[Federal Register Volume 64, Number 214 (Friday, November 5, 1999)]
[Proposed Rules]
[Pages 60370-60383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28732]


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FARM CREDIT ADMINISTRATION

12 CFR Part 611

RIN 3052-AB86


Organization; Termination of Farm Credit Status

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: This proposed rule will amend Farm Credit Administration's 
(FCA) regulations that will allow a Farm Credit System (FCS, Farm 
Credit or System) institution to terminate its FCS charter and become a 
financial institution under another Federal or State chartering 
authority. The purpose of our proposal is to amend the existing 
regulations so they apply to all banks and associations and to make 
other changes. We also withdraw a proposed termination rule published 
in 1993.

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

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