Organization; Termination of Farm Credit Status

FARM CREDIT ADMINISTRATION

12 CFR Part 611

RIN 3052-AB86

Organization; Termination of Farm Credit Status

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: This proposed rule will amend Farm Credit Administration's

(FCA) regulations that will allow a Farm Credit System (FCS, Farm

Credit or System) institution to terminate its FCS charter and become a

financial institution under another Federal or State chartering

authority. The purpose of our proposal is to amend the existing

regulations so they apply to all banks and associations and to make

other changes. We also withdraw a proposed termination rule published

in 1993.

DATES: Please send your comments to us on or before February 3, 2000.

ADDRESSES: We encourage you to send comments via electronic mail to

``[email protected]'' or through the Pending Regulations section of our

interactive website at ``www.fca.gov.'' You may mail or deliver

comments to Patricia W. DiMuzio, Director, Regulation and Policy

Division, Office of Policy and Analysis, 1501 Farm Credit Drive,

McLean, VA, 22102-5090 or send by facsimile transmission to (703) 734-

5784. You may review copies of all comments we receive in the Office of

Policy and Analysis, FCA.

FOR FURTHER INFORMATION CONTACT:

Alan Markowitz, Senior Policy Analyst, Office of Policy and Analysis,

Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4479;

or

Rebecca S. Orlich, Senior Attorney, Office of General Counsel, Farm

Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703)

883-4444.

SUPPLEMENTARY INFORMATION:

I. Objectives

The objectives of our proposed rule are to:

Provide a termination procedure for Farm Credit

associations and banks that implements section 7.10 of the Farm Credit

Act of 1971, as amended (1971 Act);

Ensure that all equity holders of a terminating

institution are treated fairly and equitably;

Ensure that stockholder disclosure materials are easy to

read and understand;

Ensure that the remaining FCS institutions can continue

fulfilling their congressional mandate of serving the credit needs of

farmers, ranchers, and cooperatives; and

Ensure that the remaining FCS institutions are able to

operate safely and soundly.

II. Background

The Agricultural Credit Act of 1987 \1\ (1987 Act) amended the 1971

Act by adding section 7.10--Termination of System Institution Status.

Section 7.10 allows an FCS institution to terminate its status as a

Farm Credit institution if the institution:

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\1\ Public Law 100-233, 101 Stat. 1568 (1988).

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Provides advance notice to us at least 90 days before

termination;

Receives Federal or State approval of a charter for a

bank, savings and loan or other financial institution;

Receives our approval;

Receives the approval of a majority of the institution's

voting stockholders;

Pays or adequately provides for the payment of all its

outstanding debt obligations;

Pays to the Farm Credit Insurance Fund (Insurance Fund) an

amount by which the institution's capital exceeds 6 percent of its

assets; and

Fulfills any other conditions that we, by regulation,

consider appropriate.

In addition to the requirements of section 7.10, section 7.11 of

the 1971 Act requires that any plan of termination, including all

information to be distributed to the stockholders, must be submitted to

us for approval prior to the stockholder vote. Section 7.11 requires us

to act on the plan of termination and related disclosure materials

within 60 days of their submission to us. If we take no action, the

institution may submit its proposal to stockholders. If we disapprove

the plan, our notice to the institution must specify the reasons for

disapproval.

On December 18, 1989, we published an Advance Notice of Proposed

Rulemaking (ANPRM) \2\ requesting comments on the manner and process

for implementing the new termination procedures. On July 12, 1990, we

published a proposed rule authorizing the termination of Farm Credit

status for small associations only.\3\ An association is defined as

``small'' when its investment in its affiliated Farm Credit Bank (FCB)

is 25 percent or less of the bank's capital, or when its loan from the

FCB totals 25 percent or less of the bank's total loans. On January 30,

1991, we published the current final rule that establishes the

procedure for small associations.\4\

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\2\ See 54 FR 51763.

\3\ See 55 FR 28639.

\4\ See 56 FR 3397.

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On March 19, 1993, we published a proposed rule establishing a

procedure for the termination of large associations, FCBs and banks for

cooperatives (BCs) and revisions to the regulations on the termination

of FCS status for small associations (1993 proposed rule).\5\ The 1993

proposed rule also included requirements enacted in the Farm Credit

Banks and Associations Safety and Soundness Act of 1992 (1992 Act).\6\

The 1992 Act amended the 1971 Act by increasing our time to review the

application from 30 days to 60 days and clarifying provisions for the

repayment of assistance for debt obligations issued by the Farm Credit

System Financial Assistance Corporation (FAC).

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\5\ See 58 FR 15099.

\6\ Public Law 102-552, 106 Stat. 4102 (1992).

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[[Page 60371]]

After the comment period for the 1993 proposed rule closed, we

decided that additional public comment was needed. On July 26, 1993, we

published a resolicitation of comments that explained how the exit fee

was to be calculated and provided examples. In addition, we clarified

other provisions of the 1993 proposed rule.

We took no further action on the 1993 proposed rule. We now

withdraw the 1993 proposal and propose amendments to the existing rule.

This proposal has similarities to the existing rule and the 1993

proposal but differs in several significant respects as follows:

1. There are no separate subparts for FCB and agricultural credit

bank terminations. The 1993 proposal had three separate subparts.

2. The date on which a terminating institution's exit fee is

calculated is the termination date. The information statement will

include a ``preliminary exit fee estimate,'' calculated as of the

quarterend before the termination application is filed, with any

adjustments we may require. In the existing rule and 1993 proposal, the

date of the exit fee calculation is the quarterend before the

termination application is filed.

3. A terminating institution must pay 110 percent of the

preliminary exit fee estimate, with any adjustments we may require,

into an escrow account on the termination date. It must also pay into

escrow 110 percent of the amount of stock retirements to dissenting

stockholders and System institutions. After an independent audit to

determine the final exit fee, the escrow agent will disburse the funds.

4. A terminating association may repay its direct loan on a

schedule agreed to by its bank, without a time limit on the repayment

period. In the existing rule and the 1993 proposal, the association

must repay the loan in 3 years or less.

5. A Farm Credit bank does not have to enter into an agreement with

a terminating affiliated association regarding when the bank will

retire the association's investment. Instead, the bank may retire the

investment according to an existing capital revolvement plan or may

make some other retirement agreement with the association. In the

absence of a revolvement plan or other agreement with the association,

the bank must retire the investment on or before the date the

association (or the successor institution) repays its direct loan. In

the existing rule and the 1993 proposal, the FCA must specify how the

investment is retired if the bank and the association cannot agree.

6. System institutions with investments in a terminating

institution have the option to exchange their investments for equity in

the successor institution. In the existing rule and the 1993 proposal,

the terminating institution must retire equity held by other System

institutions (other than an affiliated bank) at termination.

7. In the existing rule and the 1993 proposal, the adjusted book

value of dissenting stockholders' equities is calculated after the exit

fee. The terminating institution must, in effect, pay dissenting

stockholders out of the total capital the successor institution may

retain. In our proposal, a dissenting stockholder receives the adjusted

book value for his equity, calculated before the exit fee is paid. The

terminating institution pays dissenting stockholders before the

calculation of the total capital it may retain for the successor

institution. In addition, the calculation of a non-terminating

association's interest in a terminating bank is unchanged from the 1993

proposal.

8. A terminating bank's payment to the FAC is to be based only on

the retail loan volume of the bank, the associations terminating with

it, and any association maintaining its direct loan with the

terminating bank after termination. The 1993 proposal did not specify

whether the retail loan volume of a non-terminating affiliated

association would be included in the calculation of a terminating

bank's FAC payment.

9. We have rewritten the rule using plain language principles.

Those principles are: short sentences; minimal use of defined terms and

highly technical words; the active voice; and the use of ``we'' or

``us'' for the FCA and ``you'' for the terminating institution.

Below is a section-by-section analysis of the proposed rule.

III. Section-by-Section Analysis

Our section-by-section analysis of the proposed rule generally

discusses only those sections where we have recommended substantive

changes.

Section 611.1200 Applicability of These Regulations

This section is amended to be applicable to all FCS banks and

associations. The existing rule applies only to small associations.

Section 611.1205 Definitions That Apply in Subpart P

We propose a number of changes to this section. The terms

``terminating association,'' ``terminating resolution,'' and

``termination vote'' would be deleted since they are explained in other

sections of these regulations. We propose to replace the definition of

``GAAP'' with a reference to the definition of ``generally accepted

accounting principles'' in our accounting regulations, which are in

part 621 of this chapter. Our proposal would move the definition of

``assets'' from existing Sec. 611.1240 to this section, because the

term is also used in other sections of the termination regulations.

Section 611.1210 Commencement Resolution and Advance Notice

We propose to amend Sec. 611.1210(b)(1) by requiring the

terminating institution to send a certified copy of the commencement

resolution to us and the Farm Credit System Insurance Corporation

(FCSIC). A terminating association must also send a copy to its

affiliated bank. A terminating bank must also send a copy to its

affiliated associations, the other FCS banks, and the Federal Farm

Credit Banks Funding Corporation (Funding Corporation). We would revise

Sec. 611.1210(b)(2) to clarify that the brief announcement to all

equity holders must describe the specific effect of termination on the

equities held and on any borrower rights.

Existing Sec. 611.1210(c)(1) requires a terminating institution to

submit to us an estimate of its exit fee with an explanation of how it

was calculated. We propose to eliminate this requirement. We also

propose to eliminate existing Sec. 611.1210(c)(2) and (3), which

contain a procedure for the FCA to confirm the terminating

institution's exit fee before submission of the termination

application. We believe that we can review the terminating

institution's exit fee calculations during our 60-day statutory review

period.

Proposed Sec. 611.1210(c) would require a terminating bank to begin

negotiations with the remaining FCS banks on the terminating bank's

satisfaction of its share of Systemwide obligations under section 4.4

of the 1971 Act. The Funding Corporation, at its option, may

participate in these negotiations and be a party to the agreement

referred to in Sec. 611.1260(c) to the extent necessary for the Funding

Corporation to fulfill its duties with respect to financing and

disclosure.

Proposed Sec. 611.1210(e) allows a terminating bank to continue to

participate in Systemwide debt obligations until the date of

termination. Existing Sec. 611.1210(e) has been redesignated as (f).

[[Page 60372]]

Section 611.1215 Prohibited Acts

We propose to redesignate existing Sec. 611.1226 as Sec. 611.1215.

This section is substantially similar to the existing rule on

prohibited acts, except that we have expanded its application to

prospective, as well as current, equity holders.

Section 611.1220 Filing of Termination Application

We propose to redesignate existing Sec. 611.1211 as Sec. 611.1220.

The substance of this section is unchanged from the existing rule,

except that we would require five copies of a termination application.

This is the same number of copies we require for other types of

corporate applications, such as mergers. However, should an institution

send us the application in electronic form, it must send us at least

one hard copy application with original signatures.

Section 611.1221 Filing of Termination Application--Timing

We propose to redesignate existing Sec. 611.1212 as Sec. 611.1221.

We propose to eliminate the references to the filing date and the 10-

day review period for technical completeness in existing

Sec. 611.1212(a) and (b). We also propose to reduce the 60-day advance

notice requirement in existing Sec. 611.1212(c) to 30 days. If we

receive the termination application less than 30 days after receiving

the advance notice as required by redesignated Sec. 611.1221(b), we may

disapprove the application. The 30-day time period is now adequate as a

result of statutory changes that provided us with an additional 30 days

to act on a termination application.

Section 611.1222 Plan of Termination--Contents

We propose to redesignate existing Sec. 611.1230 as Sec. 611.1222.

This section is substantially similar to the existing rule.

Section 611.1223 Information Statement--Contents

We propose to redesignate Sec. 611.1225 as Sec. 611.1223. Proposed

Sec. 611.1223 has a new requirement to draft the information statement

according to plain language principles. We believe System institutions

should make their communications with stockholders easy to read and

understand, just as we have undertaken to do in communications with

System institutions and the public. Since last October, we have been

complying with a Presidential directive to write communications in

plain, everyday language and use short sentences, the active voice, and

the pronoun ``you'' where appropriate. We strongly endorse the

President's directive and believe that using plain language saves the

Government and the public time, effort, and money.\7\

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\7\ Presidential Memorandum on Plain Lanauge in Government

Writing (63 FR 31883, June 10, 1998). The FCA, as an independent

agency, is not obligated to comply but is doing so voluntarily.

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Our proposal has a requirement to draft the information statement

in a clear, concise and understandable manner using:

Short sentences;

Active voice;

Tabular presentation or bullet lists for complex material,

whenever possible; and

No legal jargon or highly technical business terms.

Our proposal is modeled on the plain English rule of the Securities

and Exchange Commission (SEC) that applies to prospectuses.\8\ The

SEC's rule, which went into effect on October 1, 1998, is the result of

a joint effort by that agency and a number of regulated companies to

improve their disclosure documents for the benefit of investors, their

ultimate users. Our new requirement would give the same benefit to the

stockholders of a terminating institution by applying the same general

principles to the information statement.

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\8\ The SEC's plain English rule for prospectuses is set forth

at 17 CFR 230.421. For additional guidance, you should consult the

SEC's plain English Handbook, which is available on the SEC's

website at www.sec.gov.

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Proposed Sec. 611.1223(d)(2) contains a new requirement to specify

the amounts of the estimated exit fee and the estimated expenses of

termination and organization of the successor institution. It also

separates the statutory requirement to list the benefits and

disadvantages of the termination from the explanation of the board's

basis for recommending the termination. We believe a separate

discussion of this information will be important to stockholders in

their evaluation of the termination proposal. The rest of proposed

Sec. 611.1223 contains substantially the same requirements as the

existing rule except that we propose to require a balance sheet and

income statement for each of the 3 preceding years. We believe it is

important for stockholders to have an additional year of financial

information to review to provide a complete picture of the proposed

termination.

Section 611.1230 FCA Review and Approval

We propose to redesignate Sec. 611.1215 as Sec. 611.1230. We

propose to amend this section to remove the references to the filing

date and extend our review period from 30 days to 60 days, to implement

the change made to section 7.11(a)(2) of the 1971 Act by the 1992 Act.

In proposed new Sec. 611.1230(b), we would retain the right to deny a

termination if we determine that the termination would have a material

adverse effect on the ability of the remaining FCS institutions to

adequately serve agriculture. We do not believe Congress intended

section 7.10 to jeopardize the ability of the System to continue to

fulfill its congressional mandate of serving the credit needs of

farmers, ranchers and their cooperatives.

Finally, existing Sec. 611.1215(f) is redesignated as

Sec. 611.1230(d). We propose to clarify that, if a reconsideration vote

is held, the termination cannot occur earlier than 15 days after the

reconsideration vote.

Section 611.1240 Voting Record Date and Stockholder Approval

We propose to redesignate existing Sec. 611.1220 as Sec. 611.1240.

While we have rewritten this section, it does not differ in substance

from the existing rule.

Section 611.1245 Stockholder Reconsideration

We propose to redesignate existing Sec. 611.1235 as Sec. 611.1245.

We have streamlined and simplified this section and amended the

provision to require that stockholders submit the petition to us rather

than the institution for review.

Section 611.1250 Preliminary Exit Fee Estimate

This proposal contains significant revisions to the timing of the

exit fee calculations for banks and associations. First, in proposed

Sec. 611.1250 we add a ``preliminary exit fee estimate'' requirement to

be calculated as of the quarterend before the institution files its

termination application. Second, the computation date for the ``final

exit fee,'' which is described in proposed Sec. 611.1255, would be the

actual termination date. These proposals differ from the existing rule,

which requires the institution to estimate its exit fee after the

commencement resolution and to calculate the actual exit fee as of the

quarterend before filing the termination application.

We believe that calculating the exit fee on the termination date is

more consistent with the 1971 Act's requirement. A calculation at this

later date allows us to take into account all of the financial changes

that occur up to and including the final date on which the institution

is chartered as a System institution. We would still require an

estimate of the exit fee as of the quarterend before the terminating

institution files its application. This

[[Page 60373]]

estimated exit fee, with any adjustments we require, would be used to

explain the costs of termination to stockholders in the information

statement.

Proposed Sec. 611.1250(a) explains how to calculate the preliminary

exit fee estimate for an association. Assets and liabilities would

continue to be based on the average daily balances for the 12 months

ending on the computation date. We have also kept the requirements that

the account balances be independently audited and conform with GAAP. We

may waive the requirement for an independent audit if one was performed

as of a date less than 6 months before the filing of the termination

application.

As described below, we propose to require a terminating association

to add or subtract certain amounts from the assets and liabilities.

Some of these amounts must be calculated on an average daily balance in

order not to distort the effect of adding or subtracting the amounts.

Other amounts, which are estimates of future transactions or expenses

that we expect to be recorded on or close to the termination date, will

not be averaged for this calculation.

We have kept the requirement that the terminating association must

add back to assets expenses it has incurred because it is seeking to

terminate its System status. We continue to believe that termination

expenses are organizational expenses of the successor institution and

are its responsibility. Thus, we propose not allowing such expenses

when determining the exit fee.

In the 1993 proposed rule, we proposed to allow terminating

institutions to subtract from their exit fees the FAC liabilities and

certain tax liabilities that are due as a result of terminating. We are

again allowing the deductions in this proposed rule, but the deductions

will be from assets instead of the exit fee. This proposed amendment

would not materially affect the amount of the exit fee to be paid.

The tax liability we refer to in proposed

Sec. 611.1250(a)(4)(ii)(B) generally relates to patronage distributions

that some banks allocated to their associations prior to the issuance

of Statement of Financial Accounting Standards No. 109. We believe that

the net value of such patronage to the institution should be the same,

whenever received, and therefore believe that it is appropriate to

calculate capital based on the after-tax impact of all patronage

distributions.

A terminating institution must make adjustments to assets and

liabilities for significant future transactions that it reasonably

expects to occur on or before the termination date. This is not

intended to include nominal transactions or most expenses that occur in

the normal course of business. We do expect a terminating institution

to include non-routine or significant transactions such as retirements

of equities, loan repayments, gains or losses on the sale of assets,

and patronage distributions.

On the liability side of the balance sheet, a terminating must

subtract from liabilities any GAAP liability that we treat as

regulatory capital for capital or collateral purposes. We believe this

approach is fair and equitable, and it is consistent with the treatment

of regulatory capital by the other Federal financial institution

regulatory agencies.

A terminating institution must also make any adjustments that we

require under Sec. 611.1250(c), as we do under existing

Sec. 611.1240(e).

After making the necessary adjustments to assets and liabilities,

the preliminary total capital will be calculated by subtracting

liabilities from assets. The preliminary exit fee estimate will be the

amount by which the total capital exceeds 6 percent of assets, as

adjusted.

Proposed Sec. 611.1250(b) explains how to calculate the preliminary

exit fee estimate when the terminating institution is a bank. The exit

fee for a bank is based on the combined balance sheets of the bank and

any affiliated associations that are terminating with it. The bank's

portion would be the difference between the exit fee based on the

combined balance sheets and the exit fees for the terminating

associations calculated as if they were terminating alone. If there are

no associations terminating with the bank, the exit fee is based solely

on the bank's balance sheet.

The first of four steps in calculating a bank's preliminary exit

fee estimate is to calculate the exit fee for the terminating

associations as if they were terminating alone, according to

Sec. 611.1250(a). The second step is to adjust the bank's assets in the

same manner as for an association, with the following three exceptions.

A terminating bank must:

Subtract from assets the average daily balances of the

equity investments held by affiliated associations that are not

terminating.

Subtract from assets and liabilities the direct loans to

affiliated associations that are not terminating.

Add to assets the estimated amount of FAC payments it will

receive from the terminating institutions. This offsets the deduction

the bank makes when it adjusts its balance sheet for its payment to the

FAC.

The third step is combining the bank's adjusted balance sheet with

the adjusted balance sheets of the terminating associations in

conformity with GAAP, using cross-elimination methods. For purposes of

termination, total capital is calculated by subtracting the adjusted

liabilities from adjusted assets of the combined balance sheets.

Lastly, the adjusted assets of the combined balance sheets are

multiplied by 6 percent. Subtracting this amount from the total capital

results in the preliminary exit fee estimate for the combined entity.

The bank's portion will be the difference between the preliminary exit

fee estimate of the combined balance sheets and the total of exit fees

for the terminating associations calculated in the first step. Although

it is unlikely, if the exit fees of the terminating associations exceed

the exit fee of the combined entity, the associations would pay their

exit fees, and the bank would have no exit fee.

Proposed Sec. 611.1250(c) is essentially the same as

Sec. 611.1240(e) in the existing regulations. It provides that we will

review the transactions of the institution for the 3-year period prior

to the termination resolution and will require adjustments, in order to

assure that account balances are accurate. In addition, we may require

adjustments to reverse the effect of transactions outside the ordinary

course of business.

Section 611.1255 Exit Fee Calculation

We propose to redesignate existing Sec. 611.1240 as Sec. 611.1255.

We are proposing to move the definition for assets that is in existing

Sec. 611.1240 to Sec. 611.1205 and to remove the definitions for total

capital and contingent liabilities as unnecessary. Proposed

Sec. 611.1255(a) describes the exit fee calculation for a terminating

association. The final exit fee calculation is similar to the

preliminary exit fee estimate, but there are several differences. One

difference is that amounts estimated for the preliminary exit fee

estimate will be known, and adjustments will be made for actual

amounts. Another difference is that a terminating association must

account for the retirement of equities of dissenting stockholders. To

account for these retirements, the association must subtract from

assets the equity retired to dissenting stockholders on the termination

date before computing the exit fee. Dissenters' equity is not deducted

in the preliminary exit fee estimate because a terminating institution

would not know or be able to reasonably estimate the number of

dissenters or the amount of their equity.

[[Page 60374]]

Subtracting payments to dissenters from assets before calculating

total capital is a change from the existing regulation. In the existing

regulation, because the exit fee is calculated before dissenting

stockholders' equities are retired, the terminating institution in

effect pays the dissenters out of the capital it would otherwise take

to the successor institution. Another change from the existing

regulation is in determining the book value of dissenting stockholders'

equity. We propose to determine it before the exit fee is calculated.

In the existing regulation, the book value is determined based on the

capital the institution has after it pays the exit fee. In re-examining

this issue, we decided to make this change so that all stockholders

whose equity in the terminating institution is retired, including

retail borrowers and non-terminating associations, would be treated in

the same manner. Another reason for the change is that the book value

would be similar to what it would be if the association liquidated

instead.

Proposed Sec. 611.1255(b) describes the final exit fee calculation

for a terminating bank. As is the case with a terminating association,

the final exit fee calculation for a bank is similar to the preliminary

exit fee estimate. Again, the main differences between the preliminary

estimate and the final exit fee are that actual values are used instead

of estimates and the bank must subtract the equity retirements of

dissenting stockholders as part of the final exit fee calculation. The

amount is subtracted from assets before calculating the exit fee. In

addition, the bank must subtract from assets and liabilities the direct

loans to non-terminating affiliated associations only if they repay or

transfer their loans before the bank terminates.

Proposed Sec. 611.1255(c) covers payment of the exit fee and

retirements of equity to dissenting stockholders. The terminating

institution must deposit in an escrow account, acceptable to the FCSIC

and us, an amount equal to 110 percent of the preliminary exit fee

estimate with adjustments based on information available on the

termination date. We will adjust the preliminary exit fee estimate to

account for stock retirements to dissenting stockholders and System

institutions, and any other adjustments we require. We believe this

will be more accurate than using the preliminary exit fee estimate

disclosed in the information statement because it replaces the

estimated amounts for FAC obligations, taxes, and other expenses with

actual amounts. It also includes stock retirements. As stated above,

the final exit fee must be based on an independent audit of the

terminating institution as of the termination date. The final account

balances and final exit fee will not be known, and the final audit will

not be completed, for several weeks or months after the termination.

Thus, the estimated exit fee must be held in escrow until we know the

final account balances and have calculated the final exit fee. In

addition, the terminating institution also must deposit in escrow an

amount equal to 110 percent of the equity retired to dissenting

stockholders pending the final audit.

Proposed Sec. 611.1255(d) describes the pay-out of escrow following

completion of the independent audit. Following the audit, we will

calculate the final exit fee and the amount owed to stockholders. We

will direct the escrow agent to pay the exit fee to the Insurance Fund

and to pay amounts owed to dissenting stockholders. The escrow agent

will then return any remaining amounts to the successor institution. If

the escrowed funds are not enough to cover the exit fee or the amounts

owed to stockholders, proposed Sec. 611.1255(e) requires the successor

institution to pay any shortfall to the escrow agent for distribution

to the appropriate parties. We will require the terminating institution

to sign a statement binding the successor institution to pay additional

amounts owed to dissenting stockholders and System institutions.

Section 611.1260 Payment of Debts and Assessments--Terminating

Association

We propose to redesignate existing Sec. 611.1250 as Sec. 611.1260.

Proposed Sec. 611.1260 would continue to apply only to terminating

associations. We propose to delete existing Sec. 611.1250(b) because we

believe it is unnecessary. We propose to redesignate Sec. 611.1250(c)

as Sec. 611.1260(b) and remove the 3-year limitation for a terminating

association that does not become an ``other financing institution'' to

repay its debt obligations to its affiliated bank. Without the time

limit, a bank will have the flexibility to set its own repayment terms

as necessary for the bank to manage the risk on its balance sheet and

its debt structure. However, if a terminating association is unable to

reach agreement with its bank for repaying its obligations, the

association must repay its obligations at termination. We also propose

new Sec. 611.1260(d) that requires a terminating association to pay its

FAC debt obligations to its affiliated bank as required by section 6.26

of the 1971 Act. In response to comments received in response to the

1993 proposal, proposed Sec. 611.1260(d) defines the appropriate

discount rate that would be used. The rate would be the non-interest

bearing U.S. Treasury security rate with a maturity as near as possible

to the period remaining until the terminating association's FAC

obligations would be due.

Section 611.1265 Retirement of equities--Terminating Association

We propose to redesignate Sec. 611.1255 as Sec. 611.1265. This

section would continue to apply only to the termination of an

association. Existing Sec. 611.1255(a) authorizes a Farm Credit Bank to

retire equities owned by a terminating association on the date of

termination or in phases after the date of termination, in accordance

with a written agreement between the bank and the association. The

existing rule limits the phased retirement to the earlier of the date

on which the terminating association repays all indebtedness to its

bank or 3 years from the date of termination. Should the bank and the

terminating association fail to reach an agreement on when to retire

the bank's equities, existing Sec. 611.1255(b) authorizes either party

to request our review of the most recent proposals along with the

points of disagreement. The existing rule states that we may require

the bank to retire the terminating association's equities under

conditions that we impose.

We propose to amend existing Sec. 611.1255(a) and (b) by: (1)

Removing the 3-year limitation for a terminating association's

affiliated bank to retire purchased and allocated equities held by the

association; (2) eliminating our role in deciding how retirements must

occur when a terminating association and its affiliated bank cannot

agree; and (3) redesignating Sec. 611.1255(a) and (b) as

Sec. 611.1265(b) and (c). Our proposal would authorize the affiliated

bank to retire purchased and allocated equities held by the terminating

association in accordance with the terms of a capital revolvement plan

or other agreement between the bank and the association. If there is no

agreement, these equities must be retired no later than when the

terminating association pays off its loan from the bank. However, any

equity retirement by the bank is subject to its having adequate capital

and remaining in a safe and sound condition as required by proposed

Sec. 611.1265(a).

Section 611.1255(a) of the existing rule prohibits a bank from

retiring equities owned by a terminating association if such retirement

would result in the bank's failure to meet minimum capital

requirements. In addition, existing Sec. 611.1255(c) states

[[Page 60375]]

that no retirement of equities may occur if we determine that the

retirement would threaten the viability of the bank. We propose changes

by: (1) Redesignating Sec. 611.1255(c) as Sec. 611.1265(a); and (2)

prohibiting a bank from retiring a terminating association's equities

if we determine that the bank would otherwise be in an unsafe or

unsound condition.

In new Sec. 611.1265(c), we clarify that a bank's retirement of a

terminating association's equity is limited to the par or face value of

purchased or allocated equities. A bank may not pay any portion of its

unallocated surplus to a terminating association.

We propose to delete the requirements in existing Sec. 611.1255(d)

and (e) for associations to retire FAC-preferred stock prior to

termination since all shares of FAC-preferred stock were redeemed

before 1995. We also propose changes to Sec. 611.1255(e) to give a Farm

Credit institution with an equity interest in a terminating association

the option of having the investment retired or maintaining its

investment in that association after it terminates. However, should a

Farm Credit institution decide to maintain its investment in a

terminating institution, that investment would be included in the

assets on which the exit fee is calculated. This could result in a

reduction in the value of the investment when compared to the value of

the equity if it were retired at termination.

Section 611.1270 Repayment of Obligations--Terminating Bank

Proposed Sec. 611.1270 establishes the procedure for a terminating

bank to satisfy its obligations. We have simplified the procedure that

was published in the 1993 proposal. In addition, we have clarified

several provisions as a result of comments received from both the 1993

proposal and the resolicitation. A terminating bank must pay or make

adequate provision for payment of all its outstanding obligations as of

the termination date. In the 1993 proposal, we listed three options a

terminating bank may use to satisfy the Systemwide and consolidated

obligations on which it is primarily liable. We have replaced this with

a requirement in proposed Sec. 611.1270(c) to allow any method that

would be acceptable to the remaining FCS banks and us.

Proposed Sec. 611.1270(c)(1) requires the terminating bank and the

other FCS banks to enter into an agreement, subject to our approval, to

satisfy obligations issued under section 4.2 of the 1971 Act on which

it is not primarily liable. This agreement must specify how the

successor institution will satisfy its joint and several liability to

holders of obligations other than those obligations on which the

terminating bank is primarily liable.

We propose in Sec. 611.1270(c)(2) that the banks enter into an

agreement to make adequate provision for payment of the terminating

bank's joint and several liability. If the terminating bank and the

other FCS banks are unable to reach agreement within 90 days before the

proposed date of termination, the FCA will specify the manner in which

the terminating bank will make adequate provision for the payment of

its joint and several liability and the manner in which we will make

joint and several calls for those obligations outstanding on the

termination date.

Proposed Sec. 611.1270(c)(3) clarifies that, notwithstanding any

other provision in the regulations on how calls would be made by us on

defaulted obligations, the terminating bank would remain liable under

section 4.4 of the 1971 Act for all issues outstanding on the

termination date until they are repaid.

Proposed Sec. 611.1270(d) reflects the statutory amendments made by

the 1992 Act governing the repayment of FAC obligations by a

terminating bank. We propose to require a terminating bank to base the

calculation of its FAC payment on the retail loan volume of the bank

and those associations that are terminating with the bank or that will

continue to have a direct loan relationship with the successor

institution. If any of the bank's affiliated associations choose to

remain in the System and transfer their direct loans to another Farm

Credit bank, the calculation of the bank's FAC payment would not

include the retail loan volume of those associations. In addition, it

is our intention in this section to require the FAC to take into

consideration loan volumes of previous years but not to require that

the average of those years be used to project future loan volumes for

the remaining years before FAC obligations mature. We invite your

comment and suggestions on this point.

Section 611.1275 Retirement of equities--Terminating Bank

Proposed Sec. 611.1275(a) states that System institutions that hold

equities in a terminating bank have the right to have their equities

retired on the termination date. Institutions may choose to maintain

investments in a terminating bank even if they vote against the

termination. However, the value of such equity could be reduced by the

exit fee payment. Proposed Sec. 611.1275(c) authorizes an association

that is not terminating to require its terminating bank to transfer its

investment to another FCS bank after its bank adopts a commencement

resolution. The investment must include purchased and allocated

equities and the association's pro rata share of the bank's unallocated

surplus.

Section 611.1280 Dissenters' Rights

This section appears in the existing rule as Sec. 611.1260.

Proposed Sec. 611.1280 addresses the rights of equity holders who

dissent from the termination and requires that dissenters receive cash

in exchange for their interests in the terminating institution. A

dissenting stockholder is:

An equityholder other than a System institution that was

eligible to vote on the termination resolution and voted against the

termination, or

An equityholder on the termination date that was

ineligible to vote.

The proposal would give dissenting stockholders the right to have their

equities in the terminating institution retired on the termination

date. The proposal would entitle dissenting stockholders to the

adjusted book value of their equity in accordance with the priorities

set forth in the liquidation provisions of the terminating

institution's bylaws. The proposal differs from existing

Sec. 611.1260(c), which requires the amount paid to dissenting

stockholders to be calculated after the amount of the exit fee is

deducted from assets. Proposed Sec. 611.1280 eliminates deduction of

the exit fee. We believe that the proposed method provides dissenting

stockholders their pro rata share of capital. However, this change is

likely to result in a lower exit fee than in the existing regulation.

We specifically seek comments on this.

Existing Sec. 611.1260(c)(ii) authorizes a successor institution to

issue subordinated debt to dissenting stockholders for amounts in

excess of par or face value. Proposed Sec. 611.1280(e) eliminates the

payment of subordinated debt to dissenting stockholders. Since

dissenting stockholders are paid before the calculation of the exit

fee, there is no longer a need for an institution to issue subordinated

debt. The terminating institution must pay dissenting stockholders in

cash or make some other arrangement that is satisfactory to each

dissenting equityholder for their share of capital.

[[Page 60376]]

Section 611.1285 Loan Refinancing by Borrowers

We have redesignated Sec. 611.1266 as Sec. 611.1285. Proposed

Sec. 611.1285(a), like existing Sec. 611.1266, would require a

terminating institution to provide credit and loan information about a

borrower to another FCS institution when requested by a borrower

seeking refinancing with such institution. Proposed Sec. 611.1285(b)

would also authorize any FCS institution to lend in a terminating

institution's territory provided:

We have not assigned the terminating institution's

territory to another FCS institution; and

The FCS institution seeking to lend in a terminating

institution's territory is otherwise authorized by the 1971 Act and

regulations to extend the type of credit provided by the terminating

institution.

Section 611.1290 Continuation of Borrower Rights

This section appears in the existing rule as Sec. 611.1270. While

we have rewritten this section, it does not differ in substance from

the existing rule.

List of Subjects in 12 CFR Part 611

Agriculture, Banks, banking, Organization and functions (Government

agencies), Rural areas.

For the reasons stated in the preamble, we propose to amend part

611 of chapter VI, title 12 of the Code of Federal Regulations as

follows:

PART 611--ORGANIZATION

1. The authority citation for part 611 is revised to read as

follows:

Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15,

4.20, 4.21, 5.9, 5.10, 5.17, 6.9, 6.26, 7.0-7.13, 8.5(e) of the Farm

Credit Act (12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183,

2203, 2208, 2209, 2243, 2244, 2252, 2278a-9, 2278b-6, 2279a-2279f-1,

2279aa-5(e)); secs. 411 and 412 of Public Law 100-233, 101 Stat.

1568, 1638; secs. 409 and 414 of Public Law 100-399, 102 Stat. 989,

1003, and 1004.

2. Revise subpart P to read as follows:

Subpart P--Termination of System Institution Status

Sec.

611.1200 Applicability of this subpart.

611.1205 Definitions that apply in this subpart.

611.1210 Commencement resolution and advance notice.

611.1215 Prohibited acts.

611.1220 Filing of termination application.

611.1221 Filing of termination application-timing.

611.1222 Plan of termination-contents.

611.1223 Information statement-contents.

611.1230 FCA review and approval.

611.1240 Voting record date and stockholder approval.

611.1245 Stockholder reconsideration.

611.1250 Preliminary exit fee estimate.

611.1255 Exit fee calculation.

611.1260 Payment of debts and assessments-terminating association.

611.1265 Retirement of equities-terminating association.

611.1270 Repayment of obligations-terminating bank.

611.1275 Retirement of equities-terminating bank.

611.1280 Dissenters' rights.

611.1285 Loan refinancing by borrowers.

611.1290 Continuation of borrower rights.

Subpart P--Termination of System Institution Status

Sec. 611.1200 Applicability of this subpart.

These regulations apply to each bank and association that desires

to terminate its System institution status and become chartered as a

bank, savings association or other financial institution.

Sec. 611.1205 Definitions that apply in this subpart.

Assets means all assets (less appropriate valuation adjustments)

determined in conformity with GAAP, except as otherwise required in

this subpart.

GAAP means ``generally accepted accounting principles'' as that

term is defined in Sec. 621.2(c) of this chapter.

OFI means an ``other financing institution'' that has a funding and

discount agreement with a Farm Credit bank under section 1.7(b)(1) of

the Act.

Successor institution means the bank, savings association, or other

financial institution that the terminating bank or association will

become when we revoke its Farm Credit charter.

Sec. 611.1210 Commencement resolution and advance notice.

(a) Adoption of commencement resolution. Your board of directors

must begin the termination process by adopting a commencement

resolution stating your intention to terminate Farm Credit status under

section 7.10 of the Act.

(b) Advance notice. Within 5 days after adopting the commencement

resolution, you must:

(1) Send a certified copy of the commencement resolution to us and

the Farm Credit System Insurance Corporation (FCSIC). If you are an

association, also send a copy to your affiliated bank. If you are a

bank, also send a copy to your affiliated associations, the other Farm

Credit banks and the Federal Farm Credit Banks Funding Corporation

(Funding Corporation);

(2) Mail an announcement to all equity holders stating you are

taking steps to terminate Farm Credit status and describing the

following:

(i) The process of termination;

(ii) The expected effect of termination on equity holders,

including the effect on borrower rights and the consequences of any

stock retirements before termination;

(iii) The type of charter the successor institution will have; and

(iv) Any bylaw creating a special class of borrower stock and

participation certificates under paragraph (f) of this section.

(c) Bank negotiations on joint and several liability. If you are a

terminating bank, within 10 days of adopting the commencement

resolution you and the other Farm Credit banks must begin negotiations

to provide for your satisfaction of joint and several liability on

consolidated and Systemwide obligations under section 4.4 of the Act.

The Funding Corporation may, at its option, be a party to the

negotiations to the extent necessary to fulfill its duties with respect

to financing and disclosure. The agreement must comply with the

requirements in Sec. 611.1270(c).

(d) Disclosure to customers after commencement resolution. Between

the date of the commencement resolution and the termination date, you

must give the following information to your customers:

(1) For each applicant who is not a current stockholder, describe

at the time of loan application:

(i) The effect of the proposed termination on the borrower's loan;

and

(ii) Whether the borrower will continue to have any of the borrower

rights provided under the Act and regulations.

(2) For any equity holders who ask to have their equities retired,

explain that the retirement would extinguish the holder's right to

exchange those equities for an interest in the successor institution.

In addition, inform holders of equities entitled to your residual

assets in liquidation that retirement before termination would

extinguish their right to dissent from the termination and receive the

adjusted book value of their equities.

(e) Terminating bank's right to continue issuing debt. Until the

termination date, a terminating bank may continue to participate in the

issuance of consolidated and Systemwide obligations to the same extent

it would be able to participate if it were not terminating.

(f) Special class of stock. Notwithstanding any requirements to the

contrary in Sec. 615.5230(b) of this

[[Page 60377]]

chapter, you may adopt bylaws providing for the issuance of a special

class of stock and participation certificates between the date of

adoption of a commencement resolution and the termination date. Your

stockholders must approve the special class before you adopt the

commencement resolution. The equities must comply with section 4.3A of

the Act and be identical in all respects to existing classes of

equities that are entitled to the residual assets of the institution in

a liquidation, except for the value a holder will receive in a

termination. In a termination, the holder of the special class of stock

receives value equal to the lower of either par (or face) value, or

adjusted book value. A holder must have the same right to vote (if the

equity is held on the voting record date) and to dissent as holders of

similar equities issued before the commencement resolution. If the

termination does not occur, the special classes of stock and

participation certificates must automatically convert into shares of

the otherwise identical equities.

Sec. 611.1215 Prohibited acts.

(a) Statements about termination. Neither the institution nor any

director, officer, employee or agent may make any untrue or misleading

statement of a material fact, or fail to disclose any material fact,

about the termination to a current or prospective equity holder.

(b) Representations regarding FCA approval. Neither the institution

nor any director, officer, employee or agent may make an oral or

written representation to anyone that a preliminary or final approval

of the termination by us is, directly or indirectly, either a

recommendation on the merits of the proposal or an assurance that the

information given by you to your equity holders is adequate or

accurate.

Sec. 611.1220 Filing of termination application.

(a) Adoption of termination resolution. Your board must adopt a

termination resolution authorizing the application for termination and

for a new charter.

(b) Contents of termination application. Send us an original and

five copies of the termination application for review and preliminary

approval. If you send us the application in electronic form, you must

send us at least one hard copy application with original signatures.

The application must contain:

(1) A certified copy of the termination resolution;

(2) A copy of the plan of termination required under Sec. 611.1222;

(3) An information statement that complies with Sec. 611.1223;

(4) All other information that you give to current or prospective

equity holders in connection with the termination; and

(5) Any additional information that either we request or your board

of directors wishes to submit in support of the application.

(c) Requirement to update application. You must immediately send us

any material changes to information in the plan of termination,

including financial information, that occur between the date you file

the application and the termination date. In addition, send us copies

of any additional written information on the termination that you give

to current or prospective equity holders before termination.

Sec. 611.1221 Filing of termination application--timing.

If we receive the termination application required in Sec. 611.1220

less than 30 days after receiving the advance notice, we may in our

discretion disapprove the application.

Sec. 611.1222 Plan of termination--contents.

The plan of termination must include:

(a) Copies of all contracts, agreements, and other documents on the

proposed termination and organization of the successor institution.

(b) A statement of how you will transfer assets to, and have your

liabilities assumed by, the successor institution.

(c) Your plan to retire outstanding equities or convert them to

equities of the successor institution.

(d) A copy of the charter application for the successor

institution, with any exhibits or other supporting information.

(e) A statement, if applicable, whether the successor institution

will continue to borrow from a Farm Credit bank and how such a

relationship will affect your provision for payment of debts. The plan

of termination must include evidence of any agreement and plan for

satisfaction of outstanding debts (including amounts you owe to the

Farm Credit System Financial Assistance Corporation (FAC) because of

the termination).

Sec. 611.1223 Information statement--contents.

(a) Plain language requirements.

(1) Present the contents of the information statement in a clear,

concise and understandable manner.

(2) Use short, explanatory sentences, bullet lists or charts where

helpful, and descriptive headings and subheadings.

(3) Minimize the use of glossaries or defined terms.

(4) Write in the active voice when possible.

(5) Avoid legal and highly technical business terminology.

(b) Disclaimer. Place the following statement in boldface type in

the material sent to equity holders, either on the notice of meeting or

the first page of the information statement:

The Farm Credit Administration has not determined if this

information is accurate or complete. You should not rely on any

statement to the contrary.

(c) Summary. The first part of the information statement must be a

summary that concisely explains:

(1) Which stockholders have a right to vote on termination;

(2) The material changes the termination will cause to the rights

of stockholders, borrowers, and other equity holders;

(3) The effect of those changes;

(4) The potential benefits and disadvantages of the termination;

(5) The right of certain stockholders to dissent and receive cash

for their existing equities; and

(6) The proposed termination date.

(d) Remaining requirements. The rest of the information statement

must contain the following:

(1) Plan of termination. Describe the plan of termination.

(2) Benefits and disadvantages. Provide the following information:

(i) An enumerated statement of the anticipated benefits and

potential disadvantages of the termination;

(ii) An explanation of the preliminary exit fee estimate, with any

adjustments we require, and estimated expenses of termination and

organization of the successor institution; and

(iii) An explanation of the board's basis for recommending the

termination.

(3) Initial board of directors. List the initial board of directors

and senior officers for the successor institution, with a brief

description of the business experience of each person, including

principal occupation and employment during the past 5 years.

(4) Bylaws and charter. Summarize the provisions of the bylaws and

charter of the successor institution that differ materially from your

bylaws and charter. The summary must state:

(i) Whether the successor institution will require a borrower to

hold an equity interest as a condition for having a loan; and

(ii) Whether the successor institution will require stockholders to

do business with the institution.

[[Page 60378]]

(5) Changes to equity. Explain any changes in the nature of equity

investments in the successor institution, such as changes in dividends,

patronage, voting rights, preferences, retirement of equities, and

liquidation priority. If equities protected under section 4.9A of the

Act are outstanding, the information statement must state that the

Act's protections will be extinguished on termination.

(6) Effect of termination on statutory and regulatory rights.

Explain the effect of termination on rights granted by the Act and FCA

regulations. You must explain the effect termination will have on

borrower rights granted in the Act and subparts K, L, and N of part 614

of this chapter.

(7) Loan refinancing by borrowers. (i) State, as applicable, that

borrowers may seek to refinance their loans with the System

institution(s) that already serve, or will be permitted to serve, your

territory. State that no System institution is obligated to refinance

your loans.

(ii) If we have assigned your territory to another System

institution before the information statement is mailed to equity

holders, or if another System institution is already chartered to make

the same type of loans you make in your territory, identify such

institution(s) and provide the following information:

(A) The name, address, and telephone number of the institution; and

(B) An explanation of the institution's procedures to apply for

refinancing.

(iii) If we have not assigned the territory before you mail the

information statement, give the name, address and telephone number of

the System institution specified by us and state that borrowers may

contact the institution for information about loan refinancing.

(8) Equity exchanges. Explain the formula and procedure to exchange

equity in your institution for equity in the successor institution.

(9) Employment, retirement, and severance agreements. Describe any

employment agreement or arrangement between the successor institution

and any of your senior officers (as defined in Sec. 620.1 of this

chapter) or directors. Describe any severance and retirement plans that

cover your employees or directors and state the costs you expect to

incur under the plans in connection with the termination.

(10) Exit fee calculation. Explain how the exit fee will be

calculated.

(11) New charter. Describe the nature and type of financial

institution the successor institution will be and any conditions of

approval of the new chartering authority or regulator.

(12) Differences in successor institution's programs and policies.

Summarize any differences between you and the successor institution on:

(i) Interest rates and fees;

(ii) Collection policies;

(iii) Services provided; and

(iv) Any other item that would affect a borrower's lending

relationship with the successor institution, including whether a

stockholder's ability to borrow from the institution will be

restricted.

(13) Capitalization. Discuss expected capital requirements of the

successor institution, and the amount and method of capitalization.

(14) Sources of funding. Explain the sources and manner of funding

the successor institution's operations.

(15) Contingent liabilities. Describe how the successor institution

will address any contingent liability it will assume from you.

(16) Tax status. Summarize the differences in tax status between

your institution and the successor institution, and explain how the

differences will affect stockholders.

(17) Regulatory environment. Describe briefly how the regulatory

environment for the successor institution will differ from your current

regulatory environment, and any effect on the cost of doing business or

the value of stockholders' equity.

(18) Dissenters' rights. Explain which equity holders are entitled

to dissenters' rights and what those rights are. The explanation must

include the estimated liquidation value of the stock, procedures for

exercising dissenters' rights, and a statement of when the rights may

be exercised.

(19) Financial information. (i) Present the following financial

data:

(A) A balance sheet and income statement for each of the 3

preceding fiscal years;

(B) A balance sheet as of a date within 90 days of the date you

mail the termination application to us, presented on a comparative

basis with the corresponding period of the previous 2 fiscal years;

(C) An income statement for the interim period between the end of

the last fiscal year and the date of the balance sheet required by

paragraph (d)(19)(i)(B) of this section, presented on a comparative

basis with the corresponding period of the previous 2 fiscal years;

(D) A pro forma balance sheet of the successor institution

presented as if termination had occurred as of the date of the most

recent balance sheet presented in the statement; and

(E) A pro forma summary of earnings for the successor institution

presented as if the termination had been effective at the beginning of

the interim period between the end of the last fiscal year and the date

of the balance sheet presented under paragraph (d)(19)(i)(D) of this

section.

(ii) The format for the balance sheet and income statement must be

the same as the format in your annual report and must contain

appropriate footnote disclosures, including data on high-risk assets,

other property owned, and allowance for losses.

(iii) The financial statements must include either:

(A) A statement signed by the chief executive officer and each

board member that the various financial statements are unaudited, but

have been prepared in all material respects in conformity with GAAP

(except as otherwise disclosed) and are, to the best of each signer's

knowledge, a fair and accurate presentation of the financial condition

of the institution; or

(B) A signed opinion by an independent certified public accountant

that the various financial statements have been examined in conformity

with generally accepted auditing standards and included such tests of

the accounting records and other such auditing procedures as were

considered necessary in the circumstances, and, as of the date of the

statements, present fairly the financial position of the institution in

conformity with GAAP applied on a consistent basis, except as otherwise

disclosed.

(20) Subsequent financial events. Describe any event after the date

of the financial statements, but before the date you send the

termination application to us, that would have a material impact on

your financial condition or the condition of the successor institution.

(21) Other subsequent events. Describe any event after you send the

termination application to us that could have a material impact on any

information in the termination application.

(22) Other material disclosures. Describe any other material fact

or circumstance that a stockholder would need to know to make an

informed decision on the termination, or that is necessary to make the

disclosures not misleading.

(23) Ballot and proxy. Include a ballot and proxy, with

instructions on the purpose and authority for their use, and the proper

method for the stockholder to sign the proxy.

(24) Board of directors certification. Include a certification

signed by the entire board of directors as to the truth, accuracy, and

completeness of the information contained in the

[[Page 60379]]

information statement. If any director refuses to sign the

certification, the director must inform us of the reasons for refusing.

Sec. 611.1230 FCA review and approval.

(a) FCA review period. We will review a termination application and

either give preliminary approval or disapprove the application no later

than 60 days after we receive the application.

(b) Reservation of right to disapprove termination. In addition to

any other reason for disapproval, we may disapprove a termination if we

determine that the termination would have a material adverse effect on

the ability of the remaining System institutions to fulfill their

statutory purpose.

(c) Conditions of final FCA approval. We will give final approval

to your termination application only if:

(1) Your stockholders vote in favor of termination in the

termination vote and in any reconsideration vote;

(2) You give us executed copies of all contracts, agreements, and

other documents submitted under Sec. 611.1222;

(3) You have paid or made adequate provision for payment of debts

and retirement of equities;

(4) A Federal or State chartering authority has granted a new

charter to the successor institution;

(5) You deposit into escrow an amount equal to 110 percent of the

estimated exit fee plus 110 percent of the estimated amount you must

pay to retire equities of dissenting stockholders, as described in

Sec. 611.1255(c); and

(6) You have fulfilled any other condition of termination we have

imposed.

(d) Effective date of termination. If we grant final approval, we

will revoke your charter, and the termination will be effective on the

last to occur of--

(1) Fulfillment of all conditions listed in paragraph (c) of this

section;

(2) Your proposed termination date;

(3) Ninety (90) days after we receive the notice described in

Sec. 611.1240(e); and

(4) Fifteen (15) days after any reconsideration vote.

Sec. 611.1240 Voting record date and stockholder approval.

(a) Stockholder meeting. You must call the meeting by written

notice in compliance with your bylaws. The stockholder meeting to vote

on the termination must occur within 60 days of our preliminary

approval (or, if we take no action, within 60 days of the end of our

approval period).

(b) Voting record date. The voting record date may not be more than

70 days before the stockholders' meeting.

(c) Information statement. You must provide all equity holders with

a notice of meeting and the information statement required by

Sec. 611.1222 at least 30 days before the stockholder vote.

(d) Voting procedures. The voting procedures must comply with

Sec. 611.330. You must have an independent third party count the

ballots. If a voting stockholder notifies you of the stockholder's

intent to exercise dissenters' rights, the tabulator must be able to

verify to you that the stockholder voted against the termination.

Otherwise, the votes of stockholders must remain confidential.

(e) Notice to FCA and equity holders of voting results. Within 10

days of the termination vote, you must send us a certified record of

the results of the vote. You must notify all equity holders of the

results within 30 days after the stockholder meeting. If the

stockholders approve the termination, you must give the following

information to equity holders:

(1) Stockholders who voted against termination and equity holders

who were not entitled to vote have a right to dissent as provided in

Sec. 611.1280; and

(2) Voting stockholders have a right, under Sec. 611.1245, to file

a petition with the FCA for reconsideration within 35 days after the

date you mail to them the notice of the results of the termination

vote.

(f) Requirement to notify new equity holders. You must provide the

information described in paragraph (e)(1) of this section to each

person that becomes an equityholder after the termination vote and

before termination.

Sec. 611.1245 Stockholder reconsideration.

(a) Right to reconsider termination. Voting stockholders have the

right to reconsider their approval of the termination if a petition

signed by 15 percent of the stockholders is filed with us within 35

days after you mail notices to stockholders that the termination vote

was approved. If we determine that the petition complies with the

requirements of section 7.9 of the Act, you must call a special

stockholders' meeting to reconsider the vote. The meeting must occur

within 60 days after the date on which you mailed to stockholders the

results of the termination vote. If a majority of the stockholders

voting, in person or by proxy, vote against the termination, the

termination may not take place.

(b) Stockholder list and expenses. You must, at your expense,

timely give stockholders who request it a list of the names and

addresses of stockholders eligible to vote in the reconsideration vote.

The petitioners must pay all other expenses for the petition. You must

pay expenses that you incur for the reconsideration vote.

Sec. 611.1250 Preliminary exit fee estimate.

(a) Preliminary exit fee estimate-terminating association. You must

provide a preliminary exit fee estimate to us when you submit the

termination application. Calculate the preliminary exit fee estimate in

the following order:

(1) Base your exit fee calculation on the average daily balances of

assets and liabilities. Any amounts we refer to in this section are

average daily balances unless we specify that they are not. Amounts

that are not average daily balances will be referred to as ``dollar

amount.''

(2) Determine account balances in conformity with GAAP and have

them independently audited by a qualified public accountant, as defined

in Sec. 621.2(i) of this chapter, as of the quarterend immediately

before the date you send us your termination application. We may, in

our discretion, waive the audit requirement if an independent audit was

performed as of a date less than 6 months before you submit the

termination application.

(3) Calculate the 12-month balances of assets and liabilities as of

the quarterend immediately before the date you send us your termination

application.

(4) Make adjustments to assets as follows:

(i) Add back expenses you have incurred related to termination.

Related expenses include, but are not limited to, legal services,

accounting services, auditing, business planning, and application fees

for the termination and reorganization.

(ii) Subtract the following:

(A) The dollar amount of your estimated payment (to your affiliated

bank) related to FAC obligations; and

(B) The dollar amount of your estimated taxes due to the

termination.

(iii) Adjust for the dollar amount of significant transactions you

reasonably expect to occur between the quarterend before you file your

termination application and termination. Examples of these transactions

include, but are not limited to, gains or losses on the sale of assets,

retirements of equity, loan repayments, and patronage distributions. Do

not make adjustments for future expenses related to termination, such

as severance or special retirement payments, or stock retirements to

dissenting stockholders and Farm Credit institutions.

[[Page 60380]]

(5) Subtract from liabilities any liability that we treat as

regulatory capital under the capital or collateral requirements in

subparts H and K of part 615 of this chapter.

(6) Make any adjustments we require under paragraph (c) of this

section.

(7) After making these adjustments to assets and liabilities,

subtract liabilities from assets. This is your preliminary total

capital for purposes of termination.

(8) Multiply assets as adjusted above by 6 percent, and subtract

this amount from preliminary total capital. This is your preliminary

exit fee estimate.

(b) Preliminary exit fee estimate--terminating bank. (1) Affiliated

associations that are terminating with you must calculate their

individual preliminary exit fee estimates as described in paragraph (a)

of this section.

(2) Base your exit fee calculation on the average daily balances of

assets and liabilities. Any amounts we refer to in this section are

average daily balances unless we specify that they are not. Amounts

that are not average daily balances will be referred to as ``dollar

amount.''

(3) The account balances must be in conformity with GAAP and

independently audited by a qualified public accountant, as defined in

Sec. 621.2(i) of this chapter, as of the quarterend immediately before

the date you send us your termination application. We may, in our

discretion, waive this requirement if an independent audit was

performed as of a date less than 6 months before you submit the

termination application.

(4) Calculate the 12-month balances of assets and liabilities as of

the quarterend immediately before the date you send us your termination

application.

(5) Make adjustments to assets and liabilities as follows:

(i) Add back to assets the following:

(A) Expenses you have incurred related to termination. Related

expenses include, but are not limited to, legal services, accounting

services, auditing, business planning, and application fees for the

termination and reorganization; and

(B) Any specific allowance for losses, and a pro rata portion of

any general allowance for loan losses on direct loans to an association

that you do not expect to incur before or at termination.

(ii) Subtract from your assets and liabilities an amount equal to

the average daily balances of your direct loans to your affiliated

associations that are not terminating.

(iii) Subtract the following from assets:

(A) Equity investments in you held by non-terminating associations.

A non-terminating association's investment consists of purchased

equities, allocated equities, and a pro rata share of the bank's

unallocated surplus;

(B) The dollar amount of your estimated termination payment to the

FAC; and

(C) The dollar amount of estimated taxes due to the termination.

(iv) Subtract from liabilities any liability that we treat as

regulatory capital under the capital or collateral requirements in

subparts H and K of part 615 of this chapter.

(v) Adjust for the dollar amount of significant transactions you

reasonably expect to occur between the quarterend before you file your

termination application and termination. Examples of these transactions

include, but are not limited to, retirements of equity, loan

repayments, and patronage distributions. Do not make adjustments for

future expenses related to termination, such as severance or special

retirement payments, or stock retirements to dissenting stockholders

and Farm Credit institutions.

(6) Add to assets the dollar amount of estimated termination

payments of the terminating associations related to FAC obligations.

(7) Make any adjustments we require under paragraph (c) of this

section.

(8) After the above adjustments, combine your balance sheet with

the balance sheets of your terminating associations after they have

made the adjustments required in paragraph (a) of this section.

Subtract liabilities from assets. This is your preliminary total

capital for purposes of termination.

(9) Multiply the assets of the combined balance sheet after the

above adjustments by 6 percent. Subtract this amount from the

preliminary total capital of the combined balance sheet. This is the

preliminary exit fee estimate of the bank and terminating affiliated

associations.

(10) Your preliminary exit fee estimate is the amount by which the

exit fee for the combined entity exceeds the total of the individual

preliminary exit fee estimates of your affiliated terminating

associations.

(c) Three-year look-back. (1) We will review your transactions over

the 3 years before the date of the termination resolution under

Sec. 611.1220. Our review will include, but not be limited to, the

following:

(i) Additions to or subtractions from any allowance for losses;

(ii) Additions to assets or liabilities, or subtractions from

assets or liabilities, due to transactions that are outside your

ordinary course of business;

(iii) Dividends or patronage refunds exceeding your usual

practices;

(iv) Changes in the institution's capital plan, or in implementing

the plan, that increased or decreased the level of borrower investment;

(v) Contingent liabilities, such as loss-sharing obligations, that

can be reasonably quantified; and

(vi) Assets that may be overvalued, undervalued or not recorded on

your books.

(2) If we determine the account balances do not accurately show the

value of your assets and liabilities, we will make any adjustments we

deem necessary. In addition, we may require you to reverse the effect

of a transaction if we determine that:

(i) You have retired capital outside the ordinary course of

business,

(ii) You have taken any other actions unrelated to core business

that have the effect of changing the exit fee, or

(iii) You incurred expenses related to termination prior to the 12-

month average daily balance period on which the exit fee calculation is

based.

(3) We may require you to make these adjustments to the exit fee

estimate that is disclosed in the information statement and to the

final exit fee calculation.

Sec. 611.1255 Exit fee calculation.

(a) Final exit fee calculation-terminating association. Calculate

the final exit fee in the following order:

(1) Base your exit fee calculation on the average daily balances of

assets and liabilities. Any amounts we refer to in this section are

average daily balances unless we specify that they are not. Amounts

that are not average daily balances will be referred to as ``dollar

amount.''

(2) The account balances must be in conformity with GAAP and

independently audited by a qualified public accountant, as defined in

Sec. 621.2(i) of this chapter, as of the termination date.

(3) Calculate the 12-month balances of assets and liabilities as of

the termination date. Assume for this calculation that you have not

paid or accrued the items described in paragraph (a)(4)(ii) of this

section.

(4) Make adjustments to assets and liabilities as follows:

(i) Add back expenses related to termination. Related expenses

include, but are not limited to, legal services, accounting services,

auditing, business planning, payments of severance and special

retirements, and application fees for the termination and

reorganization.

[[Page 60381]]

(ii) Subtract from assets the following:

(A) The dollar amount of your termination payment (to your

affiliated bank) related to FAC obligations;

(B) The taxes you will have to pay due to the termination; and

(C) Payments to retire the equities of dissenting stockholders and

Farm Credit institutions at termination.

(iii) Subtract from liabilities any liability that we treat as

regulatory capital under the capital or collateral requirements in

subparts H and K of part 615 of this chapter.

(iv) Make the adjustments that we require under Sec. 611.1250(c).

For the final exit fee, we will review and may require additional

adjustments for transactions between the date you adopted the

termination resolution and the termination date.

(5) After making these adjustments to assets and liabilities,

subtract liabilities from assets. This is your total capital for

purposes of termination.

(6) Multiply assets by 6 percent, and subtract this amount from

total capital. This is your final exit fee.

(b) Final exit fee calculation-terminating bank. (1) The individual

exit fees of affiliated associations that are terminating with you must

be calculated as described in paragraph (a) of this section.

(2) Base your exit fee calculation on the average daily balances of

assets and liabilities. Any amounts we refer to in this section are

average daily balances unless we specify that they are not. Amounts

that are not average daily balances will be referred to as ``dollar

amount.''

(3) The account balances must be in conformity with GAAP and

independently audited by a qualified public accountant, as defined in

Sec. 621.2(i) of this chapter, as of the termination date.

(4) Calculate the 12-month balances of assets and total capital as

of the termination date. Assume for this calculation that you have not

paid or accrued the items described in paragraph (b)(5)(iii)(B), (C),

and (D) of this section.

(5) Make adjustments to assets and liabilities as follows:

(i) Add back the following to your assets:

(A) Expenses you have incurred related to termination. Related

expenses include, but are not limited to, legal services, accounting

services, auditing, business planning, payments of severance and

special retirements, and application fees for the termination and

reorganization.

(B) The amount of the termination payments to you by the

terminating associations related to FAC obligations.

(ii) Subtract from your assets and liabilities your direct loans to

affiliated associations that were paid off or transferred in the 12-

month period before termination.

(iii) Subtract from your assets the following:

(A) Equity investments held in you by affiliated associations that

you retired or transferred during the 12 months before termination. A

non-terminating association's investment consists of purchased

equities, allocated equities, and a pro rata share of the bank's

unallocated surplus;

(B) The dollar amount of your termination payment to the FAC;

(C) The dollar amount of taxes paid or accrued due to the

termination; and

(D) Payments to retire the equities of dissenting stockholders and

Farm Credit institutions.

(iv) Subtract from liabilities any liability that we treat as

regulatory capital under the capital or collateral requirements in

subparts H and K of part 615 of this chapter.

(v) Make the adjustments that we require under Sec. 611.1250(c).

For the final exit fee, we will review and may require additional

adjustments for transactions between the date you adopted the

termination resolution and the termination date.

(6) After the above adjustments, combine your balance sheet with

the balance sheets of terminating associations after making the

adjustments required in paragraph (a) of this section.

(7) Subtract combined liabilities from combined assets. This is the

total capital of the combined balance sheet.

(8) Multiply the assets of the combined balance sheet after the

above adjustments by 6 percent. Subtract this amount from the total

capital of the combined balance sheet. This amount is the combined

final exit fee for you and the terminating affiliated associations.

(9) Your final exit fee is the amount by which the combined final

exit fee exceeds the total of the individual final exit fees of your

affiliated terminating associations.

(c) Payment of exit fee. On the termination date, you must:

(1) Deposit into an escrow account acceptable to us and the FCSIC

an amount equal to 110 percent of the preliminary exit fee estimate,

adjusted to account for stock retirements to dissenting stockholders

and Farm Credit institutions, and any other adjustments we require.

(2) Deposit into an escrow account acceptable to us an amount equal

to 110 percent of the equity you must retire for dissenting

stockholders and System institutions holding stock that would be

entitled to a share of the remaining assets in a liquidation.

(d) Pay-out of escrow. Following the independent audit of the

institution's account balances as of the termination date, we will

determine the amount of the final exit fee and the amounts owed to

stockholders to retire their equities. We will then direct the escrow

agent to:

(1) Pay the exit fee to the Farm Credit Insurance Fund;

(2) Pay the amounts owed to dissenting stockholders; and

(3) Return any remaining amounts to the successor institution.

(e) Additional payment. If the amount held in escrow is not enough

to pay the amounts under paragraph (d)(1) and (2) of this section, the

successor institution must pay any remaining liability to the escrow

agent for distribution to the appropriate parties. The termination

application must include evidence that, after termination, the

successor institution will pay any remaining amounts owed to dissenting

stockholders.

Sec. 611.1260 Payment of debts and assessments--terminating

association.

(a) General rule. If you are a terminating association, you must

pay or make adequate provision for the payment of all outstanding debt

obligations and assessments.

(b) No OFI relationship. If the successor institution will not

become an OFI, you must either:

(1) Pay debts and assessments owed to your affiliated Farm Credit

bank at termination; or

(2) With your affiliated Farm Credit bank's concurrence, arrange to

pay any obligations or assessments to the bank after termination.

(c) Obligations to other Farm Credit institutions. You must pay or

make adequate provision for payment of obligations to any Farm Credit

institution (other than your affiliated bank) under any loss-sharing or

other agreement.

(d) FAC debt payments. Before termination, you must pay future

assessments and payment obligations to your affiliated Farm Credit bank

to the extent required by subparagraphs (c)(5)(F) and (d)(1)(C)(v) of

section 6.26 of the Act. The FAC must make the payment calculations

this paragraph requires, subject to FCA approval, based on an

appropriate discount rate. The appropriate discount rate is the non-

interest bearing U.S. Treasury security

[[Page 60382]]

rate for securities with a maturity as near as possible to the period

remaining until the terminating association's obligations under this

paragraph would be due.

Sec. 611.1265 Retirement of equities--terminating association.

(a) Safety and soundness restrictions. Notwithstanding anything in

these regulations to the contrary, we may prohibit a bank from retiring

your equities if the retirement would cause the bank to fall below its

regulatory capital requirements after retirement, or if we determine

that the bank would be in an unsafe or unsound condition after

retirement.

(b) Retirement agreement. Your affiliated bank may retire the

purchased and allocated equities held by you in the bank according to

the terms of the bank's capital revolvement plan or an agreement

between you and the bank.

(c) Retirement in absence of agreement. Your affiliated bank must

retire any equities not subject to an agreement or revolvement plan no

later than when you or the successor institution pays off your loan

from the bank.

(d) No retirement of unallocated surplus. When your bank retires

equities you own in the bank, the bank must pay par or face value for

purchased and allocated equities, less any impairment. The bank may not

pay you any portion of its unallocated surplus.

(e) Exclusion of equities from capital ratios. If another Farm

Credit institution makes an agreement to retire equities you hold in

that institution after termination, we may require that institution to

exclude part or all of those equities from assets and capital when the

institution calculates its capital and net collateral ratios under

subparts H and K of part 615 of this chapter.

(f) Retirement of equities held by other Farm Credit institutions.

If a Farm Credit institution other than the affiliated bank owns

equities you have issued, the other Farm Credit institution may require

you to retire the equities on or before termination. The equities must

be retired at book value revised to reflect the adjustments required

for the final exit fee calculation in Sec. 611.1255(a)(4)(iii).

Sec. 611.1270 Repayment of obligations--terminating bank.

(a) General rule. If you are a terminating bank, you must pay or

make adequate provision for the payment of all outstanding debt

obligations.

(b) Satisfaction of primary liability. After consulting with other

Farm Credit banks, the Funding Corporation, and the FCSIC, you must pay

or make adequate provision for payment of your primary liability on

consolidated or Systemwide obligations in a method that we deem

acceptable. Before we make a final decision on your proposal and as we

deem necessary, we may consult with the other Farm Credit banks, the

Funding Corporation, and the FCSIC.

(c) Satisfaction of joint and several liability. (1) You and the

other Farm Credit banks must enter into an agreement covering

obligations issued under section 4.2 of the Act and outstanding on the

termination date. The Funding Corporation may, at its option, be a

party to the agreement to the extent necessary to fulfill its duties

with respect to financing and disclosure. The agreement, which is

subject to our approval, must specify how you will make adequate

provision for the payment of your joint and several liability to

holders of obligations other than those obligations on which you are

primarily liable.

(2) If you and the other Farm Credit banks are unable to reach

agreement within 90 days before the proposed termination date, we will

specify the manner in which you will make adequate provision for the

payment of your joint and several liability and how we will make joint

and several calls for those obligations outstanding on the termination

date.

(3) Notwithstanding any other provision in these regulations, the

successor institution will be jointly and severally liable for

consolidated and Systemwide debt outstanding on the termination date

(other than the obligations on which you are primarily liable), as well

as for interest on individual obligations issued and outstanding on the

termination date by other banks operating under the same title of the

Act. The termination application must include evidence that the

successor institution will continue to have this joint and several

liability for consolidated and Systemwide debt.

(d) Payment to the FAC. (1) Before termination, you must pay to the

FAC the amounts required by section 6.9(e)(3)(C)(ii) of the Act and by

subparagraphs (c)(5)(E)(i) and (d)(1)(C)(iv) of section 6.26 of the

Act. For purposes of this calculation, you must include your retail

loan volume, the retail loan volume of the associations that are

terminating with you, and the retail loan volume of the affiliated

associations that continue their direct lending relationships with the

successor institution.

(2) The FAC must make the present value estimation, subject to our

approval, based on an appropriate discount rate. The appropriate

discount rate is the non-interest bearing U.S. Treasury security rate

for securities with a maturity as near as possible to the period

remaining until the terminating association's obligations under this

paragraph would be due.

Sec. 611.1275 Retirement of equities--terminating bank.

(a) Retirement at option of equity holder. System institutions that

own your equities have the right to require you to retire the equities

on the termination date.

(b) Value of equity holders' interests. For retirement purposes,

the value of the equities held by System institutions is the book value

on the termination date, revised to reflect the adjustments required

for the final exit fee calculation in Sec. 611.1255(b)(5)(iv).

(c) Transfer of affiliated association's investment. As an

alternative to retirement, an affiliated association that is not

terminating has the right to require you to transfer its investment in

the bank, including a pro rata share of unallocated surplus, to another

Farm Credit bank. The transfer of the investment, which must include

purchased equities and allocated and unallocated surplus, must occur on

or before the termination date.

Sec. 611.1280 Dissenters' rights.

(a) Definition. A dissenting stockholder is an equity holder (other

than a System institution) in a terminating institution on the

termination date who either:

(1) Was eligible to vote on the termination resolution and voted

against termination;

(2) Was an equity holder on the voting record date but was not

eligible to vote; or

(3) Became an equity holder after the voting record date.

(b) Retirement at option of dissenting stockholder. A dissenting

stockholder may require a terminating institution to retire the

stockholder's equity interest in the terminating institution.

(c) Value of a dissenting stockholder's interest. You must pay a

dissenting stockholder according to the liquidation provisions in your

bylaws, except that you must pay at least par or face value for

eligible borrower stock (as defined in section 4.9A(d)(2) of the Act).

(d) Calculation of interest of a dissenting stockholder entitled to

the remaining assets. Except as paragraph (f) of this section provides,

when you retire equities of the class entitled to the remaining assets

in a liquidation, you must pay the adjusted book value.

(1) The adjusted book value for a terminating association is the

book

[[Page 60383]]

value on the termination date, after making the adjustments required by

us for the final exit fee calculation in Sec. 611.1255(a)(4), except

for the subtraction of dissenting stockholders' equity described in

Sec. 611.1255 (a)(4)(ii)(C).

(2) The adjusted book value for a terminating bank is the book

value on the termination date, after making the adjustments required by

us for the final exit fee calculation in Sec. 611.1255(b)(5)(iv),

except for the subtraction of dissenting stockholders' equity described

in Sec. 611.1255(b)(5)(iii)(D).

(e) Form of payment to a dissenting stockholder. You must pay cash

or make some other payment arrangement satisfactory to the dissenting

stockholder for the stockholder's equities.

(f) Payment to holders of special class of stock. If you have

adopted bylaws under Sec. 611.1210(f), you must pay a dissenting

stockholder who owns shares of the special class of stock an amount

equal to the lower of the par (or face) or adjusted book value of such

stock.

(g) Notice to equity holders. The notice to equity holders required

in Sec. 611.1240(e) must include a form for stockholders to send back

to you, stating their intention to exercise dissenters' rights. The

notice must contain the following information:

(1) A description of the rights of dissenting stockholders set

forth in this section, and the approximate value per share that a

dissenting stockholder can expect to receive. State whether the

successor institution will require borrowers to be stockholders or

whether it will require stockholders to be borrowers.

(2) A description of the current book and par value per share of

each class of equities, and the expected book and market value of the

stockholder's interest in the successor institution.

(3) A statement that a stockholder must return the enclosed form to

you within 30 days if the stockholder chooses to exercise dissenters'

rights.

(h) Notice to subsequent equity holders. Equity holders that

acquire their equities after the termination vote must also receive the

notice described in paragraph (g) of this section. You must give them

at least 5 business days to decide whether to request retirement of

their stock.

(i) Reconsideration. If a reconsideration vote is held and the

termination is disapproved, the right of stockholders to exercise

dissenters' rights is rescinded. If a reconsideration vote is held and

the termination is approved, you must retire the equities of dissenting

stockholders as if there had been no reconsideration vote.

Sec. 611.1285 Loan refinancing by borrowers.

(a) Disclosure of credit and loan information. At the request of a

borrower seeking refinancing with another System institution before you

terminate, you must give credit and loan information about the borrower

to such institution.

(b) No reassignment of territory. If, at the termination date, we

have not assigned your territory to another System institution, any

System institution may lend in your territory, to the extent otherwise

permitted by the Act and regulations.

Sec. 611.1290 Continuation of borrower rights.

You may not require a waiver of contractual borrower rights

provisions as a condition of borrowing from and owning equity in the

successor institution. Institutions that become OFIs on termination

must comply with the applicable borrower rights provisions in the Act

and subparts K, L, and N of part 614 of this chapter.

Dated: October 29, 1999.

Nan P. Mitchem,

Acting Secretary, Farm Credit Administration Board.

[FR Doc. 99-28732 Filed 11-4-99; 8:45 am]

BILLING CODE 6705-01-P