[Federal Register Volume 64, Number 214 (Friday, November 5, 1999)]
[Proposed Rules]
[Pages 60370-60383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28732]
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FARM CREDIT ADMINISTRATION
12 CFR Part 611
RIN 3052-AB86
Organization; Termination of Farm Credit Status
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
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SUMMARY: This proposed rule will amend Farm Credit Administration's
(FCA) regulations that will allow a Farm Credit System (FCS, Farm
Credit or System) institution to terminate its FCS charter and become a
financial institution under another Federal or State chartering
authority. The purpose of our proposal is to amend the existing
regulations so they apply to all banks and associations and to make
other changes. We also withdraw a proposed termination rule published
in 1993.
DATES: Please send your comments to us on or before February 3, 2000.
ADDRESSES: We encourage you to send comments via electronic mail to
reg-comm@fca.gov'' or through the Pending Regulations section of our
interactive website at ``www.fca.gov.'' You may mail or deliver
comments to Patricia W. DiMuzio, Director, Regulation and Policy
Division, Office of Policy and Analysis, 1501 Farm Credit Drive,
McLean, VA, 22102-5090 or send by facsimile transmission to (703) 734-
5784. You may review copies of all comments we receive in the Office of
Policy and Analysis, FCA.
FOR FURTHER INFORMATION CONTACT:
Alan Markowitz, Senior Policy Analyst, Office of Policy and Analysis,
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4479;
or
Rebecca S. Orlich, Senior Attorney, Office of General Counsel, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703)
883-4444.
SUPPLEMENTARY INFORMATION:
I. Objectives
The objectives of our proposed rule are to:
Provide a termination procedure for Farm Credit
associations and banks that implements section 7.10 of the Farm Credit
Act of 1971, as amended (1971 Act);
Ensure that all equity holders of a terminating
institution are treated fairly and equitably;
Ensure that stockholder disclosure materials are easy to
read and understand;
Ensure that the remaining FCS institutions can continue
fulfilling their congressional mandate of serving the credit needs of
farmers, ranchers, and cooperatives; and
Ensure that the remaining FCS institutions are able to
operate safely and soundly.
II. Background
The Agricultural Credit Act of 1987 \1\ (1987 Act) amended the 1971
Act by adding section 7.10--Termination of System Institution Status.
Section 7.10 allows an FCS institution to terminate its status as a
Farm Credit institution if the institution:
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\1\ Public Law 100-233, 101 Stat. 1568 (1988).
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Provides advance notice to us at least 90 days before
termination;
Receives Federal or State approval of a charter for a
bank, savings and loan or other financial institution;
Receives our approval;
Receives the approval of a majority of the institution's
voting stockholders;
Pays or adequately provides for the payment of all its
outstanding debt obligations;
Pays to the Farm Credit Insurance Fund (Insurance Fund) an
amount by which the institution's capital exceeds 6 percent of its
assets; and
Fulfills any other conditions that we, by regulation,
consider appropriate.
In addition to the requirements of section 7.10, section 7.11 of
the 1971 Act requires that any plan of termination, including all
information to be distributed to the stockholders, must be submitted to
us for approval prior to the stockholder vote. Section 7.11 requires us
to act on the plan of termination and related disclosure materials
within 60 days of their submission to us. If we take no action, the
institution may submit its proposal to stockholders. If we disapprove
the plan, our notice to the institution must specify the reasons for
disapproval.
On December 18, 1989, we published an Advance Notice of Proposed
Rulemaking (ANPRM) \2\ requesting comments on the manner and process
for implementing the new termination procedures. On July 12, 1990, we
published a proposed rule authorizing the termination of Farm Credit
status for small associations only.\3\ An association is defined as
``small'' when its investment in its affiliated Farm Credit Bank (FCB)
is 25 percent or less of the bank's capital, or when its loan from the
FCB totals 25 percent or less of the bank's total loans. On January 30,
1991, we published the current final rule that establishes the
procedure for small associations.\4\
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\2\ See 54 FR 51763.
\3\ See 55 FR 28639.
\4\ See 56 FR 3397.
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On March 19, 1993, we published a proposed rule establishing a
procedure for the termination of large associations, FCBs and banks for
cooperatives (BCs) and revisions to the regulations on the termination
of FCS status for small associations (1993 proposed rule).\5\ The 1993
proposed rule also included requirements enacted in the Farm Credit
Banks and Associations Safety and Soundness Act of 1992 (1992 Act).\6\
The 1992 Act amended the 1971 Act by increasing our time to review the
application from 30 days to 60 days and clarifying provisions for the
repayment of assistance for debt obligations issued by the Farm Credit
System Financial Assistance Corporation (FAC).
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\5\ See 58 FR 15099.
\6\ Public Law 102-552, 106 Stat. 4102 (1992).
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[[Page 60371]]
After the comment period for the 1993 proposed rule closed, we
decided that additional public comment was needed. On July 26, 1993, we
published a resolicitation of comments that explained how the exit fee
was to be calculated and provided examples. In addition, we clarified
other provisions of the 1993 proposed rule.
We took no further action on the 1993 proposed rule. We now
withdraw the 1993 proposal and propose amendments to the existing rule.
This proposal has similarities to the existing rule and the 1993
proposal but differs in several significant respects as follows:
1. There are no separate subparts for FCB and agricultural credit
bank terminations. The 1993 proposal had three separate subparts.
2. The date on which a terminating institution's exit fee is
calculated is the termination date. The information statement will
include a ``preliminary exit fee estimate,'' calculated as of the
quarterend before the termination application is filed, with any
adjustments we may require. In the existing rule and 1993 proposal, the
date of the exit fee calculation is the quarterend before the
termination application is filed.
3. A terminating institution must pay 110 percent of the
preliminary exit fee estimate, with any adjustments we may require,
into an escrow account on the termination date. It must also pay into
escrow 110 percent of the amount of stock retirements to dissenting
stockholders and System institutions. After an independent audit to
determine the final exit fee, the escrow agent will disburse the funds.
4. A terminating association may repay its direct loan on a
schedule agreed to by its bank, without a time limit on the repayment
period. In the existing rule and the 1993 proposal, the association
must repay the loan in 3 years or less.
5. A Farm Credit bank does not have to enter into an agreement with
a terminating affiliated association regarding when the bank will
retire the association's investment. Instead, the bank may retire the
investment according to an existing capital revolvement plan or may
make some other retirement agreement with the association. In the
absence of a revolvement plan or other agreement with the association,
the bank must retire the investment on or before the date the
association (or the successor institution) repays its direct loan. In
the existing rule and the 1993 proposal, the FCA must specify how the
investment is retired if the bank and the association cannot agree.
6. System institutions with investments in a terminating
institution have the option to exchange their investments for equity in
the successor institution. In the existing rule and the 1993 proposal,
the terminating institution must retire equity held by other System
institutions (other than an affiliated bank) at termination.
7. In the existing rule and the 1993 proposal, the adjusted book
value of dissenting stockholders' equities is calculated after the exit
fee. The terminating institution must, in effect, pay dissenting
stockholders out of the total capital the successor institution may
retain. In our proposal, a dissenting stockholder receives the adjusted
book value for his equity, calculated before the exit fee is paid. The
terminating institution pays dissenting stockholders before the
calculation of the total capital it may retain for the successor
institution. In addition, the calculation of a non-terminating
association's interest in a terminating bank is unchanged from the 1993
proposal.
8. A terminating bank's payment to the FAC is to be based only on
the retail loan volume of the bank, the associations terminating with
it, and any association maintaining its direct loan with the
terminating bank after termination. The 1993 proposal did not specify
whether the retail loan volume of a non-terminating affiliated
association would be included in the calculation of a terminating
bank's FAC payment.
9. We have rewritten the rule using plain language principles.
Those principles are: short sentences; minimal use of defined terms and
highly technical words; the active voice; and the use of ``we'' or
``us'' for the FCA and ``you'' for the terminating institution.
Below is a section-by-section analysis of the proposed rule.
III. Section-by-Section Analysis
Our section-by-section analysis of the proposed rule generally
discusses only those sections where we have recommended substantive
changes.
Section 611.1200 Applicability of These Regulations
This section is amended to be applicable to all FCS banks and
associations. The existing rule applies only to small associations.
Section 611.1205 Definitions That Apply in Subpart P
We propose a number of changes to this section. The terms
``terminating association,'' ``terminating resolution,'' and
``termination vote'' would be deleted since they are explained in other
sections of these regulations. We propose to replace the definition of
``GAAP'' with a reference to the definition of ``generally accepted
accounting principles'' in our accounting regulations, which are in
part 621 of this chapter. Our proposal would move the definition of
``assets'' from existing Sec. 611.1240 to this section, because the
term is also used in other sections of the termination regulations.
Section 611.1210 Commencement Resolution and Advance Notice
We propose to amend Sec. 611.1210(b)(1) by requiring the
terminating institution to send a certified copy of the commencement
resolution to us and the Farm Credit System Insurance Corporation
(FCSIC). A terminating association must also send a copy to its
affiliated bank. A terminating bank must also send a copy to its
affiliated associations, the other FCS banks, and the Federal Farm
Credit Banks Funding Corporation (Funding Corporation). We would revise
Sec. 611.1210(b)(2) to clarify that the brief announcement to all
equity holders must describe the specific effect of termination on the
equities held and on any borrower rights.
Existing Sec. 611.1210(c)(1) requires a terminating institution to
submit to us an estimate of its exit fee with an explanation of how it
was calculated. We propose to eliminate this requirement. We also
propose to eliminate existing Sec. 611.1210(c)(2) and (3), which
contain a procedure for the FCA to confirm the terminating
institution's exit fee before submission of the termination
application. We believe that we can review the terminating
institution's exit fee calculations during our 60-day statutory review
period.
Proposed Sec. 611.1210(c) would require a terminating bank to begin
negotiations with the remaining FCS banks on the terminating bank's
satisfaction of its share of Systemwide obligations under section 4.4
of the 1971 Act. The Funding Corporation, at its option, may
participate in these negotiations and be a party to the agreement
referred to in Sec. 611.1260(c) to the extent necessary for the Funding
Corporation to fulfill its duties with respect to financing and
disclosure.
Proposed Sec. 611.1210(e) allows a terminating bank to continue to
participate in Systemwide debt obligations until the date of
termination. Existing Sec. 611.1210(e) has been redesignated as (f).
[[Page 60372]]
Section 611.1215 Prohibited Acts
We propose to redesignate existing Sec. 611.1226 as Sec. 611.1215.
This section is substantially similar to the existing rule on
prohibited acts, except that we have expanded its application to
prospective, as well as current, equity holders.
Section 611.1220 Filing of Termination Application
We propose to redesignate existing Sec. 611.1211 as Sec. 611.1220.
The substance of this section is unchanged from the existing rule,
except that we would require five copies of a termination application.
This is the same number of copies we require for other types of
corporate applications, such as mergers. However, should an institution
send us the application in electronic form, it must send us at least
one hard copy application with original signatures.
Section 611.1221 Filing of Termination Application--Timing
We propose to redesignate existing Sec. 611.1212 as Sec. 611.1221.
We propose to eliminate the references to the filing date and the 10-
day review period for technical completeness in existing
Sec. 611.1212(a) and (b). We also propose to reduce the 60-day advance
notice requirement in existing Sec. 611.1212(c) to 30 days. If we
receive the termination application less than 30 days after receiving
the advance notice as required by redesignated Sec. 611.1221(b), we may
disapprove the application. The 30-day time period is now adequate as a
result of statutory changes that provided us with an additional 30 days
to act on a termination application.
Section 611.1222 Plan of Termination--Contents
We propose to redesignate existing Sec. 611.1230 as Sec. 611.1222.
This section is substantially similar to the existing rule.
Section 611.1223 Information Statement--Contents
We propose to redesignate Sec. 611.1225 as Sec. 611.1223. Proposed
Sec. 611.1223 has a new requirement to draft the information statement
according to plain language principles. We believe System institutions
should make their communications with stockholders easy to read and
understand, just as we have undertaken to do in communications with
System institutions and the public. Since last October, we have been
complying with a Presidential directive to write communications in
plain, everyday language and use short sentences, the active voice, and
the pronoun ``you'' where appropriate. We strongly endorse the
President's directive and believe that using plain language saves the
Government and the public time, effort, and money.\7\
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\7\ Presidential Memorandum on Plain Lanauge in Government
Writing (63 FR 31883, June 10, 1998). The FCA, as an independent
agency, is not obligated to comply but is doing so voluntarily.
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Our proposal has a requirement to draft the information statement
in a clear, concise and understandable manner using:
Short sentences;
Active voice;
Tabular presentation or bullet lists for complex material,
whenever possible; and
No legal jargon or highly technical business terms.
Our proposal is modeled on the plain English rule of the Securities
and Exchange Commission (SEC) that applies to prospectuses.\8\ The
SEC's rule, which went into effect on October 1, 1998, is the result of
a joint effort by that agency and a number of regulated companies to
improve their disclosure documents for the benefit of investors, their
ultimate users. Our new requirement would give the same benefit to the
stockholders of a terminating institution by applying the same general
principles to the information statement.
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\8\ The SEC's plain English rule for prospectuses is set forth
at 17 CFR 230.421. For additional guidance, you should consult the
SEC's plain English Handbook, which is available on the SEC's
website at www.sec.gov.
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Proposed Sec. 611.1223(d)(2) contains a new requirement to specify
the amounts of the estimated exit fee and the estimated expenses of
termination and organization of the successor institution. It also
separates the statutory requirement to list the benefits and
disadvantages of the termination from the explanation of the board's
basis for recommending the termination. We believe a separate
discussion of this information will be important to stockholders in
their evaluation of the termination proposal. The rest of proposed
Sec. 611.1223 contains substantially the same requirements as the
existing rule except that we propose to require a balance sheet and
income statement for each of the 3 preceding years. We believe it is
important for stockholders to have an additional year of financial
information to review to provide a complete picture of the proposed
termination.
Section 611.1230 FCA Review and Approval
We propose to redesignate Sec. 611.1215 as Sec. 611.1230. We
propose to amend this section to remove the references to the filing
date and extend our review period from 30 days to 60 days, to implement
the change made to section 7.11(a)(2) of the 1971 Act by the 1992 Act.
In proposed new Sec. 611.1230(b), we would retain the right to deny a
termination if we determine that the termination would have a material
adverse effect on the ability of the remaining FCS institutions to
adequately serve agriculture. We do not believe Congress intended
section 7.10 to jeopardize the ability of the System to continue to
fulfill its congressional mandate of serving the credit needs of
farmers, ranchers and their cooperatives.
Finally, existing Sec. 611.1215(f) is redesignated as
Sec. 611.1230(d). We propose to clarify that, if a reconsideration vote
is held, the termination cannot occur earlier than 15 days after the
reconsideration vote.
Section 611.1240 Voting Record Date and Stockholder Approval
We propose to redesignate existing Sec. 611.1220 as Sec. 611.1240.
While we have rewritten this section, it does not differ in substance
from the existing rule.
Section 611.1245 Stockholder Reconsideration
We propose to redesignate existing Sec. 611.1235 as Sec. 611.1245.
We have streamlined and simplified this section and amended the
provision to require that stockholders submit the petition to us rather
than the institution for review.
Section 611.1250 Preliminary Exit Fee Estimate
This proposal contains significant revisions to the timing of the
exit fee calculations for banks and associations. First, in proposed
Sec. 611.1250 we add a ``preliminary exit fee estimate'' requirement to
be calculated as of the quarterend before the institution files its
termination application. Second, the computation date for the ``final
exit fee,'' which is described in proposed Sec. 611.1255, would be the
actual termination date. These proposals differ from the existing rule,
which requires the institution to estimate its exit fee after the
commencement resolution and to calculate the actual exit fee as of the
quarterend before filing the termination application.
We believe that calculating the exit fee on the termination date is
more consistent with the 1971 Act's requirement. A calculation at this
later date allows us to take into account all of the financial changes
that occur up to and including the final date on which the institution
is chartered as a System institution. We would still require an
estimate of the exit fee as of the quarterend before the terminating
institution files its application. This
[[Page 60373]]
estimated exit fee, with any adjustments we require, would be used to
explain the costs of termination to stockholders in the information
statement.
Proposed Sec. 611.1250(a) explains how to calculate the preliminary
exit fee estimate for an association. Assets and liabilities would
continue to be based on the average daily balances for the 12 months
ending on the computation date. We have also kept the requirements that
the account balances be independently audited and conform with GAAP. We
may waive the requirement for an independent audit if one was performed
as of a date less than 6 months before the filing of the termination
application.
As described below, we propose to require a terminating association
to add or subtract certain amounts from the assets and liabilities.
Some of these amounts must be calculated on an average daily balance in
order not to distort the effect of adding or subtracting the amounts.
Other amounts, which are estimates of future transactions or expenses
that we expect to be recorded on or close to the termination date, will
not be averaged for this calculation.
We have kept the requirement that the terminating association must
add back to assets expenses it has incurred because it is seeking to
terminate its System status. We continue to believe that termination
expenses are organizational expenses of the successor institution and
are its responsibility. Thus, we propose not allowing such expenses
when determining the exit fee.
In the 1993 proposed rule, we proposed to allow terminating
institutions to subtract from their exit fees the FAC liabilities and
certain tax liabilities that are due as a result of terminating. We are
again allowing the deductions in this proposed rule, but the deductions
will be from assets instead of the exit fee. This proposed amendment
would not materially affect the amount of the exit fee to be paid.
The tax liability we refer to in proposed
Sec. 611.1250(a)(4)(ii)(B) generally relates to patronage distributions
that some banks allocated to their associations prior to the issuance
of Statement of Financial Accounting Standards No. 109. We believe that
the net value of such patronage to the institution should be the same,
whenever received, and therefore believe that it is appropriate to
calculate capital based on the after-tax impact of all patronage
distributions.
A terminating institution must make adjustments to assets and
liabilities for significant future transactions that it reasonably
expects to occur on or before the termination date. This is not
intended to include nominal transactions or most expenses that occur in
the normal course of business. We do expect a terminating institution
to include non-routine or significant transactions such as retirements
of equities, loan repayments, gains or losses on the sale of assets,
and patronage distributions.
On the liability side of the balance sheet, a terminating must
subtract from liabilities any GAAP liability that we treat as
regulatory capital for capital or collateral purposes. We believe this
approach is fair and equitable, and it is consistent with the treatment
of regulatory capital by the other Federal financial institution
regulatory agencies.
A terminating institution must also make any adjustments that we
require under Sec. 611.1250(c), as we do under existing
Sec. 611.1240(e).
After making the necessary adjustments to assets and liabilities,
the preliminary total capital will be calculated by subtracting
liabilities from assets. The preliminary exit fee estimate will be the
amount by which the total capital exceeds 6 percent of assets, as
adjusted.
Proposed Sec. 611.1250(b) explains how to calculate the preliminary
exit fee estimate when the terminating institution is a bank. The exit
fee for a bank is based on the combined balance sheets of the bank and
any affiliated associations that are terminating with it. The bank's
portion would be the difference between the exit fee based on the
combined balance sheets and the exit fees for the terminating
associations calculated as if they were terminating alone. If there are
no associations terminating with the bank, the exit fee is based solely
on the bank's balance sheet.
The first of four steps in calculating a bank's preliminary exit
fee estimate is to calculate the exit fee for the terminating
associations as if they were terminating alone, according to
Sec. 611.1250(a). The second step is to adjust the bank's assets in the
same manner as for an association, with the following three exceptions.
A terminating bank must:
Subtract from assets the average daily balances of the
equity investments held by affiliated associations that are not
terminating.
Subtract from assets and liabilities the direct loans to
affiliated associations that are not terminating.
Add to assets the estimated amount of FAC payments it will
receive from the terminating institutions. This offsets the deduction
the bank makes when it adjusts its balance sheet for its payment to the
FAC.
The third step is combining the bank's adjusted balance sheet with
the adjusted balance sheets of the terminating associations in
conformity with GAAP, using cross-elimination methods. For purposes of
termination, total capital is calculated by subtracting the adjusted
liabilities from adjusted assets of the combined balance sheets.
Lastly, the adjusted assets of the combined balance sheets are
multiplied by 6 percent. Subtracting this amount from the total capital
results in the preliminary exit fee estimate for the combined entity.
The bank's portion will be the difference between the preliminary exit
fee estimate of the combined balance sheets and the total of exit fees
for the terminating associations calculated in the first step. Although
it is unlikely, if the exit fees of the terminating associations exceed
the exit fee of the combined entity, the associations would pay their
exit fees, and the bank would have no exit fee.
Proposed Sec. 611.1250(c) is essentially the same as
Sec. 611.1240(e) in the existing regulations. It provides that we will
review the transactions of the institution for the 3-year period prior
to the termination resolution and will require adjustments, in order to
assure that account balances are accurate. In addition, we may require
adjustments to reverse the effect of transactions outside the ordinary
course of business.
Section 611.1255 Exit Fee Calculation
We propose to redesignate existing Sec. 611.1240 as Sec. 611.1255.
We are proposing to move the definition for assets that is in existing
Sec. 611.1240 to Sec. 611.1205 and to remove the definitions for total
capital and contingent liabilities as unnecessary. Proposed
Sec. 611.1255(a) describes the exit fee calculation for a terminating
association. The final exit fee calculation is similar to the
preliminary exit fee estimate, but there are several differences. One
difference is that amounts estimated for the preliminary exit fee
estimate will be known, and adjustments will be made for actual
amounts. Another difference is that a terminating association must
account for the retirement of equities of dissenting stockholders. To
account for these retirements, the association must subtract from
assets the equity retired to dissenting stockholders on the termination
date before computing the exit fee. Dissenters' equity is not deducted
in the preliminary exit fee estimate because a terminating institution
would not know or be able to reasonably estimate the number of
dissenters or the amount of their equity.
[[Page 60374]]
Subtracting payments to dissenters from assets before calculating
total capital is a change from the existing regulation. In the existing
regulation, because the exit fee is calculated before dissenting
stockholders' equities are retired, the terminating institution in
effect pays the dissenters out of the capital it would otherwise take
to the successor institution. Another change from the existing
regulation is in determining the book value of dissenting stockholders'
equity. We propose to determine it before the exit fee is calculated.
In the existing regulation, the book value is determined based on the
capital the institution has after it pays the exit fee. In re-examining
this issue, we decided to make this change so that all stockholders
whose equity in the terminating institution is retired, including
retail borrowers and non-terminating associations, would be treated in
the same manner. Another reason for the change is that the book value
would be similar to what it would be if the association liquidated
instead.
Proposed Sec. 611.1255(b) describes the final exit fee calculation
for a terminating bank. As is the case with a terminating association,
the final exit fee calculation for a bank is similar to the preliminary
exit fee estimate. Again, the main differences between the preliminary
estimate and the final exit fee are that actual values are used instead
of estimates and the bank must subtract the equity retirements of
dissenting stockholders as part of the final exit fee calculation. The
amount is subtracted from assets before calculating the exit fee. In
addition, the bank must subtract from assets and liabilities the direct
loans to non-terminating affiliated associations only if they repay or
transfer their loans before the bank terminates.
Proposed Sec. 611.1255(c) covers payment of the exit fee and
retirements of equity to dissenting stockholders. The terminating
institution must deposit in an escrow account, acceptable to the FCSIC
and us, an amount equal to 110 percent of the preliminary exit fee
estimate with adjustments based on information available on the
termination date. We will adjust the preliminary exit fee estimate to
account for stock retirements to dissenting stockholders and System
institutions, and any other adjustments we require. We believe this
will be more accurate than using the preliminary exit fee estimate
disclosed in the information statement because it replaces the
estimated amounts for FAC obligations, taxes, and other expenses with
actual amounts. It also includes stock retirements. As stated above,
the final exit fee must be based on an independent audit of the
terminating institution as of the termination date. The final account
balances and final exit fee will not be known, and the final audit will
not be completed, for several weeks or months after the termination.
Thus, the estimated exit fee must be held in escrow until we know the
final account balances and have calculated the final exit fee. In
addition, the terminating institution also must deposit in escrow an
amount equal to 110 percent of the equity retired to dissenting
stockholders pending the final audit.
Proposed Sec. 611.1255(d) describes the pay-out of escrow following
completion of the independent audit. Following the audit, we will
calculate the final exit fee and the amount owed to stockholders. We
will direct the escrow agent to pay the exit fee to the Insurance Fund
and to pay amounts owed to dissenting stockholders. The escrow agent
will then return any remaining amounts to the successor institution. If
the escrowed funds are not enough to cover the exit fee or the amounts
owed to stockholders, proposed Sec. 611.1255(e) requires the successor
institution to pay any shortfall to the escrow agent for distribution
to the appropriate parties. We will require the terminating institution
to sign a statement binding the successor institution to pay additional
amounts owed to dissenting stockholders and System institutions.
Section 611.1260 Payment of Debts and Assessments--Terminating
Association
We propose to redesignate existing Sec. 611.1250 as Sec. 611.1260.
Proposed Sec. 611.1260 would continue to apply only to terminating
associations. We propose to delete existing Sec. 611.1250(b) because we
believe it is unnecessary. We propose to redesignate Sec. 611.1250(c)
as Sec. 611.1260(b) and remove the 3-year limitation for a terminating
association that does not become an ``other financing institution'' to
repay its debt obligations to its affiliated bank. Without the time
limit, a bank will have the flexibility to set its own repayment terms
as necessary for the bank to manage the risk on its balance sheet and
its debt structure. However, if a terminating association is unable to
reach agreement with its bank for repaying its obligations, the
association must repay its obligations at termination. We also propose
new Sec. 611.1260(d) that requires a terminating association to pay its
FAC debt obligations to its affiliated bank as required by section 6.26
of the 1971 Act. In response to comments received in response to the
1993 proposal, proposed Sec. 611.1260(d) defines the appropriate
discount rate that would be used. The rate would be the non-interest
bearing U.S. Treasury security rate with a maturity as near as possible
to the period remaining until the terminating association's FAC
obligations would be due.
Section 611.1265 Retirement of equities--Terminating Association
We propose to redesignate Sec. 611.1255 as Sec. 611.1265. This
section would continue to apply only to the termination of an
association. Existing Sec. 611.1255(a) authorizes a Farm Credit Bank to
retire equities owned by a terminating association on the date of
termination or in phases after the date of termination, in accordance
with a written agreement between the bank and the association. The
existing rule limits the phased retirement to the earlier of the date
on which the terminating association repays all indebtedness to its
bank or 3 years from the date of termination. Should the bank and the
terminating association fail to reach an agreement on when to retire
the bank's equities, existing Sec. 611.1255(b) authorizes either party
to request our review of the most recent proposals along with the
points of disagreement. The existing rule states that we may require
the bank to retire the terminating association's equities under
conditions that we impose.
We propose to amend existing Sec. 611.1255(a) and (b) by: (1)
Removing the 3-year limitation for a terminating association's
affiliated bank to retire purchased and allocated equities held by the
association; (2) eliminating our role in deciding how retirements must
occur when a terminating association and its affiliated bank cannot
agree; and (3) redesignating Sec. 611.1255(a) and (b) as
Sec. 611.1265(b) and (c). Our proposal would authorize the affiliated
bank to retire purchased and allocated equities held by the terminating
association in accordance with the terms of a capital revolvement plan
or other agreement between the bank and the association. If there is no
agreement, these equities must be retired no later than when the
terminating association pays off its loan from the bank. However, any
equity retirement by the bank is subject to its having adequate capital
and remaining in a safe and sound condition as required by proposed
Sec. 611.1265(a).
Section 611.1255(a) of the existing rule prohibits a bank from
retiring equities owned by a terminating association if such retirement
would result in the bank's failure to meet minimum capital
requirements. In addition, existing Sec. 611.1255(c) states
[[Page 60375]]
that no retirement of equities may occur if we determine that the
retirement would threaten the viability of the bank. We propose changes
by: (1) Redesignating Sec. 611.1255(c) as Sec. 611.1265(a); and (2)
prohibiting a bank from retiring a terminating association's equities
if we determine that the bank would otherwise be in an unsafe or
unsound condition.
In new Sec. 611.1265(c), we clarify that a bank's retirement of a
terminating association's equity is limited to the par or face value of
purchased or allocated equities. A bank may not pay any portion of its
unallocated surplus to a terminating association.
We propose to delete the requirements in existing Sec. 611.1255(d)
and (e) for associations to retire FAC-preferred stock prior to
termination since all shares of FAC-preferred stock were redeemed
before 1995. We also propose changes to Sec. 611.1255(e) to give a Farm
Credit institution with an equity interest in a terminating association
the option of having the investment retired or maintaining its
investment in that association after it terminates. However, should a
Farm Credit institution decide to maintain its investment in a
terminating institution, that investment would be included in the
assets on which the exit fee is calculated. This could result in a
reduction in the value of the investment when compared to the value of
the equity if it were retired at termination.
Section 611.1270 Repayment of Obligations--Terminating Bank
Proposed Sec. 611.1270 establishes the procedure for a terminating
bank to satisfy its obligations. We have simplified the procedure that
was published in the 1993 proposal. In addition, we have clarified
several provisions as a result of comments received from both the 1993
proposal and the resolicitation. A terminating bank must pay or make
adequate provision for payment of all its outstanding obligations as of
the termination date. In the 1993 proposal, we listed three options a
terminating bank may use to satisfy the Systemwide and consolidated
obligations on which it is primarily liable. We have replaced this with
a requirement in proposed Sec. 611.1270(c) to allow any method that
would be acceptable to the remaining FCS banks and us.
Proposed Sec. 611.1270(c)(1) requires the terminating bank and the
other FCS banks to enter into an agreement, subject to our approval, to
satisfy obligations issued under section 4.2 of the 1971 Act on which
it is not primarily liable. This agreement must specify how the
successor institution will satisfy its joint and several liability to
holders of obligations other than those obligations on which the
terminating bank is primarily liable.
We propose in Sec. 611.1270(c)(2) that the banks enter into an
agreement to make adequate provision for payment of the terminating
bank's joint and several liability. If the terminating bank and the
other FCS banks are unable to reach agreement within 90 days before the
proposed date of termination, the FCA will specify the manner in which
the terminating bank will make adequate provision for the payment of
its joint and several liability and the manner in which we will make
joint and several calls for those obligations outstanding on the
termination date.
Proposed Sec. 611.1270(c)(3) clarifies that, notwithstanding any
other provision in the regulations on how calls would be made by us on
defaulted obligations, the terminating bank would remain liable under
section 4.4 of the 1971 Act for all issues outstanding on the
termination date until they are repaid.
Proposed Sec. 611.1270(d) reflects the statutory amendments made by
the 1992 Act governing the repayment of FAC obligations by a
terminating bank. We propose to require a terminating bank to base the
calculation of its FAC payment on the retail loan volume of the bank
and those associations that are terminating with the bank or that will
continue to have a direct loan relationship with the successor
institution. If any of the bank's affiliated associations choose to
remain in the System and transfer their direct loans to another Farm
Credit bank, the calculation of the bank's FAC payment would not
include the retail loan volume of those associations. In addition, it
is our intention in this section to require the FAC to take into
consideration loan volumes of previous years but not to require that
the average of those years be used to project future loan volumes for
the remaining years before FAC obligations mature. We invite your
comment and suggestions on this point.
Section 611.1275 Retirement of equities--Terminating Bank
Proposed Sec. 611.1275(a) states that System institutions that hold
equities in a terminating bank have the right to have their equities
retired on the termination date. Institutions may choose to maintain
investments in a terminating bank even if they vote against the
termination. However, the value of such equity could be reduced by the
exit fee payment. Proposed Sec. 611.1275(c) authorizes an association
that is not terminating to require its terminating bank to transfer its
investment to another FCS bank after its bank adopts a commencement
resolution. The investment must include purchased and allocated
equities and the association's pro rata share of the bank's unallocated
surplus.
Section 611.1280 Dissenters' Rights
This section appears in the existing rule as Sec. 611.1260.
Proposed Sec. 611.1280 addresses the rights of equity holders who
dissent from the termination and requires that dissenters receive cash
in exchange for their interests in the terminating institution. A
dissenting stockholder is:
An equityholder other than a System institution that was
eligible to vote on the termination resolution and voted against the
termination, or
An equityholder on the termination date that was
ineligible to vote.
The proposal would give dissenting stockholders the right to have their
equities in the terminating institution retired on the termination
date. The proposal would entitle dissenting stockholders to the
adjusted book value of their equity in accordance with the priorities
set forth in the liquidation provisions of the terminating
institution's bylaws. The proposal differs from existing
Sec. 611.1260(c), which requires the amount paid to dissenting
stockholders to be calculated after the amount of the exit fee is
deducted from assets. Proposed Sec. 611.1280 eliminates deduction of
the exit fee. We believe that the proposed method provides dissenting
stockholders their pro rata share of capital. However, this change is
likely to result in a lower exit fee than in the existing regulation.
We specifically seek comments on this.
Existing Sec. 611.1260(c)(ii) authorizes a successor institution to
issue subordinated debt to dissenting stockholders for amounts in
excess of par or face value. Proposed Sec. 611.1280(e) eliminates the
payment of subordinated debt to dissenting stockholders. Since
dissenting stockholders are paid before the calculation of the exit
fee, there is no longer a need for an institution to issue subordinated
debt. The terminating institution must pay dissenting stockholders in
cash or make some other arrangement that is satisfactory to each
dissenting equityholder for their share of capital.
[[Page 60376]]
Section 611.1285 Loan Refinancing by Borrowers
We have redesignated Sec. 611.1266 as Sec. 611.1285. Proposed
Sec. 611.1285(a), like existing Sec. 611.1266, would require a
terminating institution to provide credit and loan information about a
borrower to another FCS institution when requested by a borrower
seeking refinancing with such institution. Proposed Sec. 611.1285(b)
would also authorize any FCS institution to lend in a terminating
institution's territory provided:
We have not assigned the terminating institution's
territory to another FCS institution; and
The FCS institution seeking to lend in a terminating
institution's territory is otherwise authorized by the 1971 Act and
regulations to extend the type of credit provided by the terminating
institution.
Section 611.1290 Continuation of Borrower Rights
This section appears in the existing rule as Sec. 611.1270. While
we have rewritten this section, it does not differ in substance from
the existing rule.
List of Subjects in 12 CFR Part 611
Agriculture, Banks, banking, Organization and functions (Government
agencies), Rural areas.
For the reasons stated in the preamble, we propose to amend part
611 of chapter VI, title 12 of the Code of Federal Regulations as
follows:
PART 611--ORGANIZATION
1. The authority citation for part 611 is revised to read as
follows:
Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15,
4.20, 4.21, 5.9, 5.10, 5.17, 6.9, 6.26, 7.0-7.13, 8.5(e) of the Farm
Credit Act (12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183,
2203, 2208, 2209, 2243, 2244, 2252, 2278a-9, 2278b-6, 2279a-2279f-1,
2279aa-5(e)); secs. 411 and 412 of Public Law 100-233, 101 Stat.
1568, 1638; secs. 409 and 414 of Public Law 100-399, 102 Stat. 989,
1003, and 1004.
2. Revise subpart P to read as follows:
Subpart P--Termination of System Institution Status
Sec.
611.1200 Applicability of this subpart.
611.1205 Definitions that apply in this subpart.
611.1210 Commencement resolution and advance notice.
611.1215 Prohibited acts.
611.1220 Filing of termination application.
611.1221 Filing of termination application-timing.
611.1222 Plan of termination-contents.
611.1223 Information statement-contents.
611.1230 FCA review and approval.
611.1240 Voting record date and stockholder approval.
611.1245 Stockholder reconsideration.
611.1250 Preliminary exit fee estimate.
611.1255 Exit fee calculation.
611.1260 Payment of debts and assessments-terminating association.
611.1265 Retirement of equities-terminating association.
611.1270 Repayment of obligations-terminating bank.
611.1275 Retirement of equities-terminating bank.
611.1280 Dissenters' rights.
611.1285 Loan refinancing by borrowers.
611.1290 Continuation of borrower rights.
Subpart P--Termination of System Institution Status
Sec. 611.1200 Applicability of this subpart.
These regulations apply to each bank and association that desires
to terminate its System institution status and become chartered as a
bank, savings association or other financial institution.
Sec. 611.1205 Definitions that apply in this subpart.
Assets means all assets (less appropriate valuation adjustments)
determined in conformity with GAAP, except as otherwise required in
this subpart.
GAAP means ``generally accepted accounting principles'' as that
term is defined in Sec. 621.2(c) of this chapter.
OFI means an ``other financing institution'' that has a funding and
discount agreement with a Farm Credit bank under section 1.7(b)(1) of
the Act.
Successor institution means the bank, savings association, or other
financial institution that the terminating bank or association will
become when we revoke its Farm Credit charter.
Sec. 611.1210 Commencement resolution and advance notice.
(a) Adoption of commencement resolution. Your board of directors
must begin the termination process by adopting a commencement
resolution stating your intention to terminate Farm Credit status under
section 7.10 of the Act.
(b) Advance notice. Within 5 days after adopting the commencement
resolution, you must:
(1) Send a certified copy of the commencement resolution to us and
the Farm Credit System Insurance Corporation (FCSIC). If you are an
association, also send a copy to your affiliated bank. If you are a
bank, also send a copy to your affiliated associations, the other Farm
Credit banks and the Federal Farm Credit Banks Funding Corporation
(Funding Corporation);
(2) Mail an announcement to all equity holders stating you are
taking steps to terminate Farm Credit status and describing the
following:
(i) The process of termination;
(ii) The expected effect of termination on equity holders,
including the effect on borrower rights and the consequences of any
stock retirements before termination;
(iii) The type of charter the successor institution will have; and
(iv) Any bylaw creating a special class of borrower stock and
participation certificates under paragraph (f) of this section.
(c) Bank negotiations on joint and several liability. If you are a
terminating bank, within 10 days of adopting the commencement
resolution you and the other Farm Credit banks must begin negotiations
to provide for your satisfaction of joint and several liability on
consolidated and Systemwide obligations under section 4.4 of the Act.
The Funding Corporation may, at its option, be a party to the
negotiations to the extent necessary to fulfill its duties with respect
to financing and disclosure. The agreement must comply with the
requirements in Sec. 611.1270(c).
(d) Disclosure to customers after commencement resolution. Between
the date of the commencement resolution and the termination date, you
must give the following information to your customers:
(1) For each applicant who is not a current stockholder, describe
at the time of loan application:
(i) The effect of the proposed termination on the borrower's loan;
and
(ii) Whether the borrower will continue to have any of the borrower
rights provided under the Act and regulations.
(2) For any equity holders who ask to have their equities retired,
explain that the retirement would extinguish the holder's right to
exchange those equities for an interest in the successor institution.
In addition, inform holders of equities entitled to your residual
assets in liquidation that retirement before termination would
extinguish their right to dissent from the termination and receive the
adjusted book value of their equities.
(e) Terminating bank's right to continue issuing debt. Until the
termination date, a terminating bank may continue to participate in the
issuance of consolidated and Systemwide obligations to the same extent
it would be able to participate if it were not terminating.
(f) Special class of stock. Notwithstanding any requirements to the
contrary in Sec. 615.5230(b) of this
[[Page 60377]]
chapter, you may adopt bylaws providing for the issuance of a special
class of stock and participation certificates between the date of
adoption of a commencement resolution and the termination date. Your
stockholders must approve the special class before you adopt the
commencement resolution. The equities must comply with section 4.3A of
the Act and be identical in all respects to existing classes of
equities that are entitled to the residual assets of the institution in
a liquidation, except for the value a holder will receive in a
termination. In a termination, the holder of the special class of stock
receives value equal to the lower of either par (or face) value, or
adjusted book value. A holder must have the same right to vote (if the
equity is held on the voting record date) and to dissent as holders of
similar equities issued before the commencement resolution. If the
termination does not occur, the special classes of stock and
participation certificates must automatically convert into shares of
the otherwise identical equities.
Sec. 611.1215 Prohibited acts.
(a) Statements about termination. Neither the institution nor any
director, officer, employee or agent may make any untrue or misleading
statement of a material fact, or fail to disclose any material fact,
about the termination to a current or prospective equity holder.
(b) Representations regarding FCA approval. Neither the institution
nor any director, officer, employee or agent may make an oral or
written representation to anyone that a preliminary or final approval
of the termination by us is, directly or indirectly, either a
recommendation on the merits of the proposal or an assurance that the
information given by you to your equity holders is adequate or
accurate.
Sec. 611.1220 Filing of termination application.
(a) Adoption of termination resolution. Your board must adopt a
termination resolution authorizing the application for termination and
for a new charter.
(b) Contents of termination application. Send us an original and
five copies of the termination application for review and preliminary
approval. If you send us the application in electronic form, you must
send us at least one hard copy application with original signatures.
The application must contain:
(1) A certified copy of the termination resolution;
(2) A copy of the plan of termination required under Sec. 611.1222;
(3) An information statement that complies with Sec. 611.1223;
(4) All other information that you give to current or prospective
equity holders in connection with the termination; and
(5) Any additional information that either we request or your board
of directors wishes to submit in support of the application.
(c) Requirement to update application. You must immediately send us
any material changes to information in the plan of termination,
including financial information, that occur between the date you file
the application and the termination date. In addition, send us copies
of any additional written information on the termination that you give
to current or prospective equity holders before termination.
Sec. 611.1221 Filing of termination application--timing.
If we receive the termination application required in Sec. 611.1220
less than 30 days after receiving the advance notice, we may in our
discretion disapprove the application.
Sec. 611.1222 Plan of termination--contents.
The plan of termination must include:
(a) Copies of all contracts, agreements, and other documents on the
proposed termination and organization of the successor institution.
(b) A statement of how you will transfer assets to, and have your
liabilities assumed by, the successor institution.
(c) Your plan to retire outstanding equities or convert them to
equities of the successor institution.
(d) A copy of the charter application for the successor
institution, with any exhibits or other supporting information.
(e) A statement, if applicable, whether the successor institution
will continue to borrow from a Farm Credit bank and how such a
relationship will affect your provision for payment of debts. The plan
of termination must include evidence of any agreement and plan for
satisfaction of outstanding debts (including amounts you owe to the
Farm Credit System Financial Assistance Corporation (FAC) because of
the termination).
Sec. 611.1223 Information statement--contents.
(a) Plain language requirements.
(1) Present the contents of the information statement in a clear,
concise and understandable manner.
(2) Use short, explanatory sentences, bullet lists or charts where
helpful, and descriptive headings and subheadings.
(3) Minimize the use of glossaries or defined terms.
(4) Write in the active voice when possible.
(5) Avoid legal and highly technical business terminology.
(b) Disclaimer. Place the following statement in boldface type in
the material sent to equity holders, either on the notice of meeting or
the first page of the information statement:
The Farm Credit Administration has not determined if this
information is accurate or complete. You should not rely on any
statement to the contrary.
(c) Summary. The first part of the information statement must be a
summary that concisely explains:
(1) Which stockholders have a right to vote on termination;
(2) The material changes the termination will cause to the rights
of stockholders, borrowers, and other equity holders;
(3) The effect of those changes;
(4) The potential benefits and disadvantages of the termination;
(5) The right of certain stockholders to dissent and receive cash
for their existing equities; and
(6) The proposed termination date.
(d) Remaining requirements. The rest of the information statement
must contain the following:
(1) Plan of termination. Describe the plan of termination.
(2) Benefits and disadvantages. Provide the following information:
(i) An enumerated statement of the anticipated benefits and
potential disadvantages of the termination;
(ii) An explanation of the preliminary exit fee estimate, with any
adjustments we require, and estimated expenses of termination and
organization of the successor institution; and
(iii) An explanation of the board's basis for recommending the
termination.
(3) Initial board of directors. List the initial board of directors
and senior officers for the successor institution, with a brief
description of the business experience of each person, including
principal occupation and employment during the past 5 years.
(4) Bylaws and charter. Summarize the provisions of the bylaws and
charter of the successor institution that differ materially from your
bylaws and charter. The summary must state:
(i) Whether the successor institution will require a borrower to
hold an equity interest as a condition for having a loan; and
(ii) Whether the successor institution will require stockholders to
do business with the institution.
[[Page 60378]]
(5) Changes to equity. Explain any changes in the nature of equity
investments in the successor institution, such as changes in dividends,
patronage, voting rights, preferences, retirement of equities, and
liquidation priority. If equities protected under section 4.9A of the
Act are outstanding, the information statement must state that the
Act's protections will be extinguished on termination.
(6) Effect of termination on statutory and regulatory rights.
Explain the effect of termination on rights granted by the Act and FCA
regulations. You must explain the effect termination will have on
borrower rights granted in the Act and subparts K, L, and N of part 614
of this chapter.
(7) Loan refinancing by borrowers. (i) State, as applicable, that
borrowers may seek to refinance their loans with the System
institution(s) that already serve, or will be permitted to serve, your
territory. State that no System institution is obligated to refinance
your loans.
(ii) If we have assigned your territory to another System
institution before the information statement is mailed to equity
holders, or if another System institution is already chartered to make
the same type of loans you make in your territory, identify such
institution(s) and provide the following information:
(A) The name, address, and telephone number of the institution; and
(B) An explanation of the institution's procedures to apply for
refinancing.
(iii) If we have not assigned the territory before you mail the
information statement, give the name, address and telephone number of
the System institution specified by us and state that borrowers may
contact the institution for information about loan refinancing.
(8) Equity exchanges. Explain the formula and procedure to exchange
equity in your institution for equity in the successor institution.
(9) Employment, retirement, and severance agreements. Describe any
employment agreement or arrangement between the successor institution
and any of your senior officers (as defined in Sec. 620.1 of this
chapter) or directors. Describe any severance and retirement plans that
cover your employees or directors and state the costs you expect to
incur under the plans in connection with the termination.
(10) Exit fee calculation. Explain how the exit fee will be
calculated.
(11) New charter. Describe the nature and type of financial
institution the successor institution will be and any conditions of
approval of the new chartering authority or regulator.
(12) Differences in successor institution's programs and policies.
Summarize any differences between you and the successor institution on:
(i) Interest rates and fees;
(ii) Collection policies;
(iii) Services provided; and
(iv) Any other item that would affect a borrower's lending
relationship with the successor institution, including whether a
stockholder's ability to borrow from the institution will be
restricted.
(13) Capitalization. Discuss expected capital requirements of the
successor institution, and the amount and method of capitalization.
(14) Sources of funding. Explain the sources and manner of funding
the successor institution's operations.
(15) Contingent liabilities. Describe how the successor institution
will address any contingent liability it will assume from you.
(16) Tax status. Summarize the differences in tax status between
your institution and the successor institution, and explain how the
differences will affect stockholders.
(17) Regulatory environment. Describe briefly how the regulatory
environment for the successor institution will differ from your current
regulatory environment, and any effect on the cost of doing business or
the value of stockholders' equity.
(18) Dissenters' rights. Explain which equity holders are entitled
to dissenters' rights and what those rights are. The explanation must
include the estimated liquidation value of the stock, procedures for
exercising dissenters' rights, and a statement of when the rights may
be exercised.
(19) Financial information. (i) Present the following financial
data:
(A) A balance sheet and income statement for each of the 3
preceding fiscal years;
(B) A balance sheet as of a date within 90 days of the date you
mail the termination application to us, presented on a comparative
basis with the corresponding period of the previous 2 fiscal years;
(C) An income statement for the interim period between the end of
the last fiscal year and the date of the balance sheet required by
paragraph (d)(19)(i)(B) of this section, presented on a comparative
basis with the corresponding period of the previous 2 fiscal years;
(D) A pro forma balance sheet of the successor institution
presented as if termination had occurred as of the date of the most
recent balance sheet presented in the statement; and
(E) A pro forma summary of earnings for the successor institution
presented as if the termination had been effective at the beginning of
the interim period between the end of the last fiscal year and the date
of the balance sheet presented under paragraph (d)(19)(i)(D) of this
section.
(ii) The format for the balance sheet and income statement must be
the same as the format in your annual report and must contain
appropriate footnote disclosures, including data on high-risk assets,
other property owned, and allowance for losses.
(iii) The financial statements must include either:
(A) A statement signed by the chief executive officer and each
board member that the various financial statements are unaudited, but
have been prepared in all material respects in conformity with GAAP
(except as otherwise disclosed) and are, to the best of each signer's
knowledge, a fair and accurate presentation of the financial condition
of the institution; or
(B) A signed opinion by an independent certified public accountant
that the various financial statements have been examined in conformity
with generally accepted auditing standards and included such tests of
the accounting records and other such auditing procedures as were
considered necessary in the circumstances, and, as of the date of the
statements, present fairly the financial position of the institution in
conformity with GAAP applied on a consistent basis, except as otherwise
disclosed.
(20) Subsequent financial events. Describe any event after the date
of the financial statements, but before the date you send the
termination application to us, that would have a material impact on
your financial condition or the condition of the successor institution.
(21) Other subsequent events. Describe any event after you send the
termination application to us that could have a material impact on any
information in the termination application.
(22) Other material disclosures. Describe any other material fact
or circumstance that a stockholder would need to know to make an
informed decision on the termination, or that is necessary to make the
disclosures not misleading.
(23) Ballot and proxy. Include a ballot and proxy, with
instructions on the purpose and authority for their use, and the proper
method for the stockholder to sign the proxy.
(24) Board of directors certification. Include a certification
signed by the entire board of directors as to the truth, accuracy, and
completeness of the information contained in the
[[Page 60379]]
information statement. If any director refuses to sign the
certification, the director must inform us of the reasons for refusing.
Sec. 611.1230 FCA review and approval.
(a) FCA review period. We will review a termination application and
either give preliminary approval or disapprove the application no later
than 60 days after we receive the application.
(b) Reservation of right to disapprove termination. In addition to
any other reason for disapproval, we may disapprove a termination if we
determine that the termination would have a material adverse effect on
the ability of the remaining System institutions to fulfill their
statutory purpose.
(c) Conditions of final FCA approval. We will give final approval
to your termination application only if:
(1) Your stockholders vote in favor of termination in the
termination vote and in any reconsideration vote;
(2) You give us executed copies of all contracts, agreements, and
other documents submitted under Sec. 611.1222;
(3) You have paid or made adequate provision for payment of debts
and retirement of equities;
(4) A Federal or State chartering authority has granted a new
charter to the successor institution;
(5) You deposit into escrow an amount equal to 110 percent of the
estimated exit fee plus 110 percent of the estimated amount you must
pay to retire equities of dissenting stockholders, as described in
Sec. 611.1255(c); and
(6) You have fulfilled any other condition of termination we have
imposed.
(d) Effective date of termination. If we grant final approval, we
will revoke your charter, and the termination will be effective on the
last to occur of--
(1) Fulfillment of all conditions listed in paragraph (c) of this
section;
(2) Your proposed termination date;
(3) Ninety (90) days after we receive the notice described in
Sec. 611.1240(e); and
(4) Fifteen (15) days after any reconsideration vote.
Sec. 611.1240 Voting record date and stockholder approval.
(a) Stockholder meeting. You must call the meeting by written
notice in compliance with your bylaws. The stockholder meeting to vote
on the termination must occur within 60 days of our preliminary
approval (or, if we take no action, within 60 days of the end of our
approval period).
(b) Voting record date. The voting record date may not be more than
70 days before the stockholders' meeting.
(c) Information statement. You must provide all equity holders with
a notice of meeting and the information statement required by
Sec. 611.1222 at least 30 days before the stockholder vote.
(d) Voting procedures. The voting procedures must comply with
Sec. 611.330. You must have an independent third party count the
ballots. If a voting stockholder notifies you of the stockholder's
intent to exercise dissenters' rights, the tabulator must be able to
verify to you that the stockholder voted against the termination.
Otherwise, the votes of stockholders must remain confidential.
(e) Notice to FCA and equity holders of voting results. Within 10
days of the termination vote, you must send us a certified record of
the results of the vote. You must notify all equity holders of the
results within 30 days after the stockholder meeting. If the
stockholders approve the termination, you must give the following
information to equity holders:
(1) Stockholders who voted against termination and equity holders
who were not entitled to vote have a right to dissent as provided in
Sec. 611.1280; and
(2) Voting stockholders have a right, under Sec. 611.1245, to file
a petition with the FCA for reconsideration within 35 days after the
date you mail to them the notice of the results of the termination
vote.
(f) Requirement to notify new equity holders. You must provide the
information described in paragraph (e)(1) of this section to each
person that becomes an equityholder after the termination vote and
before termination.
Sec. 611.1245 Stockholder reconsideration.
(a) Right to reconsider termination. Voting stockholders have the
right to reconsider their approval of the termination if a petition
signed by 15 percent of the stockholders is filed with us within 35
days after you mail notices to stockholders that the termination vote
was approved. If we determine that the petition complies with the
requirements of section 7.9 of the Act, you must call a special
stockholders' meeting to reconsider the vote. The meeting must occur
within 60 days after the date on which you mailed to stockholders the
results of the termination vote. If a majority of the stockholders
voting, in person or by proxy, vote against the termination, the
termination may not take place.
(b) Stockholder list and expenses. You must, at your expense,
timely give stockholders who request it a list of the names and
addresses of stockholders eligible to vote in the reconsideration vote.
The petitioners must pay all other expenses for the petition. You must
pay expenses that you incur for the reconsideration vote.
Sec. 611.1250 Preliminary exit fee estimate.
(a) Preliminary exit fee estimate-terminating association. You must
provide a preliminary exit fee estimate to us when you submit the
termination application. Calculate the preliminary exit fee estimate in
the following order:
(1) Base your exit fee calculation on the average daily balances of
assets and liabilities. Any amounts we refer to in this section are
average daily balances unless we specify that they are not. Amounts
that are not average daily balances will be referred to as ``dollar
amount.''
(2) Determine account balances in conformity with GAAP and have
them independently audited by a qualified public accountant, as defined
in Sec. 621.2(i) of this chapter, as of the quarterend immediately
before the date you send us your termination application. We may, in
our discretion, waive the audit requirement if an independent audit was
performed as of a date less than 6 months before you submit the
termination application.
(3) Calculate the 12-month balances of assets and liabilities as of
the quarterend immediately before the date you send us your termination
application.
(4) Make adjustments to assets as follows:
(i) Add back expenses you have incurred related to termination.
Related expenses include, but are not limited to, legal services,
accounting services, auditing, business planning, and application fees
for the termination and reorganization.
(ii) Subtract the following:
(A) The dollar amount of your estimated payment (to your affiliated
bank) related to FAC obligations; and
(B) The dollar amount of your estimated taxes due to the
termination.
(iii) Adjust for the dollar amount of significant transactions you
reasonably expect to occur between the quarterend before you file your
termination application and termination. Examples of these transactions
include, but are not limited to, gains or losses on the sale of assets,
retirements of equity, loan repayments, and patronage distributions. Do
not make adjustments for future expenses related to termination, such
as severance or special retirement payments, or stock retirements to
dissenting stockholders and Farm Credit institutions.
[[Page 60380]]
(5) Subtract from liabilities any liability that we treat as
regulatory capital under the capital or collateral requirements in
subparts H and K of part 615 of this chapter.
(6) Make any adjustments we require under paragraph (c) of this
section.
(7) After making these adjustments to assets and liabilities,
subtract liabilities from assets. This is your preliminary total
capital for purposes of termination.
(8) Multiply assets as adjusted above by 6 percent, and subtract
this amount from preliminary total capital. This is your preliminary
exit fee estimate.
(b) Preliminary exit fee estimate--terminating bank. (1) Affiliated
associations that are terminating with you must calculate their
individual preliminary exit fee estimates as described in paragraph (a)
of this section.
(2) Base your exit fee calculation on the average daily balances of
assets and liabilities. Any amounts we refer to in this section are
average daily balances unless we specify that they are not. Amounts
that are not average daily balances will be referred to as ``dollar
amount.''
(3) The account balances must be in conformity with GAAP and
independently audited by a qualified public accountant, as defined in
Sec. 621.2(i) of this chapter, as of the quarterend immediately before
the date you send us your termination application. We may, in our
discretion, waive this requirement if an independent audit was
performed as of a date less than 6 months before you submit the
termination application.
(4) Calculate the 12-month balances of assets and liabilities as of
the quarterend immediately before the date you send us your termination
application.
(5) Make adjustments to assets and liabilities as follows:
(i) Add back to assets the following:
(A) Expenses you have incurred related to termination. Related
expenses include, but are not limited to, legal services, accounting
services, auditing, business planning, and application fees for the
termination and reorganization; and
(B) Any specific allowance for losses, and a pro rata portion of
any general allowance for loan losses on direct loans to an association
that you do not expect to incur before or at termination.
(ii) Subtract from your assets and liabilities an amount equal to
the average daily balances of your direct loans to your affiliated
associations that are not terminating.
(iii) Subtract the following from assets:
(A) Equity investments in you held by non-terminating associations.
A non-terminating association's investment consists of purchased
equities, allocated equities, and a pro rata share of the bank's
unallocated surplus;
(B) The dollar amount of your estimated termination payment to the
FAC; and
(C) The dollar amount of estimated taxes due to the termination.
(iv) Subtract from liabilities any liability that we treat as
regulatory capital under the capital or collateral requirements in
subparts H and K of part 615 of this chapter.
(v) Adjust for the dollar amount of significant transactions you
reasonably expect to occur between the quarterend before you file your
termination application and termination. Examples of these transactions
include, but are not limited to, retirements of equity, loan
repayments, and patronage distributions. Do not make adjustments for
future expenses related to termination, such as severance or special
retirement payments, or stock retirements to dissenting stockholders
and Farm Credit institutions.
(6) Add to assets the dollar amount of estimated termination
payments of the terminating associations related to FAC obligations.
(7) Make any adjustments we require under paragraph (c) of this
section.
(8) After the above adjustments, combine your balance sheet with
the balance sheets of your terminating associations after they have
made the adjustments required in paragraph (a) of this section.
Subtract liabilities from assets. This is your preliminary total
capital for purposes of termination.
(9) Multiply the assets of the combined balance sheet after the
above adjustments by 6 percent. Subtract this amount from the
preliminary total capital of the combined balance sheet. This is the
preliminary exit fee estimate of the bank and terminating affiliated
associations.
(10) Your preliminary exit fee estimate is the amount by which the
exit fee for the combined entity exceeds the total of the individual
preliminary exit fee estimates of your affiliated terminating
associations.
(c) Three-year look-back. (1) We will review your transactions over
the 3 years before the date of the termination resolution under
Sec. 611.1220. Our review will include, but not be limited to, the
following:
(i) Additions to or subtractions from any allowance for losses;
(ii) Additions to assets or liabilities, or subtractions from
assets or liabilities, due to transactions that are outside your
ordinary course of business;
(iii) Dividends or patronage refunds exceeding your usual
practices;
(iv) Changes in the institution's capital plan, or in implementing
the plan, that increased or decreased the level of borrower investment;
(v) Contingent liabilities, such as loss-sharing obligations, that
can be reasonably quantified; and
(vi) Assets that may be overvalued, undervalued or not recorded on
your books.
(2) If we determine the account balances do not accurately show the
value of your assets and liabilities, we will make any adjustments we
deem necessary. In addition, we may require you to reverse the effect
of a transaction if we determine that:
(i) You have retired capital outside the ordinary course of
business,
(ii) You have taken any other actions unrelated to core business
that have the effect of changing the exit fee, or
(iii) You incurred expenses related to termination prior to the 12-
month average daily balance period on which the exit fee calculation is
based.
(3) We may require you to make these adjustments to the exit fee
estimate that is disclosed in the information statement and to the
final exit fee calculation.
Sec. 611.1255 Exit fee calculation.
(a) Final exit fee calculation-terminating association. Calculate
the final exit fee in the following order:
(1) Base your exit fee calculation on the average daily balances of
assets and liabilities. Any amounts we refer to in this section are
average daily balances unless we specify that they are not. Amounts
that are not average daily balances will be referred to as ``dollar
amount.''
(2) The account balances must be in conformity with GAAP and
independently audited by a qualified public accountant, as defined in
Sec. 621.2(i) of this chapter, as of the termination date.
(3) Calculate the 12-month balances of assets and liabilities as of
the termination date. Assume for this calculation that you have not
paid or accrued the items described in paragraph (a)(4)(ii) of this
section.
(4) Make adjustments to assets and liabilities as follows:
(i) Add back expenses related to termination. Related expenses
include, but are not limited to, legal services, accounting services,
auditing, business planning, payments of severance and special
retirements, and application fees for the termination and
reorganization.
[[Page 60381]]
(ii) Subtract from assets the following:
(A) The dollar amount of your termination payment (to your
affiliated bank) related to FAC obligations;
(B) The taxes you will have to pay due to the termination; and
(C) Payments to retire the equities of dissenting stockholders and
Farm Credit institutions at termination.
(iii) Subtract from liabilities any liability that we treat as
regulatory capital under the capital or collateral requirements in
subparts H and K of part 615 of this chapter.
(iv) Make the adjustments that we require under Sec. 611.1250(c).
For the final exit fee, we will review and may require additional
adjustments for transactions between the date you adopted the
termination resolution and the termination date.
(5) After making these adjustments to assets and liabilities,
subtract liabilities from assets. This is your total capital for
purposes of termination.
(6) Multiply assets by 6 percent, and subtract this amount from
total capital. This is your final exit fee.
(b) Final exit fee calculation-terminating bank. (1) The individual
exit fees of affiliated associations that are terminating with you must
be calculated as described in paragraph (a) of this section.
(2) Base your exit fee calculation on the average daily balances of
assets and liabilities. Any amounts we refer to in this section are
average daily balances unless we specify that they are not. Amounts
that are not average daily balances will be referred to as ``dollar
amount.''
(3) The account balances must be in conformity with GAAP and
independently audited by a qualified public accountant, as defined in
Sec. 621.2(i) of this chapter, as of the termination date.
(4) Calculate the 12-month balances of assets and total capital as
of the termination date. Assume for this calculation that you have not
paid or accrued the items described in paragraph (b)(5)(iii)(B), (C),
and (D) of this section.
(5) Make adjustments to assets and liabilities as follows:
(i) Add back the following to your assets:
(A) Expenses you have incurred related to termination. Related
expenses include, but are not limited to, legal services, accounting
services, auditing, business planning, payments of severance and
special retirements, and application fees for the termination and
reorganization.
(B) The amount of the termination payments to you by the
terminating associations related to FAC obligations.
(ii) Subtract from your assets and liabilities your direct loans to
affiliated associations that were paid off or transferred in the 12-
month period before termination.
(iii) Subtract from your assets the following:
(A) Equity investments held in you by affiliated associations that
you retired or transferred during the 12 months before termination. A
non-terminating association's investment consists of purchased
equities, allocated equities, and a pro rata share of the bank's
unallocated surplus;
(B) The dollar amount of your termination payment to the FAC;
(C) The dollar amount of taxes paid or accrued due to the
termination; and
(D) Payments to retire the equities of dissenting stockholders and
Farm Credit institutions.
(iv) Subtract from liabilities any liability that we treat as
regulatory capital under the capital or collateral requirements in
subparts H and K of part 615 of this chapter.
(v) Make the adjustments that we require under Sec. 611.1250(c).
For the final exit fee, we will review and may require additional
adjustments for transactions between the date you adopted the
termination resolution and the termination date.
(6) After the above adjustments, combine your balance sheet with
the balance sheets of terminating associations after making the
adjustments required in paragraph (a) of this section.
(7) Subtract combined liabilities from combined assets. This is the
total capital of the combined balance sheet.
(8) Multiply the assets of the combined balance sheet after the
above adjustments by 6 percent. Subtract this amount from the total
capital of the combined balance sheet. This amount is the combined
final exit fee for you and the terminating affiliated associations.
(9) Your final exit fee is the amount by which the combined final
exit fee exceeds the total of the individual final exit fees of your
affiliated terminating associations.
(c) Payment of exit fee. On the termination date, you must:
(1) Deposit into an escrow account acceptable to us and the FCSIC
an amount equal to 110 percent of the preliminary exit fee estimate,
adjusted to account for stock retirements to dissenting stockholders
and Farm Credit institutions, and any other adjustments we require.
(2) Deposit into an escrow account acceptable to us an amount equal
to 110 percent of the equity you must retire for dissenting
stockholders and System institutions holding stock that would be
entitled to a share of the remaining assets in a liquidation.
(d) Pay-out of escrow. Following the independent audit of the
institution's account balances as of the termination date, we will
determine the amount of the final exit fee and the amounts owed to
stockholders to retire their equities. We will then direct the escrow
agent to:
(1) Pay the exit fee to the Farm Credit Insurance Fund;
(2) Pay the amounts owed to dissenting stockholders; and
(3) Return any remaining amounts to the successor institution.
(e) Additional payment. If the amount held in escrow is not enough
to pay the amounts under paragraph (d)(1) and (2) of this section, the
successor institution must pay any remaining liability to the escrow
agent for distribution to the appropriate parties. The termination
application must include evidence that, after termination, the
successor institution will pay any remaining amounts owed to dissenting
stockholders.
Sec. 611.1260 Payment of debts and assessments--terminating
association.
(a) General rule. If you are a terminating association, you must
pay or make adequate provision for the payment of all outstanding debt
obligations and assessments.
(b) No OFI relationship. If the successor institution will not
become an OFI, you must either:
(1) Pay debts and assessments owed to your affiliated Farm Credit
bank at termination; or
(2) With your affiliated Farm Credit bank's concurrence, arrange to
pay any obligations or assessments to the bank after termination.
(c) Obligations to other Farm Credit institutions. You must pay or
make adequate provision for payment of obligations to any Farm Credit
institution (other than your affiliated bank) under any loss-sharing or
other agreement.
(d) FAC debt payments. Before termination, you must pay future
assessments and payment obligations to your affiliated Farm Credit bank
to the extent required by subparagraphs (c)(5)(F) and (d)(1)(C)(v) of
section 6.26 of the Act. The FAC must make the payment calculations
this paragraph requires, subject to FCA approval, based on an
appropriate discount rate. The appropriate discount rate is the non-
interest bearing U.S. Treasury security
[[Page 60382]]
rate for securities with a maturity as near as possible to the period
remaining until the terminating association's obligations under this
paragraph would be due.
Sec. 611.1265 Retirement of equities--terminating association.
(a) Safety and soundness restrictions. Notwithstanding anything in
these regulations to the contrary, we may prohibit a bank from retiring
your equities if the retirement would cause the bank to fall below its
regulatory capital requirements after retirement, or if we determine
that the bank would be in an unsafe or unsound condition after
retirement.
(b) Retirement agreement. Your affiliated bank may retire the
purchased and allocated equities held by you in the bank according to
the terms of the bank's capital revolvement plan or an agreement
between you and the bank.
(c) Retirement in absence of agreement. Your affiliated bank must
retire any equities not subject to an agreement or revolvement plan no
later than when you or the successor institution pays off your loan
from the bank.
(d) No retirement of unallocated surplus. When your bank retires
equities you own in the bank, the bank must pay par or face value for
purchased and allocated equities, less any impairment. The bank may not
pay you any portion of its unallocated surplus.
(e) Exclusion of equities from capital ratios. If another Farm
Credit institution makes an agreement to retire equities you hold in
that institution after termination, we may require that institution to
exclude part or all of those equities from assets and capital when the
institution calculates its capital and net collateral ratios under
subparts H and K of part 615 of this chapter.
(f) Retirement of equities held by other Farm Credit institutions.
If a Farm Credit institution other than the affiliated bank owns
equities you have issued, the other Farm Credit institution may require
you to retire the equities on or before termination. The equities must
be retired at book value revised to reflect the adjustments required
for the final exit fee calculation in Sec. 611.1255(a)(4)(iii).
Sec. 611.1270 Repayment of obligations--terminating bank.
(a) General rule. If you are a terminating bank, you must pay or
make adequate provision for the payment of all outstanding debt
obligations.
(b) Satisfaction of primary liability. After consulting with other
Farm Credit banks, the Funding Corporation, and the FCSIC, you must pay
or make adequate provision for payment of your primary liability on
consolidated or Systemwide obligations in a method that we deem
acceptable. Before we make a final decision on your proposal and as we
deem necessary, we may consult with the other Farm Credit banks, the
Funding Corporation, and the FCSIC.
(c) Satisfaction of joint and several liability. (1) You and the
other Farm Credit banks must enter into an agreement covering
obligations issued under section 4.2 of the Act and outstanding on the
termination date. The Funding Corporation may, at its option, be a
party to the agreement to the extent necessary to fulfill its duties
with respect to financing and disclosure. The agreement, which is
subject to our approval, must specify how you will make adequate
provision for the payment of your joint and several liability to
holders of obligations other than those obligations on which you are
primarily liable.
(2) If you and the other Farm Credit banks are unable to reach
agreement within 90 days before the proposed termination date, we will
specify the manner in which you will make adequate provision for the
payment of your joint and several liability and how we will make joint
and several calls for those obligations outstanding on the termination
date.
(3) Notwithstanding any other provision in these regulations, the
successor institution will be jointly and severally liable for
consolidated and Systemwide debt outstanding on the termination date
(other than the obligations on which you are primarily liable), as well
as for interest on individual obligations issued and outstanding on the
termination date by other banks operating under the same title of the
Act. The termination application must include evidence that the
successor institution will continue to have this joint and several
liability for consolidated and Systemwide debt.
(d) Payment to the FAC. (1) Before termination, you must pay to the
FAC the amounts required by section 6.9(e)(3)(C)(ii) of the Act and by
subparagraphs (c)(5)(E)(i) and (d)(1)(C)(iv) of section 6.26 of the
Act. For purposes of this calculation, you must include your retail
loan volume, the retail loan volume of the associations that are
terminating with you, and the retail loan volume of the affiliated
associations that continue their direct lending relationships with the
successor institution.
(2) The FAC must make the present value estimation, subject to our
approval, based on an appropriate discount rate. The appropriate
discount rate is the non-interest bearing U.S. Treasury security rate
for securities with a maturity as near as possible to the period
remaining until the terminating association's obligations under this
paragraph would be due.
Sec. 611.1275 Retirement of equities--terminating bank.
(a) Retirement at option of equity holder. System institutions that
own your equities have the right to require you to retire the equities
on the termination date.
(b) Value of equity holders' interests. For retirement purposes,
the value of the equities held by System institutions is the book value
on the termination date, revised to reflect the adjustments required
for the final exit fee calculation in Sec. 611.1255(b)(5)(iv).
(c) Transfer of affiliated association's investment. As an
alternative to retirement, an affiliated association that is not
terminating has the right to require you to transfer its investment in
the bank, including a pro rata share of unallocated surplus, to another
Farm Credit bank. The transfer of the investment, which must include
purchased equities and allocated and unallocated surplus, must occur on
or before the termination date.
Sec. 611.1280 Dissenters' rights.
(a) Definition. A dissenting stockholder is an equity holder (other
than a System institution) in a terminating institution on the
termination date who either:
(1) Was eligible to vote on the termination resolution and voted
against termination;
(2) Was an equity holder on the voting record date but was not
eligible to vote; or
(3) Became an equity holder after the voting record date.
(b) Retirement at option of dissenting stockholder. A dissenting
stockholder may require a terminating institution to retire the
stockholder's equity interest in the terminating institution.
(c) Value of a dissenting stockholder's interest. You must pay a
dissenting stockholder according to the liquidation provisions in your
bylaws, except that you must pay at least par or face value for
eligible borrower stock (as defined in section 4.9A(d)(2) of the Act).
(d) Calculation of interest of a dissenting stockholder entitled to
the remaining assets. Except as paragraph (f) of this section provides,
when you retire equities of the class entitled to the remaining assets
in a liquidation, you must pay the adjusted book value.
(1) The adjusted book value for a terminating association is the
book
[[Page 60383]]
value on the termination date, after making the adjustments required by
us for the final exit fee calculation in Sec. 611.1255(a)(4), except
for the subtraction of dissenting stockholders' equity described in
Sec. 611.1255 (a)(4)(ii)(C).
(2) The adjusted book value for a terminating bank is the book
value on the termination date, after making the adjustments required by
us for the final exit fee calculation in Sec. 611.1255(b)(5)(iv),
except for the subtraction of dissenting stockholders' equity described
in Sec. 611.1255(b)(5)(iii)(D).
(e) Form of payment to a dissenting stockholder. You must pay cash
or make some other payment arrangement satisfactory to the dissenting
stockholder for the stockholder's equities.
(f) Payment to holders of special class of stock. If you have
adopted bylaws under Sec. 611.1210(f), you must pay a dissenting
stockholder who owns shares of the special class of stock an amount
equal to the lower of the par (or face) or adjusted book value of such
stock.
(g) Notice to equity holders. The notice to equity holders required
in Sec. 611.1240(e) must include a form for stockholders to send back
to you, stating their intention to exercise dissenters' rights. The
notice must contain the following information:
(1) A description of the rights of dissenting stockholders set
forth in this section, and the approximate value per share that a
dissenting stockholder can expect to receive. State whether the
successor institution will require borrowers to be stockholders or
whether it will require stockholders to be borrowers.
(2) A description of the current book and par value per share of
each class of equities, and the expected book and market value of the
stockholder's interest in the successor institution.
(3) A statement that a stockholder must return the enclosed form to
you within 30 days if the stockholder chooses to exercise dissenters'
rights.
(h) Notice to subsequent equity holders. Equity holders that
acquire their equities after the termination vote must also receive the
notice described in paragraph (g) of this section. You must give them
at least 5 business days to decide whether to request retirement of
their stock.
(i) Reconsideration. If a reconsideration vote is held and the
termination is disapproved, the right of stockholders to exercise
dissenters' rights is rescinded. If a reconsideration vote is held and
the termination is approved, you must retire the equities of dissenting
stockholders as if there had been no reconsideration vote.
Sec. 611.1285 Loan refinancing by borrowers.
(a) Disclosure of credit and loan information. At the request of a
borrower seeking refinancing with another System institution before you
terminate, you must give credit and loan information about the borrower
to such institution.
(b) No reassignment of territory. If, at the termination date, we
have not assigned your territory to another System institution, any
System institution may lend in your territory, to the extent otherwise
permitted by the Act and regulations.
Sec. 611.1290 Continuation of borrower rights.
You may not require a waiver of contractual borrower rights
provisions as a condition of borrowing from and owning equity in the
successor institution. Institutions that become OFIs on termination
must comply with the applicable borrower rights provisions in the Act
and subparts K, L, and N of part 614 of this chapter.
Dated: October 29, 1999.
Nan P. Mitchem,
Acting Secretary, Farm Credit Administration Board.
[FR Doc. 99-28732 Filed 11-4-99; 8:45 am]
BILLING CODE 6705-01-P
