# Mutual Savings Associations, Mutual Holding Company Reorganizations, and Conversions From Mutual to Stock Form > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A00-16347 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** July 12, 2000 - **Citation:** 65 FR 43092 ## Text DEPARTMENT OF THE TREASURY Office of Thrift Supervision 12 CFR Parts 563b and 575 [No. 2000-57] RIN 1550-AB24 Mutual Savings Associations, Mutual Holding Company Reorganizations, and Conversions From Mutual to Stock Form AGENCY: Office of Thrift Supervision, Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: The Office of Thrift Supervision (OTS) proposes to implement a comprehensive strategy governing mutual institutions, mutual holding company reorganizations, and the mutual to stock conversion process. OTS intends to modify its examination and supervisory policies within the context of safe and sound operations to address many of the concerns mutual institutions have raised about OTS's examination and supervision of their business form. OTS is also proposing to amend certain provisions in its mutual holding company regulations, and its regulations and forms governing mutual to stock conversions of insured savings associations. These proposed regulations include new provisions addressing business plans and charitable contributions. In addition, OTS clarifies certain matters involving conversions from the mutual to the stock form, by, among other things, adding demand account holders to the definition of savings account holders, allowing accelerated vesting in management benefit plans for changes of control, and clarifying the policy on the amount of proceeds allowed to be retained at the holding company level. Further, OTS is rewriting the conversion regulation in a plain language format. In a companion interim final regulation published elsewhere in today's Federal Register , OTS is amending the regulations on stock repurchases, changing its practices regarding mutual holding company dividend waivers, and making certain revisions as a result of the Gramm-Leach-Bliley Act of 1999 (GLB Act). DATES: Written comments must be received on or before October 10, 2000. ADDRESSES: Send comments to Manager, Dissemination Branch, Information Management and Services Division, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, Attention Docket No. 2000-57. Hand-deliver comments to the Guard's Desk, East Lobby Entrance, 1700 G Street, NW., from 9:00 a.m. to 4:00 p.m. on business days. Send facsimile transmissions to FAX Number (202) 906-7755 or (202) 906-6956 (if the comment is over 25 pages). Send e-mails to public.info@ots.treas.gov and include your name and telephone number. Interested persons may inspect comments at the Public Reference Room, 1700 G Street, NW., from 10:00 a.m. until 4:00 p.m. on Tuesdays and Thursdays. FOR FURTHER INFORMATION CONTACT: David A. Permut, Counsel (Banking and Finance), (202) 906-7505, or Gary Jeffers, Counsel (Banking and Finance), (202) 906-6457, Business Transactions Division, Chief Counsel's Office; or Timothy P. Leary, Counsel (Banking and Finance), (202) 906-7170, Regulations and Legislation Division, Chief Counsel's Office; or Mary Jo Johnson, Project Manager (202) 906-5739, Supervision Policy, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. SUPPLEMENTARY INFORMATION: OTS has broad authority to regulate mutual savings associations, to authorize mutual holding company reorganizations, and to regulate mutual to stock conversions of savings associations under the Home Owners' Loan Act, as amended (HOLA), 12 U.S.C. 1464(a), (i) and (p) and 1467a(o). OTS and its predecessor, the Federal Home Loan Bank Board, in exercising their supervisory responsibilities, periodically refined their regulatory strategies and mutual holding company reorganization and conversion regulations, based on their experience with mutual institutions, the conversion process, and in response to developments in the marketplace. OTS has again reviewed its policies, practices, and regulations to assess whether additions or revisions are necessary. OTS identifies several areas of the regulations that it must revise and update to further clarify the standards governing mutual holding company reorganizations and the conversion process. Also, OTS is revising part 563b using the plain language format. I. Overview Despite the large number of mutual-to-stock conversions over the years, there are 422 OTS-regulated mutuals, comprising nearly 40 percent of all OTS-regulated thrifts. In many respects, mutuals form the heart of the thrift industry. Mutuals tend to be community-based, community-focused institutions whose sole purpose is to provide a safe place for community members to save, and to invest those savings back into the community through prudent credit programs. History has demonstrated that this community focus is often lost or diluted when institutions convert to stock form and must respond to the interests of their stockholders. OTS is developing a comprehensive regulatory strategy governing mutual institutions, mutual holding company reorganizations, and the mutual to stock conversion process. This comprehensive strategy will include: (1) New policy and examination guidance; (2) proposed regulations governing reorganizations into mutual holding companies and the mutual to stock conversion process; (3) interim final rules addressing share repurchases and mutual holding company dividend waivers; and (4) revisions to the application forms used for mutual holding company reorganizations and the mutual to stock conversion process. A. Policy Guidance Today, OTS is developing new analytical techniques, examination procedures, and industry guidance to address, within the context of safe and sound operations, many of the concerns mutual institutions have raised about their business form and to improve supervision of mutual institutions. OTS makes these changes in concert with the proposed changes to the mutual holding company and conversion regulations and the interim final rules concerning stock repurchases, dividend waivers, and GLB Act 1 revisions published in today's Federal Register . 1 Pub.L. 106-102, 113 Stat. (1999). Specifically, the guidance will focus on capitalization, compensation, and on-site examinations and financial analyses of mutual institutions. For mutual institutions seeking to augment their capital base, OTS is exploring the feasibility and utility of various capital-raising alternatives, such as the use of subordinated debt instruments, mutual capital certificates, non-withdrawable accounts, trust preferred securities, and other financing transactions. Conversely, OTS will study the issues and, if necessary, provide guidance or regulations concerning payment of special dividends by mutual institutions seeking to return excess capital to their communities. OTS will revise its existing guidance on compensation to clarify its position that mutual institutions are subject to and governed by the same prudential standards as stock institutions. OTS will also explore a methodology by which mutual institutions can choose to have their management and board of directors' compensation plans reviewed in a manner similar to shareholder review and approval for stock institutions. Finally, OTS will inform its examiners on emerging compensation issues and programs. This guidance will enhance the ability of mutual institutions to provide competitive compensation plans to attract and retain qualified management and staff. OTS is currently developing enhanced analytical tools that will improve supervision of mutual institutions. Revised examination procedures, targeted more directly to the quality of operations, risk management, and internal controls, will enable examiners to more effectively gauge the overall financial condition and the ability of mutual institutions to sustain long-term economic viability throughout economic cycles, including during periods of prolonged adverse economic conditions. OTS also will revise the pre-examination response kit (PERK) to streamline information requests prior to the start of examinations to ensure information requested is germane to the operations of a mutual institution and is essential to the completion of the examination. Enhancements to off-site monitoring systems will also provide for more appropriate comparative financial analyses among similarly situated, community-oriented mutual institutions across geographic boundaries. For mutuals that elect to convert to stock form, OTS encourages consideration of the mutual holding company (MHC) alternative. The MHC structure retains the benefits and essential nature of the mutual charter, while providing greater access to capital markets. In addition, in section 401(b) of the GLB Act, Congress recently expanded the investment and activities authority of MHCs to include the activities of financial holding companies. More than 40% of the MHCs that have been created to date have chosen to remain MHCs; nevertheless, OTS is today proposing significant enhancements to the MHC form to make it even more attractive as a long-term alternative to full conversion, and is seeking comments on still more enhancements. Whether a savings association elects the MHC format or full conversion, today's rule clarifies various aspects of the conversion process and proposes certain new requirements. In a companion interim final regulation published elsewhere in today's Federal Register , OTS is amending certain aspects of the regulations immediately. B. Conversion Considerations Stock conversion is a major step for mutual institutions. There are many parties who provide consulting services to mutual institutions concerning the benefits of conversion, and who help institutions through the process. Mutual savings associations, their boards of directors, and management must carefully consider whether the benefits of conversion, and the need for capital, justify the costs and other business implications of conversion. In considering conversion, mutual boards must carefully examine their need for additional capital and the prospects for prudently deploying capital at competitive returns for investors. Institutions that fail to produce adequate returns on equity will likely face pressure from dissatisfied shareholders to improve performance or sell. OTS believes such pressure can distract management and the board from more fundamental business matters, cost an institution considerable sums in legal and management expense, and lead to disruption of normal business activities. Often, mutual institutions considering conversion are already highly capitalized. They do not need to raise additional capital through conversion to grow or expand into new markets. Lack of opportunity, not capital, constrains the growth of mutual institutions. Opportunities may be limited by aggressive competition in the mutual institution's market area, lack of economic growth in the market area, unwillingness to venture into unfamiliar markets or products, or lack of adequate staff or appropriate expertise to manage new business. Without a clear need for additional capital, and a clear opportunity for prudently deploying it at a competitive shareholder return over the long term, mutual boards should consider other alternatives to conversion. Other implications of conversion include fundamental changes in management and operations. Whether conversion brings expansion to new markets, introduction of new products or activities, or simply the continued growth of current activities, successful management of new capital generally requires additional management depth. Conversion also may require new management skills and experience, new staff, new facilities, new or upgraded data processing systems, expansion or refocus of internal audit and compliance management processes, and changes in marketing or customer service strategy. Finally, the costs of conversion can be significant and often are underestimated, particularly the added burden on existing staff and systems. Mutual boards should consider the cost of additional staff to manage quarterly and annual shareholder reporting, the need for additional or more experienced (and more expensive) independent accountant and legal services to prepare shareholder reporting, the cost of managing shareholder relations, and the cost of annual and special shareholder meetings. Also, there may be a cost to the community if converted institutions are acquired by out-of-town institutions that may not share the same commitment to local community service as many mutuals. Today's proposed rule includes measures to ensure that mutual boards of directors consider all these factors in determining whether to convert, and consider alternatives to meet the institution's business objectives when conversion may not be an appropriate option. The proposed rule confirms OTS practice of requiring pre-filing meetings, and proposes a new requirement to obtain prior OTS non-objection of conversion business plans. It also sets forth the proposed business plan standards to be addressed by converting institutions and considered in OTS review. OTS requests comment on these proposals. C. Outline of the Process The conversion process is complex. An institution that is considering a mutual to stock conversion must first update its business plan. Under today's proposed rule, OTS will require each institution contemplating a conversion to meet with the appropriate Regional Office to discuss the proposed business plan and receive the non-objection of the Regional Director to the business plan before submitting either an application to convert to stock form or a notice to reorganize to mutual holding company form. Once the board of directors updates and receives OTS's non-objection to its business plan, the board must pass a Plan of Conversion that includes, among other things, an eligibility record date for persons who may subscribe for stock in any stock offering. After it approves the plan, the board of directors must publish a notice of adoption of the Plan of Conversion. In the next stage, the institution must prepare the application for conversion or reorganization, write a proxy statement for the members to vote on the Plan of Conversion or reorganization, and write an offering circular to offer the institution's new stock. This process can take several months. The institution must next submit all of these documents to OTS, together with an independent appraisal of the institution and current financial statements. If the institution is forming a holding company to hold its stock, it also must submit the documents to the Securities and Exchange Commission (SEC) for concurrent review. OTS and SEC review generally takes 5 to 6 weeks. After receiving regulatory clearance, an institution prints and mails its documents to members and potential subscribers. The mailing starts the process of soliciting member votes and selling the institution's stock, which generally takes six to twelve weeks. II. Description of Revisions to the Conversion Regulations A. Business Plan OTS currently requires converting institutions to submit a business plan before filing a Plan of Conversion or reorganization. See 12 CFR 563b.11. The proposed regulation clarifies that submitting a business plan is the first step in the conversion process. OTS emphasizes that the board of directors and management of converting institutions need to carefully consider their future operations and activities and, in particular, must have realistic plans regarding how they intend to use the conversion proceeds. As a preliminary stage in business plan development, the proposed rule establishes a new requirement for a pre-filing meeting with the Regional Office to discuss initial plans for conversion and related implications. Generally, the board of directors, or a committee including outside directors, should participate in the meeting. The purpose of the meeting is to ensure that the board of directors has fully considered the costs and benefits of conversion and the available alternatives, and to generally discuss conversion application requirements. Under the proposed rule, OTS would not formally accept a business plan, and the 30-day business plan review period provided in the proposed rule would not commence, until after the pre-filing meeting is held. The Regional Office may extend the review period as deemed necessary to request, receive, and review additional information from the institution. OTS will not accept an application for conversion until the Regional Office advises an applicant that the Regional Office does not object to the business plan. Today's proposed rule also establishes written standards for an acceptable conversion business plan. The business plan should include a complete description of the proposed deployment of capital, demonstrate feasibility, discuss the risks, and address managerial and other resources required. The business plan should discuss the institution's record of success and experience in implementing prior growth or expansion initiatives. OTS strongly encourages institutions with management that does not have sufficient or favorable experience with expansion to consider alternatives to full conversion. The business plan should demonstrate the ability to realize a reasonable return on equity. OTS recognizes that investor requirements vary with time and market conditions, and so has not proposed an absolute standard. Generally, returns should be considered in relation to trends for publicly-traded thrift and bank stocks, broader equity market returns, and the general level of interest rates. At a minimum, the projected return on equity should exceed, by a margin reflecting relative investment risk, the institution's rates on long-term certificates of deposit. The institution should not consider speculative short-term stock price appreciation, or the effect of returns of capital or repurchases of stock, in assessing the reasonableness of projected return on equity, even though these may indeed be factors considered by investors. Management must provide for consistent, sustainable returns to satisfy long-term investor expectations. The proposed rule is intended to clarify that OTS expects business plans to fully support the business objectives of conversion. By requiring prior Regional Office non-objection to the business plan, OTS seeks to avoid the delays and unnecessary expense later in the conversion process that may arise from the submission of inadequate or incomplete business plans. The proposed rule also clarifies that institutions, upon completion of conversion, must follow their business plans and that any material deviation from an approved business plan will require the prior written approval of the Regional Director. OTS also seeks to address the problem that many institutions converting from mutual to stock form experience when they convert without well developed business plans. Generally, institutions quickly realize that they cannot earn an acceptable return on equity or otherwise prudently deploy the conversion proceeds without resorting to large capital distributions (in the form of stock repurchases or extraordinary dividends) in the first few years following the conversion. This return of capital, so soon after its creation, undermines the considerable effort (and expenditures) involved in the conversion process and causes OTS to question whether there was a need for the capital in the first place. OTS views a return of capital to shareholders a material deviation from the business plan that requires the prior written approval of the Regional Director. OTS encourages institutions considering raising new capital to seriously consider the mutual holding company (MHC) form of reorganization with a limited stock issuance, rather than a full conversion. OTS particularly encourages institutions that have no immediate plans for deployment of the new capital to consider this option. OTS requests comment on whether there are other capital raising techniques for mutual savings associations, short of conversion to stock form or MHC reorganization, that might also work. Currently, mutual institutions can raise capital in a variety of ways, including mutual capital certificates, subordinated debt, trust preferred securities, or the formation of real estate insurance trusts (REITs). OTS is particularly interested in the advantages and disadvantages of one instrument versus another, and why these forms of capital are not widely used. OTS is also interested in knowing why an institution would prefer the conversion or MHC reorganization over other methods of raising capital. B. Mutual Capital Distributions In contrast to situations where mutual institutions are seeking ways to raise additional capital, a number of mutual institutions have approached OTS for guidance on the distribution of excess capital to their communities in situations where the institution has determined it is prudent and appropriate. OTS is seeking comment on whether to issue guidance or regulations regarding special capital distributions by mutual institutions. C. Stock Repurchases In a separate interim final regulation, OTS is revising its regulations to eliminate restrictions on stock repurchases by converted savings associations after the first year following conversion. See Interim Final Rule regarding repurchases of stock, dividend waivers, and GLB Act revisions published elsewhere in this issue of the Federal Register . The new rule will be codified at proposed § 563b.515(c)(3) if this proposed rule is adopted as a final rule. OTS is also enacting corresponding amendments to the mutual holding company regulations in the interim final regulation. D. Charitable Organizations The current mutual to stock conversion regulations do not address when OTS will approve a charitable organization established as part of the mutual to stock conversion process. To date, OTS has not issued a regulation or guidance on establishing a charitable organization as part of the mutual to stock conversion. 2 OTS currently imposes, on a case-by-case basis, various procedures, requirements, and conditions on mutual savings associations contemplating the establishment of a foundation in the process of a stock conversion. Savings associations wishing to contribute conversion stock to a foundation currently must request waivers of a number of requirements in OTS conversion regulations. 2 A 1992 legal opinion concludes that savings associations have the authority to establish charitable foundations under the “incidental powers doctrine.” 1992 OTS LEXIS 76 (Nov. 12, 1992). The opinion does not address the establishment of charitable foundations as part of the mutual-to-stock conversion process. To clarify the standards and procedures for forming a charitable organization or contributing stock as part of the conversion process, OTS proposes new regulations describing when OTS will approve a charitable organization in a conversion. These rules codify the current practices, so that waivers routinely requested in a conversion with a charitable foundation are no longer necessary. The standards include discussing the purpose of the charitable organization, voting foundation shares in the same ratio as all other shares voted on proposals considered by shareholders, reserving board seats for an independent director and a director from the institution, and dealing with conflicts of interest. The rules also specify the conditions for approval including examination by OTS at foundation expense, submission of annual reports, and compliance with all laws necessary to maintain the foundation's tax-exempt status. E. Demand Account Holders Current § 563b.3(c) provides that each eligible account holder and supplemental eligible account holder will receive the right to purchase stock. This right is tied to the amount of the account holder's “qualifying deposit.” Section 563b.3(e) states that the amount of the “qualifying deposit” is the total of the deposit balances in the eligible or supplemental eligible account holder's savings accounts on the close of business on the eligibility or supplemental eligibility record date. The term “savings account” is defined by a cross reference to 12 CFR part 561, and includes “any withdrawable account, except a demand account as defined in 12 CFR 561.16.” See 12 CFR 561.42. Converting savings associations have requested that both savings and demand accounts be eligible to receive subscription rights. OTS believes converting savings associations should treat all savings and demand account holders the same way. Savings account and demand account holders are both members of the savings association and, therefore, should be given equal treatment. Accordingly, OTS proposes to clarify that the amount of the qualifying deposit is the total of the deposit balances in both savings and demand accounts. F. Revision of Policy Regarding Management Stock Benefit Plans In 1994, OTS substantially revised its conversion regulations to codify policies regarding the establishment of management recognition plans and stock option plans in connection with a conversion. 3 OTS intended these amendments to limit benefits realized by management and a few selected individuals in conversions and to give shareholders an opportunity to consider management performance before voting on plans. 3 59 FR 61247, 61253 (November 30, 1994). Before the 1994 amendment, plans could provide for accelerated vesting in case of death, disability, or a change of control. Existing § 563b.3(g)(4)(xii), as modified by the 1994 amendment, provides for such accelerated vesting only in the case of disability or death. Most converting associations object to this restriction. To avoid the restriction many converted associations have waited until the first year after conversion, amended their plans to allow for vesting in case of a change of control, and then had shareholders approve the amended plans. Amending plans requires shareholder approval, which entails additional expense and effort, and OTS is unaware of any case where such an amendment was rejected. The revised regulation rescinds the 1994 modification and clarifies that a plan may permit accelerated vesting for disability or death, or a change of control of the converted savings association. OTS will retain the right to object to any payments made in connection with a merger or acquisition. OTS also is revising its regulation to clarify that it would allow dividend equivalent rights, dividend adjustment rights, or other similar provisions that permit cash payments, adjustment of the number of shares, or exercise price of options as a result of stock dividends or splits, in management recognition plans, stock option plans, or other stock benefit plans. OTS does not believe these types of provisions, which are common in option plans, unduly benefit recipients, as long as these provisions do not violate OTS vesting requirements or pricing requirements for options. See proposed § 563b.500. OTS notes that when an institution lists its stock on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System (which many do because it provides for a wider opportunity for trading an institution's stock than the over the counter market), NASDAQ requires shareholder ratification of stock benefit plans. OTS currently requires shareholder ratification of plans within the first year following conversion. OTS proposes to revise the section on management benefit plans to clarify that an institution must present to shareholders for ratification any material amendments to management recognition plans, stock option plans, or other benefit plans that occur more than one year after conversion and that are inconsistent with the regulation. OTS also is adding a provision to the proposed rule that clarifies a supervisory policy requiring exercise or forfeiture of stock benefits in certain circumstances, such as if an institution becomes critically undercapitalized. See proposed § 563b.500. G. Holding Company Formation OTS allows a savings association to organize a holding company as part of a mutual to stock conversion. OTS, however, never formally imposed any limit on the amount of conversion proceeds that the holding company may retain. In the past, OTS staff advised institutions that a holding company may keep no more than 50 percent of conversion proceeds. This limit was based on OTS's belief that the institution should get the most proceeds from the conversion. This policy also ensures sufficient capital at the savings association. In today's proposed rule, OTS codifies this position. Accordingly, proposed § 563b.105 will state that the converted savings association must retain at least 50% of the gross conversion proceeds. The amount of proceeds proposed for the holding company level must also be consistent with the business plan. H. Mutual Holding Company Revisions The proposed regulation makes some conforming changes to the MHC regulations to reflect OTS' intent to make the MHC a more suitable, long-term alternative to full conversion and to incorporate changes made to the conversion regulations. OTS is also proposing that institutions under the MHC format may have option plans that provide more flexibility than currently permitted. The proposed regulation allows savings association subsidiaries of MHCs, or holding companies inserted in between MHCs and their savings association subsidiaries (Mid-tiers) to offer management benefits or stock option plans that permit issuance of more shares than currently permitted under the regulations. Under the current rule, an institution issuing 20 percent of its stock to minority shareholders could promulgate a stock option plan including two percent of its outstanding shares ( i.e., 10 percent of the minority stock issuance). OTS proposes that a savings association subsidiary of an MHC (or Mid-tier) may offer management benefit plans or stock option plans as if minority shareholders held 49 percent of the stock, provided that the MHC retains majority control. Using this option, under the proposed rule an institution issuing 20 percent of its stock to minority shareholders could promulgate a stock option plan including 4.9 percent of the outstanding shares ( i.e., 10 percent of the maximum shares that could be issued to minority shareholders). In addition, OTS will allow the savings association or Mid-tier to adopt the plans at the time of reorganization. However, purchasers of the stock must approve the plan by a separate vote on the stock order form. In addition, the savings association or Mid-tier may make no grants under the plan until at least six months following the reorganization. The delay is designed to allow the stock price to settle in the marketplace before the savings association or Mid-tier makes grants. Finally, OTS will allow the adoption of additional option plans without requiring an additional stock issuance to all categories of subscribers. Additional plans would be subject to certain restrictions, such as retention of majority ownership at the MHC level, and other applicable regulatory requirements. OTS notes that listing on the NASDAQ and qualification of some plans under IRS rules requires shareholder ratification of benefit plans, and of course OTS's regulation has no impact on these requirements. Additional plan offerings would require notice to OTS, but could be adopted unless OTS objects within 30 days of submission. Among the factors OTS will consider when reviewing the plans are the purpose for creating additional plans, management ratings, or supervisory problems at the converted savings association. I. Revision of Policy Regarding Acquisitions Current and proposed rules provide that no person or company may acquire more than 10% of any class of equity security of a recently converted institution for three years following conversion without OTS approval. The primary purposes of this rule are to provide a reasonable period of time for the institution to prudently deploy the new capital according to the plan described in the offering documents, for it to acclimate to operating as a public company, and to do both without the distraction of considering takeover proposals. ( See approval standards at section 563b.3(i)(5) or proposed section 563b.525(d)). OTS is aware that shareholder groups have approached management and other shareholders of recently converted institutions as soon as the first quarter following conversion, asserting that shareholder return on equity is inadequate or that management should consider a sale of the institution immediately. In certain situations, OTS has approved acquisitions of recently converted institutions, but in no event before the second year following conversion. OTS is reconsidering its application of its approval standards. OTS does not believe acquisitions within the first three years following conversion are always in the best interest of newly converted institutions, the communities the institutions serve, or the shareholders. In addition, OTS is concerned that even where the acquisition is considered friendly, approval of the acquisition may be inconsistent with the purposes of the existing rules. Current and proposed regulations provide newly converted institutions needed time to implement their business plans as presented to OTS and stock purchasers, and fully deploy proceeds according to those plans during the first three years after conversion. Therefore, OTS is notifying the public that it intends to take a very close look at applications under the existing standards to make sure all criteria are fully met before it will give written approval of acquisitions within the first three years following conversion. J. Comments OTS invites comment on all aspects of these proposed changes. In addition, OTS may convene a focus group during the public comment period, to ascertain other views on the proposed regulation. OTS will publish the views of the focus group in the public comment summary in the final regulation. In addition to questions posed throughout this preamble, OTS asks: • How can OTS make the MHC form more attractive? The agency is interested in other enhancements to the MHC form that commenters might suggest. • For institutions that have determined it is necessary to convert to stock form, will the proposal increase industry interest in converting to MHC form and remaining in that form? OTS asks mutual institutions that are considering converting to stock form if the proposed changes in OTS examination and supervisory policy, coupled with changes to the MHC regulations and the revisions enacted today by the interim final rule accompanying this proposal, make the MHC form a better choice of business organization than a full conversion to stock form. • Should reorganization into MHC or Mid-tier form require a vote of the members? OTS is unaware of any reorganization that has failed to receive the majority vote of the members. OTS questions the necessity for the expenditure of funds by the institution to obtain a certain vote, particularly since members retain the same voting rights at the MHC that they had before reorganization at the savings association. If OTS removes this requirement for a reorganization, should it be imposed in the event of a full conversion to stock form, when members would lose their voting rights? • Should mutual institutions be permitted to affiliate with other mutual institutions to leverage managerial and administrative resources while simultaneously retaining their independent community focus using means other than conversion to stock form or reorganization into MHC form? OTS requests comments on this issue in response to inquiries from mutual institutions for ways to affiliate with each other that do not involve the issuance of stock. • OTS is also exploring the feasibility of creating bankers' banks specifically focused on serving the needs of community-oriented mutual institutions. OTS is seeking comment regarding the level of interest among mutual institutions in the formation of bankers' banks to specifically serve their needs. Additionally, OTS would like commenters to identify potential regulatory requirements or other obstacles that may impede creation of bankers' banks for mutual institutions. • What consideration may MHCs or Mid-tiers use to acquire other institutions, such as trust preferred securities, REITs, mutual capital certificates, and stock repurchases to issue stock for acquisitions? OTS has received a number of inquiries recently from MHCs about other currency to accomplish acquisitions. • How can OTS make it more attractive for mutual institutions to stay in mutual form, particularly where capital raising is not a necessary objective for the institution? Elsewhere in this issue of the Federal Register , OTS is amending its regulations to clarify another area of concern to MHCs, the ability to waive dividends and any attendant consequences. K. Miscellaneous Revisions In addition to the proposed revisions described above, OTS proposes a number of miscellaneous revisions to filing and other requirements. Among the other changes, the proposed rule will: • Revise the definition section of the regulation to include only those definitions that are not defined elsewhere in OTS regulations, or to move specific definitions to the appropriate section of the regulation. See proposed § 563b.25. • Reduce the number of copies of applications that a savings association must file with OTS from ten to seven. See proposed § 563b.155. • Revise the filing requirements to coordinate the place of filing, and number of copies filed, for the application for conversion and any amendments to the application for conversion. See proposed §§ 563b.115, 563b.155, 563b.180 and 563b.185. • Codify the current informal standard requiring a legal opinion indicating that any marketing materials comply with all applicable securities laws. See proposed § 563b.275. • Delete the requirement for a legal opinion regarding insured accounts. See proposed § 563b.100 Exhibit 3(d). L. Forms OTS is proposing to revise all of the forms currently in the conversion regulations, and has drafted a new form that facilitates the conversion process (Form OF for the Order Form). In drafting these forms, OTS moved a number of requirements currently in the regulations to the related forms. See proposed § 563b.05(b). To ensure that the public will have an opportunity to comment on these forms, OTS has appended the forms to this proposed rule and will publish the final forms along with the final rule. The forms, however, will not be codified in the Code of Federal Regulations. They will continue to be available through OTS Washington and Regional Offices and will be accessible on OTS's website after issuance of the final rule. M. Plain Language Format OTS redrafted all of part 563b and the related forms using the plain language format. Section 722 of the GLB Act requires federal banking agencies to use “plain language” in all proposed and final rules published after January 1, 2000. These proposed revisions do not affect the substance of the regulation or forms, but do make them easier to understand. OTS invites your comments on how to make this proposed rule easier to understand. For example: • Did we organize the material to suit your needs? If not, how could the material be better organized? • Do we clearly state the requirements in the rule? If not, how could the rule be more clearly stated? • Does the rule contain technical language or jargon that isn't clear? If so, what language requires clarification? • Would a different format (grouping and order of sections, use of headings, paragraphing) make the rule easier to understand? If so, what changes to the format would make the rule easier to understand? • Would more (but shorter) sections be better? If so, what sections should be changed? • What else could we do to make the rule easier to understand? III. Disposition of Existing Rules Original provision Proposed provision Comment 12 CFR 563b.1 12 CFR 563b.5 Nonsubstantive revision, moved. 12 CFR 563b.2(a) 12 CFR 563b.25 Substantive revisions, deletions, and moved. 12 CFR 563b.2(b) Deleted. 12 CFR 563b.3(a) 12 CFR 563b.5(a) Nonsubstantive revision, moved. 12 CFR 563b.3(b) 12 CFR 563b.200(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(1) 12 CFR 563b.330(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(2) 12 CFR 563b.355(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(2)(i)-(ii) 12 CFR 563b.375(a), (d) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(3) 12 CFR 563b.360 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(4) 12 CFR 563b.335(b), (c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(4)(i) 12 CFR 563b.320(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(4)(ii) 12 CFR 563b.375(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(4)(iii) 12 CFR 563b.375(b) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(4)(iv) 12 CFR 563b.375(d) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(5) 12 CFR 563b.320(d), 365 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(6) 12 CFR 563b.320(e), 335(b), (d) Nonsubstantive revision, deletions and moved. 12 CFR 563b.3(c)(6)(i) 12 CFR 563b.385(a), (c), 380(a) Substantive revision, deletions and moved. 12 CFR 563b.3(c)(6)(ii)-(iii) 12 CFR 563b.395 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(6)(iv) 12 CFR 563b.390(b) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(7) 12 CFR 563b.385(a), (c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(8) 12 CFR 563b.370 Nonsubstantive revision, deletions and moved. 12 CFR 563b.3(c)(9) 12 CFR 563b.505(d) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(10) 12 CFR 563b.330(a), 335(b) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(11) 12 CFR 563b.420(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(12) 12 CFR 563b.445(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(13) 12 CFR 563b.430(d), 445(b), 465, 485 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(14) 12 CFR 563b.25 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(15) 12 CFR 563b.440, 445(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(16) 12 CFR 563b.140, 425 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(17) 12 CFR 563b.505(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(18) 12 CFR 563b.505(b)-(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(19) 12 CFR 563b.530(a)-(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(20) 12 CFR 563b.150(b) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(21) 12 CFR 563b.130 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(22) 12 CFR 563b.345(b) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(23) 12 CFR 563b.320(a)-(d), 380 (a)-(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(24) 12 CFR 563b.520(a)-(b) Nonsubstantive revision, moved. 12 CFR 563b.3(d)(1)-(7) Deleted. 12 CFR 563b.3(d)(8) 12 CFR 563b.385(a) Nonsubstantive revision, moved. 12 CFR 563b.3(d)(9) 12 CFR 563b.385(b) Nonsubstantive revision, moved. 12 CFR 563b.3(d)(10)-(11) Deleted. 12 CFR 563b.3(d)(12) 12 CFR 563b.390(a) Nonsubstantive revision, moved. 12 CFR 563b.3(d)(13) Deleted. 12 CFR 563b.3(e)(1) 12 CFR 563b.25 Nonsubstantive revision, moved. 12 CFR 563b.3(e)(2) Deleted. 12 CFR 563b.3(f)(1) 12 CFR 563b.445(b), 450, 455, 480 Nonsubstantive revision, moved. 12 CFR 563b.3(f)(2) 12 CFR 563b.445(b), 450 Nonsubstantive revision, moved. 12 CFR 563b.3(f)(3) 12 CFR 563b.470(e), 475 Revision with partial deletion, moved. 12 CFR 563b.3(f)(4) 12 CFR 563b.460 Nonsubstantive revision, moved. 12 CFR 563b.3(f)(5) 12 CFR 563b.470(a)-(d) Nonsubstantive revision, moved. 12 CFR 563b.3(g)(1) 12 CFR 563b.510 Revision with deletion, moved. 12 CFR 563b.3(g)(2) 12 CFR 563b.510, 520(a) Nonsubstantive revision, moved. 12 CFR 563b.3(g)(3) 12 CFR 563b.510, 515 Substantive revision with deletion, moved. 12 CFR 563b.3(g)(4) 12 CFR 563b.500 Substantive revision, moved. 12 CFR 563b.3(h) 12 CFR 563b.340(a) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(1)-(2) 12 CFR 563b.340(b)(1) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(3)(i) 12 CFR 563b.525 Nonsubstantive revision, moved. 12 CFR 563b.3(i)(3)(ii) 12 CFR 563b.420(b) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(3)(iii) 12 CFR 563b.525(b) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(4)(i) Deleted. 12 CFR 563b.3(i)(4)(ii)-(iv) 12 CFR 563b.525(c)(1)-(3) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(4)(v) 12 CFR 563b.340(b)(2)(ii), 525(c)(4) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(4)(vi)-(5) 12 CFR 563b.525(d)(1)-(2) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(6) 12 CFR 563b.430(a), (b) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(7)(i)-(ii) 12 CFR 563b.25, 525(b) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(7)(iii)-(iv) Deleted. 12 CFR 563b.3(j) 12 CFR 563b.5(a) Nonsubstantive revision, moved. 12 CFR 563b.4(a)(1) 12 CFR 563b.120 Nonsubstantive revision, moved. 12 CFR 563b.4(a)(2) Deleted. 12 CFR 563b.4(a)(3) 12 CFR 563b.125 Nonsubstantive revision, moved. 12 CFR 563b.4(a)(3)(i)-(ii), (4)(i)-(xviii) 12 CFR 563b.135(a), (b) Nonsubstantive revision, moved. 12 CFR 563b.4(a)(4)(xix) Deleted. 12 CFR 563b.4(a)(5) 12 CFR 563b.135(c) Nonsubstantive revision, moved. 12 CFR 563b.4(b)(1)(i) 12 CFR 563b.180 Nonsubstantive revision, moved. 12 CFR 563b.4(b)(1)(ii) 12 CFR 563b.185 Nonsubstantive revision, moved. 12 CFR 563b.4(b)(2) Deleted. 12 CFR 563b.4(b)(3) 12 CFR 563b.180(b) Nonsubstantive revision, moved. 12 CFR 563b.4(c) 12 CFR 563b.160 Nonsubstantive revision, moved. 12 CFR 563b.5(a) 12 CFR 563b.250 Nonsubstantive revision, moved. 12 CFR 563b.5 (b)-(c) 12 CFR 563b.270(b) Nonsubstantive revision, moved. 12 CFR 563b.5(d)(1) 12 CFR 563b.255 Nonsubstantive revision, moved. 12 CFR 563b.5(d)(2) 12 CFR 563b.260, 265 Nonsubstantive revision, moved. 12 CFR 563b.5(d)(3) 12 CFR 563b.255(h) Nonsubstantive revision, moved. 12 CFR 563b.5(d)(4) 12 CFR 563b.260 Nonsubstantive revision, moved. 12 CFR 563b.5(e)(1)-(2) 12 CFR 563b.150, 155 Nonsubstantive revision, deletions, and moved. 12 CFR 563b.5(e)(3) 12 CFR 563b.275(d) Nonsubstantive revision, moved. 12 CFR 563b.5(e)(4) Deleted. 12 CFR 563b.5(e)(5) 12 CFR 563b.150, 160(a)-(b) Nonsubstantive revision, moved. 12 CFR 563b.5(e)(6) 12 CFR 563b.275(e) Nonsubstantive revision, moved. 12 CFR 563b.5(e)(7) 12 CFR 563b.275(c) Nonsubstantive revision, moved. 12 CFR 563b.5(f) 12 CFR 563b.280 Nonsubstantive revision, moved. 12 CFR 563b.5(g)(1)-(2) 12 CFR 563b.285(a) Nonsubstantive revision, moved. 12 CFR 563b.5(g)(3) 12 CFR 563b.290 Substantive revision, moved. 12 CFR 563b.5(h) 12 CFR 563b.285(b) Nonsubstantive revision, moved. 12 CFR 563b.6(a) 12 CFR 563b.225(a) Nonsubstantive revision, moved. 12 CFR 563b.6(b) 12 CFR 563b.230 Nonsubstantive revision, moved. 12 CFR 563b.6(c)(1) 12 CFR 563b.235 Nonsubstantive revision, moved. 12 CFR 563b.6(c)(2) Deleted. 12 CFR 563b.6(d) 12 CFR 563b.235(d) Nonsubstantive revision, moved. 12 CFR 563b.6(e) 12 CFR 563b.225(b)-(c) Nonsubstantive revision, moved. 12 CFR 563b.7(a)(1) 12 CFR 563b.325(a) Nonsubstantive revision, moved. 12 CFR 563b.7(a)(2) 12 CFR 563b.300(a) Nonsubstantive revision, moved. 12 CFR 563b.7(a)(3) 12 CFR 563b.325(a) Nonsubstantive revision, moved. 12 CFR 563b.7(a)(4) Deleted. 12 CFR 563b.7(b) 12 CFR 563b.300(e), 305 Nonsubstantive revision, moved. 12 CFR 563b.7(c) 12 CFR 563b.330 Nonsubstantive revision, moved. 12 CFR 563b.7(d) 12 CFR 563b.200(b)(8), 300 (c)-(d), Form OC, Item 3 Nonsubstantive revision, moved. 12 CFR 563b.7(e) 12 CFR 563b.335(c) Nonsubstantive revision, moved. 12 CFR 563b.7(f)(1)-(2) 12 CFR 563b.200(b) Nonsubstantive revision, deletion and moved. 12 CFR 563b.7(f)(3) Deleted. 12 CFR 563b.7(g)(1)-(2) 12 CFR 563b.335(a), Form OF, Items (1), (2) Nonsubstantial revisions, deletions, and moved. 12 CFR 563b.7(g)(3), (4), (5) Form OF, Items (3), (4), (5) Nonsubstantive revision, moved. 12 CFR 563b.7(h) 12 CFR 563b.345(a), 350(c) Nonsubstantive revision, moved. 12 CFR 563b.7(i) 12 CFR 563b.400 Nonsubstantive revision, moved. 12 CFR 563b.7(j) 12 CFR 563b.350(a) Nonsubstantive revision, moved. 12 CFR 563b.7(k)(1)-(2) 12 CFR 563b.405 Nonsubstantive revision, moved. 12 CFR 563b.7(k)(2)(i)-(ii) 12 CFR 563b.310(d) Nonsubstantive revision, moved. 12 CFR 563b.7(k)(3) Deleted. 12 CFR 563b.7(k)(4) 12 CFR 563b.310(a) Nonsubstantive revision, moved. 12 CFR 563b.7(k)(5) 12 CFR 563b.310(b)-(d) Substantive revision, moved. 12 CFR 563b.8(a) 12 CFR 563b.155 Substantive revision, moved. 12 CFR 563b.8(b)(1)-(2) 12 CFR 563b.150 Nonsubstantive revision, moved. 12 CFR 563b.8(b)(3) Deleted. 12 CFR 563b.8(c)(1)-(2)(i)-(ii) 12 CFR 563b.240 Nonsubstantive revision, moved. 12 CFR 563b.8(c)(2)(iii) 12 CFR 563b.260 Substantive revision, moved. 12 CFR 563b.8(c)(3) 12 CFR 563b.300(a), (c) Substantial revisions, deletions, and moved. 12 CFR 563b.8(d)(1)-(2) 12 CFR 563b.430 Nonsubstantive revision, moved. 12 CFR 563b.8(d)(3) 12 CFR 563b.435 Nonsubstantive revision, moved. 12 CFR 563b.8(e) 12 CFR 563b.115(a), 155, 180(b), Form AC, General Instruction B Nonsubstantial revisions, deletions, and moved. 12 CFR 563b.8(f) Deleted. 12 CFR 563b.8(g) Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(h) Deleted. 12 CFR 563b.8(i)-(1) Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(m) Deleted. 12 CFR 563b.8(n) Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(o) Deleted. 12 CFR 563b.8(p) 12 CFR 563b.150(a)(6), Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(q) Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(r) Form AC, General Instruction B Substantive revision, moved. 12 CFR 563b.8(s) Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(t)(1) 12 CFR 563b.100 Nonsubstantive revision, moved. 12 CFR 563b.8(t)(2) Deleted. 12 CFR 563b.8(u) 12 CFR 563b.205 Nonsubstantial revisions, deletions, and moved. 12 CFR 563b.8(v) 12 CFR 563b.530(d) Nonsubstantive revision, moved. 12 CFR 563b.9 12 CFR 563b.10 Nonsubstantive revision, moved. 12 CFR 563b.10 12 CFR 563b.605(b)-(c) Nonsubstantive revision, moved. 12 CFR 563b.11 12 CFR 563b.200(c) Nonsubstantive revision, moved. 12 CFR 563b.20 12 CFR 563b.600 Nonsubstantive revision, moved. 12 CFR 563b.21(a) 12 CFR 563b.605 Nonsubstantive revision, moved. 12 CFR 563b.21(b) 12 CFR 563b.650, 610 Nonsubstantive revision, moved. 12 CFR 563b.22 Deleted. 12 CFR 563b.23(a)-(c) 12 CFR 563b.670, 675 Nonsubstantive revision, additions and moved. 12 CFR 563b.23(d) 12 CFR 563b.690 Nonsubstantive revision, moved. 12 CFR 563b.24(a)-(b)(1), (3) 12 CFR 563b.625(a)(1) Nonsubstantive revision, moved. 12 CFR 563b.24(b)(2) Deleted. 12 CFR 563b.24(c) 12 CFR 563b.625(b) Substantive addition, moved. 12 CFR 563b.25 12 CFR 563b.630 Nonsubstantive revision, moved. 12 CFR 563b.26 12 CFR 563b.625(a)(2) Nonsubstantive revision, moved. 12 CFR 563b.27(a) 12 CFR 563b.650 Nonsubstantive revision, moved. 12 CFR 563b.27(b) 12 CFR 563b.660(f)(1) Nonsubstantive revision, moved. 12 CFR 563b.27(c) 12 CFR 563b.660(a)(2) Nonsubstantive revision, moved. 12 CFR 563b.27(d) 12 CFR 563b.660(c) Nonsubstantive revision, moved. 12 CFR 563b.27(e) 12 CFR 563b.660(g)(2) Nonsubstantive revision, moved. 12 CFR 563b.27(f)-(g) 12 CFR 563b.660(e) Nonsubstantive revision, moved. 12 CFR 563b.27(h) 12 CFR 563b.660(f)(2) Nonsubstantive revision, moved. 12 CFR 563b.27(i) 12 CFR 563b.660(g)(1) Nonsubstantive revision, moved. 12 CFR 563b.27(j) 12 CFR 563b.660(g)(3) Nonsubstantive revision, moved. 12 CFR 563b.27(k) 12 CFR 563b.660(g)(4) Nonsubstantive revision, moved. 12 CFR 563b.27(l) 12 CFR 563b.660(d)(3) Nonsubstantive revision, moved. 12 CFR 563b.27(m) 12 CFR 563b.660(d)(2) Nonsubstantive revision, moved. 12 CFR 563b.27(n) 12 CFR 563b.660(d)(1) Nonsubstantive revision, moved. 12 CFR 563b.27(o) 12 CFR 563b.660(d)(4) Nonsubstantive revision, moved. 12 CFR 563b.27(p) 12 CFR 563b.660(a)(3) Nonsubstantive revision, moved. 12 CFR 563b.27(q)-(r) 12 CFR 563b.660(h) Nonsubstantive revision, moved. 12 CFR 563b.27(s) 12 CFR 563b.660(g)(5) Nonsubstantive revision, moved. 12 CFR 563b.28 12 CFR 563b.610 Nonsubstantive revision, moved. 12 CFR 563b.29(a) 12 CFR 563b.660 Nonsubstantive revision, moved. 12 CFR 563b.29(b) Deleted. 12 CFR 563b.29(d)(1)-(2) 12 CFR 563b.430 Nonsubstantive revision, moved. 12 CFR 563b.29(d)(3) 12 CFR 563b.435 Nonsubstantive revision, moved. 12 CFR 563b.30 12 CFR 563b.675 Nonsubstantive revision, moved. 12 CFR 563b.31 12 CFR 563b.680 Nonsubstantive revision, moved. 12 CFR 563b.32 12 CFR 563b.670(c) Nonsubstantive revision, moved. 12 CFR 563b.33 12 CFR 563b.670(d) Nonsubstantive revision, moved. 12 CFR 563b.100 Form AC-1680 Nonsubstantive revision, moved. 12 CFR 563b.101 Form PS-1681 Nonsubstantive revision, moved. 12 CFR 563b.102 Form OC-1682 Nonsubstantive revision, moved. 12 CFR 563b.105, 110, 115 New provisions. 12 CFR 563b.295 New provision. 12 CFR 563b.550-575 New provisions. Form OF-1683 New form. IV. Executive Order 12866 The Director of OTS determined that this proposed rule does not constitute a “significant regulatory action” for the purposes of Executive Order 12866. V. Regulatory Flexibility Act Analysis The Regulatory Flexibility Act of 1980 (RFA) requires federal agencies to either prepare an initial regulatory flexibility analysis (IRFA) with this proposed rule or certify that the rule would not have a significant impact on a substantial number of small entities. 4 OTS cannot at this time determine whether the rule would have a significant impact on a substantial number of small entities. Therefore, OTS includes the following IRFA. 5 4 5 U.S.C. 605(b). 5 5 U.S.C. 603(a). A description of the reasons why OTS is considering this action, and a statement of the objectives of, and legal basis for, the proposed rule are in the supplementary material above. 1. Small Entities to Which the Proposed Rule Would Apply The proposed rule applies to mutual savings associations that propose to convert to the stock form of ownership. There are currently approximately 422 mutual savings associations and 27 MHCs subject to OTS oversight. Of these institutions, approximately 252 have less than $100 million in assets. Small depository institutions are generally defined, for RFA purposes, as those with assets under $100 million. 6 In the past two years, OTS has processed 45 and 17 applications, respectively, to convert from mutual to stock or mutual holding company form. Based on this experience, OTS believes that the proposed rule affects fewer than 20 savings associations annually. 6 13 CFR 121.201, Division H (1999). 2. Requirements of the Proposed Rule The proposed rule requires mutual savings associations wishing to convert to stock form to prepare a plan of conversion and other supporting forms and documents (such as a business plan and an independent appraisal) and submit the documents for OTS approval. The current mutual to stock conversion regulations require all of these documents or information. The proposed rule includes a new requirement that a savings association that intends to establish a charitable organization as part of its conversion must supply certain documents and information regarding the charitable organization. Under the current application processing policies, OTS often requires a savings association that intends to establish a charitable organization as part of its conversion to submit the same type of information that the proposed rule would require. As a result, this new requirement should not have any additional impact on small savings associations. The proposed rule also adds demand account holders to the definition of savings account holders, allows accelerated vesting in management benefit plans for changes of control, and clarifies OTS policy regarding the amount of proceeds allowed at the holding company level. None of these provisions, however, should add to the reporting, recordkeeping, or compliance requirements for small entities. Although it is not clear that the RFA requires a quantitative analysis of the impact of the proposed regulatory changes, OTS provides the following estimate. The proposed rule's primary economic impact on small savings associations relates to the expense of preparing the application to convert. Savings associations wishing to convert must prepare the necessary documents and forms, including a plan of conversion, a business plan, and an appraisal. Preparation of these documents may require legal or professional help. OTS's experience in the conversion process indicates that savings associations generally hire legal counsel, accountants, marketing agents, and professional appraisers to assist in completion of the necessary documents and forms. Savings associations converting under the current regulations spend approximately $250,000 to one million dollars each to go through the process. We note that the new requirements will add only 10 hours of additional paperwork in preparation, and may save institutions that decide after preliminary business plan preparation and discussion, not to convert, significant time and expense. See discussion infra at Section VII. The new requirement for information supporting a proposed charitable contribution should not increase these costs appreciably. 3. Significant Alternatives Section 603(c) of the RFA requires OTS to describe any significant alternatives to the proposed rule that accomplish the stated objectives of the rule while minimizing any significant economic impact of the rule on small entities. Section 603(c) lists several examples of significant alternatives, including (1) establishing different compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) clarifying, consolidating, or simplifying compliance and reporting requirements for small entities; (3) using performance standards rather than design standards; and (4) exempting small entities from coverage of the rule or a part of the rule. After consideration, OTS does not believe that any of these alternatives are feasible. As noted, more than half of the savings associations to which the proposed rule could apply meet the RFA standard for “small depository institutions.” In fact, the conversion process is aimed largely at small institutions that want to raise capital in the open market by converting to the stock form of ownership. Given that the conversion process is designed with small institutions in mind, modifying the requirements for such small institutions is not necessary. Moreover, given that a conversion cannot be measured for performance until it takes place, the use of performance standards rather than design standards is impractical. To reduce regulatory burden consistent with the goals of this regulation, the proposed rule specifically permits OTS to waive any requirement under the part where the waiver is equitable and not detrimental to the savings association, the accountholders, or the public interest. This process will provide substantial flexibility to OTS and the savings association to minimize any significant economic impact of a provision on a specific institution. Nevertheless, OTS requests comments on the burdens associated with the proposed rule that particularly affect small savings associations, and whether any modifications or exemptions from the rules for small savings associations would be appropriate. VI. Unfunded Mandates Act of 1995 Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4 (Unfunded Mandates Act), requires that an agency prepare a budgetary impact statement before promulgating a rule that includes a federal mandate that may result in expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. OTS determined that the proposed rule will not result in expenditures by state, local, or tribal governments or by the private sector of $100 million or more in any one year. Accordingly, this rulemaking is not subject to section 202 of the Unfunded Mandates Act. VII. Paperwork Reduction Act OTS invites comment on all of the following issues: • Whether the proposed information collection contained in this proposal is necessary for the proper performance of OTS's functions, including whether the information has practical utility. • The accuracy of OTS's estimate of the burden of the proposed information collection. • Ways to enhance the quality, utility, and clarity of the information to be collected. • Ways to minimize the burden of the information collection on respondents, including through the use of automated collection techniques or other forms of information technology. • Estimates of capital and start-up costs of operation, maintenance and purchases of services to provide information. Respondents/recordkeepers are not required to respond to this collection of information unless it displays a currently valid OMB control number. OTS submitted the collection of information requirements contained in this proposal to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Send comments on the collections of information to the Office of Management and Budget, Paperwork Reduction Project (1550-0014), Washington, DC 20503, with copies to the Regulations and Legislation Division, Chief Counsel's Office, Office of Thrift Supervision, 1700 G Street, NW, Washington, DC 20552. The collection of information requirements in this proposed rule are in 12 CFR part 563b. OTS requires this information for the proper supervision of savings associations that convert from mutual to stock form under OTS regulations. The likely respondents/recordkeepers are federal savings associations. Estimated average annual burden hours per respondent/recordkeeper: 510 hours. Estimated number of respondents/recordkeepers: 16 per year. Estimated total annual reporting and recordkeeping burden: 8160 hours. Start up costs to respondents: N/A. List of Subjects 12 CFR Part 563b Reporting and recordkeeping requirements, Savings associations, Securities. 12 CFR Part 575 Administrative practice and procedure, Capital, Holding companies, Reporting and recordkeeping requirements, Savings associations, Securities. Accordingly, the Office of Thrift Supervision proposes to amend title 12, Chapter V, Code of Federal Regulations as set forth below. 1. Part 563b is revised to read as follows: PART 563b—CONVERSIONS FROM MUTUAL TO STOCK FORM Sec. 563b.5 What does this part do? 563b.10 May I form a holding company as part of my conversion? 563b.15 May I form a charitable organization as part of my conversion? 563b.20 May I acquire another insured stock depository institution as part of my conversion? 563b.25 What definitions apply to this part? Subpart A—Standard Conversions Prior to Conversion 563b.100 What must I do before a conversion? 563b.105 What information must I include in my business plan? 563b.110 Who must review my business plan? 563b.115 Under what circumstances will OTS not object to my business plan? 563b.120 May I discuss my plans to convert with others? Plan of Conversion 563b.125 Must my board of directors adopt a plan of conversion? 563b.130 What must I include in my plan of conversion? 563b.135 How do I notify my members that my board of directors approved a plan of conversion? 563b.140 May I amend my plan of conversion? Filing Requirements 563b.150 What must I include in my application for conversion? 563b.155 How do I file my application for conversion? 563b.160 May I keep portions of my application for conversion confidential? 563b.165 How do I amend my application for conversion? Notice of Filing of Application and Comment Process 563b.180 How do I notify the public that I filed an application for conversion? 563b.185 How may a person comment on my application for conversion? OTS Review of the Application for Conversion 563b.200 What actions may OTS take on my application? 563b.205 May a court review OTS's final action on my conversion? Vote by Members 563b.225 Must I submit the plan of conversion to my members for approval? 563b.230 Who is eligible to vote? 563b.235 How must I notify my members of the meeting? 563b.240 What must I submit to OTS after the members' meeting? Proxy Solicitation 563b.250 Who must comply with these proxy solicitation provisions? 563b.255 What must the form of proxy include? 563b.260 May I use previously executed proxies? 563b.265 How may I use proxies executed under this part? 563b.270 What must I include in my proxy statement? 563b.275 How do I file revised proxy materials? 563b.280 Must I mail a member's proxy soliciting material? 563b.285 What solicitations are prohibited? 563b.290 What will OTS do if a solicitation violates these prohibitions? 563b.295 Will OTS require me to re-solicit proxies? Offering Circular 563b.300 What must happen before OTS declares my offering circular effective? 563b.305 When may I distribute the offering circular? 563b.310 When must I file a post-effective amendment to the offering circular? Offers and Sales of Stock 563b.320 Who has priority to purchase my conversion shares? 563b.325 When may I offer to sell my conversion shares? 563b.330 How do I price my conversion shares? 563b.335 How do I sell my conversion shares? 563b.340 What sales practices are prohibited? 563b.345 How may a subscriber pay for my conversion shares? 563b.350 Must I pay interest on payments for conversion shares? 563b.355 How many subscription rights must I give to each eligible account holder and each supplemental eligible account holder? 563b.360 Are my officers, directors, and their associates eligible account holders? 563b.365 May other voting members purchase conversion shares in the conversion? 563b.370 Does OTS limit aggregate purchases by officers, directors, and their associates? 563b.375 How do I allocate my conversion shares if my shares are oversubscribed? 563b.380 May my employee stock ownership plan purchase conversion shares? 563b.385 May I impose any purchase limitations? 563b.390 Must I provide a purchase preference to members of my local community? 563b.395 What other conditions apply when I offer conversion shares in a community offering, a public offering, or both? Completion of the Offering 563b.400 When must I complete the sale of my stock? 563b.405 How do I extend the offering period? Completion of the Conversion 563b.420 When must I complete my conversion? 563b.425 Who may terminate the conversion? 563b.430 What happens to my old charter? 563b.435 What happens to my corporate existence after conversion? 563b.440 What voting rights must I provide to stockholders after the conversion? 563b.445 What must I provide my savings account holders? Liquidation Account 563b.450 What is a liquidation account? 563b.455 What is the initial balance of the liquidation account? 563b.460 How do I determine the initial balances of liquidation sub-accounts? 563b.465 Do account holders retain any voting rights based on their liquidation sub-accounts? 563b.470 Must I adjust liquidation sub-accounts? 563b.475 What is a liquidation? 563b.480 Does the liquidation account affect my net worth? 563b.485 What provision must I include in my new Federal charter? Post-Conversion 563b.500 May I implement a stock option plan or management or employee stock benefit plan? 563b.505 May my directors, officers, and their associates freely trade shares? 563b.510 May I repurchase shares after conversion? 563b.515 What information must I provide to OTS before I repurchase my shares? 563b.520 May I declare or pay dividends after I convert? 563b.525 Who may acquire my shares after I convert? 563b.530 What other requirements apply after I convert? Contributions to Charitable Organizations 563b.550 May I donate conversion shares or conversion proceeds to a charitable organization? 563b.555 How do my members approve a charitable contribution? 563b.560 How much may I contribute to a charitable organization? 563b.565 What must the charitable organization include in its organizational documents? 563b.570 How do I address conflicts of interest involving my directors? 563b.575 What other requirements apply to charitable organizations? Subpart B—Voluntary Supervisory Conversion 563b.600 What does this subpart do? 563b.605 How may I conduct a voluntary supervisory conversion? 563b.610 Do my members have rights in a voluntary supervisory conversion? Eligibility 563b.625 When is a SAIF-insured savings association eligible for a voluntary supervisory conversion? 563b.630 When is a BIF-insured savings association eligible for a voluntary supervisory conversion? Plan of Supervisory Conversion 563b.650 What must I include in my plan of voluntary supervisory conversion? Voluntary Supervisory Conversion Application 563b.660 What must I include in my voluntary supervisory conversion application? OTS Review of the Voluntary Supervisory Conversion Application 563b.670 Will OTS approve my voluntary supervisory conversion application? 563b.675 What conditions will OTS impose on an approval? Offers and Sales of Stock 563b.680 How do I sell my shares? Post-Conversion 563b.690 Who may not acquire additional shares after the voluntary supervisory conversion? Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15 U.S.C. 78c, 78l, 78m,78n,78w. PART 563b—CONVERSIONS FROM MUTUAL TO STOCK FORM § 563b.5 What does this part do? (a) General. This part governs how a savings association (“you”) may convert from the mutual to the stock form of ownership. Subpart A of this part governs standard mutual to stock conversions. Subpart B of this part governs voluntary supervisory mutual to stock conversions. This part supersedes all inconsistent charter and bylaw provisions of federal savings associations converting to stock form. (b) Prescribed forms. You must use the forms prescribed under this part and provide such information as OTS may require under the forms by regulation or otherwise. The forms required under this part include: Form AC (Application for Conversion); Form PS (Proxy Statement); Form OC (Offering Circular); and Form OF (Order Form). (c) Waivers. OTS may waive any requirement of this part or a provision in any prescribed form. To obtain a waiver, you must file a written request with OTS that: (1) Specifies the requirement(s) or provision(s) you want OTS to waive; (2) Demonstrates that the waiver is equitable, is not detrimental to you, your account holders or other savings associations, and is not contrary to public interest; and (3) If applicable, includes an opinion of counsel demonstrating that state law conflicts with the requirement or provision. § 563b.10 May I form a holding company as part of my conversion? You may convert to the stock form of ownership as part of a transaction where you organize a holding company to acquire all of your shares upon their issuance. In such a transaction, your holding company will offer rights to purchase its shares instead of your shares. All of the requirements of subpart A generally apply to the holding company as they apply to the savings association. Section 574.6 of this chapter contains OTS's holding company application requirements. § 563b.15 May I form a charitable organization as part of my conversion? When you convert to the stock form, you may form a charitable organization. Your contributions to the charitable organization are governed by the requirements of §§ 563b.550 through 563b.575. § 563b.20 May I acquire another insured stock depository institution as part of my conversion? When you convert to stock form, you may acquire for cash or stock another insured depository institution that is already in the stock form of ownership. § 563b.25 What definitions apply to this part? The following definitions apply to this part and the forms prescribed under this part: Acting in concert has the same meaning as in § 574.2(c) of this chapter. The rebuttable presumptions of § 574.4(d) of this chapter, other than §§ 574.4(d)(1) and (d)(2) of this chapter, apply to the share purchase limitations at §§ 563b.355 through 563b.395. Affiliate of , or a person affiliated with , a specified person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the specified person. Associate of a person is: (1) A corporation or organization (other than you or your majority-owned subsidiaries), if the person is a senior officer or partner, or beneficially owns, directly or indirectly, 10 percent or more of any class of equity securities of the corporation or organization. (2) A trust or other estate, if the person has a substantial beneficial interest in the trust or estate or is a trustee or fiduciary of the trust or estate. For purposes of §§ 563b.370, 563b.380, 563b.385, 563b.390, 563b.395 and 563b.505, a person who has a substantial beneficial interest in your tax-qualified or non-tax-qualified employee stock benefit plan or who is a trustee or a fiduciary of the plan is not an associate of the plan. For the purposes of § 563b.370, your tax-qualified employee stock benefit plan is not an associate of a person. (3) Any person who is related by blood or marriage to such person and: (i) Who lives in the same home as the person; or (ii) Who is your director or senior officer, or a director or senior officer of your holding company or your subsidiary. Association members or members are persons who, under applicable law, are eligible to vote at the meeting on conversion. Control (including controlling, controlled by , and under common control with ) means the direct or indirect power to direct or exercise a controlling influence over the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise as described at 12 CFR part 574. Eligibility record date is the date for determining eligible account holders. The eligibility record date must be at least one year before the date your board of directors adopts the plan of conversion. Eligible account holders are any persons holding qualifying deposits on the eligibility record date. IRS is the Internal Revenue Service. Local community includes: (1) Every county, parish, or similar governmental subdivision in which you have a home or branch office; (2) Each county's, parish's, or subdivision's metropolitan statistical area; (3) All zip code areas in your Community Reinvestment Act assessment area; and (4) Any other area or category you set out in your plan of conversion, as approved by OTS. Offer, offer to sell, or offer for sale is an attempt or offer to dispose of, or a solicitation of an offer to buy, a security or interest in a security for value. Preliminary negotiations or agreements with an underwriter, or among underwriters who are or will be in privity of contract with you, are not offers, offers to sell, or offers for sale. Person is an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization, or a government or political subdivision of a government. Proxy soliciting material includes a proxy statement, form of proxy, or other written or oral communication regarding the conversion. Purchase or buy is a contract to acquire a security or interest in a security for value. Qualifying deposit is the total balance in an account holder's savings accounts at the close of business on the eligibility or supplemental eligibility record date. Your plan of conversion may provide that any savings account with total deposit balances of $50 or less do not qualify. Sale or sell is a contract to dispose of a security or interest in a security for value. An exchange of securities in a merger or acquisition approved by OTS is not a sale. Savings Account is any withdrawable account as defined in § 561.42 of this chapter, including a demand account as defined in § 561.16 of this chapter. Solicitation and solicit is a request for a proxy, whether or not accompanied by or included in a form of proxy; a request to execute, not execute, or revoke a proxy; or the furnishing of a form of proxy or other communication reasonably calculated to cause your members to procure, withhold, or revoke a proxy. Solicitation or solicit do not include providing a form of proxy at the unsolicited request of a member, the acts required to mail communications for members, or ministerial acts performed on behalf of a person soliciting a proxy. Subscription offering is the offering of shares through nontransferable subscription rights to: (1) Eligible account holders under § 563b.355; (2) Tax-qualified employee stock ownership plans under § 563b.380; (3) Supplemental eligible account holders under § 563b.355; and (4) Other voting members under § 563b.365. Supplemental eligibility record date is the date for determining supplemental eligible account holders. The supplemental eligibility record date is the last day of the calendar quarter before OTS approves your conversion and will only occur if OTS has not approved your conversion within 15 months after the eligibility record date. Supplemental eligible account holders are any persons, except your officers, directors and their associates, holding qualifying deposits on the supplemental eligibility record date. Tax-qualified employee stock benefit plan is any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan, or other plan, and a related trust, that is qualified under section 401 of the Internal Revenue Code. Underwriter is any person who purchases any securities from you with a view to distributing the securities, offers or sells securities for you in connection with the securities' distribution, or participates or has a direct or indirect participation in the direct or indirect underwriting of any such undertaking. Underwriter does not include a person whose interest is limited to a usual and customary distributor's or seller's commission from an underwriter or dealer. Subpart A—Standard Conversions Prior to Conversion § 563b.100 What must I do before a conversion? (a) You must meet with OTS before you may file your business plan. You must submit your business plan at least 30 days before you file your application for conversion. You may not file your application for conversion if the Regional Director objects to your business plan. (b) You must also consult with OTS before you file your application for conversion. OTS will discuss the information that you must include in the application for conversion, general issues that you may confront in the conversion process, and any other pertinent issues. § 563b.105 What information must I include in my business plan? (a) Your business plan must: (1) Clearly and completely describe your projected operations and activities for three years following the conversion. You must describe how you will deploy the conversion proceeds at the converted savings association (and holding company, if applicable), and include three years of projected financial statements for the converted institution and each holding company, and three years of consolidated financial statements for the holding company. The business plan must provide that the converted savings association must retain at least 50 percent of the gross conversion proceeds. (2) Demonstrate that your plan for deployment of conversion proceeds will substantially serve to meet credit and lending needs in your proposed market areas. OTS will not approve a business plan that provides for a substantial investment in mortgage securities or other securities, except as an interim measure to facilitate orderly, prudent deployment of proceeds during the three years following the conversion, or the investment is part of a properly managed leverage strategy. (3) Demonstrate that you have a reasonable need for new capital to support projected operations and activities. You must show that opportunities are reasonably available in your proposed market areas to achieve your planned deployment of conversion proceeds. (4) Describe your experience with respect to prior growth, expansion, or other initiatives similar to the operations and activities proposed in your business plan. (5) Describe the risks associated with your plan for deployment of conversion proceeds, and the effect of this plan on management resources, staffing, and facilities. (6) Demonstrate that your management and board of directors have the expertise, and that you have adequate staffing and controls to prudently manage the growth, expansion, new investment, and other operations and activities proposed in your business plan. (7) Demonstrate that you will achieve a reasonable return on equity, commensurate with investment risk, investor expectations, and industry norms, without consideration of assumed, speculative stock price appreciation. (b) You may not project stock repurchases, returns of capital, or extraordinary dividends in any part of the business plan. A newly converted company should not plan on significant returns of conversion proceeds during the business plan period, except in extraordinary circumstances. § 563b.110 Who must review my business plan? (a) Your chief executive officer and members of the board of directors must review, and at least two-thirds of your board must approve, the business plan. (b) Your chief executive officer and at least two-thirds of the board must certify that the business plan accurately reflects the intended plans for deployment of conversion proceeds, and that any new initiatives reflected in the business plan are reasonably achievable. You must submit these certifications with your business plan. § 563b.115 Under what circumstances will OTS not object to my business plan? (a) You must file your business plan with the Regional Office. OTS may request additional information, if necessary. You must file your business plan as a confidential exhibit to the Form AC. (b) OTS will not object to your business plan if it demonstrates prudent deployment of capital and otherwise meets the requirements of § 563b.105. (c) OTS will review your business plan and will either not object to the plan or will disapprove your business plan. You may not submit your application for conversion until OTS advises you that it does not object to your business plan, except in extraordinary circumstances. (d) If OTS approves your application for conversion and you complete your conversion, you must operate within the parameters of your approved business plan. You must obtain the prior written approval of the Regional Director for any material deviations from your business plan. § 563b.120 May I discuss my plans to convert with others? (a) You may discuss information about your conversion with individuals that you authorize to prepare documents for your conversion. (b) Except as permitted under paragraph (a) of this section, you must keep all information about your conversion confidential until your board of directors adopts your plan of conversion. (c) If you violate this section, OTS may require you to take remedial action. For example, OTS may require you to take any or all of the following actions: (1) Publicly announce that you are considering a conversion; (2) Set an eligibility record date acceptable to OTS; (3) Limit the subscription rights of any person who violates or aids a violation of this section; or (4) Take any other action to assure that your conversion is fair and equitable. Plan of Conversion § 563b.125 Must my board of directors adopt a plan of conversion? Your board of directors must adopt a plan of conversion that conforms to §§ 563b.320 through 563b.395 (“Offers and Sales of Stock”). Your board of directors must adopt the plan by at least a two-thirds vote. § 563b.130 What must I include in my plan of conversion? You must include the information included in §§ 563b.320 through 563b.395 (“Offers and Sales of Stock”) in your plan of conversion. OTS may require you to delete or revise any provision in your plan of conversion if OTS determines the provision is inequitable, is detrimental to you, your account holders, or other savings associations, or is contrary to public interest. § 563b.135 How do I notify my members that my board of directors approved a plan of conversion? (a) Notice. You must promptly notify your members that your board of directors adopted a plan of conversion and that a copy of the plan is available for the members' inspection in your home office and in your branch offices. You must mail a letter to each member or publish a notice in the local newspaper in every local community where you have an office. You may also issue a press release. OTS may require broader publication, if necessary to ensure adequate notice to your members. (b) Contents of notice. You may include any of the following statements and descriptions in your letter, notice, or press release. (1) Your board of directors adopted a proposed plan to convert from a mutual to a stock savings institution. (2) You will send your members a proxy statement with detailed information on the proposed conversion before you convene a members' meeting to vote on the conversion. (3) Your members will have an opportunity to approve or disapprove the proposed conversion at a meeting. At least a majority of the eligible votes must approve the conversion. (4) You will not vote existing proxies to approve or disapprove the conversion. You will solicit new proxies for voting on the proposed conversion. (5) OTS, and in the case of a state-chartered savings association, the appropriate state regulator, must approve the conversion before the conversion will be effective. Your members will have an opportunity to file written comments, including objections and materials supporting the objections, with OTS. (6) The IRS must issue a favorable tax ruling, or a tax expert must issue an appropriate tax opinion, on the tax consequences of your conversion before OTS will approve the conversion. (7) OTS, and in the case of a state-chartered savings association, the appropriate state regulator, might not approve the conversion, and the IRS or a tax expert might not issue a favorable tax ruling or tax opinion. (8) Savings account holders will continue to hold accounts in the converted savings association with the same dollar amounts, rates of return, and general terms as existing deposits. FDIC will continue to insure the accounts. (9) Your conversion will not affect borrowers' loans, including the amount, rate, maturity, security, and other contractual terms. (10) Your business of accepting deposits and making loans will continue without interruption. (11) Your current management and staff will continue to conduct current services for depositors and borrowers under current policies and in existing offices. (12) You may continue to be a member of the Federal Home Loan Bank System. (13) You may substantively amend your proposed plan of conversion before the members' meeting. (14) You may terminate the proposed conversion. (15) After OTS, and in the case of a state-chartered savings association, the appropriate state regulator, approve the proposed conversion, you will send proxy materials providing additional information. After you send proxy materials, members may telephone or write to you with additional questions. (16) The proposed record date for determining the eligible account holders who are entitled to receive subscription rights to purchase your shares. (17) A brief description of the circumstances under which supplemental eligible account holders will receive subscription rights to purchase your shares. (18) A brief description of how voting members may participate in the conversion. (19) A brief description of how directors, officers, and employees will participate in the conversion. (20) A brief description of the proposed plan of conversion. (21) The par value (if any) and approximate number of shares you will issue and sell in the conversion. (c) Other requirements. (1) You may not solicit proxies, provide financial statements, describe the benefits of conversion, or estimate the value of your shares upon conversion in the letter, notice, or press release. (2) If you respond to inquiries about the conversion, you may address only the matters listed in paragraph (b) of this section. § 563b.140 May I amend my plan of conversion? You may amend your plan of conversion before you solicit proxies. After you solicit proxies, you may amend your plan of conversion only if OTS concurs. Filing Requirements § 563b.150 What must I include in my application for conversion? (a) Your application for conversion must include all of the following information. (1) Your plan of conversion. (2) Pricing materials meeting the requirements of § 563b.200(b). (3) Proxy soliciting materials under § 563b.270, including: (i) A preliminary proxy statement with signed financial statements; (ii) A form of proxy meeting the requirements of § 563b.255; and (iii) Any additional proxy soliciting materials. (4) An offering circular described in § 563b.300. (5) The documents and information required by Form AC. You may obtain Form AC from OTS Washington and Regional Offices (see § 516.1 of this chapter) and OTS's website (www.ots.treas.gov). (6) Written consents, signed and dated, of any accountant, attorney, investment banker, appraiser, or other professional who prepared, reviewed, passed upon, or certified any statement, report, or valuation for use. (7) Any additional information OTS requests. (b) OTS will not accept for filing, and will return, any application for conversion that is improperly executed, materially deficient, or substantially incomplete, or that provides for unreasonable conversion expenses. § 563b.155 How do I file my application for conversion? You must file seven copies of your application for conversion on Form AC. You must file the original and three conformed copies with the Applications Filing Room in Washington, and three conformed copies with the appropriate Regional Office at the addresses in § 516.1 of this chapter. § 563b.160 May I keep portions of my application for conversion confidential? (a) OTS makes all filings under this part available to the public, but may keep portions of your application for conversion confidential under paragraph (b) of this section. (b) You may request OTS to keep portions of your application confidential. To do so, you must separately bind and clearly designate as “confidential” any portion of your application for conversion that you deem confidential. You must provide a written statement specifying the grounds supporting your request for confidentiality. Your CRA Plan is not considered confidential information. The CRA portion of your application may not incorporate by reference information contained in the confidential portion of your application. (c) OTS will determine whether confidential information must be available to the public under 5 U.S.C. 552 and part 505 of this chapter. OTS will advise you if it makes available to the public any information you designated as “confidential.” (d) If OTS issues a public statement with its decision on the application for conversion, OTS may comment on confidential submissions in the public statement without notifying you. 563b.165 How do I amend my application for conversion? To amend your application for conversion, you must: (a) File an amendment with an appropriate facing sheet; (b) Number each amendment consecutively; (c) Respond to all issues raised by OTS; and (d) Demonstrate that the amendment conforms to all applicable regulations. Notice of Filing of Application and Comment Process § 563b.180 How do I notify the public that I filed an application for conversion? (a) You must publish a public notice of the application under the procedures in subpart B of part 516 of this chapter, except that you must publish your notice within three days before or after you file your application for conversion. You must simultaneously prominently post the notice in your home office and all branch offices. Your notice must include the following information. (1) You filed an application for conversion with OTS. (2) You delivered copies of the application to OTS and to the Regional Office, including the addresses of the applicable OTS offices. (3) A statement that anyone may file written comments, including objections to the plan of conversion and materials supporting the objections, within 20 days. You must include instructions regarding how a person may file a comment. (b) Promptly after publication, you must file four copies of any public notice, and an affidavit of publication from each publisher. You must file the original and one copy with the Applications Filing Room in Washington, and two copies with the appropriate Regional Office at the addresses in § 516.1 of this chapter. (c) If OTS does not accept your application for conversion under § 563b.200 and requires you to file a new application, you must publish and post a new notice and allow an additional 20 days for comment. § 563b.185 How may a person comment on my application for conversion? Anyone may submit a written comment supporting or opposing your application for conversion with OTS. To do so, commenters must file within 20 days after you notify the public under § 563b.180. A commenter must file the original and one copy of any comments with the Applications Filing Room in Washington, and two copies with the appropriate Regional Office at the addresses in § 516.1 of this chapter. OTS Review of the Application for Conversion § 563b.200 What actions may OTS take on my application? (a) OTS may approve your application for conversion only if: (1) Your conversion complies with this part; (2) You will meet your regulatory capital requirements under part 567 of this chapter after the conversion; and (3) Your conversion will not result in a taxable reorganization under the Internal Revenue Code of 1986, as amended. (b) OTS will review the appraisal required by § 563b.150(a)(2) in determining whether to approve your application. OTS will review the appraisal under the following requirements. (1) Independent persons experienced and expert in corporate appraisal, and acceptable to OTS, must prepare the appraisal report. (2) An affiliate of the appraiser may serve as an underwriter or selling agent, if you ensure that the appraiser is separate from the underwriter or selling agent affiliate and the underwriter or selling agent affiliate does not make recommendations or affect the appraisal. (3) The appraiser may not receive any fee in connection with the conversion other than for appraisal services. (4) The appraisal report must include a complete and detailed description of the elements of the appraisal, a justification for the appraisal methodology, and sufficient support for the conclusions. (5) If the appraisal is based on a capitalization of your pro forma income, it must indicate the basis for determining the income to be derived from the sale of shares, and demonstrate that the earnings multiple used is appropriate, including future earnings growth assumptions. (6) If the appraisal is based on a comparison of your shares with outstanding shares of existing stock associations, the existing stock associations must be reasonably comparable in size, market area, competitive conditions, risk profile, profit history, and expected future earnings. (7) OTS may decline to process the application for conversion and deem it materially deficient or substantially incomplete if the initial appraisal report is materially deficient or substantially incomplete. (8) You may not represent or imply that OTS approved the appraisal. (c) OTS will review your compliance record under part 563e of this chapter and your business plan to determine how you will serve the convenience and needs of your communities after the conversion. (1) Based on this review, OTS may approve your application, deny your application, or approve your application on the condition that you will improve your CRA performance or that you will address the particular credit or lending needs of the communities that you will serve. (2) OTS may deny your application if your business plan does not demonstrate that your proposed use of conversion proceeds will help you to meet the credit and lending needs of the communities that you will serve. (d) OTS may request that you amend your application if further explanation is necessary, material is missing or material must be corrected. (e) OTS will deny your application if the application does not meet the requirements of this subpart, unless OTS waives the requirement under § 563b.5. § 563b.205 May a court review OTS's final action on my conversion? (a) Any person aggrieved by OTS's final action on your application for conversion may ask the court of appeals of the United States for the circuit in which the principal office or residence of such person is located, or the U.S. Court of Appeals for the District of Columbia Circuit, to review the action under 12 U.S.C. 1464(i)(2)(B). (b) To obtain court review of the action, this statute requires the aggrieved person to file a written petition requesting that the court modify, terminate or set aside the final OTS action. The aggrieved person must file the petition with the court within the later of 30 days after OTS publishes notice of OTS's final action in the Federal Register or 30 days after you mail the proxy statement to your members under § 563b.235. Vote by Members § 563b.225 Must I submit the plan of conversion to my members for approval? (a) After OTS approves your plan of conversion, you must submit your plan of conversion to your members for approval. You must obtain this approval at a special meeting, unless you are a state-chartered savings association and state law requires you to obtain approval at an annual meeting. (b) Your members must approve your plan of conversion by a majority of the total outstanding votes, unless you are a state-chartered savings association and state law prescribes a higher percentage. (c) Your members may vote in person or by proxy. (d) You may notify eligible account holders or supplemental eligible account holders who are not voting members of your proposed conversion. You may include only the information in § 563b.135 in your notice. § 563b.230 Who is eligible to vote? You determine members' eligibility to vote by setting a voting record date. You must set a voting record date that is not more than 60 days nor less than 20 days before your meeting, unless you are a state-chartered savings association and state law requires a different voting record date. § 563b.235 How must I notify my members of the meeting? (a) You must notify your members of the meeting to consider your conversion by sending the members a proxy statement authorized by OTS. (b) You must notify your members 20 to 45 days before your meeting, unless you are a state-chartered savings association and state law requires a different notice period. (c) You must also notify each beneficial holder of an account held in a fiduciary capacity: (1) If you are a federal association and the name of the beneficial holder is disclosed on your records; or (2) If you are a state-chartered association and the beneficial holder possesses voting rights under state law. § 563b.240 What must I submit to OTS after the members' meeting? Promptly after the members' meeting, you must file all of the following information with OTS: (a) A certified copy of each adopted resolution on the conversion. (b) The total votes eligible to be cast. (c) The total votes represented in person or by proxy. (d) The total votes cast in favor of and against each matter. (e) The percentage of votes necessary to approve each matter. (f) An opinion of counsel that: (1) You conducted the members' meeting in compliance with all applicable state or federal laws and regulations; and (2) You complied with all federal or state laws applicable to the conversion. Proxy Solicitation § 563b.250 Who must comply with these proxy solicitation provisions? (a) You must comply with these proxy solicitation provisions when you provide proxy soliciting material to members for the meeting to vote on your plan of conversion. (b) Your members must comply with these proxy solicitation provisions when they provide proxy solicitation materials to members for the meeting to vote on your conversion, except where: (1) The member solicits 50 people or fewer and does not solicit proxies on your behalf; or (2) The member solicits proxies through newspaper advertisements after your board adopts the plan of conversion. The newspaper advertisement may include only the following information: (i) Your name; (ii) The reason for the advertisement; (iii) The proposal or proposals to be voted upon; (iv) Where a member may obtain a copy of the proxy soliciting material; and (v) A request for your members to vote at the meeting. § 563b.255 What must the form of proxy include? The form of proxy must include all of the following. (a) A statement in bold face type stating whether management is soliciting the proxy. (b) Blank spaces where the member must date and sign the proxy. (c) Clear and impartial identification of each matter or group of related matters that members will vote upon. You must include any proposed charitable contribution as an item to be voted on separately. (d) The phrase “Revocable Proxy” in bold face type (at least 18 point). (e) A description of any charter or state law requirement that restricts or conditions votes by proxy. (f) An acknowledgment that the member received a proxy statement before he or she signed the form of proxy. (g) The date, time, and the place of the meeting, when available. (h) A way for the member to specify by ballot whether he or she approves or disapproves of each matter that members will vote upon. (i) A statement that management will vote the proxy in accordance with the member's specifications. (j) A statement in bold face type indicating how management will vote the proxy if the member does not specify a choice for a matter. § 563b.260 May I use previously executed proxies? You may not use previously executed proxies for the plan of conversion vote. If members consider your plan of conversion at an annual meeting, you may vote proxies obtained through other proxy solicitations only on matters not related to your plan of conversion. § 563b.265 How may I use proxies executed under this part? You may vote a proxy obtained under this part on matters that are incidental to the conduct of the meeting. You may not vote a proxy obtained under this subpart at any meeting other than the meeting (or any adjournment of the meeting) to vote on your plan of conversion. § 563b.270 What must I include in my proxy statement? (a) Content requirements. You must prepare your proxy statement in compliance with this part and Form PS. You may obtain Form PS from OTS Washington and Regional Offices (see § 516.1 of this chapter) and OTS's website (www.ots.treas.gov). (b) Other requirements. (1) OTS will review your proxy soliciting material when it reviews the application for conversion and will authorize the use of proxy soliciting material. (2) You must provide an authorized written proxy statement to your members before you provide any other soliciting material. You must mail authorized proxy soliciting material to your members within ten days after OTS authorizes the solicitation. § 563b.275 How do I file revised proxy materials? (a) You must file revised proxy materials as an amendment to your application for conversion. See § 563b.155 for where to file. (b) To revise your proxy soliciting materials, you must file: (1) Seven copies of your revised proxy materials as required by Form PS; (2) Seven copies of your revised form of proxy, if applicable; and (3) Seven copies of any additional proxy soliciting material subject to § 563b.270, including press releases, personal solicitation instructions, radio or television scripts that you plan to use or furnish to your members, and a legal opinion indicating that any marketing materials comply with all applicable securities laws. (c) You must mark four of the seven required copies to clearly indicate changes from the prior filing. (d) You must file seven definitive copies of all proxy soliciting material, in the form in which you furnish the material to your members. You must file no later than the date that you send or give the proxy soliciting material to your members. You must indicate the date that you will release the materials. (e) Unless OTS requests you to do so, you do not have to file copies of replies to inquiries from your members or copies of communications that merely request members to sign and return proxy forms. § 563b.280 Must I mail a member's proxy soliciting material? (a) You must mail the member's authorized proxy soliciting material if: (1) Your board of directors adopted a plan of conversion; (2) A member requests in writing that you mail proxy soliciting material; and (3) The member agrees to defray your reasonable expenses. (b) As soon as practicable after you receive a request under paragraph (a) of this section, you must mail or otherwise furnish the following information to the member: (1) The approximate number of members that you solicited or will solicit, or the approximate number of members of any group of account holders that the member designates; and (2) The estimated cost of mailing the proxy soliciting material for the member. (c) You must mail authorized proxy soliciting material to the designated members promptly after the member furnishes the materials, envelopes (or other containers), and postage (or payment for postage) to you. (d) You are not responsible for the content of a member's proxy soliciting material. (e) A member may furnish other members its own proxy soliciting material, authorized by OTS, subject to these rules. § 563b.285 What solicitations are prohibited? (a) False or misleading statements. (1) No one may use proxy soliciting material for the members' meeting if the material contains any statement which, considering the time and the circumstances of the statement: (i) Is false or misleading with respect to any material fact; (ii) Omits any material fact that is necessary to make the statements not false or misleading; or (iii) Omits any material fact that is necessary to correct a statement in an earlier communication that has become false or misleading. (2) No one may represent or imply that OTS determined that proxy soliciting material is accurate, complete, not false or not misleading, or passed upon the merits of or approved any proposal. (b) Other prohibited solicitations. No person may solicit: (1) An undated or post-dated proxy; (2) A proxy that states it will be dated after the date it is signed by a member; (3) A proxy that is not revocable at will by the member; or (4) A proxy that is part of another document or instrument. § 563b.290 What will OTS do if a solicitation violates these prohibitions? (a) If a solicitation violates § 563b.285, OTS may require remedial measures, including: (1) Correction of the violation by a retraction and a new solicitation; (2) Rescheduling the members' meeting; or (3) Any other actions necessary to ensure a fair vote. (b) OTS may also bring an enforcement action against the violator. § 563b.295 Will OTS require me to re-solicit proxies? If you amend your application for conversion, OTS may require you to re-solicit proxies for your members' meeting as a condition of approval of the amendment. Offering Circular § 563b.300 What must happen before OTS declares my offering circular effective? (a) You must prepare and file your offering circular with OTS in compliance with this part and Form OC and, where applicable, part 563g of this chapter. Section 563b.155 governs where to file your offering circular. You may obtain Form OC from OTS Washington and Regional Offices (see § 516.1 of this chapter) and OTS's website (www.ots.treas.gov). (b) You must condition your stock offering upon the members' approval of your plan of conversion. (c) OTS will review the Form OC and may comment on the included disclosures and financial statements. (d) You must file seven copies of each revised offering circular, final offering circular, and post-effective amendment to the final offering circular. (e) OTS will not approve the adequacy or accuracy of the offering circular or the disclosures. (f) After you satisfactorily address OTS's concerns, you must request OTS to declare your Form OC effective for a time period. The time period may not exceed the maximum time period for the completion of the sale of all of your shares under § 563b.400. § 563b.305 When may I distribute the offering circular? (a) You may distribute a preliminary offering circular at the same time as or after you mail the proxy statement to your members. (b) You may not distribute an offering circular until OTS declares it effective. You must distribute the offering circular in accordance with this part. (c) You must distribute your Form OC to persons listed in your plan of conversion within 10 days after OTS declares it effective. § 563b.310 When must I file a post-effective amendment to the offering circular? (a) You must file a post-effective amendment to the offering circular with OTS when a material event, circumstance, or change of circumstance occurs. (b) After OTS declares the post-effective amendment effective, you must immediately deliver the amendment to each person who subscribed for or ordered shares in the offering. (c) Your post-effective amendment must indicate that each person may increase, decrease, or rescind their subscription or order. (d) The post-effective offering period must remain open no less than 10 days nor more than 20 days, unless OTS approves a longer rescission period. Offers and Sales of Stock § 563b.320 Who has priority to purchase my conversion shares? You must offer to sell your shares in the following order. (a) Eligible account holders. (b) Tax-qualified employee stock ownership plans. (c) Supplemental eligible account holders. (d) Other voting members who have subscription rights. (e) Your community, your community and the general public, or the general public. § 563b.325 When may I offer to sell my conversion shares? (a) You may offer to sell your conversion shares after OTS approves your conversion, authorizes your proxy statement, and declares your offering circular effective. (b) The offer may commence at the same time you start the proxy solicitation of your members. § 563b.330 How do I price my conversion shares? (a) You must sell your conversion shares at a uniform price per share and at a total price that is equal to the estimated pro forma market value of your shares after you convert. (b) The maximum price must be no more than 15 percent above the midpoint of the estimated price range in your offering circular. (c) The minimum price must be no more than 15 percent below the midpoint of the estimated price range in your offering circular. (d) If OTS permits, you may increase the maximum price of conversion shares sold. The maximum price, as adjusted, must be no more than 15 percent above the maximum price computed under paragraph (b) of this section. (e) The maximum price must be between $5 and $50 per share. (f) You must include the estimated price in any preliminary offering circular. § 563b.335 How do I sell my conversion shares? (a) You must distribute order forms to all eligible account holders, supplemental eligible account holders, and other voting members to enable them to subscribe for the conversion shares they are permitted under the plan of conversion. You may either send the order forms with your offering circular or after you distribute your offering circular. (b) You may sell your conversion shares in a community offering, a public offering, or both. You may begin the community offering, the public offering, or both at any time during the subscription offering. (c) You may pay underwriting commissions (including underwriting discounts). OTS may object to the payment of unreasonable commissions. You may reimburse an underwriter for accountable expenses in a subscription offering if the public offering is limited. If no public offering occurs, you may pay an underwriter a consulting fee. OTS may object to the payment of unreasonable consulting fees. (d) If you conduct the community offering, the public offering, or both at the same time as the subscription offering, you must fill all subscription orders first. (e) You must prepare your order form in compliance with this part and Form OF. You may obtain Form OF from OTS Washington and Regional Offices (see § 516.1 of this chapter) and OTS's website (www.ots.treas.gov). § 563b.340 What sales practices are prohibited? (a) In connection with offers, sales, or purchases of conversion shares under this part, you and your directors, officers, agents, or employees may not: (1) Employ any device, scheme, or artifice to defraud; (2) Obtain money or property by means of any untrue statement of a material fact or any omission of a material fact necessary to make the statements, in light of the circumstances under which they were made, not misleading; or (3) Engage in any act, transaction, practice, or course of business that operates or would operate as a fraud or deceit upon a purchaser or seller. (b) During your conversion, no person may: (1) Transfer, or enter into any agreement or understanding to transfer, the legal or beneficial ownership of subscription rights for your conversion shares, or the underlying securities, to the account of another; (2) Make any offer, or any announcement of an offer, to purchase any of your conversion shares from anyone but you; or (3) Knowingly acquire more than the maximum purchase limitations established in your plan of conversion. (c) The restrictions in paragraphs (b)(1) and (b)(2) of this section do not apply to offers for more than 10 percent of any class of conversion shares by: (1) An underwriter or a selling group, acting on your behalf, that makes the offer with a view toward public resale; or (2) One or more of your tax-qualified employee stock ownership plans so long as the plan or plans do not beneficially own more than 25 percent of any class of your equity securities in the aggregate. § 563b.345 How may a subscriber pay for my conversion shares? (a) A subscriber may purchase conversion shares with cash, by a withdrawal from a savings account, or by a withdrawal from a certificate of deposit. If a subscriber purchases shares by a withdrawal from a certificate of deposit, you may not assess a penalty for the withdrawal. (b) You may not extend credit to any person to purchase your conversion shares. § 563b.350 Must I pay interest on payments for conversion shares? (a) You must pay interest from the date you receive a payment for conversion shares until the date you complete or terminate the conversion. You must pay interest at no less than the passbook rate for amounts paid in cash, check, or money order. (b) If a subscriber withdraws money from a savings account to purchase conversion shares, you must pay interest on the payment until you complete or terminate the conversion as if the withdrawn amount remained in the account. (c) If a depositor fails to maintain the applicable minimum balance requirement because he or she withdraws money from a certificate of deposit to purchase conversion shares, you may cancel the certificate and pay interest at no less than your passbook rate on any remaining balance. § 563b.355 How many subscription rights must I give to each eligible account holder and each supplemental eligible account holder? (a) You must give each eligible account holder subscription rights to purchase conversion shares in an amount equal to the greater of: (1) The maximum purchase limitation established for the community offering or the public offering under § 563b.395; (2) One-tenth of one percent of the total stock offering; or (3) Fifteen times the following number: the total number of conversion shares that you will issue, multiplied by the following fraction. The numerator is the total qualifying deposit of the eligible account holder. The denominator is the total qualifying deposits of all eligible account holders. You must round down the product of this multiplied fraction to the next whole number. (b) You must give subscription rights to purchase shares to each supplemental eligible account holder in the same amount as described in paragraph (a) of this section, except that you must compute the fraction described in paragraph (a)(3) of this section as follows: The numerator is the total qualifying deposit of the supplemental eligible account holder. The denominator is the total qualifying deposits of all supplemental eligible account holders. § 563b.360 Are my officers, directors, and their associates eligible account holders? Your officers, directors, and their associates may be eligible account holders. However, if an officer, director, or his or her associate receives subscription rights based on increased deposits in the year before the eligibility record date, you must subordinate subscription rights for these deposits to subscription rights exercised by other eligible account holders. § 563b.365 May other voting members purchase conversion shares in the conversion? (a) You must give rights to purchase your conversion shares in the conversion to voting members who are neither eligible account holders nor supplemental eligible account holders. You must allocate rights to each voting member that are equal to the greater of: (1) The maximum purchase limitation established for the community offering and the public offering under § 563b.395; or (2) One-tenth of one percent of the total stock offering. (b) You must subordinate the voting members' rights to the rights of eligible account holders, tax-qualified employee stock ownership plans, and supplemental eligible account holders. § 563b.370 Does OTS limit the aggregate purchases by officers, directors, and their associates? (a) When you convert, your officers, directors, and their associates may not purchase, in the aggregate, more than the following percentage of your total stock offering: Institution size Officer and director purchases (percent) $ 50,000,000 or less 35 $ 50,000,001-100,000,000 34 $100,000,001-150,000,000 33 $150,000,001-200,000,000 32 $200,000,001-250,000,000 31 $250,000,001-300,000,000 30 $300,000,001-350,000,000 29 $350,000,001-400,000,000 28 $400,000,001-450,000,000 27 $450,000,001-500,000,000 26 Over $500,000,000 25 (b) The purchase limitations in this sec [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A00-16347. Public record. Not legal advice.