(b)(3)............. 12 CFR 563b.180(b) Nonsubstantive
revision, moved.
12 CFR 563b.4(c)................ 12 CFR 563b.160... Nonsubstantive
revision, moved.
12 CFR 563b.5(a)................ 12 CFR 563b.250... Nonsubstantive
revision, moved.
12 CFR 563b.5(b)-(c)............ 12 CFR 563b.270(b) Nonsubstantive
revision, moved.
12 CFR 563b.5(d)(1)............. 12 CFR 563b.255... Nonsubstantive
revision, moved.
12 CFR 563b.5(d)(2)............. 12 CFR 563b.260, Nonsubstantive
265. revision, moved.
12 CFR 563b.5(d)(3)............. 12 CFR 563b.255(h) Nonsubstantive
revision, moved.
12 CFR 563b.5(d)(4)............. 12 CFR 563b.260... Nonsubstantive
revision, moved.
12 CFR 563b.5(e)(1)-(2)......... 12 CFR 563b.150, Nonsubstantive
155. revision,
deletions, and
moved.
12 CFR 563b.5(e)(3)............. 12 CFR 563b.275(d) Nonsubstantive
revision, moved.
12 CFR 563b.5(e)(4)............. .................. Deleted.
12 CFR 563b.5(e)(5)............. 12 CFR 563b.150, Nonsubstantive
160(a)-(b). revision, moved.
12 CFR 563b.5(e)(6)............. 12 CFR 563b.275(e) Nonsubstantive
revision, moved.
12 CFR 563b.5(e)(7)............. 12 CFR 563b.275(c) Nonsubstantive
revision, moved.
12 CFR 563b.5(f)................ 12 CFR 563b.280... Nonsubstantive
revision, moved.
12 CFR 563b.5(g)(1)-(2)......... 12 CFR 563b.285(a) Nonsubstantive
revision, moved.
12 CFR 563b.5(g)(3)............. 12 CFR 563b.290... Substantive
revision, moved.
12 CFR 563b.5(h)................ 12 CFR 563b.285(b) Nonsubstantive
revision, moved.
12 CFR 563b.6(a)................ 12 CFR 563b.225(a) Nonsubstantive
revision, moved.
12 CFR 563b.6(b)................ 12 CFR 563b.230... Nonsubstantive
revision, moved.
12 CFR 563b.6(c)(1)............. 12 CFR 563b.235... Nonsubstantive
revision, moved.
12 CFR 563b.6(c)(2)............. .................. Deleted.
12 CFR 563b.6(d)................ 12 CFR 563b.225(d) Nonsubstantive
revision, moved.
12 CFR 563b.6(e)................ 12 CFR 563b.225(b)- Nonsubstantive
(c). revision, moved.
12 CFR 563b.7(a)(1)............. 12 CFR 563b.325(a) Nonsubstantive
revision, moved.
12 CFR 563b.7(a)(2)............. 12 CFR 563b.300(a) Nonsubstantive
revision, moved.
12 CFR 563b.7(a)(3)............. 12 CFR 563b.325(a) Nonsubstantive
revision, moved.
12 CFR 563b.7(a)(4)............. .................. Deleted.
12 CFR 563b.7(b)................ 12 CFR Nonsubstantive
563b.300(e), 305. revision, moved.
12 CFR 563b.7(c)................ 12 CFR 563b.330... Nonsubstantive
revision, moved.
12 CFR 563b.7(d)................ 12 CFR Nonsubstantive
563b.200(b)(8), revision, moved.
300(c)-(d), Form
OC, Item 3.
12 CFR 563b.7(e)................ 12 CFR 563b.335(c) Nonsubstantive
revision, moved.
12 CFR 563b.7(f)(1)-(2)......... 12 CFR 563b.200(b) Nonsubstantive
revision,
deletion, and
moved.
12 CFR 563b.7(f)(3)............. .................. Deleted.
12 CFR 563b.7(g)(1)-(2)......... 12 CFR Nonsubstantial
563b.335(a), Form revisions,
OF, Items (1), deletions, and
(2). moved.
12 CFR 563b.7(g)(3),(4),(5)..... Form OF, Items Nonsubstantive
(3), (4), (5). revision, moved.
12 CFR 563b.7(h)................ 12 CFR Nonsubstantive
563b.345(a), revision, moved.
350(c).
12 CFR 563b.7(i)................ 12 CFR 563b.400... Nonsubstantive
revision, moved.
12 CFR 563b.7(j)............... 12 CFR 563b.350(a) Nonsubstantive
revision, moved.
12 CFR 563b.7(k)(1)-(2)......... 12 CFR 563b.405... Nonsubstantive
revision, moved.
12 CFR 563b.7(k)(2)(i)-(ii)..... 12 CFR 563b.310(d) Nonsubstantive
revision, moved.
12 CFR 563b.7(k)(3)............. .................. Deleted.
12 CFR 563b.7(k)(4)............. 12 CFR 563b.310(a) Nonsubstantive
revision, moved.
12 CFR 563b.7(k)(5)............. 12 CFR 563b.310(b)- Substantive
(d). revision, moved.
12 CFR 563b.8(a)................ 12 CFR 563b.155... Substantive
revision, moved.
12 CFR 563b.8(b)(1)-(2)......... 12 CFR 563b.150... Nonsubstantive
revision, moved.
12 CFR 563b.8(b)(3)............. .................. Deleted.
12 CFR 563b.8(c)(1)-(2)(i)-(ii). 12 CFR 563b.240... Nonsubstantive
revision, moved.
12 CFR 563b.8(c)(2)(iii)........ 12 CFR 563b.260... Substantive
revision, moved.
12 CFR 563b.8(c)(3)............. 12 CFR Substantial
563b.300(a), (c). revisions,
deletions, and
moved.
12 CFR 563b.8(d)(1)-(2)......... 12 CFR 563b.430... Nonsubstantive
revision, moved.
12 CFR 563b.8(d)(3)............. 12 CFR 563b.435... Nonsubstantive
revision, moved.
12 CFR 563b.8(e)................ 12 CFR Nonsubstantial
563b.115(a), 155, revisions,
180(b), Form AC, deletions, and
General moved.
Instruction B.
12 CFR 563b.8(f)................ .................. Deleted.
12 CFR 563b.8(g)................ Form AC, General Nonsubstantive
Instruction B. revision, moved.
12 CFR 563b.8(h)................ .................. Deleted.
12 CFR 563b.8(i)-(l)............ Form AC, General Nonsubstantive
Instruction B. revision, moved.
12 CFR 563b.8(m)................ .................. Deleted.
12 CFR 563b.8(n)................ Form AC, General Nonsubstantive
Instruction B. revision, moved.
12 CFR 563b.8(o)................ .................. Deleted.
12 CFR 563b.8(p)................ 12 CFR Nonsubstantive
563b.150(a)(6), revision, moved.
Form AC, General
Instruction B.
12 CFR 563b.8(q)................ Form AC, General Nonsubstantive
Instruction B. revision, moved.
12 CFR 563b.8(r)................ Form AC, General Substantive
Instruction B. revision, moved.
12 CFR 563b.8(s)................ Form AC, General Nonsubstantive
Instruction B. revision, moved.
12 CFR 563b.8(t)(1)............. 12 CFR 563b.100... Nonsubstantive
revision, moved.
[[Page 17237]]
12 CFR 563b.8(t)(2)............. .................. Deleted.
12 CFR 563b.8(u)................ 12 CFR 563b.205... Nonsubstantial
revisions,
deletions, and
moved.
12 CFR 563b.8(v)................ 12 CFR 563b.530(d) Nonsubstantive
revision, moved.
12 CFR 563b.9................... 12 CFR 563b.10.... Nonsubstantive
revision, moved.
12 CFR 563b.10.................. 12 CFR 563b.605(b)- Nonsubstantive
(c). revision, moved.
12 CFR 563b.11.................. 12 CFR 563b.200(c) Nonsubstantive
revision, moved.
12 CFR 563b.20.................. 12 CFR 563b.600... Nonsubstantive
revision, moved.
12 CFR 563b.21(a)............... 12 CFR 563b.605... Nonsubstantive
revision, moved.
12 CFR 563b.21(b)............... 12 CFR 563b.650, Nonsubstantive
610. revision, moved.
12 CFR 563b.22.................. .................. Deleted.
12 CFR 563b.23(a)-(c)........... 12 CFR 563b.670, Nonsubstantive
675. revision,
additions, and
moved.
12 CFR 563b.23(d)............... 12 CFR 563b.690... Nonsubstantive
revision, moved.
12 CFR 563b.24(a)-(b)(1), (3)... 12 CFR Nonsubstantive
563b.625(a)(1). revision, moved.
12 CFR 563b.24(b)(2)............ .................. Deleted.
12 CFR 563b.24(c)............... 12 CFR 563b.625(b) Substantive
addition, moved.
12 CFR 563b.25.................. 12 CFR 563b.630... Nonsubstantive
revision, moved.
12 CFR 563b.26.................. 12 CFR Nonsubstantive
563b.625(a)(2). revision, moved.
12 CFR 563b.27(a)............... 12 CFR 563b.650... Nonsubstantive
revision, moved.
12 CFR 563b.27(b)............... 12 CFR Nonsubstantive
563b.660(f)(1). revision, moved.
12 CFR 563b.27(c)............... 12 CFR Nonsubstantive
563b.660(a)(2). revision, moved.
12 CFR 563b.27(d)............... 12 CFR 563b.660(c) Nonsubstantive
revision, moved.
12 CFR 563b.27(e)............... 12 CFR Nonsubstantive
563b.660(g)(2). revision, moved.
12 CFR 563b.27(f)-(g)........... 12 CFR 563b.660(e) Nonsubstantive
revision, moved.
12 CFR 563b.27(h)............... 12 CFR Nonsubstantive
563b.660(f)(2). revision, moved.
12 CFR 563b.27(i)............... 12 CFR Nonsubstantive
563b.660(g)(1). revision, moved.
12 CFR 563b.27(j)............... 12 CFR Nonsubstantive
563b.660(g)(3). revision, moved.
12 CFR 563b.27(k)............... 12 CFR Nonsubstantive
563b.660(g)(4). revision, moved.
12 CFR 563b.27(l)............... 12 CFR Nonsubstantive
563b.660(d)(3). revision, moved.
12 CFR 563b.27(m)............... 12 CFR Nonsubstantive
563b.660(d)(2). revision, moved.
12 CFR 563b.27(n)............... 12 CFR Nonsubstantive
563b.660(d)(1). revision, moved.
12 CFR 563b.27(o)............... 12 CFR Nonsubstantive
563b.660(d)(4). revision, moved.
12 CFR 563b.27(p)............... 12 CFR Nonsubstantive
563b.660(a)(3). revision, moved.
12 CFR 563b.27(q)-(r)........... 12 CFR 563b.660(h) Nonsubstantive
revision, moved.
12 CFR 563b.27(s)............... 12 CFR Nonsubstantive
563b.660(g)(5). revision, moved.
12 CFR 563b.28.................. 12 CFR 563b.610... Nonsubstantive
revision, moved.
12 CFR 563b.29(a)............... 12 CFR 563b.660... Nonsubstantive
revision, moved.
12 CFR 563b.29(b)............... .................. Deleted.
12 CFR 563b.29(d)(1)-(2)........ 12 CFR 563b.430... Nonsubstantive
revision, moved.
12 CFR 563b.29(d)(3)............ 12 CFR 563b.435... Nonsubstantive
revision, moved.
12 CFR 563b.30.................. 12 CFR 563b.675... Nonsubstantive
revision, moved.
12 CFR 563b.31.................. 12 CFR 563b.680... Nonsubstantive
revision, moved.
12 CFR 563b.32.................. 12 CFR 563b.670(c) Nonsubstantive
revision, moved.
12 CFR 563b.33.................. 12 CFR 563b.670(d) Nonsubstantive
revision, moved.
12 CFR 563b.100................. Form AC--1680..... Nonsubstantive
revision, moved.
12 CFR 563b.101................. Form PS--1681..... Nonsubstantive
revision, moved.
12 CFR 563b.102................. Form OC--1682..... Nonsubstantive
revision, moved.
12 CFR 563b.15, New provisions.
20, 105, 110, New provision.
115, 165. New provisions.
12 CFR 563b.295... New form.
12 CFR 563b.550-
575.
Form OF--1683.....
------------------------------------------------------------------------
VI. Request for Public Comment
OTS invites comment on all aspects of the Re-proposal. We encourage
commenters to suggest modifications to approaches discussed above that
could meet OTS's overall goal of improving the conversion process.
Because this is a re-proposal, OTS believes the public comment period
does not need to be as long as the First Proposal, therefore, OTS is
publishing this Re-proposal with a 30-day comment period.
VII. Executive Order 12866
The Director of OTS determined that this Re-proposal does not
constitute a ``significant regulatory action'' for the purposes of
Executive Order 12866.
VIII. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act of 1980 (RFA) requires federal
agencies to either prepare an initial regulatory flexibility analysis
(IRFA) with this Re-proposal or certify that the rule would not have a
significant impact on a substantial number of small entities.\18\ OTS
cannot at this time determine whether the rule would have a significant
impact on a substantial number of small entities. Therefore, OTS
includes the following IRFA.\19\
A description of the reasons why OTS is taking this action, and a
statement of the objectives of, and legal basis for, the Re-proposal
are in the supplementary material above.
---------------------------------------------------------------------------
\18\ 5 U.S.C. 605(b).
\19\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------
1. Small Entities to Which the Re-proposal Would Apply
The Re-proposal applies to mutual savings associations that propose
to convert to the stock form of ownership. Under OTS jurisdiction,
there are currently approximately 399 mutual
[[Page 17238]]
savings associations, 35 publicly traded MHCs, 2 non-publicly traded
MHCs, and 27 MHCs with no stock issued. Of these institutions,
approximately 239 have less than $100 million in assets. Small
depository institutions are generally defined, for RFA purposes, as
those with assets under $100 million.\20\ In the past two years, OTS
has processed 12 and 10 applications, respectively, to convert from
mutual to stock or mutual holding company form. Based on this
experience, OTS believes that the Re-proposal affects fewer than 15
savings associations annually.
---------------------------------------------------------------------------
\20\ 13 CFR 121.201, Division H (1999).
---------------------------------------------------------------------------
2. Requirements of the Re-Proposal
The Re-proposal requires mutual savings associations wishing to
convert to stock form to prepare a plan of conversion and other
supporting forms and documents (such as a business plan and an
independent appraisal) and submit the documents for OTS approval. The
current mutual-to-stock conversion regulations require all of these
documents or information.
The Re-proposal includes a new requirement that a savings
association that intends to establish a charitable organization as part
of its conversion must supply certain documents and information
regarding the charitable organization. Under the current application
processing policies, OTS often requires a savings association that
intends to establish a charitable organization as part of its
conversion to submit the same type of information that the Re-proposal
would require. As a result, this new requirement should not have any
additional impact on small savings associations.
The Re-proposal also adds demand account holders to the definition
of savings account holders, allows accelerated vesting in management
benefit plans for changes of control, and clarifies OTS policy
regarding the amount of proceeds allowed at the holding company level.
None of these provisions, however, should add to the reporting,
recordkeeping, or compliance requirements for small entities.
Although it is not clear that the RFA requires a quantitative
analysis of the impact of the re-proposed regulatory changes, OTS
provides the following estimate. The Re-proposal's primary economic
impact on small savings associations relates to the expense of
preparing the application to convert. Savings associations wishing to
convert must prepare the necessary documents and forms, including a
plan of conversion, a business plan, and an appraisal. Preparation of
these documents may require legal or professional help. OTS's
experience in the conversion process indicates that savings
associations generally hire legal counsel, accountants, marketing
agents, and professional appraisers to assist in completion of the
necessary documents and forms. Savings associations converting under
the current regulations spend approximately $250,000 to one million
dollars each to go through the process. We note that the new
requirements will add only 10 hours of additional paperwork in
preparation, and may save institutions that decide after preliminary
business plan preparation and discussion not to convert significant
time and expense. See discussion infra at Section IX. The new
requirement for information supporting a proposed charitable
contribution should not increase these costs appreciably.
3. Significant Alternatives
Section 603(c) of the RFA requires OTS to describe any significant
alternatives to the Re-proposal that accomplish the stated objectives
of the rule while minimizing any significant economic impact of the
rule on small entities. Section 603(c) lists several examples of
significant alternatives, including (1) establishing different
compliance or reporting requirements or timetables that take into
account the resources available to small entities; (2) clarifying,
consolidating, or simplifying compliance and reporting requirements for
small entities; (3) using performance standards rather than design
standards; and (4) exempting small entities from coverage of the rule
or a part of the rule.
After consideration, OTS does not believe that any of these
alternatives are feasible. As noted, more than half of the savings
associations to which the Re-proposal could apply meet the RFA standard
for ``small depository institutions.'' In fact, the conversion process
is aimed largely at small institutions that want to raise capital in
the open market by converting to the stock form of ownership. Given
that the conversion process is designed with small institutions in
mind, modifying the requirements for such small institutions is not
necessary. Moreover, given that a conversion cannot be measured for
performance until it takes place, the use of performance standards
rather than design standards is impractical.
To reduce regulatory burden consistent with the goals of this
regulation, the Re-proposal specifically permits OTS to waive any
requirement under the part where the waiver is equitable and not
detrimental to the savings association, the account holders, or the
public interest. This process will provide substantial flexibility to
OTS and the savings association to minimize any significant economic
impact of a provision on a specific institution.
Nevertheless, OTS requests comments on the burdens associated with
the Re-proposal that particularly affect small savings associations,
and whether any modifications or exemptions from the rules for small
savings associations would be appropriate.
IX. Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (Unfunded Mandates Act), requires that an agency prepare a
budgetary impact statement before promulgating a rule that includes a
federal mandate that may result in expenditure by state, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, sec. 205 of the Unfunded Mandates Act also requires an agency
to identify and consider a reasonable number of regulatory alternatives
before promulgating a rule. OTS determined that the Re-proposal will
not result in expenditures by state, local, or tribal governments or by
the private sector of $100 million or more in any one year.
Accordingly, this rulemaking is not subject to sec. 202 of the Unfunded
Mandates Act.
X. Paperwork Reduction Act
The information collection requirements contained in the Re-
proposal, 12 CFR part 563b, are virtually identical to those included
in the July 2000 Proposed Rule on this subject. OTS has modified the
forms in only minor ways, but the burden on respondents remains
unchanged from those in the earlier rule, which the Office of
Management and Budget (OMB) approved under control number 1550-0014.
Respondents/recordkeepers are not required to respond to any collection
of information unless it displays a currently valid OMB control number.
As part of its continuing effort to reduce paperwork and respondent
burden, however, OTS invites the public to comment on the information
collections contained in this rule, including the forms included in
this publication as appendices.
OTS invites comment on all of the following issues:
Whether the proposed information collection contained in
this Re-proposal is necessary for the proper performance
[[Page 17239]]
of OTS's functions, including whether the information has practical
utility.
The accuracy of OTS's estimate of the burden of the
proposed information collection.
Ways to enhance the quality, utility, and clarity of the
information to be collected.
Ways to minimize the burden of the information collection
on respondents, including through the use of automated collection
techniques or other forms of information technology.
Estimates of capital and start-up costs of operation,
maintenance, and purchases of services to provide information.
Send comments on these information collections to Information
Collection Comments, Attention: 1550-0014, by e-mail to
[email protected]; by facsimile transmission to
(202) 906-6518; or by mail to Information Collection Comments, Chief
Counsel's Office, Office of Thrift Supervision, 1700 G Street, NW.,
Washington, DC 20552. OTS will post comments and the related index on
the OTS Internet Site at www.ots.treas.gov. In addition, interested
persons may inspect comments at the Public Reference Room, 1700 G
Street, NW., by appointment. To make an appointment, call (202) 906-
5922, send an e-mail to [email protected], or send a facsimile
transmission to Public Information at (202) 906-7755.
List of Subjects
12 CFR Part 563b
Reporting and recordkeeping requirements, Savings associations,
Securities.
12 CFR Part 574
Administrative practice and procedure, Holding companies, Reporting
and recordkeeping requirements, Savings associations, Securities.
12 CFR Part 575
Administrative practice and procedure, Capital, Holding companies,
Reporting and recordkeeping requirements, Savings associations,
Securities.
Accordingly, the Office of Thrift Supervision proposes to amend 12
CFR chapter V, as set forth below:
1. Part 563b is revised to read as follows:
PART 563b--CONVERSIONS FROM MUTUAL TO STOCK FORM
Sec.
563b.5 What does this part do?
563b.10 May I form a holding company as part of my conversion?
563b.15 May I form a charitable organization as part of my
conversion?
563b.20 May I acquire another insured stock depository institution
as part of my conversion?
563b.25 What definitions apply to this part?
Subpart A--Standard Conversions
Prior to Conversion
563b.100 What must I do before a conversion?
563b.105 What information must I include in my business plan?
563b.110 Who must review my business plan?
563b.115 How will OTS view my business plan?
563b.120 May I discuss my plans to convert with others?
Plan of Conversion
563b.125 Must my board of directors adopt a plan of conversion?
563b.130 What must I include in my plan of conversion?
563b.135 How do I notify my members that my board of directors
approved a plan of conversion?
563b.140 May I amend my plan of conversion?
Filing Requirements
563b.150 What must I include in my application for conversion?
563b.155 How do I file my application for conversion?
563b.160 May I keep portions of my application for conversion
confidential?
563b.165 How do I amend my application for conversion?
Notice of Filing of Application and Comment Process
563b.180 How do I notify the public that I filed an application for
conversion?
563b.185 How may a person comment on my application for conversion?
OTS Review of the Application for Conversion
563b.200 What actions may OTS take on my application?
563b.205 May a court review OTS's final action on my conversion?
Vote by Members
563b.225 Must I submit the plan of conversion to my members for
approval?
563b.230 Who is eligible to vote?
563b.235 How must I notify my members of the meeting?
563b.240 What must I submit to OTS after the members' meeting?
Proxy Solicitation
563b.250 Who must comply with these proxy solicitation provisions?
563b.255 What must the form of proxy include?
563b.260 May I use previously executed proxies?
563b.265 How may I use proxies executed under this part?
563b.270 What must I include in my proxy statement?
563b.275 How do I file revised proxy materials?
563b.280 Must I mail a member's proxy solicitation material?
563b.285 What solicitations are prohibited?
563b.290 What will OTS do if a solicitation violates these
prohibitions?
563b.295 Will OTS require me to re-solicit proxies?
Offering Circular
563b.300 What must happen before OTS declares my offering circular
effective?
563b.305 When may I distribute the offering circular?
563b.310 When must I file a post-effective amendment to the
offering circular?
Offers and Sales of Stock
563b.320 Who has priority to purchase my conversion shares?
563b.325 When may I offer to sell my conversion shares?
563b.330 How do I price my conversion shares?
563b.335 How do I sell my conversion shares?
563b.340 What sales practices are prohibited?
563b.345 How may a subscriber pay for my conversion shares?
563b.350 Must I pay interest on payments for conversion shares?
563b.355 What subscription rights must I give to each eligible
account holder and each supplemental eligible account holder?
563b.360 Are my officers, directors, and their associates eligible
account holders?
563b.365 May other voting members purchase conversion shares in the
conversion?
563b.370 Does OTS limit the aggregate purchases by officers,
directors, and their associates?
563b.375 How do I allocate my conversion shares if my shares are
oversubscribed?
563b.380 May my employee stock ownership plan purchase conversion
shares?
563b.385 May I impose any purchase limitations?
563b.390 Must I provide a purchase preference to persons in my
local community?
563b.395 What other conditions apply when I offer conversion
shares in a community offering, a public offering, or both?
Completion of the Offering
563b.400 When must I complete the sale of my stock?
563b.405 How do I extend the offering period?
Completion of the Conversion
563b.420 When must I complete my conversion?
563b.425 Who may terminate the conversion?
563b.430 What happens to my old charter?
563b.435 What happens to my corporate existence after conversion?
563b.440 What voting rights must I provide to stockholders after
the conversion?
[[Page 17240]]
563b.445 What must I provide my savings account holders?
Liquidation Account
563b.450 What is a liquidation account?
563b.455 What is the initial balance of the liquidation account?
563b.460 How do I determine the initial balances of liquidation
sub-accounts?
563b.465 Do account holders retain any voting rights based on
their liquidation sub-accounts?
563b.470 Must I adjust liquidation sub-accounts?
563b.475 What is a liquidation?
563b.480 Does the liquidation account affect my net worth?
563b.485 What provision must I include in my new federal charter?
Post-Conversion
563b.500 May I implement a stock option plan or management or
employee stock benefit plan?
563b.505 May my directors, officers, and their associates freely
trade shares?
563b.510 May I repurchase shares after conversion?
563b.515 What information must I provide to OTS before I
repurchase my shares?
563b.520 May I declare or pay dividends after I convert?
563b.525 Who may acquire my shares after I convert?
563b.530 What other requirements apply after I convert?
Contributions to Charitable Organizations
563b.550 May I donate conversion shares or conversion proceeds to
a charitable organization?
563b.555 How do my members approve a charitable contribution?
563b.560 How much may I contribute to a charitable organization?
563b.565 What must the charitable organization include in its
organizational documents?
563b.570 How do I address conflicts of interest involving my
directors?
563b.575 What other requirements apply to charitable
organizations?
Subpart B--Voluntary Supervisory Conversion
563b.600 What does this subpart do?
563b.605 How may I conduct a voluntary supervisory conversion?
563b.610 Do my members have rights in a voluntary supervisory
conversion?
Eligibility
563b.625 When is a savings association eligible for a voluntary
supervisory conversion?
563b.630 When is a BIF-insured state-chartered savings bank
eligible for a voluntary supervisory conversion?
Plan of Supervisory Conversion
563b.650 What must I include in my plan of voluntary supervisory
conversion?
Voluntary Supervisory Conversion Application
563b.660 What must I include in my voluntary supervisory
conversion application?
OTS Review of the Voluntary Supervisory Conversion Application
563b.670 Will OTS approve my voluntary supervisory conversion
application?
563b.675 What conditions will OTS impose on an approval?
Offers and Sales of Stock
563b.680 How do I sell my shares?
Post-Conversion
563b.690 Who may not acquire additional shares after the voluntary
supervisory conversion?
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15
U.S.C. 78c, 78l, 78m,78n,78w.
563b.5 What does this part do?
(a) General. This part governs how a savings association (``you'')
may convert from the mutual to the stock form of ownership. Subpart A
of this part governs standard mutual-to-stock conversions. Subpart B of
this part governs voluntary supervisory mutual-to-stock conversions.
This part supersedes all inconsistent charter and bylaw provisions of
federal savings associations converting to stock form.
(b) Prescribed forms. You must use the forms prescribed under this
part and provide such information as OTS may require under the forms by
regulation or otherwise. The forms required under this part include:
Form AC (Application for Conversion); Form PS (Proxy Statement); Form
OC (Offering Circular); and Form OF (Order Form).
(c) Waivers. OTS may waive any requirement of this part or a
provision in any prescribed form. To obtain a waiver, you must file a
written request with OTS that:
(1) Specifies the requirement(s) or provision(s) you want OTS to
waive;
(2) Demonstrates that the waiver is equitable, is not detrimental
to you, your account holders or other savings associations, and is not
contrary to the public interest; and
(3) Includes an opinion of counsel demonstrating that applicable
law does not conflict with the requirement or provision.
Sec. 563b.10 May I form a holding company as part of my conversion?
You may convert to the stock form of ownership as part of a
transaction where you organize a holding company to acquire all of your
shares upon their issuance. In such a transaction, your holding company
will offer rights to purchase its shares instead of your shares. All of
the requirements of subpart A generally apply to the holding company as
they apply to the savings association. Section 574.6 of this chapter
contains OTS's holding company application requirements.
Sec. 563b.15 May I form a charitable organization as part of my
conversion?
When you convert to the stock form, you may form a charitable
organization. Your contributions to the charitable organization are
governed by the requirements of Secs. 563b.550 through 563b.575.
Sec. 563b.20 May I acquire another insured stock depository
institution as part of my conversion?
When you convert to stock form, you may acquire for cash or stock
another insured depository institution that is already in the stock
form of ownership.
Sec. 563b.25 What definitions apply to this part?
The following definitions apply to this part and the forms
prescribed under this part:
Acting in concert has the same meaning as in Sec. 574.2(c) of this
chapter. The rebuttable presumptions of Sec. 574.4(d) of this chapter,
other than Secs. 574.4(d)(1) and (d)(2) of this chapter, apply to the
share purchase limitations at Secs. 563b.355 through 563b.395.
Affiliate of, or a person affiliated with, a specified person, is a
person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with the
specified person.
Associate of a person is:
(1) A corporation or organization (other than you or your majority-
owned subsidiaries), if the person is a senior officer or partner, or
beneficially owns, directly or indirectly, 10 percent or more of any
class of equity securities of the corporation or organization.
(2) A trust or other estate, if the person has a substantial
beneficial interest in the trust or estate or is a trustee or fiduciary
of the trust or estate. For purposes of Secs. 563b.370, 563b.380,
563b.385, 563b.390, 563b.395 and 563b.505, a person who has a
substantial beneficial interest in your tax-qualified or non-tax-
qualified employee stock benefit plan, or who is a trustee or a
fiduciary of the plan, is not an associate of the plan. For the
purposes of Sec. 563b.370, your tax-qualified employee stock benefit
plan is not an associate of a person.
(3) Any person who is related by blood or marriage to such person
and:
(i) Who lives in the same home as the person; or
(ii) Who is your director or senior officer, or a director or
senior officer of your holding company or your subsidiary.
Association members or members are persons who, under applicable
law, are eligible to vote at the meeting on conversion.
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Control (including controlling, controlled by, and under common
control with) means the direct or indirect power to direct or exercise
a controlling influence over the management and policies of a person,
whether through the ownership of voting securities, by contract, or
otherwise as described at 12 CFR part 574.
Eligibility record date is the date for determining eligible
account holders. The eligibility record date must be at least one year
before the date your board of directors adopts the plan of conversion.
Eligible account holders are any persons holding qualifying
deposits on the eligibility record date.
IRS is the Internal Revenue Service.
Local community includes:
(1) Every county, parish, or similar governmental subdivision in
which you have a home or branch office;
(2) Each county's, parish's, or subdivision's metropolitan
statistical area;
(3) All zip code areas in your Community Reinvestment Act
assessment area; and
(4) Any other area or category you set out in your plan of
conversion, as approved by OTS.
Offer, offer to sell, or offer for sale is an attempt or offer to
dispose of, or a solicitation of an offer to buy, a security or
interest in a security for value. Preliminary negotiations or
agreements with an underwriter, or among underwriters who are or will
be in privity of contract with you, are not offers, offers to sell, or
offers for sale.
Person is an individual, a corporation, a partnership, an
association, a joint-stock company, a limited liability company, a
trust, an unincorporated organization, or a government or political
subdivision of a government.
Proxy soliciting material includes a proxy statement, form of
proxy, or other written or oral communication regarding the conversion.
Purchase or buy includes every contract to acquire a security or
interest in a security for value.
Qualifying deposit is the total balance in an account holder's
savings accounts at the close of business on the eligibility or
supplemental eligibility record date. Your plan of conversion may
provide that only savings accounts with total deposit balances of $50
or more will qualify.
Sale or sell includes every contract to dispose of a security or
interest in a security for value. An exchange of securities in a merger
or acquisition approved by OTS is not a sale.
Savings account is any withdrawable account as defined in
Sec. 561.42 of this chapter, including a demand account as defined in
Sec. 561.16 of this chapter.
Solicitation and solicit is a request for a proxy, whether or not
accompanied by or included in a form of proxy; a request to execute,
not execute, or revoke a proxy; or the furnishing of a form of proxy or
other communication reasonably calculated to cause your members to
procure, withhold, or revoke a proxy. Solicitation or solicit does not
include providing a form of proxy at the unsolicited request of a
member, the acts required to mail communications for members, or
ministerial acts performed on behalf of a person soliciting a proxy.
Subscription offering is the offering of shares through
nontransferable subscription rights to:
(1) Eligible account holders under Sec. 563b.355;
(2) Tax-qualified employee stock ownership plans under
Sec. 563b.380;
(3) Supplemental eligible account holders under Sec. 563b.355; and
(4) Other voting members under Sec. 563b.365.
Supplemental eligibility record date is the date for determining
supplemental eligible account holders. The supplemental eligibility
record date is the last day of the calendar quarter before OTS approves
your conversion and will only occur if OTS has not approved your
conversion within 15 months after the eligibility record date.
Supplemental eligible account holders are any persons, except your
officers, directors, and their associates, holding qualifying deposits
on the supplemental eligibility record date.
Tax-qualified employee stock benefit plan is any defined benefit
plan or defined contribution plan, such as an employee stock ownership
plan, stock bonus plan, profit-sharing plan, or other plan, and a
related trust, that is qualified under section 401 of the Internal
Revenue Code (26 U.S.C. 401).
Underwriter is any person who purchases any securities from you
with a view to distributing the securities, offers or sells securities
for you in connection with the securities' distribution, or
participates or has a direct or indirect participation in the direct or
indirect underwriting of any such undertaking. Underwriter does not
include a person whose interest is limited to a usual and customary
distributor's or seller's commission from an underwriter or dealer.
Subpart A--Standard Conversions
Prior to Conversion
Sec. 563b.100 What must I do before a conversion?
(a) You must meet with OTS at least ten days before you pass your
plan of conversion. At that meeting you must provide OTS with a written
strategic plan that outlines the objectives of the proposed conversion
and the intended use of the conversion proceeds.
(b) You should also consult with OTS before you file your
application for conversion. OTS will discuss the information that you
must include in the application for conversion, general issues that you
may confront in the conversion process, and any other pertinent issues.
Sec. 563b.105 What information must I include in my business plan?
(a) Prior to filing an application for conversion, you must adopt a
business plan reflecting your intended plans for deployment of the
proposed conversion proceeds. Your business plan is required, under
Sec. 563b.150, to be included in your conversion application. At a
minimum, your business plan must address:
(1) Your projected operations and activities for three years
following the conversion. You must describe how you will deploy the
conversion proceeds at the converted savings association (and holding
company, if applicable), and include three years of projected financial
statements. The business plan must provide that the converted savings
association must retain at least 50 percent of the net conversion
proceeds. OTS may require that a larger percentage of proceeds remain
in the institution.
(2) Your plan for deploying conversion proceeds to meet credit and
lending needs in your proposed market areas. OTS strongly discourages
business plans that provide for a substantial investment in mortgage
securities or other securities, except as an interim measure to
facilitate orderly, prudent deployment of proceeds during the three
years following the conversion, or as part of a properly managed
leverage strategy.
(3) How the new capital will support projected operations and
activities, and what opportunities are available to reasonably achieve
your planned deployment of conversion proceeds in your proposed market
areas.
(4) The risks associated with your plan for deployment of
conversion proceeds, and the effect of this plan on management
resources, staffing, and facilities.
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(5) The expertise of your management and board of directors, or
that you have planned for adequate staffing and controls to prudently
manage the growth, expansion, new investment, and other operations and
activities proposed in your business plan.
(6) How you will achieve a reasonable return on equity,
commensurate with investment risk, investor expectations, and industry
norms, by the final year of the business plan.
(b) You may not project returns of capital or extraordinary
dividends in any part of the business plan. A newly converted company
should not plan on stock repurchases in the first year of the business
plan, except in extraordinary circumstances.
Sec. 563b.110 Who must review my business plan?
(a) Your chief executive officer and members of the board of
directors must review, and at least two-thirds of your board must
approve, the business plan.
(b) Your chief executive officer and at least two-thirds of the
board must certify that the business plan accurately reflects the
intended plans for deployment of conversion proceeds, and that any new
initiatives reflected in the business plan are reasonably achievable.
You must submit these certifications with your business plan, as part
of your conversion application under Sec. 563b.150.
Sec. 563b.115 How will OTS view my business plan?
(a) OTS will review your business plan to determine that it
demonstrates prudent deployment of conversion proceeds, as part of its
review of your conversion application. In making its determination, OTS
will consider how you have addressed the requirements of Sec. 563b.105
in the aggregate, and not as individual criteria.
(b) You must file your business plan with the Regional Office. OTS
may request additional information, if necessary, to support its
determination under paragraph (a) of this section. You must also file
your business plan as a confidential exhibit to the Form AC.
(c) If OTS approves your application for conversion and you
complete your conversion, you must operate within the parameters of
your business plan. You must obtain the prior written approval of the
Regional Director for any material deviations from your business plan.
Sec. 563b.120 May I discuss my plans to convert with others?
(a) You may discuss information about your conversion with
individuals that you authorize to prepare documents for your
conversion.
(b) Except as permitted under paragraph (a) of this section, you
must keep all information about your conversion confidential until your
board of directors adopts your plan of conversion.
(c) If you violate this section, OTS may require you to take
remedial action. For example, OTS may require you to take any or all of
the following actions:
(1) Publicly announce that you are considering a conversion;
(2) Set an eligibility record date acceptable to OTS;
(3) Limit the subscription rights of any person who violates or
aids a violation of this section; or
(4) Take any other action to assure that your conversion is fair
and equitable.
Plan of Conversion
Sec. 563b.125 Must my board of directors adopt a plan of conversion?
Prior to filing an application for conversion, your board of
directors must adopt a plan of conversion that conforms to
Secs. 563b.320 through 563b.395 (``Offers and Sales of Stock''). Your
board of directors must adopt the plan by at least a two-thirds vote.
Your plan of conversion is required, under Sec. 563b.150, to be
included in your conversion application.
Sec. 563b.130 What must I include in my plan of conversion?
You must include the information included in Secs. 563b.320 through
563b.395 (``Offers and Sales of Stock'') in your plan of conversion.
OTS may require you to delete or revise any provision in your plan of
conversion if OTS determines the provision is inequitable; is
detrimental to you, your account holders, or other savings
associations; or is contrary to public interest.
Sec. 563b.135 How do I notify my members that my board of directors
approved a plan of conversion?
(a) Notice. You must promptly notify your members that your board
of directors adopted a plan of conversion and that a copy of the plan
is available for the members' inspection in your home office and in
your branch offices. You must mail a letter to each member or publish a
notice in the local newspaper in every local community where you have
an office. You may also issue a press release. OTS may require broader
publication, if necessary, to ensure adequate notice to your members.
(b) Contents of notice. You may include any of the following
statements and descriptions in your letter, notice, or press release.
(1) Your board of directors adopted a proposed plan to convert from
a mutual to a stock savings institution.
(2) You will send your members a proxy statement with detailed
information on the proposed conversion before you convene a members'
meeting to vote on the conversion.
(3) Your members will have an opportunity to approve or disapprove
the proposed conversion at a meeting. At least a majority of the
eligible votes must approve the conversion.
(4) You will not vote existing proxies to approve or disapprove the
conversion. You will solicit new proxies for voting on the proposed
conversion.
(5) OTS, and in the case of a state-chartered savings association,
the appropriate state regulator, must approve the conversion before the
conversion will be effective. Your members will have an opportunity to
file written comments, including objections and materials supporting
the objections, with OTS.
(6) The IRS must issue a favorable tax ruling, or a tax expert must
issue an appropriate tax opinion, on the tax consequences of your
conversion before OTS will approve the conversion. The ruling or
opinion must indicate the conversion will be a tax-free reorganization.
(7) OTS, and in the case of a state-chartered savings association,
the appropriate state regulator, might not approve the conversion, and
the IRS or a tax expert might not issue a favorable tax ruling or tax
opinion.
(8) Savings account holders will continue to hold accounts in the
converted savings association with the same dollar amounts, rates of
return, and general terms as existing deposits. FDIC will continue to
insure the accounts.
(9) Your conversion will not affect borrowers' loans, including the
amount, rate, maturity, security, and other contractual terms.
(10) Your business of accepting deposits and making loans will
continue without interruption.
(11) Your current management and staff will continue to conduct
current services for depositors and borrowers under current policies
and in existing offices.
(12) You may continue to be a member of the Federal Home Loan Bank
System.
(13) You may substantively amend your proposed plan of conversion
before the members' meeting.
(14) You may terminate the proposed conversion.
(15) After OTS, and in the case of a state-chartered savings
association, the
[[Page 17243]]
appropriate state regulator, approves the proposed conversion, you will
send proxy materials providing additional information. After you send
proxy materials, members may telephone or write to you with additional
questions.
(16) The proposed record date for determining the eligible account
holders who are entitled to receive subscription rights to purchase
your shares.
(17) A brief description of the circumstances under which
supplemental eligible account holders will receive subscription rights
to purchase your shares.
(18) A brief description of how voting members may participate in
the conversion.
(19) A brief description of how directors, officers, and employees
will participate in the conversion.
(20) A brief description of the proposed plan of conversion.
(21) The par value (if any) and approximate number of shares you
will issue and sell in the conversion.
(c) Other requirements. (1) You may not solicit proxies, provide
financial statements, describe the benefits of conversion, or estimate
the value of your shares upon conversion in the letter, notice, or
press release.
(2) If you respond to inquiries about the conversion, you may
address only the matters listed in paragraph (b) of this section.
Sec. 563b.140 May I amend my plan of conversion?
You may amend your plan of conversion before you solicit proxies.
After you solicit proxies, you may amend your plan of conversion only
if OTS concurs.
Filing Requirements
Sec. 563b.150 What must I include in my application for conversion?
(a) Your application for conversion must include all of the
following information.
(1) Your plan of conversion.
(2) Pricing materials meeting the requirements of Sec. 563b.200(b).
(3) Proxy soliciting materials under Sec. 563b.270, including:
(i) A preliminary proxy statement with signed financial statements;
(ii) A form of proxy meeting the requirements of Sec. 563b.255; and
(iii) Any additional proxy soliciting materials, including press
releases, personal solicitation instructions, radio or television
scripts that you plan to use or furnish to your members, and a legal
opinion indicating that any marketing materials comply with all
applicable securities laws.
(4) An offering circular described in Sec. 563b.300.
(5) The documents and information required by Form AC. You may
obtain Form AC from OTS Washington and Regional Offices (see
Sec. 516.40 of this chapter) and OTS's website (www.ots.treas.gov).
(6) Where indicated, written consents, signed and dated, of any
accountant, attorney, investment banker, appraiser, or other
professional who prepared, reviewed, passed upon, or certified any
statement, report, or valuation for use. See Form AC, instruction B(7).
(7) Your business plan, submitted as a separately bound,
confidential exhibit. See Sec. 563b.160.
(8) Any additional information OTS requests.
(b) OTS will not accept for filing, and will return, any
application for conversion that is improperly executed, materially
deficient, substantially incomplete, or that provides for unreasonable
conversion expenses.
Sec. 563b.155 How do I file my application for conversion?
You must file seven copies of your application for conversion on
Form AC. You must file the original and three conformed copies with the
Applications Filing Room in Washington, and three conformed copies with
the appropriate Regional Office at the addresses in Sec. 516.40 of this
chapter.
Sec. 563b.160 May I keep portions of my application for conversion
confidential?
(a) OTS makes all filings under this part available to the public,
but may keep portions of your application for conversion confidential
under paragraph (b) of this section.
(b) You may request OTS to keep portions of your application
confidential. To do so, you must separately bind and clearly designate
as ``confidential'' any portion of your application for conversion that
you deem confidential. You must provide a written statement specifying
the grounds supporting your request for confidentiality. OTS will not
treat as confidential the portion of your application describing how
you plan to meet your Community Reinvestment Act (CRA) objectives. The
CRA portion of your application may not incorporate by reference
information contained in the confidential portion of your application.
(c) OTS will determine whether confidential information must be
made available to the public under 5 U.S.C. 552 and part 505 of this
chapter. OTS will advise you before it makes information you designated
as ``confidential'' available to the public.
Sec. 563b.165 How do I amend my application for conversion?
To amend your application for conversion, you must:
(a) File an amendment with an appropriate facing sheet;
(b) Number each amendment consecutively;
(c) Respond to all issues raised by OTS; and
(d) Demonstrate that the amendment conforms to all applicable
regulations.
Notice of Filing of Application and Comment Process
Sec. 563b.180 How do I notify the public that I filed an application
for conversion?
(a) You must publish a public notice of the application under the
procedures in Sec. 516.55 of this chapter, except that you must publish
your notice within three days before or after you file your application
for conversion. You must simultaneously prominently post the notice in
your home office and all branch offices. Your notice must include the
following information:
(1) You filed an application for conversion with OTS;
(2) You delivered copies of the application to OTS and to the
Regional Office, including the addresses of the applicable OTS offices;
and
(3) A statement that anyone may file written comments, including
objections to the plan of conversion and materials supporting the
objections, within 20 days. You must include instructions regarding how
a person may file a comment.
(b) Promptly after publication, you must file four copies of any
public notice and an affidavit of publication from each publisher. You
must file the original and one copy with the Applications Filing Room
in Washington, and two copies with the appropriate Regional Office at
the addresses in Sec. 516.40 of this chapter.
(c) If OTS does not accept your application for conversion under
Sec. 563b.200 and requires you to file a new application, you must
publish and post a new notice and allow an additional 20 days for
comment.
Sec. 563b.185 How may a person comment on my application for
conversion?
Anyone may submit a written comment supporting or opposing your
application for conversion with OTS. To do so, commenters must file
within 20 days after you notify the public under Sec. 563b.180. A
commenter must file the original and one copy of any comments with the
Applications Filing Room in Washington, and two copies with the
appropriate Regional Office at the addresses in Sec. 516.40 of this
chapter.
[[Page 17244]]
OTS Review of the Application for Conversion
Sec. 563b.200 What actions may OTS take on my application?
(a) OTS may approve your application for conversion only if:
(1) Your conversion complies with this part;
(2) You will meet your regulatory capital requirements under part
567 of this chapter after the conversion; and
(3) Your conversion will not result in a taxable reorganization
under the Internal Revenue Code of 1986, as amended.
(b) OTS will review the appraisal required by Sec. 563b.150(a)(2)
in determining whether to approve your application. OTS will review the
appraisal under the following requirements.
(1) Independent persons experienced and expert in corporate
appraisal, and acceptable to OTS, must prepare the appraisal report.
(2) An affiliate of the appraiser may serve as an underwriter or
selling agent, if you ensure that the appraiser is separate from the
underwriter or selling agent affiliate and the underwriter or selling
agent affiliate does not make recommendations or affect the appraisal.
(3) The appraiser may not receive any fee in connection with the
conversion other than for appraisal services.
(4) The appraisal report must include a complete and detailed
description of the elements of the appraisal, a justification for the
appraisal methodology, and sufficient support for the conclusions.
(5) If the appraisal is based on a capitalization of your pro forma
income, it must indicate the basis for determining the income to be
derived from the sale of shares, and demonstrate that the earnings
multiple used is appropriate, including future earnings growth
assumptions.
(6) If the appraisal is based on a comparison of your shares with
outstanding shares of existing stock associations, the existing stock
associations must be reasonably comparable in size, market area,
competitive conditions, risk profile, profit history, and expected
future earnings.
(7) OTS may decline to process the application for conversion and
deem it materially deficient or substantially incomplete if the initial
appraisal report is materially deficient or substantially incomplete.
(8) You may not represent or imply that OTS approved the appraisal.
(c) OTS will review your compliance record under part 563e of this
chapter and your business plan to determine how you will serve the
convenience and needs of your communities after the conversion.
(1) Based on this review, OTS may approve your application, deny
your application, or approve your application on the condition that you
will improve your CRA performance or that you will address the
particular credit or lending needs of the communities that you will
serve.
(2) OTS may deny your application if your business plan does not
demonstrate that your proposed use of conversion proceeds will help you
to meet the credit and lending needs of the communities that you will
serve.
(d) OTS may request that you amend your application if further
explanation is necessary, material is missing, or material must be
corrected.
(e) OTS will deny your application if the application does not meet
the requirements of this subpart, unless OTS waives the requirement
under Sec. 563b.5(c).
Sec. 563b.205 May a court review OTS's final action on my conversion?
(a) Any person aggrieved by OTS's final action on your application
for conversion may ask the court of appeals of the United States for
the circuit in which the principal office or residence of such person
is located, or the U.S. Court of Appeals for the District of Columbia
Circuit, to review the action under 12 U.S.C. 1464(i)(2)(B).
(b) To obtain court review of the action, this statute requires the
aggrieved person to file a written petition requesting that the court
modify, terminate, or set aside the final OTS action. The aggrieved
person must file the petition with the court within the later of 30
days after OTS publishes notice of OTS's final action in the Federal
Register or 30 days after you mail the proxy statement to your members
under Sec. 563b.235.
Vote by Members
Sec. 563b.225 Must I submit the plan of conversion to my members for
approval?
(a) After OTS approves your plan of conversion, you must submit
your plan of conversion to your members for approval. You must obtain
this approval at a special meeting, unless you are a state-chartered
savings association and state law requires you to obtain approval at an
annual meeting.
(b) Your members must approve your plan of conversion by a majority
of the total outstanding votes, unless you are a state-chartered
savings association and state law prescribes a higher percentage.
(c) Your members may vote in person or by proxy.
(d) You may notify eligible account holders or supplemental
eligible account holders who are not voting members of your proposed
conversion. You may include only the information in Sec. 563b.135 in
your notice.
Sec. 563b.230 Who is eligible to vote?
You determine members' eligibility to vote by setting a voting
record date. You must set a voting record date that is not more than 60
days nor less than 20 days before your meeting, unless you are a state-
chartered savings association and state law requires a different voting
record date.
Sec. 563b.235 How must I notify my members of the meeting?
(a) You must notify your members of the meeting to consider your
conversion by sending the members a proxy statement authorized by OTS.
(b) You must notify your members 20 to 45 days before your meeting,
unless you are a state-chartered savings association and state law
requires a different notice period.
(c) You must also notify each beneficial holder of an account held
in a fiduciary capacity:
(1) If you are a federal association and the name of the beneficial
holder is disclosed on your records; or
(2) If you are a state-chartered association and the beneficial
holder possesses voting rights under state law.
Sec. 563b.240 What must I submit to OTS after the members' meeting?
Promptly after the members' meeting, you must file all of the
following information with OTS:
(a) A certified copy of each adopted resolution on the conversion.
(b) The total votes eligible to be cast.
(c) The total votes represented in person or by proxy.
(d) The total votes cast in favor of and against each matter.
(e) The percentage of votes necessary to approve each matter.
(f) An opinion of counsel that you conducted the members' meeting
in compliance with all applicable state or federal laws and
regulations.
(g) Promptly after completion of the conversion, you must submit an
opinion of counsel that you complied with all laws applicable to the
conversion.
Proxy Solicitation
Sec. 563b.250 Who must comply with these proxy solicitation
provisions?
(a) You must comply with these proxy solicitation provisions when
you provide proxy solicitation material to
[[Page 17245]]
members for the meeting to vote on your plan of conversion.
(b) Your members must comply with these proxy solicitation
provisions when they provide proxy solicitation materials to members
for the meeting to vote on your conversion, except where:
(1) The member solicits 50 people or fewer and does not solicit
proxies on your behalf; or
(2) The member solicits proxies through newspaper advertisements
after your board adopts the plan of conversion. The newspaper
advertisement may include only the following information:
(i) Your name;
(ii) The reason for the advertisement;
(iii) The proposal or proposals to be voted upon;
(iv) Where a member may obtain a copy of the proxy solicitation
material; and
(v) A request for your members to vote at the meeting.
Sec. 563b.255 What must the form of proxy include?
The form of proxy must include all of the following:
(a) A statement in bold face type stating whether management is
soliciting the proxy.
(b) Blank spaces where the member must date and sign the proxy.
(c) Clear and impartial identification of each matter or group of
related matters that members will vote upon. You must include any
proposed charitable contribution as an item to be voted on separately.
(d) The phrase ``Revocable Proxy'' in bold face type (at least 18
point).
(e) A description of any charter or state law requirement that
restricts or conditions votes by proxy.
(f) An acknowledgment that the member received a proxy statement
before he or she signed the form of proxy.
(g) The date, time, and the place of the meeting, when available.
(h) A way for the member to specify by ballot whether he or she
approves or disapproves of each matter that members will vote upon.
(i) A statement that management will vote the proxy in accordance
with the member's specifications.
(j) A statement in bold face type indicating how management will
vote the proxy if the member does not specify a choice for a matter.
Sec. 563b.260 May I use previously executed proxies?
You may not use previously executed proxies for the plan of
conversion vote. If members consider your plan of conversion at an
annual meeting, you may vote proxies obtained through other proxy
solicitations only on matters not related to your plan of conversion.
Sec. 563b.265 How may I use proxies executed under this part?
You may vote a proxy obtained under this part on matters that are
incidental to the conduct of the meeting. You may not vote a proxy
obtained under this subpart at any meeting other than the meeting (or
any adjournment of the meeting) to vote on your plan of conversion.
Sec. 563b.270 What must I include in my proxy statement?
(a) Content requirements. You must prepare your proxy statement in
compliance with this part and Form PS. You may obtain Form PS from OTS
Washington and Regional Offices (see Sec. 516.40 of this chapter) and
OTS's website (http://www.ots.treas.gov).
(b) Other requirements. (1) OTS will review your proxy solicitation
material when it reviews the application for conversion and will
authorize the use of proxy solicitation material.
(2) You must provide an authorized written proxy statement to your
members before or at the same time you provide any other soliciting
material. You must mail authorized proxy solicitation material to your
members within ten days after OTS authorizes the solicitation.
Sec. 563b.275 How do I file revised proxy materials?
(a) You must file revised proxy materials as an amendment to your
application for conversion. See Sec. 563b.155 for where to file.
(b) To revise your proxy solicitation materials, you must file:
(1) Seven copies of your revised proxy materials as required by
Form PS;
(2) Seven copies of your revised form of proxy, if applicable; and
(3) Seven copies of any additional proxy solicitation material
subject to Sec. 563b.270.
(c) You must mark four of the seven required copies to clearly
indicate changes from the prior filing.
(d) You must file seven definitive copies of all proxy solicitation
material, in the form in which you furnish the material to your
members. You must file no later than the date that you send or give the
proxy solicitation material to your members. You must indicate the date
that you will release the materials.
(e) Unless OTS requests you to do so, you do not have to file
copies of replies to inquiries from your members or copies of
communications that merely request members to sign and return proxy
forms.
Sec. 563b.280 Must I mail a member's proxy solicitation material?
(a) You must mail the member's authorized proxy solicitation
material if:
(1) Your board of directors adopted a plan of conversion;
(2) A member requests in writing that you mail proxy solicitation
material;
(3) OTS has authorized the member's proxy solicitation; and
(4) The member agrees to defray your reasonable expenses.
(b) As soon as practicable after you receive a request under
paragraph (a) of this section, you must mail or otherwise furnish the
following information to the member:
(1) The approximate number of members that you solicited or will
solicit, or the approximate number of members of any group of account
holders that the member designates; and
(2) The estimated cost of mailing the proxy solicitation material
for the member.
(c) You must mail authorized proxy solicitation material to the
designated members promptly after the member furnishes the materials,
envelopes (or other containers), and postage (or payment for postage)
to you.
(d) You are not responsible for the content of a member's proxy
solicitation material.
(e) A member may furnish other members its own proxy solicitation
material, authorized by OTS, subject to the rules in this section.
Sec. 563b.285 What solicitations are prohibited?
(a) False or misleading statements. (1) No one may use proxy
solicitation material for the members' meeting if the material contains
any statement which, considering the time and the circumstances of the
statement:
(i) Is false or misleading with respect to any material fact;
(ii) Omits any material fact that is necessary to make the
statements not false or misleading; or
(iii) Omits any material fact that is necessary to correct a
statement in an earlier communication that has become false or
misleading.
(2) No one may represent or imply that OTS determined that the
proxy solicitation material is accurate, complete, not false or not
misleading, or passed upon the merits of or approved any proposal.
(b) Other prohibited solicitations. No person may solicit:
(1) An undated or post-dated proxy;
(2) A proxy that states it will be dated after the date it is
signed by a member;
[[Page 17246]]
(3) A proxy that is not revocable at will by the member; or
(4) A proxy that is part of another document or instrument.
Sec. 563b.290 What will OTS do if a solicitation violates these
prohibitions?
(a) If a solicitation violates Sec. 563b.285, OTS may require
remedial measures, including:
(1) Correction of the violation by a retraction and a new
solicitation;
(2) Rescheduling the members' meeting; or
(3) Any other actions necessary to ensure a fair vote.
(b) OTS may also bring an enforcement action against the violator.
Sec. 563b.295 Will OTS require me to re-solicit proxies?
If you amend your application for conversion, OTS may require you
to re-solicit proxies for your members' meeting as a condition of
approval of the amendment.
Offering Circular
Sec. 563b.300 What must happen before OTS declares my offering
circular effective?
(a) You must prepare and file your offering circular with OTS in
compliance with this part and Form OC and, where applicable, part 563g
of this chapter. Section 563b.155 governs where to file your offering
circular. You may obtain Form OC from OTS Washington and Regional
Offices (see Sec. 516.40 of this chapter) and OTS's website (http://www.ots.treas.gov).
(b) You must condition your stock offering upon the members'
approval of your plan of conversion.
(c) OTS will review the Form OC and may comment on the included
disclosures and financial statements.
(d) You must file seven copies of each revised offering circular,
final offering circular, and any post-effective amendment to the final
offering circular.
(e) OTS will not approve the adequacy or accuracy of the offering
circular or the disclosures.
(f) After you satisfactorily address OTS's concerns, you must
request OTS to declare your Form OC effective for a time period. The
time period may not exceed the maximum time period for the completion
of the sale of all of your shares under Sec. 563b.400.
Sec. 563b.305 When may I distribute the offering circular?
(a) You may distribute a preliminary offering circular at the same
time as or after you mail the proxy statement to your members.
(b) You may not distribute an offering circular until OTS declares
it effective. You must distribute the offering circular in accordance
with this part.
(c) You must distribute your offering circular to persons listed in
your plan of conversion within 10 days after OTS declares it effective.
Sec. 563b.310 When must I file a post-effective amendment to the
offering circular?
(a) You must file a post-effective amendment to the offering
circular with OTS when a material event or change of circumstance
occurs.
(b) After OTS declares the post-effective amendment effective, you
must immediately deliver the amendment to each person who subscribed
for or ordered shares in the offering.
(c) Your post-effective amendment must indicate that each person
may increase, decrease, or rescind their subscription or order.
(d) The post-effective offering period must remain open no less
than 10 days nor more than 20 days, unless OTS approves a longer
rescission period.
Offers and Sales of Stock
Sec. 563b.320 Who has priority to purchase my conversion shares?
You must offer to sell your shares in the following order:
(a) Eligible account holders.
(b) Tax-qualified employee stock ownership plans.
(c) Supplemental eligible account holders.
(d) Other voting members who have subscription rights.
(e) Your community, your community and the general public, or the
general public.
Sec. 563b.325 When may I offer to sell my conversion shares?
(a) You may offer to sell your conversion shares after OTS approves
your conversion, authorizes your proxy statement, and declares your
offering circular effective.
(b) The offer may commence at the same time you start the proxy
solicitation of your members.
Sec. 563b.330 How do I price my conversion shares?
(a) You must sell your conversion shares at a uniform price per
share and at a total price that is equal to the estimated pro forma
market value of your shares after you convert.
(b) The maximum price must be no more than 15 percent above the
midpoint of the estimated price range in your offering circular.
(c) The minimum price must be no more than 15 percent below the
midpoint of the estimated price range in your offering circular.
(d) If OTS permits, you may increase the maximum price of
conversion shares sold. The maximum price, as adjusted, must be no more
than 15 percent above the maximum price computed under paragraph (b) of
this section.
(e) The maximum price must be between $5 and $50 per share.
(f) You must include the estimated price in any preliminary
offering circular.
Sec. 563b.335 How do I sell my conversion shares?
(a) You must distribute order forms to all eligible account
holders, supplemental eligible account holders, and other voting
members to enable them to subscribe for the conversion shares they are
permitted under the plan of conversion. You may either send the order
forms with your offering circular or after you distribute your offering
circular.
(b) You may sell your conversion shares in a community offering, a
public offering, or both. You may begin the community offering, the
public offering, or both at any time during the subscription offering
or upon conclusion of the subscription offering.
(c) You may pay underwriting commissions (including underwriting
discounts). OTS may object to the payment of unreasonable commissions.
You may reimburse an underwriter for accountable expenses in a
subscription offering if the public offering is limited. If no public
offering occurs, you may pay an underwriter a consulting fee. OTS may
object to the payment of unreasonable consulting fees.
(d) If you conduct the community offering, the public offering, or
both at the same time as the subscription offering, you must fill all
subscription orders first.
(e) You must prepare your order form in compliance with this part
and Form OF. You may obtain Form OF from OTS Washington and Regional
Offices (see Sec. 516.40 of this chapter) and OTS's website (http://www.ots.treas.gov).
Sec. 563b.340 What sales practices are prohibited?
(a) In connection with offers, sales, or purchases of conversion
shares under this part, you and your directors, officers, agents, or
employees may not:
(1) Employ any device, scheme, or artifice to defraud;
(2) Obtain money or property by means of any untrue statement of a
material fact or any omission of a material fact necessary to make the
statements, in light of the circumstances under which they were made,
not misleading; or
[[Page 17247]]
(3) Engage in any act, transaction, practice, or course of business
that operates or would operate as a fraud or deceit upon a purchaser or
seller.
(b) During your conversion, no person may:
(1) Transfer, or enter into any agreement or understanding to
transfer, the legal or beneficial ownership of subscription rights for
your conversion shares or the underlying securities to the account of
another;
(2) Make any offer, or any announcement of an offer, to purchase
any of your conversion shares from anyone but you; or
(3) Knowingly acquire more than the maximum purchase limitations
established in your plan of conversion.
(c) The restrictions in paragraphs (b)(1) and (b)(2) of this
section do not apply to offers for more than 10 percent of any class of
conversion shares by:
(1) An underwriter or a selling group, acting on your behalf, that
makes the offer with a view toward public resale; or
(2) One or more of your tax-qualified employee stock ownership
plans so long as the plan or plans do not beneficially own more than 25
percent of any class of your equity securities in the aggregate.
(d) If any person is found to have violated the restrictions in
paragraphs (b)(1) and (b)(2) of this section, they may face prosecution
or other legal action.
Sec. 563b.345 How may a subscriber pay for my conversion shares?
(a) A subscriber may purchase conversion shares with cash, by a
withdrawal from a savings account, or a withdrawal from a certificate
of deposit. If a subscriber purchases shares by a withdrawal from a
certificate of deposit, you may not assess a penalty for the
withdrawal.
(b) You may not extend credit to any person to purchase your
conversion shares.
Sec. 563b.350 Must I pay interest on payments for conversion shares?
(a) You must pay interest from the date you receive a payment for
conversion shares until the date you complete or terminate the
conversion. You must pay interest at no less than your passbook rate
for amounts paid in cash, check, or money order.
(b) If a subscriber withdraws money from a savings account to
purchase conversion shares, you must pay interest on the payment until
you complete or terminate the conversion as if the withdrawn amount
remained in the account.
(c) If a depositor fails to maintain the applicable minimum balance
requirement because he or she withdraws money from a certificate of
deposit to purchase conversion shares, you may cancel the certificate
and pay interest at no less than your passbook rate on any remaining
balance.
Sec. 563b.355 What subscription rights must I give to each eligible
account holder and each supplemental eligible account holder?
(a) You must give each eligible account holder subscription rights
to purchase conversion shares in an amount equal to the greater of:
(1) The maximum purchase limitation established for the community
offering or the public offering under Sec. 563b.395;
(2) One-tenth of one percent of the total stock offering; or
(3) Fifteen times the following number: the total number of
conversion shares that you will issue, multiplied by the following
fraction. The numerator is the total qualifying deposit of the eligible
account holder. The denominator is the total qualifying deposits of all
eligible account holders. You must round down the product of this
multiplied fraction to the next whole number.
(b) You must give subscription rights to purchase shares to each
supplemental eligible account holder in the same amount as described in
paragraph (a) of this section, except that you must compute the
fraction described in paragraph (a)(3) of this section as follows: The
numerator is the total qualifying deposit of the supplemental eligible
account holder. The denominator is the total qualifying deposits of all
supplemental eligible account holders.
Sec. 563b.360 Are my officers, directors, and their associates
eligible account holders?
Your officers, directors, and their associates may be eligible
account holders. However, if an officer, director, or his or her
associate receives subscription rights based on increased deposits in
the year before the eligibility record date, you must subordinate
subscription rights for these deposits to subscription rights exercised
by other eligible account holders.
Sec. 563b.365 May other voting members purchase conversion shares in
the conversion?
(a) You must give rights to purchase your conversion shares in the
conversion to voting members who are neither eligible account holders
nor supplemental eligible account holders. You must allocate rights to
each voting member that are equal to the greater of:
(1) The maximum purchase limitation established for the community
offering and the public offering under Sec. 563b.395; or
(2) One-tenth of one percent of the total stock offering.
(b) You must subordinate the voting members' rights to the rights
of eligible account holders, tax-qualified employee stock ownership
plans, and supplemental eligible account holders.
Sec. 563b.370 Does OTS limit the aggregate purchases by officers,
directors, and their associates?
(a) When you convert, your officers, directors, and their
associates may not purchase, in the aggregate, more than the following
percentage of your total stock offering:
------------------------------------------------------------------------
Officer and
director
Institution size purchases
(percent)
------------------------------------------------------------------------
$50,000,000 or less....................................... 35
$50,000,001--100,000,000.................................. 34
$100,000,001--150,000,000................................. 33
$150,000,001--200,000,000................................. 32
$200,000,001--250,000,000................................. 31
$250,000,001--300,000,000................................. 30
$300,000,001--350,000,000................................. 29
$350,000,001--400,000,000................................. 28
$400,000,001 450,000,000.................................. 27
$450,000,001--500,000,000................................. 26
Over $500,000,000......................................... 25
------------------------------------------------------------------------
(b) The purchase limitations in this section do not apply to shares
held in tax-qualified employee stock benefit plans that are
attributable to your officers, directors, and their associates.
Sec. 563b.375 How do I allocate my conversion shares if my shares are
oversubscribed?
(a) If your conversion shares are oversubscribed by your eligible
account holders, you must allocate shares among the eligible account
holders so that each, to the extent possible, may purchase 100 shares.
(b) If your conversion shares are oversubscribed by your
supplemental eligible account holders, you must allocate shares among
the supplemental eligible account holders so that each, to the extent
possible, may purchase 100 shares.
(c) If a person is an eligible account holder and a supplemental
eligible account holder, you must include the eligible account holder's
allocation in determining the number of conversion shares that you may
allocate to the person as a supplemental eligible account holder.
(d) For conversion shares that you do not allocate under paragraphs
(a) and (b) of this section, you must allocate the shares among the
eligible or supplemental eligible account holders
[[Page 17248]]
equitably, based on the amounts of qualifying deposits. You must
describe this method of allocation in your plan of conversion.
(e) If shares remain after you have allocated shares as provided in
paragraphs (a) and (b) of this section, and if your voting members
oversubscribe, you must allocate your conversion shares among those
members equitably. You must describe the method of allocation in your
plan of conversion.
Sec. 563b.380 May my employee stock ownership plan purchase conversion
shares?
(a) Your tax-qualified employee stock ownership plan may purchase
up to 10 percent of the total offering of your conversion shares.
(b) If OTS approves a revised stock valuation range as described in
Sec. 563b.330(e), and the final conversion stock valuation range
exceeds the former maximum stock offering range, you may allocate
conversion shares to your tax-qualified employee stock ownership plan,
up to the 10 percent limit in paragraph (a) of this section.
(c) If your tax-qualified employee stock ownership plan chooses not
to purchase stock in the offering, it may, with prior OTS approval and
appropriate disclosure in your offering circular, purchase stock in the
open market, or purchase authorized but unissued conversion shares.
(d) You may include stock contributed to a charitable organization
in the conversion in the calculation of the total offering of
conversion shares under paragraphs (a) and (b) of this section, unless
OTS objects on supervisory grounds.
Sec. 563b.385 May I impose any purchase limitations?
(a) You may limit the number of shares that any person, group of
associated persons, or persons otherwise acting in concert, may
subscribe to between one percent and five percent of the total stock
sold.
(b) If you set a limit of five percent under paragraph (a) of this
section, you may modify that limit with OTS approval to provide that
any person, group of associated persons, or persons otherwise acting in
concert subscribing for five percent, may purchase between five and ten
percent as long as the aggregate amount that the subscribers purchase
does not exceed 10 percent of the total stock offering.
(c) You may require persons exercising subscription rights to
purchase a minimum number of conversion shares. The minimum number of
shares must equal the lesser of the number of shares obtained by a $500
subscription or 25 shares.
(d) In setting purchase limitations under this section, you may not
aggregate conversion shares attributed to a person in your tax-
qualified employee stock ownership plan with shares purchased directly
by, or otherwise attributable to, that person.
Sec. 563b.390 Must I provide a purchase preference to persons in my
local community?
(a) In your subscription offering, you may give a purchase
preference to eligible account holders, supplemental eligible account
holders, and voting members residing in your local community.
(b) In your community offering, you must give a purchase preference
to natural persons residing in your local community.
Sec. 563b.395 What other conditions apply when I offer conversion
shares in a community offering, a public offering, or both?
(a) You must offer and sell your stock to achieve a widespread
distribution of the stock.
(b) If you offer shares in a community offering, a public offering,
or both, you must first fill orders for your stock up to a maximum of
two percent of the conversion stock on a basis that will promote a
widespread distribution of stock. You must allocate any remaining
shares on an equal number of shares per order basis until you fill all
orders.
Completion of the Offering
Sec. 563b.400 When must I complete the sale of my stock?
You must complete all sales of your stock within 45 calendar days
after the last day of the subscription period, unless the offering is
extended under Sec. 563b.405.
Sec. 563b.405 How do I extend the offering period?
(a) You must request, in writing, an extension of any offering
period.
(b) OTS may grant extensions of time to sell your shares. OTS will
not grant any single extension of more than 90 days.
(c) If OTS grants your request for an extension of time, you must
provide a post-effective amendment to the offering circular under
Sec. 563b.310 to each person who subscribed for or ordered stock. Your
amendment must indicate that OTS extended the offering period and that
each person who subscribed for or ordered stock may increase, decrease,
or rescind their subscription or order within the time remaining in the
extension period.
Completion of the Conversion
Sec. 563b.420 When must I complete my conversion?
(a) You must complete the conversion within 24 months of the date
that your members approve the conversion. Once OTS approves the
conversion, it will not permit extension of the completion date.
(b) Your conversion is complete on the date that you accept the
offers for your stock.
Sec. 563b.425 Who may terminate the conversion?
(a) Your members may terminate the conversion by failing to approve
the conversion at your members' meeting.
(b) You may terminate the conversion before your members' meeting.
(c) You may terminate the conversion after the members' meeting
only if OTS concurs.
Sec. 563b.430 What happens to my old charter?
(a) If you are a federally chartered mutual savings association or
savings bank, and you convert to a federally chartered stock savings
association or savings bank, you must apply to OTS to amend your
charter and bylaws consistent with part 552 of this chapter, as part of
your application for conversion. You may only include OTS pre-approved
anti-takeover provisions in your amended charter and bylaws. See 12 CFR
552.4(b)(8). OTS will state the effective date of your charter
amendments in its approval of the conversion.
(b) If you are a federally chartered mutual savings association or
savings bank and you convert to a state-chartered stock savings
association under this part, you must surrender your federal charter to
OTS for cancellation promptly after the state issues your charter. You
must promptly file a copy of your new state stock charter with OTS.
(c) If you are a state-chartered mutual savings association or
savings bank, and you convert to a federally chartered stock savings
association or savings bank, you must apply to OTS for a new charter
and bylaws consistent with part 552 of this chapter. You may only
include OTS pre-approved anti-takeover provisions in your charter and
bylaws. See 12 CFR 552.4(b)(8). OTS will state the effective date of
your charter amendments with its approval of the conversion.
(d) Your new or amended charter must require you to establish and
maintain a liquidation account for
[[Page 17249]]
eligible and supplemental eligible account holders under Sec. 563b.450.
Sec. 563b.435 What happens to my corporate existence after conversion?
Your corporate existence will continue following your conversion,
unless you convert to a state-chartered stock savings association and
state law prescribes otherwise.
Sec. 563b.440 What voting rights must I provide to stockholders after
the conversion?
You must provide your stockholders with exclusive voting rights,
except as provided in Sec. 563b.445(c).
Sec. 563b.445 What must I provide my savings account holders?
(a) You must provide each savings account holder, without payment,
a withdrawable savings account or accounts in the same amount and under
the same terms and conditions as their accounts before your conversion.
(b) You must provide a liquidation account for each eligible and
supplemental eligible account holder under Sec. 563b.450.
(c) If you are a state-chartered savings association and state law
requires you to provide voting rights to savings account holders or
borrowers, your charter must:
(1) Limit these voting rights to the minimum required by state law;
and
(2) Require you to solicit proxies from the savings account holders
and borrowers in the same manner that you solicit proxies from your
stockholders.
Liquidation Account
Sec. 563b.450 What is a liquidation account?
(a) A liquidation account represents the potential interest of
eligible account holders and supplemental eligible account holders in
your net worth at the time of conversion. You must maintain a sub-
account to reflect the interest of each account holder.
(b) Before you may provide a liquidation distribution to common
stockholders, you must give a liquidation distribution to those
eligible account holders and supplemental eligible account holders who
hold savings accounts from the time of conversion until liquidation.
(c) You may not record the liquidation account in your financial
statements. You must disclose the liquidation account in the footnotes
to your financial statements.
Sec. 563b.455 What is the initial balance of the liquidation account?
The initial balance of the liquidation account is your net worth in
the statement of financial condition included in the final offering
circular.
Sec. 563b.460 How do I determine the initial balances of liquidation
sub-accounts?
(a)(1) You determine the initial sub-account balance for a savings
account held by an eligible account holder by multiplying the initial
balance of the liquidation account by the following fraction: The
numerator is the qualifying deposit in the savings account expressed in
dollars on the eligibility record date. The denominator is total
qualifying deposits of all eligible account holders on that date.
(2) You determine the initial sub-account balance for a savings
account held by a supplemental eligible account holder by multiplying
the initial balance of the liquidation account by the following
fraction: The numerator is the qualifying deposit in the savings
account expressed in dollars on the supplemental eligibility record
date. The denominator is total qualifying deposits of all supplemental
eligible account holders on that date.
(3) If an account holder holds a savings account on the eligibility
record date and a separate savings account on the supplemental
eligibility record date, you must compute separate sub-accounts for the
qualifying deposits in the savings account on each record date.
(b) You may not increase the initial sub-account balances. You must
decrease the initial balance under Sec. 563b.470 as depositors reduce
or close their accounts.
Sec. 563b.465 Do account holders retain any voting rights based on
their liquidation sub-accounts?
Eligible account holders or supplemental eligible account holders
do not retain any voting rights based on their liquidation sub-
accounts.
Sec. 563b.470 Must I adjust liquidation sub-accounts?
(a)(1) You must reduce the balance of an eligible account holder's
or supplemental eligible account holder's sub-account if the deposit
balance in the account holder's savings account at the close of
business on any annual closing date, which for purposes of this section
is your fiscal year end, after the relevant eligibility record dates is
less than:
(i) The deposit balance in the account holder's savings account at
the close of business on any other annual closing date after the
relevant eligibility record date; or
(ii) The qualifying deposits in the account holder's savings
account on the relevant eligibility record date.
(2) The reduction must be proportionate to the reduction in the
deposit balance.
(b) If you reduce the balance of a liquidation sub-account, you may
not subsequently increase it if the deposit balance increases.
(c) You are not required to adjust the liquidation account and sub-
account balances at each annual closing date if you maintain sufficient
records to make the computations if a liquidation subsequently occurs.
(d) You must maintain the liquidation sub-account for each account
holder as long as the account holder maintains an account with the same
social security number.
(e) If there is a complete liquidation, you must provide each
account holder with a liquidation distribution in the amount of the
sub-account balance.
Sec. 563b.475 What is a liquidation?
(a) A liquidation is a sale of your assets and settlement of your
liabilities with the intent to cease operations and close. Upon
liquidation, you must return your charter to the governmental agency
that issued it. The government agency must cancel your charter.
(b) A merger, consolidation, or similar combination or transaction
with another depository institution, is not a liquidation. If you are
involved in such a transaction, the surviving institution must assume
the liquidation account.
Sec. 563b.480 Does the liquidation account affect my net worth?
The liquidation account does not affect your net worth.
Sec. 563b.485 What provision must I include in my new federal charter?
If you convert to federal stock form, you must include the
following provision in your new charter: ``Liquidation Account. Under
OTS regulations, the association must establish and maintain a
liquidation account for the benefit of its savings account holders as
of ____________. If the association undergoes a complete liquidation,
it must comply with OTS regulations with respect to the amount and
priorities on liquidation of each of the savings account holder's
interests in the liquidation account. A savings account holder's
interest in the liquidation account does not entitle the savings
account holder to any voting rights.''
Post-Conversion
Sec. 563b.500 May I implement a stock option plan or management or
employee stock benefit plan?
(a) You may implement a stock option plan or management or employee
stock benefit plan within 12 months after your conversion, if you meet
all of the following requirements.
(1) You disclose the plans in your proxy statement and offering
circular
[[Page 17250]]
and indicate in the offering circular that there will be a separate
vote on the plans at least six months after the conversion.
(2) You do not grant stock options under your stock option plan in
excess of 10 percent of shares that you issued in the conversion.
(3) You do not permit your management stock benefit plans, in the
aggregate, to hold more than three percent of the shares that you
issued in the conversion. However, if you have tangible capital of 10
percent or more following the conversion, OTS may permit you to
establish a management stock benefit plan that holds up to four percent
of the shares that you issued in the conversion.
(4) You do not permit your tax-qualified employee stock benefit
plan(s) and your management stock benefit plans, in the aggregate, to
hold more than 10 percent of the shares that you issued in the
conversion. However, if you have tangible capital of 10 percent or more
following the conversion, OTS may permit your tax-qualified employee
stock benefit plan(s) and your management stock benefit plans, in the
aggregate, to hold up to 12 percent of the shares that you issued in
the conversion.
(5) No individual receives more than 25 percent of the shares under
any plan.
(6) Your directors who are not your employees do not receive more
than five percent of the shares of any plan individually, or 30 percent
of the shares of any plan in the aggregate.
(7) Your shareholders approve each plan by a majority of the total
votes eligible to be cast at a duly called meeting before you establish
or implement the plan. You may not hold this meeting until six months
after your conversion. If you are a subsidiary of a mutual holding
company, a majority of the total votes eligible to be cast (other than
your parent mutual holding company) must approve each plan before you
may establish or implement the plan.
(8) When you distribute proxies or related material to shareholders
in connection with the vote on a plan, you state that the plan complies
with OTS regulations and that OTS does not endorse or approve the plan
in any way. You may not make any written or oral representation to the
contrary.
(9) You do not grant stock options at less than the market price at
the time of grant.
(10) You do not use stock issued at the time of conversion to fund
management or employee stock benefit plans.
(11) Your plan does not begin to vest earlier than one year after
your shareholders approve the plan, and does not vest at a rate
exceeding 20 percent a year.
(12) Your plan permits accelerated vesting only for disability or
death, or if you undergo a change of control.
(13) Your plan provides that your executive officers or directors
must exercise or forfeit their options in the event the institution
becomes critically undercapitalized (as defined in Sec. 565.4 of this
chapter), is subject to OTS enforcement action, or receives a capital
directive under Sec. 565.7.
(14) You file a copy of the approved stock option plan or
management or employee stock benefit plan with OTS and certify to OTS
in writing that the plan approved by the shareholders is the same plan
that you filed with, and disclosed in, the proxy materials distributed
to shareholders in connection with the vote on the plan.
(15) You file the plan and the certification with OTS within five
calendar days after your shareholders approve the plan.
(b) You may provide dividend equivalent rights or dividend
adjustment rights to allow for stock splits or other adjustments to
your stock in stock option plans or management or employee stock
benefit plans under this section.
(c) If the plan is adopted more than one year following your
conversion, any material deviations to the requirements in paragraph
(a) of this section must be ratified by your shareholders.
Sec. 563b.505 May my directors, officers, and their associates freely
trade shares?
(a) Directors and officers who purchase conversion shares may not
sell the shares for one year after the date of purchase, except that in
the event of the death of the officer or director, the successor in
interest may sell the shares.
(b) You must include notice of the restriction described in
paragraph (a) of this section on each certificate of stock that a
director or officer purchases during the conversion or receives in
connection with a stock dividend, stock split, or otherwise with
respect to such restricted shares.
(c) You must instruct your stock transfer agent about the transfer
restrictions in this section.
(d) For three years after you convert, your officers, directors,
and their associates may purchase your stock only from a broker or
dealer registered with the Securities and Exchange Commission. However,
your officers, directors, and their associates may engage in a
negotiated transaction involving more than one percent of your
outstanding stock, and may purchase stock through any of your
management or employee stock benefit plans.
Sec. 563b.510 May I repurchase shares after conversion?
(a) You may not repurchase your shares in the first year after the
conversion except:
(1) In extraordinary circumstances, you may make open market
repurchases of up to five percent of your outstanding stock in the
first year after the conversion if you file a notice under
Sec. 563b.515(a) and OTS does not disapprove your repurchase. OTS will
not approve such repurchases unless the repurchase meets the standards
in Sec. 563b.515(c), and the repurchase is consistent with paragraph
(c) of this section.
(2) You may repurchase qualifying shares of a director or conduct
an OTS approved repurchase pursuant to an offer made to all
shareholders of your association.
(3) Repurchases to fund management recognition plans that have been
ratified by shareholders do not count toward the repurchase limitations
in this section. Repurchases in the first year to fund such plans
require prior notification to OTS.
(4) Purchases to fund tax qualified employee stock benefit plans do
not count toward the repurchase limitations in this section.
(b) After the first year, you may repurchase your shares, subject
to all other applicable regulatory and supervisory restrictions and
paragraph (c) of this section.
(c) All stock repurchases are subject to the following
restrictions.
(1) You may not repurchase your shares if the repurchase will
reduce your regulatory capital below the amount required for your
liquidation account under Sec. 563b.450. You must comply with the
capital distribution requirements at part 563, subpart E of this
chapter.
(2) The restrictions on share repurchases apply to a charitable
organization under Sec. 563b.550. You must aggregate purchases of
shares by the charitable organization with your repurchases.
563b.515 What information must I provide to OTS before I repurchase my
shares?
(a) To repurchase stock in the first year following conversion,
other than repurchases under Sec. 563b.510(a)(3) or (a)(4), you must
file a written notice with the OTS. You must provide the following
information:
(1) Your proposed repurchase program;
[[Page 17251]]
(2) The effect of the repurchases on your regulatory capital; and
(3) The purpose of the repurchases and, if applicable, an
explanation of the extraordinary circumstances necessitating the
repurchases.
(b) You must file your notice with your Regional Director, with a
copy to the Applications Filing Room, at least ten days before you
begin your repurchase program.
(c) You may not repurchase your shares if OTS objects to your
repurchase program. OTS will not object to your repurchase program if:
(1) Your repurchase program will not adversely affect your
financial condition;
(2) You submit sufficient information to evaluate your proposed
repurchases;
(3) You demonstrate extraordinary circumstances and a compelling
and valid business purpose for the share repurchases; and
(4) Your repurchase program would not be contrary to other
applicable regulations.
Sec. 563b.520 May I declare or pay dividends after I convert?
You may declare or pay a dividend on your shares after you convert
if:
(a) The dividend will not reduce your regulatory capital below the
amount required for your liquidation account under Sec. 563b.450;
(b) You comply with all capital requirements under part 567 of this
chapter after you declare or pay dividends;
(c) You comply with the capital distribution requirements under
part 563, subpart E of this chapter; and
(d) You do not return any capital to purchasers in the first year
following conversion, and return capital to purchasers after the first
year only if the return of capital is consistent with your business
plan.
Sec. 563b.525 Who may acquire my shares after I convert?
(a) For three years after you convert, no person may, directly or
indirectly, acquire or offer to acquire the beneficial ownership of
more than ten percent of any class of your equity securities without
OTS's prior written approval. If a person violates this prohibition,
you may not permit the person to vote shares in excess of ten percent,
and may not count the shares in excess of ten percent in any
shareholder vote.
(b) A person acquires beneficial ownership of more than ten percent
of a class of shares when he or she holds any combination of your stock
or revocable or irrevocable proxies under circumstances that give rise
to a conclusive control determination or rebuttable control
determination under Secs. 574.4(a) and (b) of this chapter. OTS will
presume that a person has acquired shares if the acquiror entered into
a binding written agreement for the transfer of shares. For purposes of
this section, an offer is made when it is communicated. An offer does
not include non-binding expressions of understanding or letters of
intent regarding the terms of a potential acquisition.
(c) Notwithstanding the restrictions in this section:
(1) Paragraphs (a) and (b) of this section do not apply to any
offer with a view toward public resale made exclusively to you, to the
underwriters, or to a selling group acting on your behalf.
(2) Unless OTS objects in writing, any person may offer or announce
an offer to acquire up to one percent of any class of shares. In
computing the one percent limit, the person must include all of his or
her acquisitions of the same class of shares during the prior 12
months.
(3) A corporation whose ownership is, or will be, substantially the
same as your ownership may acquire or offer to acquire more than ten
percent of your common stock, if it makes the offer or acquisition more
than one year after you convert.
(4) One or more of your tax-qualified employee stock benefit plans
may acquire your shares, if the plan or plans do not beneficially own
more than 25 percent of any class of your shares in the aggregate.
(5) An acquiror does not have to file a separate application to
obtain OTS approval under paragraph (a) of this section, if the
acquiror files an application under part 574 of this chapter that
specifically addresses the criteria listed under paragraph (d) of this
section and you do not oppose the proposed acquisition.
(d) OTS may deny an application under paragraph (a) of this section
if the proposed acquisition:
(1) Is contrary to the purposes of this part;
(2) Is manipulative or deceptive;
(3) Subverts the fairness of the conversion;
(4) Is likely to injure you;
(5) Is inconsistent with your plan to meet the credit and lending
needs of your proposed market area;
(6) Otherwise violates laws or regulations; or
(7) Does not prudently deploy your conversion proceeds.
Sec. 563b.530 What other requirements apply after I convert?
After you convert, you must:
(a) Promptly register your shares under the Securities Exchange Act
of 1934 (15 U.S.C. 78a-78jj, as amended). You may not deregister the
shares for three years.
(b) Encourage and assist a market maker to establish and to
maintain a market for your shares. A market maker for a security is a
dealer who:
(1) Regularly publishes bona fide competitive bid and offer
quotations for the security in a recognized inter-dealer quotation
system;
(2) Furnishes bona fide competitive bid and offer quotations for
the security on request; or
(3) May effect transactions for the security in reasonable
quantities at quoted prices with other brokers or dealers.
(c) Use your best efforts to list your shares on a national or
regional securities exchange or on the National Association of
Securities Dealers Automated Quotation system.
(d) File all post-conversion reports that OTS requires.
Contributions to Charitable Organizations
Sec. 563b.550 May I donate conversion shares or conversion proceeds to
a charitable organization?
You may contribute some of your conversion shares or proceeds to a
charitable organization if:
(a) Your plan of conversion provides for the proposed contribution;
(b) Your members approve the proposed contribution; and
(c) The IRS either has approved, or approves within two years after
formation, the charitable organization as a tax-exempt charitable
organization under the Internal Revenue Code.
Sec. 563b.555 How do my members approve a charitable contribution?
At the meeting to consider your conversion, your members must
separately approve by at least a majority of the total eligible votes,
a contribution of conversion shares or proceeds. If you are in mutual
holding company form and adding a charitable contribution as part of a
second step stock conversion, you must also have a majority of your
minority shareholders approve the charitable contribution.
Sec. 563b.560 How much may I contribute to a charitable organization?
You may contribute a reasonable amount of conversion shares or
proceeds to a charitable organization if your contribution will not
exceed limits for charitable deductions under the Internal Revenue
Code, and OTS does not object on supervisory grounds. If
[[Page 17252]]
you are a well capitalized savings association, OTS generally will not
object if you contribute an aggregate amount of eight percent or less
of the conversion shares or proceeds.
Sec. 563b.565 What must the charitable organization include in its
organizational documents?
The charitable organization's charter and bylaws (or trust
agreement), gift instrument, and operating plan must provide that:
(a) The charitable organization's primary purpose is to serve and
make grants in your local community;
(b) As long as the charitable organization controls shares, you
must consider those shares as voted in the same ratio as all other
shares voted on each proposal considered by your shareholders;
(c) For at least five years after its organization, one seat on the
charitable organization's board of directors (or board of trustees) is
reserved for an independent director (or trustee) from your local
community. This director may not be your officer, director, or
employee, or your affiliate's officer, director, or employee, and
should have experience with local community charitable organizations
and grant making; and
(d) For at least five years after its organization, one seat on the
charitable organization's board of directors (or board of trustees) is
reserved for a director from your board of directors or the board of
directors of an acquiror or resulting institution in the event of a
merger or acquisition of your organization.
Sec. 563b.570 How do I address conflicts of interest involving my
directors?
(a) A person who is your director, officer, or employee, or a
person who has the power to direct your management or policies, or
otherwise owes a fiduciary duty to you (for example, holding company
directors) and who will serve as an officer, director, or employee of
the charitable organization, is subject to Sec. 563.200 of this
chapter. See Form AC (Exhibit 9) for further information on operating
plans and conflict of interest plans.
(b) Before your board of directors may adopt a plan of conversion
that includes a charitable organization, you must identify your
directors that will serve on the charitable organization's board. These
directors may not participate in your board's discussions concerning
contributions to the charitable organization, and may not vote on the
matter.
Sec. 563b.575 What other requirements apply to charitable
organizations?
(a) The charitable organization's charter and bylaws (or trust
agreement) and the gift instrument for the contribution must provide
that:
(1) OTS may examine the charitable organization at the charitable
organization's expense;
(2) The charitable organization must comply with all supervisory
directives that OTS imposes;
(3) The charitable organization must annually provide OTS with a
copy of the annual report that the charitable organization submitted to
the IRS;
(4) The charitable organization must operate according to written
policies adopted by its board of directors (or board of trustees),
including a conflict of interest policy; and
(5) The charitable organization may not engage in self-dealing, and
must comply with all laws necessary to maintain its tax-exempt status
under the Internal Revenue Code.
(b) You must include the following legend in the stock certificates
of shares that you contribute to the charitable organization or that
the charitable organization otherwise acquires: ``The board of
directors must consider the shares that this stock certificate
represents as voted in the same ratio as all other shares voted on each
proposal considered by the shareholders, as long as the shares are
controlled by the charitable organization.''
(c) OTS may review the compensation paid to charitable organization
directors (or trustees) who are not your directors, employees, or
affiliates.
(d) After you complete your stock offering, you must submit four
executed copies of the following documents to the OTS Applications
Filing Room in Washington, and three executed copies to the OTS
Regional Office: the charitable organization's charter and bylaws (or
trust agreement), operating plan, conflict of interest policy, and the
gift instrument for your contributions of either stock or cash to the
charitable organization.
Subpart B--Voluntary Supervisory Conversions
Sec. 563b.600 What does this subpart do?
(a) You must comply with this subpart to engage in a voluntary
supervisory conversion. This subpart applies to all voluntary
supervisory conversions under sections 5(i)(1), (i)(2), and (p) of the
Home Owners' Loan Act (HOLA), 12 U.S.C. 1464(i)(1), (i)(2), and (p).
(b) Subpart A of this part also applies to a voluntary supervisory
conversion, unless a requirement is clearly inapplicable.
Sec. 563b.605 How may I conduct a voluntary supervisory conversion?
(a) You may sell your shares or the shares of a holding company to
the public under the requirements of subpart A of this part.
(b) You may convert to stock form by merging into an interim
federal- r state-chartered stock association.
(c) You may sell your shares directly to an acquiror, who may be a
person, company, depository institution, or depository institution
holding company.
(d) You may merge or consolidate with an existing or newly created
depository institution. The merger or consolidation must be authorized
by, and is subject to, other applicable laws and regulations.
Sec. 563b.610 Do my members have rights in a voluntary supervisory
conversion?
Your members do not have the right to approve or participate in a
voluntary supervisory conversion, and will not have any legal or
beneficial ownership interests in the converted association, unless OTS
provides otherwise. Your members may have interests in a liquidation
account, if one is established.
Eligibility
Sec. 563b.625 When is a savings association eligible for a voluntary
supervisory conversion?
(a) If you are an insured savings association, you may be eligible
to convert under this subpart if:
(1)You are significantly undercapitalized (or you are
undercapitalized and a standard conversion that would make you
adequately capitalized is not feasible), and you will be a viable
entity following the conversion;
(2) Severe financial conditions threaten your stability and a
conversion is likely to improve your financial condition;
(3) FDIC will assist you under section 13 of the Federal Deposit
Insurance Act, 12 U.S.C. 1823; or
(4) You are in receivership and a conversion will assist you.
(b) You will be a viable entity following the conversion if you
satisfy all of the following:
(1) You will be adequately capitalized as a result of the
conversion;
(2) You, your proposed conversion, and your acquiror(s) comply with
applicable supervisory policies;
(3) The transaction is in your best interest, and the best interest
of the federal deposit insurance funds and the public; and
[[Page 17253]]
(4) The transaction will not injure or be detrimental to you, the
federal deposit insurance funds, or the public interest.
Sec. 563b.630 When is a BIF-insured state-chartered savings bank
eligible for a voluntary supervisory conversion?
If you are a BIF-insured state-chartered savings bank you may be
eligible to convert to a federal stock savings bank under this subpart
if:
(a) FDIC certifies under section 5(o)(2)(C) of the HOLA that severe
financial conditions threaten your stability and that the voluntary
supervisory conversion is likely to improve your financial condition,
and OTS concurs with this certification; or
(b) You meet the following conditions:
(1) Your liabilities exceed your assets, as calculated under
generally accepted accounting principles, assuming you are a going
concern; and
(2) You will issue a sufficient amount of permanent capital stock
to meet your applicable FDIC capital requirement immediately upon
completion of the conversion, or FDIC determines that you will achieve
an acceptable capital level within an acceptable time period.
Plan of Supervisory Conversion
Sec. 563b.650 What must I include in my plan of voluntary supervisory
conversion?
A majority of your board of directors must adopt a plan of
voluntary supervisory conversion. You must include all of the following
information in your plan of voluntary supervisory conversion.
(a) Your name and address.
(b) The name, address, date and place of birth, and social security
number of each proposed purchaser of conversion shares and a
description of that purchaser's relationship to you.
(c) The title, per-unit par value, number, and per-unit and
aggregate offering price of shares that you will issue.
(d) The number and percentage of shares that each investor will
purchase.
(e) The aggregate number and percentage of shares that each
director, officer, and any affiliates or associates of the director or
officer will purchase.
(f) A description of any liquidation account.
(g) Certified copies of all resolutions of your board of directors
relating to the conversion.
Voluntary Supervisory Conversion Application
Sec. 563b.660 What must I include in my voluntary supervisory
conversion application?
You must include all of the following information and documents in
a voluntary supervisory conversion application to OTS under this
subpart:
(a) Eligibility. (1) Evidence establishing that you meet the
eligibility requirements under Secs. 563b.625 or 563b.630.
(2) An opinion of qualified, independent counsel or an independent,
certified public accountant regarding the tax consequences of the
conversion, or an IRS ruling indicating that the transaction qualifies
as a tax-free reorganization.
(3) An opinion of independent counsel indicating that applicable
state law authorizes the voluntary supervisory conversion, if you are a
state-chartered savings association converting to state stock form.
(b) Plan of conversion. A plan of voluntary supervisory conversion
that complies with Sec. 563b.650.
(c) Business plan. A business plan that complies with
Sec. 563b.105, where required by OTS.
(d) Financial data. (1) Your most recent audited financial
statements and Thrift Financial Report. You must explain how your
current capital levels make you eligible to engage in a voluntary
supervisory conversion under Secs. 563b.625 or 563b.630.
(2) A description of your estimated conversion expenses.
(3) Evidence supporting the value of any non-cash asset
contributions. Appraisals must be acceptable to OTS and the non-cash
asset must meet all other OTS policy guidelines. See Thrift Activities
Handbook Section 110 for guidelines.
(4) Pro forma financial statements that reflect the effects of the
transaction. You must identify your tangible, core, and risk-based
capital levels and show the adjustments necessary to compute the
capital levels. You must prepare your pro forma statements in
conformance with OTS regulations and policy.
(e) Proposed documents. (1) Your proposed charter and bylaws.
(2) Your proposed stock certificate form.
(f) Agreements. (1) A copy of any agreements between you and
proposed purchasers.
(2) A copy and description of all existing and proposed employment
contracts. You must describe the term, salary, and severance provisions
of the contract, the identity and background of the officer or employee
to be employed, and the amount of any conversion shares to be purchased
by the officer or employee or his or her affiliates or associates.
(g) Related applications. (1) All filings required under the
securities offering rules of 12 CFR parts 563b and 563g.
(2) Any required Holding Company Act application, Control Act
notice, or rebuttal submission under part 574 of this chapter,
including prior-conduct certifications under Regulatory Bulletin 20.
(3) A subordinated debt application, if applicable.
(4) Applications for permission to organize a stock association and
for approval of a merger, if applicable, and a copy of any application
for Federal Home Loan Bank membership or FDIC insurance of accounts, if
applicable.
(5) A statement describing any other applications required under
federal or state banking laws for all transactions related to your
conversion, copies of all dispositive documents issued by regulatory
authorities relating to the applications, and, if requested by OTS,
copies of the applications and related documents.
(h) Waiver request. A description of any of the features of your
application that do not conform to the requirements of this subpart,
including any request for waiver of these requirements.
OTS Review of the Voluntary Supervisory Conversion Application
Sec. 563b.670 Will OTS approve my voluntary supervisory conversion
application?
OTS will generally approve your application to engage in a
voluntary supervisory conversion unless it determines:
(a) You do not meet the eligibility requirements for a voluntary
supervisory conversion under Secs. 563b.625 or 563b.630 or because the
proceeds from the sale of your conversion stock, less the expenses of
the conversion, would be insufficient to satisfy any applicable
viability requirement;
(b) The transaction is detrimental to or would cause potential
injury to you or the federal deposit insurance funds or is contrary to
the public interest;
(c) You or your acquiror, or the controlling parties or directors
and officers of you or your acquiror, have engaged in unsafe or unsound
practices in connection with the voluntary supervisory conversion; or
(d) You fail to justify an employment contract incidental to the
conversion, or the employment contract will be an unsafe or unsound
practice or represent
[[Page 17254]]
a sale of control. In a voluntary supervisory conversion, OTS generally
will not approve employment contracts of more than one year for your
existing management.
Sec. 563b.675 What conditions will OTS impose on an approval?
(a) OTS will condition approval of a voluntary supervisory
conversion application on all of the following.
(1) You must complete the conversion stock sale within three months
after OTS approves your application. OTS may grant an extension for
good cause.
(2) You must comply with all filing requirements of parts 563b and
563g of this chapter.
(3) You must submit an opinion of independent legal counsel
indicating that the sale of your shares complies with all applicable
state securities law requirements.
(4) You must comply with all applicable laws, rules, and
regulations.
(5) You must satisfy any other requirements or conditions OTS may
impose.
(b) OTS may condition approval of a voluntary supervisory
conversion application on either of the following:
(1) You must satisfy any conditions and restrictions OTS imposes to
prevent unsafe or unsound practices, to protect the federal deposit
insurance funds and the public interest, and to prevent potential
injury or detriment to you before and after the conversion. OTS may
impose these conditions and restrictions on you (before and after the
conversion), your acquiror, controlling parties, directors and officers
of you or your acquiror; or
(2) You must infuse a larger amount of capital, if necessary, for
safety and soundness reasons.
Offers and Sales of Stock
Sec. 563b.680 How do I sell my shares?
If you convert under this subpart, you must offer and sell your
shares under part 563g of this chapter.
Post-Conversion
Sec. 563b.690 Who may not acquire additional shares after the
voluntary supervisory conversion?
For three years after the completion of a voluntary supervisory
conversion, neither you nor any of your controlling shareholder(s) may
acquire shares from minority shareholders without OTS's prior approval.
PART 574--ACQUISITION OF CONTROL OF SAVINGS ASSOCIATIONS
2. The authority citation for part 574 is revised to read as
follows:
Authority: 12 U.S.C. 1467a, 1817, 1831i.
Sec. 574.3 [Amended]
3. Section 574.3(c)(1)(vii) is amended by removing the phrase
``563b.2(a)(39)'' and adding in lieu thereof the phrase ``563b.25''.
PART 575--MUTUAL HOLDING COMPANIES
4. The authority citation for part 575 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828, 2901.
Sec. 575.2 [Amended]
5. Section 575.2(a) is amended by removing the phrase ``12 CFR
563b.2'', and by adding in lieu thereof the phrase ``563b.25 of this
chapter''.
Sec. 575.4 [Amended]
6. Section 575.4(c)(2) is amended by removing the phrase
``economical home financing'', and by adding in lieu thereof the phrase
``the credit and lending needs of your proposed market area''.
7. Section 575.7 is amended by:
a. Revising the paragraph heading and adding a new first sentence
to paragraph (a) introductory text;
b. Removing, in paragraph (a)(7), the phrase ``Sec. 563b.11 of this
chapter'', and by adding in lieu thereof the phrase ``Sec. 563b.200(c)
of this chapter'';
c. Removing, in paragraph (b)(1), the phrase ``Sec. 563b.7'' where
it appears in the first and second sentences, and by adding in lieu of
both phrases the phrase ``part 563b of this chapter'';
d. Removing, in paragraph (b)(2), the phrase ``Sec. 563b.7(c)'',
and by adding in lieu thereof the phrase ``Sec. 563b.330''.
e. Removing, in paragraph (d)(6)(i), the phrase ``12 CFR
563b.102'', and by adding in lieu thereof the phrase ``Form OC'';
f. Adding new paragraphs (d)(7) and (d)(8);
g. Removing, in paragraph (e), the phrase ``Secs. 563b.3 through
563b.8 of this chapter'', and adding in lieu thereof the phrase ``12
CFR part 563b''.
The additions read as follows:
Sec. 575.7 Issuances of stock by savings association subsidiaries of
mutual holding companies.
(a) Requirements. Before any stock issuance, a savings association
subsidiary of a mutual holding company must submit a business plan in
accordance with the provisions of Secs. 563b.105 through 563b.115 of
this chapter.* * *
* * * * *
(d) * * *
(7) Notwithstanding the restrictions in paragraph (d)(6)(ii) of
this section, a savings association subsidiary of a mutual holding
company may issue stock as part of a stock benefit plan to any insider,
associate of an insider, or tax qualified or non-tax qualified employee
stock benefit plan of the mutual holding company or subsidiary of the
mutual holding company without including the purchase priorities of 12
CFR part 563b.
(8) As part of a reorganization, a reasonable amount of shares or
proceeds may be contributed to a charitable organization that complies
with Secs. 563b.550 to 563b.575 of this chapter, provided such
contribution does not result in any taxes on excess business holdings
under section 4943 of the Internal Revenue Code (26 U.S.C. 4943).
* * * * *
8. Section 575.8 is amended by:
a. Removing, in paragraph (a) introductory text, the phrase
``Sec. 563b.27(a)'', and by adding in lieu thereof the phrase
``Sec. 563b.650'';
b. Amending paragraphs (a)(3), (a)(4), (a)(5), and (a)(6) to remove
the phrase ``ten'', and by adding in lieu thereof the phrase ``4.9'',
and by removing the phrase ``held by persons other than the
association's mutual holding company parent'';
c. Revising paragraph (a)(7);
d. Revising paragraph (a)(8);
e. Redesignating paragraphs (a)(9) through (a)(21) as paragraphs
(a)(10) through (a)(22), respectively;
f. Adding a new paragraph (a)(9);
g. Amending newly designated paragraph (a)(10) by removing the
phrase ``12 CFR 563b.102'', and by adding in lieu thereof the phrase
``Form OC''.
The additions and revisions read as follows:
Sec. 575.8 Contents of Stock Issuance Plans.
(a) * * *
(7)(i) Provide that the aggregate amount of common stock acquired
in the proposed issuance, plus all prior issuances of the association,
by all non-tax-qualified employee stock benefit plans of the
association, insiders of the association, and associates of insiders of
the association, exclusive of any stock acquired by such plans,
insiders, and associates in the secondary market, shall not exceed the
following percentages of the outstanding common stock of the
association, held by persons other than the association's mutual
holding company parent at the close of the proposed issuance:
[[Page 17255]]
------------------------------------------------------------------------
Officer and
director
Institution size purchases
(percent)
------------------------------------------------------------------------
$50,000,000 or less....................................... 35
$50,000,001-100,000,000................................... 34
$100,000,001-150,000,000.................................. 33
$150,000,001-200,000,000.................................. 32
$200,000,001-250,000,000.................................. 31
$250,000,001-300,000,000.................................. 30
$300,000,001-350,000,000.................................. 29
$350,000,001-400,000,000.................................. 28
$400,000,001-450,000,000.................................. 27
$450,000,001-500,000,000.................................. 26
Over $500,000,000......................................... 25
------------------------------------------------------------------------
(ii) In calculating the number of shares held by insiders and their
associates under this provision or the provision in paragraph (a)(8) of
this section, shares held by any tax-qualified or non-tax-qualified
employee stock benefit plan of the association that are attributable to
such persons shall not be counted.
(8) Provide that the aggregate amount of stock, whether common or
preferred, acquired in the proposed issuance, plus all prior issuances
of the association, by all non-tax-qualified employee stock benefit
plans of the association, insiders of the association, and associates
of insiders of the association, exclusive of any stock acquired by said
plans, insiders, and associates in the secondary market, shall not
exceed the following percentages of the stockholders' equity of the
association, held by persons other than the association's mutual
holding company parent at the close of the proposed issuance:
------------------------------------------------------------------------
Officer and
director
Institution size purchases
(percent)
------------------------------------------------------------------------
$50,000,000 or less....................................... 35
$50,000,001-100,000,000................................... 34
$100,000,001-150,000,000.................................. 33
$150,000,001-200,000,000.................................. 32
$200,000,001-250,000,000.................................. 31
$250,000,001-300,000,000.................................. 30
$300,000,001-350,000,000.................................. 29
$350,000,001-400,000,000.................................. 28
$400,000,001-450,000,000.................................. 27
$450,000,001-500,000,000.................................. 26
Over $500,000,000......................................... 25
------------------------------------------------------------------------
(9) Provide that the aggregate amount of common stock acquired in
the proposed issuance, plus all prior issuances of the association, by
all stock benefit plans, other than employee stock ownership plans,
shall not exceed more than 25% of the outstanding common stock of the
association held by persons other than the association's mutual holding
company parent.
* * * * *
9. Section 575.11 is amended by:
a. Removing, in paragraphs (c)(1) and (c)(2) the phrases
``Sec. 563b.3(g)(1)'' or ``Sec. 563b.3(g)(3)'' wherever they appear,
and by adding in lieu thereof the phrase ``Sec. 563b.510'';
b. Adding, in paragraph (e), after the phrase ``stock issuance''
the phrase ``, and OTS does not object to the subsequent stock
issuance''; and
c. Adding new paragraph (i).
The addition reads as follows:
Sec. 575.11 Operating restrictions.
* * * * *
(i) Separate vote for charitable organization contribution. In a
mutual holding company stock issuance, a separate vote of a majority of
the outstanding shares of common stock held by stockholders other than
the mutual holding company or subsidiary holding company must approve
any charitable organization contribution.
10. Section 575.12 is amended by adding new paragraph (a)(3) to
read as follows:
Sec. 575.12 Conversion or liquidation of mutual holding companies.
(a)* * *
(3) If a subsidiary holding company or subsidiary savings
association has issued shares to an entity other than the mutual
holding company, the conversion of the mutual holding company to stock
form may not be consummated unless a majority of the shares issued to
entities other than the mutual holding company vote in favor of the
conversion. This requirement applies in addition to any otherwise
required account holder or shareholder votes.
* * * * *
11. Section 575.13 is amended by removing, in paragraph (c)(2), the
phrase ``Sec. 563b.8 of this chapter'', and by adding in lieu thereof
the phrase ``Sec. 563b.150 of this chapter'', and by revising paragraph
(a)(1) to read as follows:
Sec. 575.13 Procedural requirements.
(a) Proxies and proxy statements--(1) Solicitation of proxies. The
provisions of Secs. 563b.225 to 563b.290 and 563b.25 to 563b.35 of this
chapter shall apply to all solicitations of proxies by any person in
connection with any membership vote required by this part. OTS must
authorize all proxy materials used in connection with such
solicitations. Proxy materials must be in the form and contain the
information specified in Secs. 563b.255 and 563b.270 of this chapter
and Form PS, to the extent such information is relevant to the action
that members are being asked to approve, with such additions,
deletions, and other modifications as are necessary or appropriate
under the disclosure standard set forth in Sec. 563b.280 of this
chapter. File proxies and proxy statements in accordance with
Sec. 563b.155 of this chapter and address them to the Business
Transactions Division, Chief Counsel's Office, Office of Thrift
Supervision, at the address set forth in Sec. 516.40 of this chapter.
For purposes of this paragraph (a)(1), the term conversion, as it
appears in the provisions of part 563b of this chapter cited above in
this paragraph (a)(1), refers to the reorganization or the stock
issuance, as appropriate.
* * * * *
Dated: March 27, 2002.
By the Office of Thrift Supervision.
James E. Gilleran,
Director.
[FR Doc. 02-7979 Filed 4-8-02; 8:45 am]
BILLING CODE 6720-01-P