[Federal Register Volume 67, Number 68 (Tuesday, April 9, 2002)]
[Proposed Rules]
[Pages 17228-17255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7979]



[[Page 17227]]

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Part III





Department of the Treasury





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Office of Thrift Supervision



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12 CFR Parts 563b, 574, and 575



Mutual Savings Associations, Mutual Holding Company Reorganizations, 
and Conversions From Mutual to Stock Form; Proposed Rule

  Federal Register / Vol. 67, No. 68 / Tuesday, April 9, 2002 / 
Proposed Rules  

[[Page 17228]]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 563b, 574, and 575

[No. 2002-11]
RIN 1550-AB24


Mutual Savings Associations, Mutual Holding Company 
Reorganizations, and Conversions From Mutual to Stock Form

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) proposes to amend its 
regulations on the mutual-to-stock conversion process and portions of 
its regulations on mutual holding company reorganizations. This 
document is a re-proposal (Re-proposal) of the Notice of Proposed 
Rulemaking (First Proposal) published July 12, 2000. OTS extensively 
modified the First Proposal as a result of the public comments it 
received and seeks public comment on those revisions. As part of a 
wholesale review of treatment of mutual institutions, OTS separately 
has modified its examination and supervisory policies to address many 
of the concerns mutual institutions have raised with OTS over the 
years.
    This Re-proposal includes modifications to the provisions 
addressing business plans. In addition, it addresses certain matters 
involving conversions from the mutual to the stock form, by, among 
other things, adding demand account holders to the definition of 
savings account holders, allowing accelerated vesting in management 
benefit plans for changes of control, adding rules to establish 
charitable organizations, and clarifying the policy on the amount of 
proceeds allowed to be retained at the holding company level. We are 
also requesting comment regarding certain additional proposed changes 
to the OTS Mutual Holding Company Regulations.

DATES: Written comments must be received on or before May 9, 2002.

ADDRESSES: Mail: Send comments to Regulation Comments, Chief Counsel's 
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552, Attention Docket No. 2002-11.
    Delivery: Hand deliver comments to the Guard's Desk, East Lobby 
Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, 
Attention Regulation Comments, Chief Counsel's Office, Docket No. 2002-
11.
    Facsimiles: Send facsimile transmissions to FAX Number (202) 906-
6518, Attention Docket No. 2002-11.
    E-Mail: Send e-mails to [email protected], Attention 
Docket No. 2002-11, and include your name and telephone number.
    Public Inspection: Comments and the related index will also be 
posted on the OTS Internet Site at http://www.ots.treas.gov. In 
addition, interested persons may inspect comments at the Public 
Reference Room, 1700 G Street, NW., by appointment. To make an 
appointment for access, call (202) 906-5922, send an e-mail to 
public.info@ots.treas.gov">public.info@ots.treas.gov, or send a facsimile transmission to (202) 
906-7755. (Prior notice identifying the materials you will be 
requesting will assist us in serving you.) Appointments will be 
scheduled on business days between 10 a.m. and 4 p.m. In most cases, 
appointments will be available the next business day following the date 
a request is received.

FOR FURTHER INFORMATION CONTACT: David A. Permut, Senior Attorney, 
(202) 906-7505; Gary Jeffers, Senior Attorney, (202) 906-6457, Business 
Transactions Division, Chief Counsel's Office; or Mary Jo Johnson, 
Project Manager, (202) 906-5739, Supervision Policy, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    Pursuant to its broad authority to regulate mutual savings 
associations, authorize mutual holding company (MHC) reorganizations, 
and regulate mutual-to-stock conversions of savings associations under 
the Home Owners' Loan Act (HOLA),\1\ on July 12, 2000, OTS published an 
Interim Final Rule (Interim Rule), revising OTS repurchase restrictions 
applicable to recently converted institutions, changing OTS policy on 
waivers of dividends by MHCs and making certain technical changes to 
the regulations as a result of the passage of the Gramm-Leach-Bliley 
Act of 1999 (GLB Act).\2\ On the same day, OTS published a Notice of 
Proposed Rulemaking, proposing changes to OTS rules governing stock 
conversions and MHCs.\3\
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    \1\ 12 U.S.C. 1464(a), (i) and (p) and 1467a(o).
    \2\ 65 FR 43088.
    \3\ 65 FR 43092.
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    OTS undertook these actions based on numerous discussions with the 
management of mutual institutions, its experience with the conversion 
process, and developments in the marketplace regarding MHC 
reorganizations and mutual-to-stock conversions. OTS also reviewed its 
policies, practices, and regulations to assess whether additions or 
revisions were necessary.
    To respond completely to all the suggestions for change, OTS 
developed a comprehensive regulatory strategy governing mutual 
institutions, MHC reorganizations, and the mutual-to-stock conversion 
process. This comprehensive strategy includes: (1) New policy and 
examination guidance; (2) these re-proposed regulations for the mutual-
to-stock conversion process and MHC minority stock offerings; and (3) 
revisions to the application forms used for the mutual-to-stock 
conversion process.
    Since the First Proposal was published over 18 months ago, OTS has 
issued guidance covering several areas of concern to commenters. To 
enable the public to consider the interaction between that guidance and 
the changes OTS is making to the First Proposal, OTS is publishing this 
Re-proposal to seek further comment.

II. Policy Guidance

    In the First Proposal, OTS indicated it would issue policy guidance 
in certain areas regarding mutual associations in connection with the 
changes to the MHC and conversion regulations. OTS has developed new 
examination guidance to address many of the concerns mutual 
associations raised, within the context of safe and sound operations. 
OTS has also enhanced its off-site monitoring systems to provide 
examiners with comparative peer groups of similarly situated mutual 
associations.
    Accordingly, OTS has separately issued the following new or revised 
guidance:
     Regulatory Bulletin 27b on Compensation. This revised 
bulletin clarifies that mutual associations are subject to and governed 
by the same prudential standards as stock associations. OTS intends 
this guidance to enhance the ability of mutual associations to provide 
competitive compensation plans to attract and retain qualified 
management and staff.
     Thrift Activities Handbook Section 110, Capital Stock and 
Ownership. This revised handbook section includes a new section on 
mutual associations that differentiates them from stock associations, 
particularly by discussing member rights and ownership differences.
     Thrift Activities Handbook Section 430, Operations 
Analysis. This revised handbook section includes: a new section on the 
importance of capital for mutual associations; information on

[[Page 17229]]

Return On Assets (ROA) for all savings associations; a new section on 
evaluation of earnings in different structures (mutual associations, 
stock associations, subchapter S corporations, Internet operations); 
and information on the new mutual-only ratios in the Uniform Thrift 
Performance Report (UTPR) and how examiners can appropriately compare 
mutual and stock associations so that peer groups are more appropriate.
    The revised examination procedures will improve supervision of 
mutual associations. They will be targeted more directly to the quality 
of operations, risk management, capital needs and formation, and 
internal controls, enabling examiners to gauge the overall financial 
condition of mutual associations more effectively. OTS is changing its 
off-site monitoring systems to allow examiners to conduct financial 
analyses for mutual institutions by comparing them with mutual 
institutions instead of stock institutions.
    In addition, for mutual associations seeking to augment their 
capital base, OTS is exploring the feasibility and utility of various 
capital-raising alternatives, such as the use of subordinated debt 
instruments, mutual capital certificates, non-withdrawable accounts, 
trust preferred securities, and other financing transactions.

III. Summary of Comments

    OTS received 46 comment letters on the First Proposal and the 
Interim Rule. Three were requests to extend the comment period.\4\ Five 
individuals, ten law firms, 14 thrifts, 15 trade groups, and the 
Federal Deposit Insurance Corporation (FDIC) submitted comments. OTS 
participated in meetings on the regulations sponsored by America's 
Community Bankers on September 12 (attended by 24 attorneys), September 
28 (conference telephone call with representatives from 45 mutual 
institutions, two outside counsel, representatives of the FDIC and the 
Board of Governors of the Federal Reserve System (Federal Reserve)), 
and November 3 (with representatives of the FDIC and the Federal 
Reserve). OTS also held focus group meetings with executives from 
mutual savings associations in Washington on January 8, 2001, and in 
Boston on February 26, 2001, to listen to the views of mutual 
institutions on specific questions raised in the preamble to the 
proposed regulation. Issues raised by commenters are discussed in the 
item-by-item summary below.
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    \4\ On October 10, 2000, OTS extended the comment period on the 
two regulations from October 10, 2000 to November 9, 2000. 65 FR 
60123.
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IV. Item-by-Item Summary

A. General

    The greatest number of comments on the First Proposal and the most 
substantial concerns expressed by the commenters involved the business 
plan, Regional Office non-objection to the business plan, and the pre-
filing meeting requirements. While the Re-proposal requires pre-filing 
meetings, in response to the comments, OTS has revised when pre-filing 
meetings must be held and has eliminated the requirement to obtain OTS 
non-objection to conversion business plans before filing. Similarly, 
OTS has revised the business plan standards to be addressed by 
converting associations and considered in OTS review in response to the 
comments.

B. Pre-filing Meeting

    Under the First Proposal, OTS would have required each association 
contemplating a conversion to meet with the appropriate Regional 
Office, in a pre-filing meeting, to discuss the proposed business plan. 
The board of directors, or a committee of the board including outside 
directors, were encouraged to attend the meeting. The association would 
then have submitted the proposed business plan at least 30 days prior 
to submitting its conversion application, and would have needed to 
receive the non-objection of the Regional Director to the business plan 
before submitting either an application to convert to stock form or a 
notice to reorganize to MHC form if the reorganization included a stock 
issuance.
    A number of commenters opposed the pre-filing meeting in its 
entirety, although two commenters, both regulators, supported such 
meetings. One commenter suggested that depositors, consumer advocates, 
or other interested parties be invited to the pre-filing meeting. 
Several commenters opposed both the pre-filing meeting and the pre-
approval of the business plan as intrusive and a source of unnecessary 
delay and expense. A number of commenters thought OTS was requiring the 
whole board to attend the pre-filing meeting at the Regional Office 
with all of the costs of attending such a meeting falling on the 
association.
    It has been OTS' normal practice to discuss a savings association's 
conversion plans with the board of directors. Therefore, a pre-filing 
meeting does not result in any additional burden. In response to the 
concerns expressed by the commenters about the expense of the meeting, 
OTS notes that, if the board desires, OTS will send a representative 
from the Regional Office to the association to meet with the board of 
directors. To ensure that such a meeting occurs early in the process, 
however, OTS expects to meet with the board of directors at least ten 
days prior to the passage of a Plan of Conversion or Plan of 
Reorganization. At that time, OTS would expect the board of directors 
to have prepared a short, written strategic plan for OTS to review and 
discuss with the board at the meeting. OTS reiterates that the purpose 
of this meeting is not to substitute the agency's judgment for that of 
the directors. OTS merely proposes to require the board to articulate 
its plans for the association and the implications of those plans 
before any process actually begins and before the institution spends 
significant funds.

C. Prior OTS Non-Objection to Business Plan

    The First Proposal provided that applicants could not submit a 
conversion application until the converting association had submitted, 
and OTS had advised the association that it had not objected to, the 
association's business plan. Many commenters objected to this 
requirement, asserting that the requirement added delay and expense to 
the conversion process, was unduly burdensome, or gave the Regional 
Director the ability to prevent a conversion if the Regional Director 
disagreed with the business plan.
    Although OTS does not believe the prior non-objection requirement 
would be as burdensome in practice as anticipated by certain 
commenters, the Re-proposal does not require OTS non-objection to the 
business plan prior to an association filing a conversion application. 
Under the Re-proposal, business plans must be filed at the time a 
conversion application is submitted, or the application will be 
rejected as materially deficient. As a practical matter, however, OTS 
strongly encourages submission of business plans before the application 
filing to help ensure timely approval of the conversion application.

D. Business Plan Standards

    The First Proposal provided that a converting association's 
business plan must, among other things: (i) Clearly and completely 
describe projected operations, including the deployment of conversion 
proceeds; (ii) demonstrate that the plan of conversion will 
substantially serve to meet credit and

[[Page 17230]]

lending needs in the proposed market area; (iii) demonstrate a 
reasonable need for new capital to support projected operations and 
activities; (iv) describe the association's experience with prior 
growth, expansion, or other activities similar to those proposed in the 
business plan; (v) describe the risks associated with the plan; (vi) 
demonstrate adequate expertise and staffing to manage growth prudently; 
and (vii) demonstrate that the association will achieve a reasonable 
return on equity. The First Proposal also provided that the association 
could not project stock repurchases, returns of capital, or 
extraordinary dividends in the business plan.
    All commenters who discussed the business plan opposed the proposed 
business plan requirements. Four commenters supported the concept of 
business plan guidance in the regulations but were opposed to the 
specific guidance OTS provided. The various commenters asserted: (i) 
The creation of a business plan is management's responsibility, and OTS 
should not second-guess management, further, a limited number of 
commenters questioned OTS's authority to impose business plan 
standards; (ii) business plans based on Return On Equity (ROE) are 
inappropriate and would not work for most associations, and the 
proposed ROE criterion would have caused 85 percent of conversions 
prior to 2000 to be disapproved; (iii) it is inappropriate for OTS to 
determine how much capital must be invested in what type of community 
development activities; (iv) the business plan standards were seriously 
flawed, unattainable, arbitrary, unrealistic, or protectionist; (v) the 
business plan created a ``needs'' test for conversions; (vi) the First 
Proposal would chill management decision making; (vii) the First 
Proposal would create a moratorium on conversions; (viii) the First 
Proposal would cause unnecessary delays or would be unduly burdensome; 
(ix) the business plan requirements would penalize associations in slow 
growth areas, would not work for small thrifts, would prejudice capital 
raising, or ignore investor needs; (x) the business plan disallows use 
of stock repurchases as a legitimate business management tool, which is 
inconsistent with the Interim Rule eliminating restrictions on 
repurchases during the second and third years after conversion; (xi) 
the First Proposal penalizes management for lack of experience; and 
(xii) the First Proposal lacks flexibility.
    Neither the First Proposal nor the Re-proposal were intended to 
create a ``needs'' test or a moratorium on conversions, and in OTS' 
view, the regulations do not establish such a test or impose a 
moratorium. As to the comments regarding OTS' conversion authority in 
general, OTS has for decades had significant regulations governing all 
aspects of the conversion process, and the HOLA explicitly provides 
that ``conversions shall be subject to such regulations as the Director 
shall prescribe.'' \5\
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    \5\ 12 U.S.C. 1464(i)(1).
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    OTS, as the safety and soundness regulator of savings associations, 
believes the specific requirements are appropriate to ensure that an 
association contemplating such a significant transaction, with 
considerable ramifications regarding capital, management, and business 
operations, has considered the consequences of the transaction in its 
business plan. Accordingly, the Re-proposal continues to include a 
business plan requirement, and sets forth the factors OTS will consider 
in evaluating business plans.\6\
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    \6\ OTS notes that there is no requirement to submit a business 
plan for an MHC reorganization without a stock issuance.
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    Several of the comments demonstrate that commenters believed the 
various factors in the First Proposal were separate standards that had 
to be satisfied for approval of a conversion. The Re-proposal clarifies 
that OTS will weigh all of the factors together, and no single factor 
will determine whether a business plan is acceptable. For example, lack 
of management experience with past growth will not be as significant if 
the business plan demonstrates realistic deployment of the conversion 
proceeds for new growth, such as enhancing ways to meet increased 
credit and lending needs in the market.
    OTS recognizes that commenters were concerned about reliance on ROE 
as a test to determine whether to approve a business plan. OTS 
reiterates that in evaluating ROE as a factor in the business plan, ROE 
in the first years after conversion will not be given as much weight as 
the association's ROE near the end of the three-year business plan 
period, when the association has had time to deploy most, if not all of 
the conversion proceeds.
    As for stock repurchases, today's Re-proposal permits stock 
repurchases to be included in the business plan. A business plan that 
contemplates stock repurchases as the primary use of new capital, 
however, will not be regarded favorably. OTS recognizes that some stock 
repurchases may occur, although the Re-proposal continues to limit 
stock repurchases in the first year following conversion. OTS will view 
a return of capital to shareholders (such as a special dividend) in the 
first year following conversion to be a material deviation from the 
business plan that requires the prior written approval of the Regional 
Director.

E. MHCs and Mutuality

    In the preamble to the First Proposal, OTS asked a series of 
questions about what OTS could do to enhance the attractiveness of the 
MHC charter. OTS also specifically stated that it encouraged savings 
associations that were considering conversion to stock form to first 
carefully consider the choice of an MHC charter as an interim step. In 
addition, OTS specifically proposed certain changes to the MHC 
regulations to permit the issuance of additional stock benefit plans, 
easier voting requirements, and a number of other innovations that OTS 
thought would enhance the attractiveness of the MHC option. Taken 
together, these steps appeared to many commenters as expressing an 
agency bias for the MHC form. Many commenters expressed their 
disagreement with this perceived agency bias, believed OTS was putting 
a moratorium on stock conversions, or argued OTS was impinging on the 
freedom of savings associations to choose their form of charter.
    OTS suggestions on enhancing the MHC charter were intended to 
expand the options available to a mutual association, not to give 
preference to one form of charter over another.
    The MHC is an alternative for mutual associations that are 
contemplating conversion to stock form. The MHC structure retains the 
benefits and essential nature of the mutual charter, while providing 
greater access to capital markets. In addition, in section 401(b) of 
the GLB Act,\7\ Congress expanded the investment and activities 
authority of MHCs to include the activities of financial holding 
companies. OTS amended the MHC regulations to reflect those changes.\8\ 
OTS is re-proposing significant enhancements to the MHC form to make it 
a long-term alternative to full conversion.
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    \7\ Pub. L. 106-102, 113 Stat. 1338 (1999).
    \8\ 65 FR 43088, Jul. 12, 2000.
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    OTS also continues to encourage mutual associations seeking new 
capital to seriously consider the MHC form of reorganization with a 
limited stock issuance, rather than a full conversion. This is a 
particularly useful alternative for mutual associations that have no 
immediate plans for deployment of substantial amounts of new capital.

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F. Mutual Capital Questions

    OTS asked a number of questions in the preamble to the First 
Proposal regarding capital for mutual associations. OTS observed that 
mutual associations could currently raise additional capital in a 
number of ways that did not involve conversion to stock form. These 
methods included mutual capital certificates, subordinated debt, trust 
preferred securities, or the formation of real estate investment trusts 
(REITs). OTS asked if there were other methods of raising capital and 
why the methods mentioned were not widely used. While no written 
comments were received on this issue, attendees at the two focus group 
meetings indicated these methods of raising additional capital were 
generally considered too expensive for a mutual association to 
undertake, particularly for smaller associations. OTS is exploring, 
among other approaches, the possibility of mutual associations 
participating with other mutual associations in larger capital 
offerings to reduce the costs.
    The preamble to the First Proposal requested comment on whether OTS 
should issue guidance regarding capital distributions by mutual 
associations. A number of commenters addressed this issue, all 
suggesting OTS not issue guidance in this area because they felt this 
should be a business decision of the association. OTS generally agrees 
and, therefore, OTS does not propose to issue guidance on capital 
distributions by mutual associations as part of this proposal.\9\
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    \9\ Any capital distribution by mutual associations remains 
subject to the capital distribution regulations at 12 CFR part 563, 
subpart E.
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G. Stock Repurchases

    In the Interim Rule, OTS revised its regulations to eliminate 
restrictions on stock repurchases by converted savings associations 
after the first year following conversion. The rule change was made in 
part to bring OTS policy closer to that of the FDIC on this subject. 
Several commenters expressed appreciation that the rules of the two 
agencies would now be similar. Almost all the other commenters on this 
issue supported OTS changes, although one commenter suggested 
repurchase limitations should be eliminated completely. A number of the 
commenters suggested that there should be no restrictions on 
repurchases for associations completing second step stock conversions, 
because those companies had been public for some period of time prior 
to full conversion to stock form.
    The Re-proposal is consistent with the Interim Rule. See 
Secs. 563b.510 and 563b.515. OTS is also re-proposing corresponding 
amendments to the MHC regulations at Sec. 575.11(c). In response to the 
comment that associations that engage in second step stock conversions 
should receive different treatment, OTS believes that fully converted 
companies should receive the same treatment whether they reach that 
status in one step or two. In addition, OTS believes it is in the best 
interest of applicants to have similar treatment of stock repurchases 
among the agencies regulating the conversion process.
    As a matter of policy, OTS has taken the position that stock 
repurchases for management benefit plans that have been ratified by 
shareholders in the first year following conversion do not count toward 
the repurchase limitations in Sec. 563b.3(g). The Re-proposal, at new 
Sec. 563b.510, clarifies this point. However, OTS would still require 
prior notification of any repurchases in the first year following 
conversion, even if they are not subject to OTS approval under the 
repurchase limitations. One commenter inquired whether a stock 
repurchase more than one year after conversion would require Regional 
Director approval as a material deviation from the business plan. OTS 
believes that it may constitute a material deviation, depending on what 
the business plan disclosed. However, current MHC regulations permit 
purchases of stock in the open market for tax-qualified or non-tax-
qualified employee stock benefit plans to be excluded from the 
repurchase limitations.\10\ The Re-proposal will extend this exclusion 
from the repurchase limitations to fully converted companies. OTS notes 
that the FDIC permits purchases for employee stock benefit plans to be 
excluded from the repurchase limitations for fully converted companies.
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    \10\ See 12 CFR 575.11(c)(1)(iv).
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H. Dividend Waivers

    The Interim Rule revised OTS policy on dividend waivers for MHCs. 
Prior OTS policy had adjusted exchange ratios for excessive dividends 
in conversions of MHCs to stock form. No adjustment is now required, 
and Sec. 575.11(d)(3) was amended to reflect this change in OTS policy. 
Most commenters supported this change in OTS policy although two 
opposed the change because of the potential conflict of interest for 
directors and officers making the decision to waive or not waive 
dividends. The Re-proposal is unchanged from the Interim Rule. OTS 
believes there is always a potential conflict of interest for directors 
and officers who make financial decisions where they may personally 
benefit. OTS may take enforcement action if it discovers wrongdoing. 
OTS notes that the waiver of dividends results in more capital at the 
savings association, enhancing the safety and soundness of the savings 
association.

I. Charitable Organizations

    The First Proposal included provisions regarding the establishment 
of a charitable organization in connection with a mutual-to-stock 
conversion. The provisions included discussing the purpose of the 
charitable organization, voting foundation shares in the same ratio as 
all other shares voted on proposals considered by shareholders, 
reserving board seats for an independent director and a director from 
the association, and dealing with conflicts of interest. The Re-
proposal also specifies the conditions for approval including 
examination by OTS at foundation expense, submission of annual reports, 
and compliance with all laws necessary to maintain the foundation's 
tax-exempt status.
    All commenters on this aspect of the First Proposal were in favor 
of the proposed regulations, although one commenter thought OTS should 
require a separate vote of the minority shareholders to establish a 
foundation in second step conversions. OTS already requires a separate 
minority shareholder vote in such transactions and has included that 
requirement in the Re-proposal. One commenter asserted that 10-25% of 
the proceeds from every mutual-to-stock conversion should be required 
to be placed in a charitable organization. OTS does not believe it is a 
regulatory function to determine the amount of proceeds that must be 
placed in a charitable organization. In response to the comments, OTS 
has included the charitable organization provisions in the Re-proposal, 
and proposes several technical amendments suggested by one commenter to 
clarify that annual reports and the percentage of contributed proceeds 
must comply with the Internal Revenue Code (IRC). Upon effectiveness of 
a final regulation, waivers from certain provisions in the current 
conversion regulations now routinely requested in a conversion with a 
charitable foundation would no longer be necessary.
    OTS takes this opportunity to state that in situations where a 
foundation becomes a holder of more than 10% of an institution's common 
stock, e.g., if the institution repurchases stock, causing the 
foundation's ownership percentage to increase, OTS will

[[Page 17232]]

consider waivers of the Control Regulations, 12 CFR part 574 and the 
concerted action presumptions in those regulations.

J. Policy on Acquisitions

    Current OTS regulation Sec. 563b.3(i)(3) provides that no person or 
company may acquire more than 10 percent of any class of equity 
security of a recently converted association for three years following 
conversion without OTS approval. OTS enacted this rule principally to 
provide a reasonable period of time for a recently converted 
association to deploy its new capital prudently according to the plan 
described in the offering documents, to acclimate to operating as a 
public company, and to do both without the distraction of considering 
takeover proposals. (See approval standards at current 
Sec. 563b.3(i)(5) or proposed Sec. 563b.525(d).)
    In the First Proposal, OTS noted that it intended to closely review 
applications under the existing standards to make sure all criteria are 
fully met before approving acquisitions within the first three years 
following conversion.
    A number of commenters suggested that the OTS statement that it 
intended to implement its current regulation was inappropriate, that 
these decisions were the responsibility of the board of directors, not 
the regulator, and that a three-year restriction on acquisitions was 
too inflexible. Three commenters thought OTS should implement a five-
year restriction on acquisitions. After considering the comments, for 
the reasons stated above, OTS is re-proposing the regulation as 
originally proposed.

K. Demand Account Holders

    In the First Proposal, OTS proposed to allow demand account holders 
to be considered eligible account holders for purposes of determining 
subscription rights in a conversion. Many applicants incorrectly 
believe that demand account holders are already eligible account 
holders. Others have requested OTS waivers to allow demand account 
holders to be included in the subscription. OTS routinely granted the 
waivers. In order to end the confusion regarding this issue, OTS 
proposed revising the regulations to include demand account holders in 
the subscription priorities. None of the commenters objected to this 
provision. OTS has included the original proposal in this Re-proposal.

L. Management Stock Benefit Plans

    In the First Proposal, OTS proposed changing the regulations to 
allow for accelerated vesting for management stock benefit plans in the 
event of a change of control. Currently, the regulations only allow 
acceleration for death or disability. Most commenters in this area 
agreed with this change, although three suggested OTS add retirement at 
least one year following conversion as another reason for allowing 
acceleration.
    The Re-proposal is unchanged from the First Proposal. OTS believes 
that it is appropriate that the bases for acceleration, such as death, 
disability, or change of control of the savings association, not be 
within the individual's control. Therefore, the Re-proposal does not 
provide for accelerated vesting based on retirement.
    One commenter suggested that because the National Association of 
Securities Dealers Automated Quotation system (NASDAQ) requires a vote 
for certain stock benefit plans, OTS did not need to duplicate that 
requirement.\11\ OTS notes, however, that not all converting 
associations and MHCs engaging in stock issuances are listed on the 
NASDAQ. Smaller associations, in particular, cannot meet NASDAQ listing 
requirements. Therefore, OTS believes it is appropriate to continue to 
include voting requirements in OTS regulations. Several commenters 
suggested that OTS should follow NASDAQ voting requirements (a majority 
of those voting at a legally called meeting) to approve benefit plans. 
OTS believes, however, that a majority of shareholders (not merely a 
majority of those voting) must ratify stock benefit plans because 
issuance of stock to such plans dilutes their ownership interests. OTS 
notes that while NASD Rule Sec. 4350 requires shareholder ratification 
of certain stock benefit plans, OTS currently requires shareholder 
ratification of plans adopted only within the first year following 
conversion. The First Proposal revised the section on management 
benefit plans to clarify that an association must present to 
shareholders for ratification any material amendments to previously 
approved management recognition plans, stock option plans, or other 
benefit plans that occur more than one year after conversion and that 
are inconsistent with the regulation. One commenter objected to this 
proposed revision as overly intrusive. However, OTS believes the 
regulation is an appropriate measure of regulatory oversight and is re-
proposing it as proposed.
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    \11\ See NASD Manual & Notices to Members, Sec. 4350(i), 
Qualitative Listing Requirements for Nasdaq National Market and 
Nasdaq SmallCap Market Issues Except for Limited Partnerships traded 
on the Nasdaq National Market, Shareholder Approval (2001).
---------------------------------------------------------------------------

    To reduce burden, the First Proposal had proposed a possible check-
off box on stock order forms to vote for or against stock benefit 
plans, when purchasing stock in MHC stock issuances. One of the 
commenters pointed out that a check-off box would violate NASD rules 
requiring NASD notification for stock benefit plans.\12\ Accordingly, 
the Re-proposal does not include that feature of the First Proposal.
---------------------------------------------------------------------------

    \12\ See NASD Manual & Notices to Members, Sec. 4310(c)(17), 
Qualification Requirements for Domestic and Canadian Securities 
(2001).
---------------------------------------------------------------------------

    While most commenters supported expansion of option plan 
opportunities for MHCs, several commenters were opposed to any options 
for management based on conflicts of interest or a view that benefit 
plans were a way for management to enrich itself. One commenter 
suggested management benefit plans should be limited to 2% of the stock 
issued. In response to those comments, OTS is adding a clarification to 
the Re-proposal that OTS will not approve management benefit plans that 
in the aggregate award more than 25% of the number of shares ultimately 
issued in the public offering to minority shareholders. The 25% 
restriction does not include ESOP shares allocated to managers. OTS 
believes management benefit plans that are reasonable, present no 
safety or soundness concerns, and are ratified by the shareholders, are 
not objectionable. Most companies use such plans to attract qualified 
executives and to reward management for performing well. Therefore, OTS 
is re-proposing most of the proposed changes except as noted above. One 
commenter asked if treasury stock could be used to fund benefit plans. 
OTS allows treasury stock to be used for this purpose.
    OTS received no comments on the First Proposal's revisions to the 
regulations to clarify that OTS will allow dividend equivalent rights, 
dividend adjustment rights, or other similar provisions that permit 
cash payments, adjustment of the number of shares, or exercise price of 
options as a result of stock dividends or splits, in management 
recognition plans, stock option plans, or other stock benefit plans. 
OTS is including these revisions in the Re-proposal. OTS does not 
believe these types of provisions, which are common in option plans, 
unduly

[[Page 17233]]

benefit recipients, as long as these provisions do not violate OTS 
vesting requirements or pricing requirements for options. See proposed 
Sec. 563b.500.
    OTS also proposes to add a provision that clarifies a supervisory 
policy requiring exercise or forfeiture of stock benefits in certain 
circumstances, such as if an association becomes critically 
undercapitalized. See proposed Sec. 563b.500.

M. Holding Company Proceeds

    The First Proposal stated that at least 50% of the gross proceeds 
in a mutual-to-stock conversion must be infused into the converting 
savings association, and more must be infused if OTS concludes, for 
supervisory reasons, that a larger capital infusion is necessary. The 
First Proposal inadvertently referenced 50% of gross proceeds, instead 
of net proceeds. The Re-proposal clarifies that 50% of the net proceeds 
must be infused into the savings association. One commenter suggested 
that all the proceeds should go to the savings association. Several 
others suggested OTS should maintain more flexibility and make a 
determination on an acceptable amount of proceeds retained by the 
holding company, based upon what the business plan proposed. OTS has 
determined that the 50% limitation works well, but will examine every 
conversion on a case-by-case basis to determine if the limitation is 
appropriate in that case.

N. Mutual Holding Company Revisions

1. General
    The Interim Rule revised the MHC regulations in accordance with the 
GLB Act and revised OTS treatment of MHC dividend waivers. The First 
Proposal included changes to the MHC regulations conforming to changes 
made to the conversion regulations. In the First Proposal, OTS also 
proposed to increase the size of stock benefit plans that associations 
(or mid-tier holding companies) under the MHC format could enact. Most 
commenters were in favor of this idea although two opposed any benefit 
plans for management. OTS is re-proposing the changes as proposed, with 
certain technical revisions, and with the additional 25% limitation 
discussed earlier. One commenter asked OTS to clarify that the proposed 
rules, if finalized, would apply to existing MHCs. In response to that 
comment, OTS takes this opportunity to indicate that the Re-proposal, 
if finalized, will be applicable to future stock issuances by existing 
associations or mid-tier holding companies in the MHC format. OTS will 
also permit the use of repurchased shares to attain the new limits.
    In the First Proposal, OTS also proposed allowing the adoption of 
additional stock option plans without the need to issue stock to all 
categories of subscribers. The Re-proposal retains this provision. OTS 
notes that adoption of additional plans still requires filing an 
application with OTS, registering additional stock where appropriate, 
and shareholder ratification of additional plans. Among the factors OTS 
will consider when reviewing additional plans are the purpose for 
creating the additional plans, management ratings, or supervisory 
problems at the converted savings association. As noted earlier, 
commenters were in favor of a check-off approval for benefit plans, but 
OTS is not re-proposing this item because of the NASD rule 
restrictions.
    Three commenters urged OTS to change its policy on the chartering 
of savings association subsidiaries of MHCs, or holding companies 
inserted in between MHCs and their savings association subsidiaries 
(Mid-tiers). Currently Mid-tiers must be chartered by OTS. The 
commenters argued that regular holding companies are state-chartered, 
so Mid-tiers should also be state-chartered. OTS notes, however, that 
Mid-tiers are MHCs, and MHCs, by statute, must be federally 
chartered.\13\ One commenter asked if OTS would allow Mid-tiers to 
adopt limited liability bylaws. Although such institutions are 
federally chartered, OTS has allowed the adoption of limited liability 
bylaws on a case-by-case basis for other federal associations and, 
therefore, would consider this for Mid-tiers.
---------------------------------------------------------------------------

    \13\ See 12 U.S.C. 1467a(o)(7).
---------------------------------------------------------------------------

    OTS also asked for comments on the possibility of not requiring a 
vote of the members for a simple reorganization to MHC form, without a 
stock issuance. Nine commenters favored such a change and three opposed 
it. OTS believes such a change may be beneficial to associations 
considering a charter change to MHC form, but believes a statutory 
change is necessary to accomplish this objective. OTS will consider 
seeking statutory changes in this area.
    One commenter asked if OTS would consider an abbreviated 
application for MHC reorganizations without a stock issuance. OTS 
already allows abbreviated applications for such reorganizations. These 
applications, however, are subject to the Bank Merger Act, which 
contains statutory time frames.
2. Acquisitions of Mutual Holding Company Structures
    Recently, companies in several MHC structures have entered into 
transactions, or have received offers to enter into transactions, in 
which an unrelated mutual savings association, mutual savings bank, or 
MHC would acquire the target MHC, mid-tier holding company, and 
subsidiary association. In these transactions, the mid-tier 
association's minority shareholders have been offered cash, and the 
majority mutual interest would become part of the acquiring mutual 
entity. Some of these transactions have been friendly, and others have 
been hostile acquisition proposals. In the context of these 
transactions, MHCs and their subsidiary entities have asked: (i) 
whether mid-tier holding companies (or, if there is no mid-tier holding 
company, the subsidiary savings association) may adopt the pre-approved 
charter provisions set forth at 12 CFR 552.4(b)(8), such as the charter 
provision prohibiting acquisitions of, and offers to acquire, more than 
ten percent of any class of equity security of the entity for five 
years; and (ii) whether OTS applies 12 CFR 563b.3(i)(3) to savings 
association subsidiaries or mid-tier holding companies that have issued 
stock within the previous three years.
    The purposes of the regulatory post-conversion acquisition 
restriction at 12 CFR 563b.3(i)(3) and the charter provisions in 12 CFR 
552.4(a)(8) are to provide recently converted associations a period of 
time in which to deploy conversion proceeds into productive assets, to 
permit management to focus on the task of investing conversion proceeds 
and managing their institution, and to protect against acquisition 
efforts that may have the potential to disrupt operations in the 
critical time period after conversion.\14\ In addition, the charter 
provisions are designed to allow converted associations more discretion 
in managing their affairs.\15\
---------------------------------------------------------------------------

    \14\ See, e.g., Federal Home Loan Bank Board (FHLBB) Resolution 
No. 85-80 (Jan. 31, 1985), Resolution No, 84-400 (Aug. 2, 1984), 
Resolution No. 84-90 (Feb. 23, 1984), and Resolution No. 76-848 
(Nov. 10, 1976).
    \15\ FHLBB Resolution No. 84-90 (Aug. 2, 1984).
---------------------------------------------------------------------------

    Recently completed or proposed transactions have demonstrated that 
takeover pressures now exist in the context of MHC structures. Minority 
stockholders have sought to pressure MHC structures to be acquired by 
mutual institutions or other MHC structures. In light of recent 
takeover attempts, and particularly in light of the hostile situations 
that have developed, OTS has determined to allow the post-

[[Page 17234]]

conversion anti-takeover restrictions in the charter of a mid-tier 
stock holding company. These restrictions would be consistent with the 
purposes of those provisions generally and give a newly converted MHC 
time to deploy its new capital and adjust to managing its institution 
in the MHC environment.\16\
---------------------------------------------------------------------------

    \16\ The MHC regulations provide that the procedural and 
substantive requirements of 12 CFR 563b.3 through 563b.8 apply to 
all MHC stock issuances under Sec. 575.7 unless clearly 
inapplicable. In the past, OTS staff has informally advised certain 
acquirors that it has not considered Sec. 563b.3(i)(3) to be clearly 
applicable in the MHC context.
---------------------------------------------------------------------------

    Accordingly, OTS is allowing mid-tier holding companies to include 
the provisions set forth at 12 CFR 552.4(b)(8) in their charters. In 
addition, OTS proposes to apply Sec. 563b.3(i)(3) to mid-tier holding 
companies and subsidiary stock institutions that complete initial stock 
offerings under Sec. 575.7. OTS requests comment on whether it should 
apply Sec. 563b.3(i)(3) in the context of Mid-tiers and MHC savings 
association subsidiaries.
3. ``Second Step Conversions'' of MHCs
    Section 575.12 of the MHC regulations generally governs the 
conversion of MHCs to stock form (frequently called ``second step 
conversions''). In all such transactions to date, OTS staff has 
required that the majority of the minority shares of the Mid-tier or 
savings association subsidiary, as the case may be, vote in favor of 
the second step conversion, in addition to votes otherwise required. 
OTS staff has imposed this requirement because the minority 
shareholders received different treatment in the second step conversion 
than the majority interest. The minority shareholders received stock in 
an amount to be determined under an ``exchange ratio'', while the 
majority interest (the mutual depositors) received rights to subscribe 
to the remaining shares to be issued in the transaction, at the 
offering price. OTS staff concluded that the requirement was 
appropriate in order to help ensure the fairness of the transaction. 
OTS proposes to include this requirement, which has been applicable to 
every second step conversion to date, in the MHC regulations, at 12 CFR 
575.12(a)(3).

O. Supervisory Conversions

    To conform the language in OTS regulations more closely to sec. 
5(o) of the HOLA, the statute governing supervisory conversions, OTS 
proposed certain changes to the regulatory language regarding Voluntary 
Supervisory Conversions. The revised language can be found at 
Secs. 563b.625 and 563b.630 of the Re-proposal.

P. Merger Conversions

    One commenter requested OTS to address whether there is any change 
in OTS policy on merger conversions. OTS policy on merger conversions 
was articulated in the preamble to the OTS conversion regulation of 
1994, 59 FR 61247, 61254, Nov. 30, 1994. In that regulation, OTS stated 
that it would limit merger conversions to cases involving financially 
weak institutions. In addition, OTS indicated it would consider 
allowing merger conversions where a converting institution could 
demonstrate by clear and convincing evidence that a standard conversion 
would not be economically feasible, based on the ratio of expenses to 
gross proceeds, because of the asset size of the institution.\17\
---------------------------------------------------------------------------

    \17\ See 59 FR 61247, at 61255. OTS gave an example of 
institutions with assets of less than $25 million as more likely to 
be able to establish a justification for doing a merger conversion.
---------------------------------------------------------------------------

    In the last eight years OTS has approved only one merger 
conversion. That approval was based on the criteria articulated in the 
1994 regulation. OTS reiterates the guidelines it established in the 
1994 regulation and wishes to clarify that institutions proposing 
merger conversions should not propose plans where management of the 
disappearing institution would receive anything more than they could if 
they had undertaken a standard conversion. In addition, institutions 
contemplating a merger conversion must demonstrate a merger conversion 
is the only viable alternative, and document what other proposed 
solutions the company pursued, that the proposed distribution of assets 
is fair to all parties, and that the institution used independent 
counsel to represent the interests of the institution.

Q. Plain Language

    The First Proposal converted OTS rules on mutual-to-stock 
conversions into a plain language format. All six commenters who 
addressed this change commented favorably. One commenter asked if OTS 
intended to make the same changes to the MHC regulations. OTS intends 
to make similar changes to the MHC regulations in a future project.

R. Miscellaneous Revisions

    In addition to the revisions described above, the First Proposal 
proposed a number of miscellaneous revisions to filing and other 
requirements. OTS received no comments on these revisions and is re-
proposing them as originally proposed. The miscellaneous changes will:
     Revise the definition section of the regulation to include 
only those definitions that are not defined elsewhere in OTS 
regulations, or to move specific definitions to the appropriate section 
of the regulation. See proposed Sec. 563b.25.
     Reduce the number of copies of applications that a savings 
association must file with OTS from ten to seven. See proposed 
Sec. 563b.155.
     Revise the filing requirements to coordinate the place of 
filing and number of copies filed, for the application for conversion 
and any amendments to the application for conversion. See proposed 
Secs. 563b.115, 563b.155, 563b.180, and 563b.185.
     Codify the current informal standard requiring a legal 
opinion indicating that any marketing materials comply with all 
applicable securities laws. See proposed Sec. 563b.150.
     Delete the requirement for a legal opinion regarding 
insured accounts. See proposed Sec. 563b.100, Exhibit 3(d).
    One commenter also asked for clarification on whether community 
offerings must occur in conversions. If all the stock is sold in the 
subscription phase of a conversion, a community offering is 
unnecessary. Another commenter asked if transfer restrictions applied 
in second step stock conversions. Transfer restrictions apply to newly 
purchased stock in second step stock conversions, but not to exchange 
shares presuming the appropriate transfer restriction time frames have 
already expired.

S. Forms

    The First Proposal contained revisions to all of the forms 
currently in the conversion regulations, and drafted a new form that 
facilitates the conversion process (Form OF for the Order Form). In 
drafting these forms, OTS moved a number of requirements currently in 
the regulations to the related forms. OTS received one comment on the 
forms with some minor technical suggestions for revisions. OTS concurs 
with some of the technical revisions and has revised the forms 
accordingly. The forms will continue to be available through OTS 
Washington and Regional Offices and will be accessible on OTS's 
website.

V. Disposition of Existing Rules

[[Page 17235]]



------------------------------------------------------------------------
                                      Re-proposed
       Original provision              provision            Comment
------------------------------------------------------------------------
12 CFR 563b.1...................  12 CFR 563b.5.....  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.2(a)................  12 CFR 563b.25....  Substantive
                                                       revisions,
                                                       deletions, and
                                                       moved.
12 CFR 563b.2(b)................  ..................  Deleted.
12 CFR 563b.3(a)................  12 CFR 563b.5(a)..  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(b)................  12 CFR 563b.200(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(1).............  12 CFR 563b.330(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(2).............  12 CFR 563b.355(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(2)(i)-(ii).....  12 CFR              Nonsubstantive
                                   563b.375(a), (d).   revision, moved.
12 CFR 563b.3(c)(3).............  12 CFR 563b.360...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(4).............  12 CFR              Nonsubstantive
                                   563b.335(b), (c).   revision, moved.
12 CFR 563b.3(c)(4)(i)..........  12 CFR 563b.320(c)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(4)(ii).........  12 CFR 563b.375(c)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(4)(iii)........  12 CFR 563b.375(b)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(4)(iv).........  12 CFR 563b.375(d)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(5).............  12 CFR              Nonsubstantive
                                   563b.320(d), 365.   revision, moved.
12 CFR 563b.3(c)(6).............  12 CFR              Nonsubstantive
                                   563b.320(e),        revision,
                                   335(b), (d).        deletions, and
                                                       moved.
12 CFR 563b.3(c)(6)(i)..........  12 CFR              Substantive
                                   563b.385(a), (c),   revision,
                                   380(a).             deletions, and
                                                       moved.
12 CFR 563b.3(c)(6)(ii)-(iii)...  12 CFR 563b.395...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(6)(iv).........  12 CFR 563b.390(b)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(7).............  12 CFR              Nonsubstantive
                                   563b.385(a), (c).   revision, moved.
12 CFR 563b.3(c)(8).............  12 CFR 563b.370...  Nonsubstantive
                                                       revision,
                                                       deletions, and
                                                       moved.
12 CFR 563b.3(c)(9).............  12 CFR 563b.505(d)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(10)............  12 CFR              Nonsubstantive
                                   563b.330(a),        revision, moved.
                                   335(b).
12 CFR 563b.3(c)(11)............  12 CFR 563b.420(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(12)............  12 CFR 563b.445(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(13)............  12 CFR              Nonsubstantive
                                   563b.430(d),        revision, moved.
                                   445(b), 465, 485.
12 CFR 563b.3(c)(14)............  12 CFR 563b.25....  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(15)............  12 CFR 563b.440,    Nonsubstantive
                                   445(c).             revision, moved.
12 CFR 563b.3(c)(16)............  12 CFR 563b.140,    Nonsubstantive
                                   425.                revision, moved.
12 CFR 563b.3(c)(17)............  12 CFR 563b.505(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(18)............  12 CFR 563b.505(b)- Nonsubstantive
                                   (c).                revision, moved.
12 CFR 563b.3(c)(19)............  12 CFR 563b.530(a)- Nonsubstantive
                                   (c).                revision, moved.
12 CFR 563b.3(c)(20)............  12 CFR 563b.150(b)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(21)............  12 CFR 563b.130...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(22)............  12 CFR 563b.345(b)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(c)(23)............  12 CFR 563b.320(a)- Nonsubstantive
                                   (d), 380(a)-(c).    revision, moved.
12 CFR 563b.3(c)(24)............  12 CFR 563b.520(a)- Nonsubstantive
                                   (b).                revision, moved.
12 CFR 563b.3(d)(1)-(7).........  ..................  Deleted.
12 CFR 563b.3(d)(8).............  12 CFR 563b.385(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(d)(9).............  12 CFR 563b.385(b)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(d)(10)-(11).......  ..................  Deleted.
12 CFR 563b.3(d)(12)............  12 CFR 563b.390(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(d)(13)............  ..................  Deleted.
12 CFR 563b.3(e)(1).............  12 CFR 563b.25....  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(e)(2).............  ..................  Deleted.
12 CFR 563b.3(f)(1).............  12 CFR              Nonsubstantive
                                   563b.445(b), 450,   revision, moved.
                                   455, 480.
12 CFR 563b.3(f)(2).............  12 CFR              Nonsubstantive
                                   563b.445(b), 450.   revision, moved.
12 CFR 563b.3(f)(3).............  12 CFR              Revision with
                                   563b.470(e), 475.   partial deletion,
                                                       moved.
12 CFR 563b.3(f)(4).............  12 CFR 563b.460...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(f)(5).............  12 CFR 563b.470(a)- Nonsubstantive
                                   (d).                revision, moved
12 CFR 563b.3(g)(1).............  12 CFR 563b.510...  Revision with
                                                       deletion, moved.
12 CFR 563b.3(g)(2).............  12 CFR 563b.510,    Nonsubstantive
                                   520(a).             revision, moved.
12 CFR 563b.3(g)(3).............  12 CFR 563b.510,    Substantive
                                   515.                revision with
                                                       deletion, moved.
12 CFR 563b.3(g)(4).............  12 CFR 563b.500...  Substantive
                                                       revision, moved.
12 CFR 563b.3(h)................  12 CFR 563b.340(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(i)(1)-(2).........  12 CFR              Nonsubstantive
                                   563b.340(b)(1).     revision, moved.
12 CFR 563b.3(i)(3)(i)..........  12 CFR 563b.525...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(i)(3)(ii).........  12 CFR 563b.420(b)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(i)(3)(iii)........  12 CFR 563b.525(b)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.3(i)(4)(i)..........  ..................  Deleted.
12 CFR 563b.3(i)(4)(ii)-(iv)....  12 CFR              Nonsubstantive
                                   563b.525(c)(1)-(3   revision, moved.
                                   ).
12 CFR 563b.3(i)(4)(v)..........  12 CFR              Nonsubstantive
                                   563b.525(c)(4).     revision, moved.
12 CFR 563b.3(i)(4)(vi)-(5).....  12 CFR              Nonsubstantive
                                   563b.525(d)(1)-(2   revision, moved.
                                   ).
12 CFR 563b.3(i)(6).............  12 CFR              Nonsubstantive
                                   563b.430(a), (b).   revision, moved.
12 CFR 563b.3(i)(7)(i)-(ii).....  12 CFR 563b.25,     Nonsubstantive
                                   525(b).             revision, moved.
12 CFR 563b.3(i)(7)(iii)-(iv)...  ..................  Deleted.
12 CFR 563b.3(j)................  12 CFR 563b.5(a)..  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.4(a)(1).............  12 CFR 563b.120...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.4(a)(2).............  ..................  Deleted.
12 CFR 563b.4(a)(3).............  12 CFR 563b.125...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.4(a)(3)(i)-(ii),      12 CFR              Nonsubstantive
 (4)(i)-(xviii).                   563b.135(a), (b).   revision, moved.
12 CFR 563b.4(a)(4)(xix)........  ..................  Deleted.

[[Page 17236]]

 
12 CFR 563b.4(a)(5).............  12 CFR 563b.135(c)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.4(b)(1)(i)..........  12 CFR 563b.180...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.4(b)(1)(ii).........  12 CFR 563b.185...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.4(b)(2).............  ..................  Deleted.
12 CFR 563b.4(b)(3).............  12 CFR 563b.180(b)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.4(c)................  12 CFR 563b.160...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.5(a)................  12 CFR 563b.250...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.5(b)-(c)............  12 CFR 563b.270(b)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.5(d)(1).............  12 CFR 563b.255...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.5(d)(2).............  12 CFR 563b.260,    Nonsubstantive
                                   265.                revision, moved.
12 CFR 563b.5(d)(3).............  12 CFR 563b.255(h)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.5(d)(4).............  12 CFR 563b.260...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.5(e)(1)-(2).........  12 CFR 563b.150,    Nonsubstantive
                                   155.                revision,
                                                       deletions, and
                                                       moved.
12 CFR 563b.5(e)(3).............  12 CFR 563b.275(d)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.5(e)(4).............  ..................  Deleted.
12 CFR 563b.5(e)(5).............  12 CFR 563b.150,    Nonsubstantive
                                   160(a)-(b).         revision, moved.
12 CFR 563b.5(e)(6).............  12 CFR 563b.275(e)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.5(e)(7).............  12 CFR 563b.275(c)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.5(f)................  12 CFR 563b.280...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.5(g)(1)-(2).........  12 CFR 563b.285(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.5(g)(3).............  12 CFR 563b.290...  Substantive
                                                       revision, moved.
12 CFR 563b.5(h)................  12 CFR 563b.285(b)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.6(a)................  12 CFR 563b.225(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.6(b)................  12 CFR 563b.230...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.6(c)(1).............  12 CFR 563b.235...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.6(c)(2).............  ..................  Deleted.
12 CFR 563b.6(d)................  12 CFR 563b.225(d)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.6(e)................  12 CFR 563b.225(b)- Nonsubstantive
                                   (c).                revision, moved.
12 CFR 563b.7(a)(1).............  12 CFR 563b.325(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.7(a)(2).............  12 CFR 563b.300(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.7(a)(3).............  12 CFR 563b.325(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.7(a)(4).............  ..................  Deleted.
12 CFR 563b.7(b)................  12 CFR              Nonsubstantive
                                   563b.300(e), 305.   revision, moved.
12 CFR 563b.7(c)................  12 CFR 563b.330...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.7(d)................  12 CFR              Nonsubstantive
                                   563b.200(b)(8),     revision, moved.
                                   300(c)-(d), Form
                                   OC, Item 3.
12 CFR 563b.7(e)................  12 CFR 563b.335(c)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.7(f)(1)-(2).........  12 CFR 563b.200(b)  Nonsubstantive
                                                       revision,
                                                       deletion, and
                                                       moved.
12 CFR 563b.7(f)(3).............  ..................  Deleted.
12 CFR 563b.7(g)(1)-(2).........  12 CFR              Nonsubstantial
                                   563b.335(a), Form   revisions,
                                   OF, Items (1),      deletions, and
                                   (2).                moved.
12 CFR 563b.7(g)(3),(4),(5).....  Form OF, Items      Nonsubstantive
                                   (3), (4), (5).      revision, moved.
12 CFR 563b.7(h)................  12 CFR              Nonsubstantive
                                   563b.345(a),        revision, moved.
                                   350(c).
12 CFR 563b.7(i)................  12 CFR 563b.400...  Nonsubstantive
                                                       revision, moved.
 12 CFR 563b.7(j)...............  12 CFR 563b.350(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.7(k)(1)-(2).........  12 CFR 563b.405...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.7(k)(2)(i)-(ii).....  12 CFR 563b.310(d)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.7(k)(3).............  ..................  Deleted.
12 CFR 563b.7(k)(4).............  12 CFR 563b.310(a)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.7(k)(5).............  12 CFR 563b.310(b)- Substantive
                                   (d).                revision, moved.
12 CFR 563b.8(a)................  12 CFR 563b.155...  Substantive
                                                       revision, moved.
12 CFR 563b.8(b)(1)-(2).........  12 CFR 563b.150...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.8(b)(3).............  ..................  Deleted.
12 CFR 563b.8(c)(1)-(2)(i)-(ii).  12 CFR 563b.240...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.8(c)(2)(iii)........  12 CFR 563b.260...  Substantive
                                                       revision, moved.
12 CFR 563b.8(c)(3).............  12 CFR              Substantial
                                   563b.300(a), (c).   revisions,
                                                       deletions, and
                                                       moved.
12 CFR 563b.8(d)(1)-(2).........  12 CFR 563b.430...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.8(d)(3).............  12 CFR 563b.435...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.8(e)................  12 CFR              Nonsubstantial
                                   563b.115(a), 155,   revisions,
                                   180(b), Form AC,    deletions, and
                                   General             moved.
                                   Instruction B.
12 CFR 563b.8(f)................  ..................  Deleted.
12 CFR 563b.8(g)................  Form AC, General    Nonsubstantive
                                   Instruction B.      revision, moved.
12 CFR 563b.8(h)................  ..................  Deleted.
12 CFR 563b.8(i)-(l)............  Form AC, General    Nonsubstantive
                                   Instruction B.      revision, moved.
12 CFR 563b.8(m)................  ..................  Deleted.
12 CFR 563b.8(n)................  Form AC, General    Nonsubstantive
                                   Instruction B.      revision, moved.
12 CFR 563b.8(o)................  ..................  Deleted.
12 CFR 563b.8(p)................  12 CFR              Nonsubstantive
                                   563b.150(a)(6),     revision, moved.
                                   Form AC, General
                                   Instruction B.
12 CFR 563b.8(q)................  Form AC, General    Nonsubstantive
                                   Instruction B.      revision, moved.
12 CFR 563b.8(r)................  Form AC, General    Substantive
                                   Instruction B.      revision, moved.
12 CFR 563b.8(s)................  Form AC, General    Nonsubstantive
                                   Instruction B.      revision, moved.
12 CFR 563b.8(t)(1).............  12 CFR 563b.100...  Nonsubstantive
                                                       revision, moved.

[[Page 17237]]

 
12 CFR 563b.8(t)(2).............  ..................  Deleted.
12 CFR 563b.8(u)................  12 CFR 563b.205...  Nonsubstantial
                                                       revisions,
                                                       deletions, and
                                                       moved.
12 CFR 563b.8(v)................  12 CFR 563b.530(d)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.9...................  12 CFR 563b.10....  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.10..................  12 CFR 563b.605(b)- Nonsubstantive
                                   (c).                revision, moved.
12 CFR 563b.11..................  12 CFR 563b.200(c)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.20..................  12 CFR 563b.600...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.21(a)...............  12 CFR 563b.605...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.21(b)...............  12 CFR 563b.650,    Nonsubstantive
                                   610.                revision, moved.
12 CFR 563b.22..................  ..................  Deleted.
12 CFR 563b.23(a)-(c)...........  12 CFR 563b.670,    Nonsubstantive
                                   675.                revision,
                                                       additions, and
                                                       moved.
12 CFR 563b.23(d)...............  12 CFR 563b.690...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.24(a)-(b)(1), (3)...  12 CFR              Nonsubstantive
                                   563b.625(a)(1).     revision, moved.
12 CFR 563b.24(b)(2)............  ..................  Deleted.
12 CFR 563b.24(c)...............  12 CFR 563b.625(b)  Substantive
                                                       addition, moved.
12 CFR 563b.25..................  12 CFR 563b.630...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.26..................  12 CFR              Nonsubstantive
                                   563b.625(a)(2).     revision, moved.
12 CFR 563b.27(a)...............  12 CFR 563b.650...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.27(b)...............  12 CFR              Nonsubstantive
                                   563b.660(f)(1).     revision, moved.
12 CFR 563b.27(c)...............  12 CFR              Nonsubstantive
                                   563b.660(a)(2).     revision, moved.
12 CFR 563b.27(d)...............  12 CFR 563b.660(c)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.27(e)...............  12 CFR              Nonsubstantive
                                   563b.660(g)(2).     revision, moved.
12 CFR 563b.27(f)-(g)...........  12 CFR 563b.660(e)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.27(h)...............  12 CFR              Nonsubstantive
                                   563b.660(f)(2).     revision, moved.
12 CFR 563b.27(i)...............  12 CFR              Nonsubstantive
                                   563b.660(g)(1).     revision, moved.
12 CFR 563b.27(j)...............  12 CFR              Nonsubstantive
                                   563b.660(g)(3).     revision, moved.
12 CFR 563b.27(k)...............  12 CFR              Nonsubstantive
                                   563b.660(g)(4).     revision, moved.
12 CFR 563b.27(l)...............  12 CFR              Nonsubstantive
                                   563b.660(d)(3).     revision, moved.
12 CFR 563b.27(m)...............  12 CFR              Nonsubstantive
                                   563b.660(d)(2).     revision, moved.
12 CFR 563b.27(n)...............  12 CFR              Nonsubstantive
                                   563b.660(d)(1).     revision, moved.
12 CFR 563b.27(o)...............  12 CFR              Nonsubstantive
                                   563b.660(d)(4).     revision, moved.
12 CFR 563b.27(p)...............  12 CFR              Nonsubstantive
                                   563b.660(a)(3).     revision, moved.
12 CFR 563b.27(q)-(r)...........  12 CFR 563b.660(h)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.27(s)...............  12 CFR              Nonsubstantive
                                   563b.660(g)(5).     revision, moved.
12 CFR 563b.28..................  12 CFR 563b.610...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.29(a)...............  12 CFR 563b.660...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.29(b)...............  ..................  Deleted.
12 CFR 563b.29(d)(1)-(2)........  12 CFR 563b.430...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.29(d)(3)............  12 CFR 563b.435...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.30..................  12 CFR 563b.675...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.31..................  12 CFR 563b.680...  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.32..................  12 CFR 563b.670(c)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.33..................  12 CFR 563b.670(d)  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.100.................  Form AC--1680.....  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.101.................  Form PS--1681.....  Nonsubstantive
                                                       revision, moved.
12 CFR 563b.102.................  Form OC--1682.....  Nonsubstantive
                                                       revision, moved.
                                  12 CFR 563b.15,     New provisions.
                                   20, 105, 110,      New provision.
                                   115, 165.          New provisions.
                                  12 CFR 563b.295...  New form.
                                  12 CFR 563b.550-
                                   575.
                                  Form OF--1683.....
------------------------------------------------------------------------

VI. Request for Public Comment

    OTS invites comment on all aspects of the Re-proposal. We encourage 
commenters to suggest modifications to approaches discussed above that 
could meet OTS's overall goal of improving the conversion process. 
Because this is a re-proposal, OTS believes the public comment period 
does not need to be as long as the First Proposal, therefore, OTS is 
publishing this Re-proposal with a 30-day comment period.

VII. Executive Order 12866

    The Director of OTS determined that this Re-proposal does not 
constitute a ``significant regulatory action'' for the purposes of 
Executive Order 12866.

VIII. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act of 1980 (RFA) requires federal 
agencies to either prepare an initial regulatory flexibility analysis 
(IRFA) with this Re-proposal or certify that the rule would not have a 
significant impact on a substantial number of small entities.\18\ OTS 
cannot at this time determine whether the rule would have a significant 
impact on a substantial number of small entities. Therefore, OTS 
includes the following IRFA.\19\
    A description of the reasons why OTS is taking this action, and a 
statement of the objectives of, and legal basis for, the Re-proposal 
are in the supplementary material above.
---------------------------------------------------------------------------

    \18\ 5 U.S.C. 605(b).
    \19\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------

1. Small Entities to Which the Re-proposal Would Apply

    The Re-proposal applies to mutual savings associations that propose 
to convert to the stock form of ownership. Under OTS jurisdiction, 
there are currently approximately 399 mutual

[[Page 17238]]

savings associations, 35 publicly traded MHCs, 2 non-publicly traded 
MHCs, and 27 MHCs with no stock issued. Of these institutions, 
approximately 239 have less than $100 million in assets. Small 
depository institutions are generally defined, for RFA purposes, as 
those with assets under $100 million.\20\ In the past two years, OTS 
has processed 12 and 10 applications, respectively, to convert from 
mutual to stock or mutual holding company form. Based on this 
experience, OTS believes that the Re-proposal affects fewer than 15 
savings associations annually.
---------------------------------------------------------------------------

    \20\ 13 CFR 121.201, Division H (1999).
---------------------------------------------------------------------------

2. Requirements of the Re-Proposal

    The Re-proposal requires mutual savings associations wishing to 
convert to stock form to prepare a plan of conversion and other 
supporting forms and documents (such as a business plan and an 
independent appraisal) and submit the documents for OTS approval. The 
current mutual-to-stock conversion regulations require all of these 
documents or information.
    The Re-proposal includes a new requirement that a savings 
association that intends to establish a charitable organization as part 
of its conversion must supply certain documents and information 
regarding the charitable organization. Under the current application 
processing policies, OTS often requires a savings association that 
intends to establish a charitable organization as part of its 
conversion to submit the same type of information that the Re-proposal 
would require. As a result, this new requirement should not have any 
additional impact on small savings associations.
    The Re-proposal also adds demand account holders to the definition 
of savings account holders, allows accelerated vesting in management 
benefit plans for changes of control, and clarifies OTS policy 
regarding the amount of proceeds allowed at the holding company level. 
None of these provisions, however, should add to the reporting, 
recordkeeping, or compliance requirements for small entities.
    Although it is not clear that the RFA requires a quantitative 
analysis of the impact of the re-proposed regulatory changes, OTS 
provides the following estimate. The Re-proposal's primary economic 
impact on small savings associations relates to the expense of 
preparing the application to convert. Savings associations wishing to 
convert must prepare the necessary documents and forms, including a 
plan of conversion, a business plan, and an appraisal. Preparation of 
these documents may require legal or professional help. OTS's 
experience in the conversion process indicates that savings 
associations generally hire legal counsel, accountants, marketing 
agents, and professional appraisers to assist in completion of the 
necessary documents and forms. Savings associations converting under 
the current regulations spend approximately $250,000 to one million 
dollars each to go through the process. We note that the new 
requirements will add only 10 hours of additional paperwork in 
preparation, and may save institutions that decide after preliminary 
business plan preparation and discussion not to convert significant 
time and expense. See discussion infra at Section IX. The new 
requirement for information supporting a proposed charitable 
contribution should not increase these costs appreciably.

3. Significant Alternatives

    Section 603(c) of the RFA requires OTS to describe any significant 
alternatives to the Re-proposal that accomplish the stated objectives 
of the rule while minimizing any significant economic impact of the 
rule on small entities. Section 603(c) lists several examples of 
significant alternatives, including (1) establishing different 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) clarifying, 
consolidating, or simplifying compliance and reporting requirements for 
small entities; (3) using performance standards rather than design 
standards; and (4) exempting small entities from coverage of the rule 
or a part of the rule.
    After consideration, OTS does not believe that any of these 
alternatives are feasible. As noted, more than half of the savings 
associations to which the Re-proposal could apply meet the RFA standard 
for ``small depository institutions.'' In fact, the conversion process 
is aimed largely at small institutions that want to raise capital in 
the open market by converting to the stock form of ownership. Given 
that the conversion process is designed with small institutions in 
mind, modifying the requirements for such small institutions is not 
necessary. Moreover, given that a conversion cannot be measured for 
performance until it takes place, the use of performance standards 
rather than design standards is impractical.
    To reduce regulatory burden consistent with the goals of this 
regulation, the Re-proposal specifically permits OTS to waive any 
requirement under the part where the waiver is equitable and not 
detrimental to the savings association, the account holders, or the 
public interest. This process will provide substantial flexibility to 
OTS and the savings association to minimize any significant economic 
impact of a provision on a specific institution.
    Nevertheless, OTS requests comments on the burdens associated with 
the Re-proposal that particularly affect small savings associations, 
and whether any modifications or exemptions from the rules for small 
savings associations would be appropriate.

IX. Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act), requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
federal mandate that may result in expenditure by state, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, sec. 205 of the Unfunded Mandates Act also requires an agency 
to identify and consider a reasonable number of regulatory alternatives 
before promulgating a rule. OTS determined that the Re-proposal will 
not result in expenditures by state, local, or tribal governments or by 
the private sector of $100 million or more in any one year. 
Accordingly, this rulemaking is not subject to sec. 202 of the Unfunded 
Mandates Act.

X. Paperwork Reduction Act

    The information collection requirements contained in the Re-
proposal, 12 CFR part 563b, are virtually identical to those included 
in the July 2000 Proposed Rule on this subject. OTS has modified the 
forms in only minor ways, but the burden on respondents remains 
unchanged from those in the earlier rule, which the Office of 
Management and Budget (OMB) approved under control number 1550-0014. 
Respondents/recordkeepers are not required to respond to any collection 
of information unless it displays a currently valid OMB control number.
    As part of its continuing effort to reduce paperwork and respondent 
burden, however, OTS invites the public to comment on the information 
collections contained in this rule, including the forms included in 
this publication as appendices.
    OTS invites comment on all of the following issues:
     Whether the proposed information collection contained in 
this Re-proposal is necessary for the proper performance

[[Page 17239]]

of OTS's functions, including whether the information has practical 
utility.
     The accuracy of OTS's estimate of the burden of the 
proposed information collection.
     Ways to enhance the quality, utility, and clarity of the 
information to be collected.
     Ways to minimize the burden of the information collection 
on respondents, including through the use of automated collection 
techniques or other forms of information technology.
      Estimates of capital and start-up costs of operation, 
maintenance, and purchases of services to provide information.
    Send comments on these information collections to Information 
Collection Comments, Attention: 1550-0014, by e-mail to 
[email protected]; by facsimile transmission to 
(202) 906-6518; or by mail to Information Collection Comments, Chief 
Counsel's Office, Office of Thrift Supervision, 1700 G Street, NW., 
Washington, DC 20552. OTS will post comments and the related index on 
the OTS Internet Site at www.ots.treas.gov. In addition, interested 
persons may inspect comments at the Public Reference Room, 1700 G 
Street, NW., by appointment. To make an appointment, call (202) 906-
5922, send an e-mail to [email protected], or send a facsimile 
transmission to Public Information at (202) 906-7755.

List of Subjects

12 CFR Part 563b

    Reporting and recordkeeping requirements, Savings associations, 
Securities.

12 CFR Part 574

    Administrative practice and procedure, Holding companies, Reporting 
and recordkeeping requirements, Savings associations, Securities.

12 CFR Part 575

    Administrative practice and procedure, Capital, Holding companies, 
Reporting and recordkeeping requirements, Savings associations, 
Securities.

    Accordingly, the Office of Thrift Supervision proposes to amend 12 
CFR chapter V, as set forth below:
    1. Part 563b is revised to read as follows:

PART 563b--CONVERSIONS FROM MUTUAL TO STOCK FORM

Sec.
563b.5   What does this part do?
563b.10   May I form a holding company as part of my conversion?
563b.15   May I form a charitable organization as part of my 
conversion?
563b.20   May I acquire another insured stock depository institution 
as part of my conversion?
563b.25   What definitions apply to this part?
Subpart A--Standard Conversions

Prior to Conversion

563b.100   What must I do before a conversion?
563b.105   What information must I include in my business plan?
563b.110   Who must review my business plan?
563b.115   How will OTS view my business plan?
563b.120   May I discuss my plans to convert with others?

Plan of Conversion

563b.125  Must my board of directors adopt a plan of conversion?
563b.130  What must I include in my plan of conversion?
563b.135  How do I notify my members that my board of directors 
approved a plan of conversion?
563b.140  May I amend my plan of conversion?

Filing Requirements

563b.150  What must I include in my application for conversion?
563b.155  How do I file my application for conversion?
563b.160  May I keep portions of my application for conversion 
confidential?
563b.165  How do I amend my application for conversion?

Notice of Filing of Application and Comment Process

563b.180  How do I notify the public that I filed an application for 
conversion?
563b.185  How may a person comment on my application for conversion?

OTS Review of the Application for Conversion

563b.200  What actions may OTS take on my application?
563b.205  May a court review OTS's final action on my conversion?

Vote by Members

563b.225  Must I submit the plan of conversion to my members for 
approval?
563b.230  Who is eligible to vote?
563b.235  How must I notify my members of the meeting?
563b.240  What must I submit to OTS after the members' meeting?

Proxy Solicitation

563b.250  Who must comply with these proxy solicitation provisions?
563b.255  What must the form of proxy include?
563b.260  May I use previously executed proxies?
563b.265  How may I use proxies executed under this part?
563b.270  What must I include in my proxy statement?
563b.275  How do I file revised proxy materials?
563b.280  Must I mail a member's proxy solicitation material?
563b.285  What solicitations are prohibited?
563b.290  What will OTS do if a solicitation violates these 
prohibitions?
563b.295  Will OTS require me to re-solicit proxies?

Offering Circular

563b.300  What must happen before OTS declares my offering circular 
effective?
563b.305  When may I distribute the offering circular?
563b.310  When must I file a post-effective amendment to the 
offering circular?

Offers and Sales of Stock

563b.320  Who has priority to purchase my conversion shares?
563b.325  When may I offer to sell my conversion shares?
563b.330  How do I price my conversion shares?
563b.335  How do I sell my conversion shares?
563b.340  What sales practices are prohibited?
563b.345  How may a subscriber pay for my conversion shares?
563b.350  Must I pay interest on payments for conversion shares?
563b.355  What subscription rights must I give to each eligible 
account holder and each supplemental eligible account holder?
563b.360  Are my officers, directors, and their associates eligible 
account holders?
563b.365  May other voting members purchase conversion shares in the 
conversion?
563b.370  Does OTS limit the aggregate purchases by officers, 
directors, and their associates?
563b.375   How do I allocate my conversion shares if my shares are 
oversubscribed?
563b.380   May my employee stock ownership plan purchase conversion 
shares?
563b.385   May I impose any purchase limitations?
563b.390   Must I provide a purchase preference to persons in my 
local community?
563b.395   What other conditions apply when I offer conversion 
shares in a community offering, a public offering, or both?

Completion of the Offering

563b.400   When must I complete the sale of my stock?
563b.405   How do I extend the offering period?

Completion of the Conversion

563b.420   When must I complete my conversion?
563b.425   Who may terminate the conversion?
563b.430   What happens to my old charter?
563b.435   What happens to my corporate existence after conversion?
563b.440   What voting rights must I provide to stockholders after 
the conversion?

[[Page 17240]]

563b.445   What must I provide my savings account holders?

Liquidation Account

563b.450   What is a liquidation account?
563b.455   What is the initial balance of the liquidation account?
563b.460   How do I determine the initial balances of liquidation 
sub-accounts?
563b.465   Do account holders retain any voting rights based on 
their liquidation sub-accounts?
563b.470   Must I adjust liquidation sub-accounts?
563b.475   What is a liquidation?
563b.480   Does the liquidation account affect my net worth?
563b.485   What provision must I include in my new federal charter?

Post-Conversion

563b.500   May I implement a stock option plan or management or 
employee stock benefit plan?
563b.505   May my directors, officers, and their associates freely 
trade shares?
563b.510   May I repurchase shares after conversion?
563b.515   What information must I provide to OTS before I 
repurchase my shares?
563b.520   May I declare or pay dividends after I convert?
563b.525   Who may acquire my shares after I convert?
563b.530   What other requirements apply after I convert?

Contributions to Charitable Organizations

563b.550   May I donate conversion shares or conversion proceeds to 
a charitable organization?
563b.555   How do my members approve a charitable contribution?
563b.560   How much may I contribute to a charitable organization?
563b.565   What must the charitable organization include in its 
organizational documents?
563b.570   How do I address conflicts of interest involving my 
directors?
563b.575   What other requirements apply to charitable 
organizations?
Subpart B--Voluntary Supervisory Conversion
563b.600   What does this subpart do?
563b.605   How may I conduct a voluntary supervisory conversion?
563b.610   Do my members have rights in a voluntary supervisory 
conversion?

Eligibility

563b.625  When is a savings association eligible for a voluntary 
supervisory conversion?
563b.630   When is a BIF-insured state-chartered savings bank 
eligible for a voluntary supervisory conversion?

Plan of Supervisory Conversion

563b.650   What must I include in my plan of voluntary supervisory 
conversion?

Voluntary Supervisory Conversion Application

563b.660   What must I include in my voluntary supervisory 
conversion application?

OTS Review of the Voluntary Supervisory Conversion Application

563b.670   Will OTS approve my voluntary supervisory conversion 
application?
563b.675   What conditions will OTS impose on an approval?

Offers and Sales of Stock

563b.680   How do I sell my shares?

Post-Conversion

563b.690   Who may not acquire additional shares after the voluntary 
supervisory conversion?

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15 
U.S.C. 78c, 78l, 78m,78n,78w.


563b.5  What does this part do?

    (a) General. This part governs how a savings association (``you'') 
may convert from the mutual to the stock form of ownership. Subpart A 
of this part governs standard mutual-to-stock conversions. Subpart B of 
this part governs voluntary supervisory mutual-to-stock conversions. 
This part supersedes all inconsistent charter and bylaw provisions of 
federal savings associations converting to stock form.
    (b) Prescribed forms. You must use the forms prescribed under this 
part and provide such information as OTS may require under the forms by 
regulation or otherwise. The forms required under this part include: 
Form AC (Application for Conversion); Form PS (Proxy Statement); Form 
OC (Offering Circular); and Form OF (Order Form).
    (c) Waivers. OTS may waive any requirement of this part or a 
provision in any prescribed form. To obtain a waiver, you must file a 
written request with OTS that:
    (1) Specifies the requirement(s) or provision(s) you want OTS to 
waive;
    (2) Demonstrates that the waiver is equitable, is not detrimental 
to you, your account holders or other savings associations, and is not 
contrary to the public interest; and
    (3) Includes an opinion of counsel demonstrating that applicable 
law does not conflict with the requirement or provision.


Sec. 563b.10  May I form a holding company as part of my conversion?

    You may convert to the stock form of ownership as part of a 
transaction where you organize a holding company to acquire all of your 
shares upon their issuance. In such a transaction, your holding company 
will offer rights to purchase its shares instead of your shares. All of 
the requirements of subpart A generally apply to the holding company as 
they apply to the savings association. Section 574.6 of this chapter 
contains OTS's holding company application requirements.


Sec. 563b.15  May I form a charitable organization as part of my 
conversion?

    When you convert to the stock form, you may form a charitable 
organization. Your contributions to the charitable organization are 
governed by the requirements of Secs. 563b.550 through 563b.575.


Sec. 563b.20  May I acquire another insured stock depository 
institution as part of my conversion?

    When you convert to stock form, you may acquire for cash or stock 
another insured depository institution that is already in the stock 
form of ownership.


Sec. 563b.25  What definitions apply to this part?

    The following definitions apply to this part and the forms 
prescribed under this part:
    Acting in concert has the same meaning as in Sec. 574.2(c) of this 
chapter. The rebuttable presumptions of Sec. 574.4(d) of this chapter, 
other than Secs. 574.4(d)(1) and (d)(2) of this chapter, apply to the 
share purchase limitations at Secs. 563b.355 through 563b.395.
    Affiliate of, or a person affiliated with, a specified person, is a 
person that directly or indirectly, through one or more intermediaries, 
controls, is controlled by, or is under common control with the 
specified person.
    Associate of a person is:
    (1) A corporation or organization (other than you or your majority-
owned subsidiaries), if the person is a senior officer or partner, or 
beneficially owns, directly or indirectly, 10 percent or more of any 
class of equity securities of the corporation or organization.
    (2) A trust or other estate, if the person has a substantial 
beneficial interest in the trust or estate or is a trustee or fiduciary 
of the trust or estate. For purposes of Secs. 563b.370, 563b.380, 
563b.385, 563b.390, 563b.395 and 563b.505, a person who has a 
substantial beneficial interest in your tax-qualified or non-tax-
qualified employee stock benefit plan, or who is a trustee or a 
fiduciary of the plan, is not an associate of the plan. For the 
purposes of Sec. 563b.370, your tax-qualified employee stock benefit 
plan is not an associate of a person.
    (3) Any person who is related by blood or marriage to such person 
and:
    (i) Who lives in the same home as the person; or
    (ii) Who is your director or senior officer, or a director or 
senior officer of your holding company or your subsidiary.
    Association members or members are persons who, under applicable 
law, are eligible to vote at the meeting on conversion.

[[Page 17241]]

    Control (including controlling, controlled by, and under common 
control with) means the direct or indirect power to direct or exercise 
a controlling influence over the management and policies of a person, 
whether through the ownership of voting securities, by contract, or 
otherwise as described at 12 CFR part 574.
    Eligibility record date is the date for determining eligible 
account holders. The eligibility record date must be at least one year 
before the date your board of directors adopts the plan of conversion.
    Eligible account holders are any persons holding qualifying 
deposits on the eligibility record date.
    IRS is the Internal Revenue Service.
    Local community includes:
    (1) Every county, parish, or similar governmental subdivision in 
which you have a home or branch office;
    (2) Each county's, parish's, or subdivision's metropolitan 
statistical area;
    (3) All zip code areas in your Community Reinvestment Act 
assessment area; and
    (4) Any other area or category you set out in your plan of 
conversion, as approved by OTS.
    Offer, offer to sell, or offer for sale is an attempt or offer to 
dispose of, or a solicitation of an offer to buy, a security or 
interest in a security for value. Preliminary negotiations or 
agreements with an underwriter, or among underwriters who are or will 
be in privity of contract with you, are not offers, offers to sell, or 
offers for sale.
    Person is an individual, a corporation, a partnership, an 
association, a joint-stock company, a limited liability company, a 
trust, an unincorporated organization, or a government or political 
subdivision of a government.
    Proxy soliciting material includes a proxy statement, form of 
proxy, or other written or oral communication regarding the conversion.
    Purchase or buy includes every contract to acquire a security or 
interest in a security for value.
    Qualifying deposit is the total balance in an account holder's 
savings accounts at the close of business on the eligibility or 
supplemental eligibility record date. Your plan of conversion may 
provide that only savings accounts with total deposit balances of $50 
or more will qualify.
    Sale or sell includes every contract to dispose of a security or 
interest in a security for value. An exchange of securities in a merger 
or acquisition approved by OTS is not a sale.
    Savings account is any withdrawable account as defined in 
Sec. 561.42 of this chapter, including a demand account as defined in 
Sec. 561.16 of this chapter.
    Solicitation and solicit is a request for a proxy, whether or not 
accompanied by or included in a form of proxy; a request to execute, 
not execute, or revoke a proxy; or the furnishing of a form of proxy or 
other communication reasonably calculated to cause your members to 
procure, withhold, or revoke a proxy. Solicitation or solicit does not 
include providing a form of proxy at the unsolicited request of a 
member, the acts required to mail communications for members, or 
ministerial acts performed on behalf of a person soliciting a proxy.
    Subscription offering is the offering of shares through 
nontransferable subscription rights to:
    (1) Eligible account holders under Sec. 563b.355;
    (2) Tax-qualified employee stock ownership plans under 
Sec. 563b.380;
    (3) Supplemental eligible account holders under Sec. 563b.355; and
    (4) Other voting members under Sec. 563b.365.
    Supplemental eligibility record date is the date for determining 
supplemental eligible account holders. The supplemental eligibility 
record date is the last day of the calendar quarter before OTS approves 
your conversion and will only occur if OTS has not approved your 
conversion within 15 months after the eligibility record date.
    Supplemental eligible account holders are any persons, except your 
officers, directors, and their associates, holding qualifying deposits 
on the supplemental eligibility record date.
    Tax-qualified employee stock benefit plan is any defined benefit 
plan or defined contribution plan, such as an employee stock ownership 
plan, stock bonus plan, profit-sharing plan, or other plan, and a 
related trust, that is qualified under section 401 of the Internal 
Revenue Code (26 U.S.C. 401).
    Underwriter is any person who purchases any securities from you 
with a view to distributing the securities, offers or sells securities 
for you in connection with the securities' distribution, or 
participates or has a direct or indirect participation in the direct or 
indirect underwriting of any such undertaking. Underwriter does not 
include a person whose interest is limited to a usual and customary 
distributor's or seller's commission from an underwriter or dealer.

Subpart A--Standard Conversions

Prior to Conversion


Sec. 563b.100  What must I do before a conversion?

    (a) You must meet with OTS at least ten days before you pass your 
plan of conversion. At that meeting you must provide OTS with a written 
strategic plan that outlines the objectives of the proposed conversion 
and the intended use of the conversion proceeds.
    (b) You should also consult with OTS before you file your 
application for conversion. OTS will discuss the information that you 
must include in the application for conversion, general issues that you 
may confront in the conversion process, and any other pertinent issues.


Sec. 563b.105  What information must I include in my business plan?

    (a) Prior to filing an application for conversion, you must adopt a 
business plan reflecting your intended plans for deployment of the 
proposed conversion proceeds. Your business plan is required, under 
Sec. 563b.150, to be included in your conversion application. At a 
minimum, your business plan must address:
    (1) Your projected operations and activities for three years 
following the conversion. You must describe how you will deploy the 
conversion proceeds at the converted savings association (and holding 
company, if applicable), and include three years of projected financial 
statements. The business plan must provide that the converted savings 
association must retain at least 50 percent of the net conversion 
proceeds. OTS may require that a larger percentage of proceeds remain 
in the institution.
    (2) Your plan for deploying conversion proceeds to meet credit and 
lending needs in your proposed market areas. OTS strongly discourages 
business plans that provide for a substantial investment in mortgage 
securities or other securities, except as an interim measure to 
facilitate orderly, prudent deployment of proceeds during the three 
years following the conversion, or as part of a properly managed 
leverage strategy.
    (3) How the new capital will support projected operations and 
activities, and what opportunities are available to reasonably achieve 
your planned deployment of conversion proceeds in your proposed market 
areas.
    (4) The risks associated with your plan for deployment of 
conversion proceeds, and the effect of this plan on management 
resources, staffing, and facilities.

[[Page 17242]]

    (5) The expertise of your management and board of directors, or 
that you have planned for adequate staffing and controls to prudently 
manage the growth, expansion, new investment, and other operations and 
activities proposed in your business plan.
    (6) How you will achieve a reasonable return on equity, 
commensurate with investment risk, investor expectations, and industry 
norms, by the final year of the business plan.
    (b) You may not project returns of capital or extraordinary 
dividends in any part of the business plan. A newly converted company 
should not plan on stock repurchases in the first year of the business 
plan, except in extraordinary circumstances.


Sec. 563b.110  Who must review my business plan?

    (a) Your chief executive officer and members of the board of 
directors must review, and at least two-thirds of your board must 
approve, the business plan.
    (b) Your chief executive officer and at least two-thirds of the 
board must certify that the business plan accurately reflects the 
intended plans for deployment of conversion proceeds, and that any new 
initiatives reflected in the business plan are reasonably achievable. 
You must submit these certifications with your business plan, as part 
of your conversion application under Sec. 563b.150.


Sec. 563b.115  How will OTS view my business plan?

    (a) OTS will review your business plan to determine that it 
demonstrates prudent deployment of conversion proceeds, as part of its 
review of your conversion application. In making its determination, OTS 
will consider how you have addressed the requirements of Sec. 563b.105 
in the aggregate, and not as individual criteria.
    (b) You must file your business plan with the Regional Office. OTS 
may request additional information, if necessary, to support its 
determination under paragraph (a) of this section. You must also file 
your business plan as a confidential exhibit to the Form AC.
    (c) If OTS approves your application for conversion and you 
complete your conversion, you must operate within the parameters of 
your business plan. You must obtain the prior written approval of the 
Regional Director for any material deviations from your business plan.


Sec. 563b.120  May I discuss my plans to convert with others?

    (a) You may discuss information about your conversion with 
individuals that you authorize to prepare documents for your 
conversion.
    (b) Except as permitted under paragraph (a) of this section, you 
must keep all information about your conversion confidential until your 
board of directors adopts your plan of conversion.
    (c) If you violate this section, OTS may require you to take 
remedial action. For example, OTS may require you to take any or all of 
the following actions:
    (1) Publicly announce that you are considering a conversion;
    (2) Set an eligibility record date acceptable to OTS;
    (3) Limit the subscription rights of any person who violates or 
aids a violation of this section; or
    (4) Take any other action to assure that your conversion is fair 
and equitable.

Plan of Conversion


Sec. 563b.125  Must my board of directors adopt a plan of conversion?

    Prior to filing an application for conversion, your board of 
directors must adopt a plan of conversion that conforms to 
Secs. 563b.320 through 563b.395 (``Offers and Sales of Stock''). Your 
board of directors must adopt the plan by at least a two-thirds vote. 
Your plan of conversion is required, under Sec. 563b.150, to be 
included in your conversion application.


Sec. 563b.130  What must I include in my plan of conversion?

    You must include the information included in Secs. 563b.320 through 
563b.395 (``Offers and Sales of Stock'') in your plan of conversion. 
OTS may require you to delete or revise any provision in your plan of 
conversion if OTS determines the provision is inequitable; is 
detrimental to you, your account holders, or other savings 
associations; or is contrary to public interest.


Sec. 563b.135  How do I notify my members that my board of directors 
approved a plan of conversion?

    (a) Notice. You must promptly notify your members that your board 
of directors adopted a plan of conversion and that a copy of the plan 
is available for the members' inspection in your home office and in 
your branch offices. You must mail a letter to each member or publish a 
notice in the local newspaper in every local community where you have 
an office. You may also issue a press release. OTS may require broader 
publication, if necessary, to ensure adequate notice to your members.
    (b) Contents of notice. You may include any of the following 
statements and descriptions in your letter, notice, or press release.
    (1) Your board of directors adopted a proposed plan to convert from 
a mutual to a stock savings institution.
    (2) You will send your members a proxy statement with detailed 
information on the proposed conversion before you convene a members' 
meeting to vote on the conversion.
    (3) Your members will have an opportunity to approve or disapprove 
the proposed conversion at a meeting. At least a majority of the 
eligible votes must approve the conversion.
    (4) You will not vote existing proxies to approve or disapprove the 
conversion. You will solicit new proxies for voting on the proposed 
conversion.
    (5) OTS, and in the case of a state-chartered savings association, 
the appropriate state regulator, must approve the conversion before the 
conversion will be effective. Your members will have an opportunity to 
file written comments, including objections and materials supporting 
the objections, with OTS.
    (6) The IRS must issue a favorable tax ruling, or a tax expert must 
issue an appropriate tax opinion, on the tax consequences of your 
conversion before OTS will approve the conversion. The ruling or 
opinion must indicate the conversion will be a tax-free reorganization.
    (7) OTS, and in the case of a state-chartered savings association, 
the appropriate state regulator, might not approve the conversion, and 
the IRS or a tax expert might not issue a favorable tax ruling or tax 
opinion.
    (8) Savings account holders will continue to hold accounts in the 
converted savings association with the same dollar amounts, rates of 
return, and general terms as existing deposits. FDIC will continue to 
insure the accounts.
    (9) Your conversion will not affect borrowers' loans, including the 
amount, rate, maturity, security, and other contractual terms.
    (10) Your business of accepting deposits and making loans will 
continue without interruption.
    (11) Your current management and staff will continue to conduct 
current services for depositors and borrowers under current policies 
and in existing offices.
    (12) You may continue to be a member of the Federal Home Loan Bank 
System.
    (13) You may substantively amend your proposed plan of conversion 
before the members' meeting.
    (14) You may terminate the proposed conversion.
    (15) After OTS, and in the case of a state-chartered savings 
association, the

[[Page 17243]]

appropriate state regulator, approves the proposed conversion, you will 
send proxy materials providing additional information. After you send 
proxy materials, members may telephone or write to you with additional 
questions.
    (16) The proposed record date for determining the eligible account 
holders who are entitled to receive subscription rights to purchase 
your shares.
    (17) A brief description of the circumstances under which 
supplemental eligible account holders will receive subscription rights 
to purchase your shares.
    (18) A brief description of how voting members may participate in 
the conversion.
    (19) A brief description of how directors, officers, and employees 
will participate in the conversion.
    (20) A brief description of the proposed plan of conversion.
    (21) The par value (if any) and approximate number of shares you 
will issue and sell in the conversion.
    (c) Other requirements. (1) You may not solicit proxies, provide 
financial statements, describe the benefits of conversion, or estimate 
the value of your shares upon conversion in the letter, notice, or 
press release.
    (2) If you respond to inquiries about the conversion, you may 
address only the matters listed in paragraph (b) of this section.


Sec. 563b.140  May I amend my plan of conversion?

    You may amend your plan of conversion before you solicit proxies. 
After you solicit proxies, you may amend your plan of conversion only 
if OTS concurs.

Filing Requirements


Sec. 563b.150  What must I include in my application for conversion?

    (a) Your application for conversion must include all of the 
following information.
    (1) Your plan of conversion.
    (2) Pricing materials meeting the requirements of Sec. 563b.200(b).
    (3) Proxy soliciting materials under Sec. 563b.270, including:
    (i) A preliminary proxy statement with signed financial statements;
    (ii) A form of proxy meeting the requirements of Sec. 563b.255; and
    (iii) Any additional proxy soliciting materials, including press 
releases, personal solicitation instructions, radio or television 
scripts that you plan to use or furnish to your members, and a legal 
opinion indicating that any marketing materials comply with all 
applicable securities laws.
    (4) An offering circular described in Sec. 563b.300.
    (5) The documents and information required by Form AC. You may 
obtain Form AC from OTS Washington and Regional Offices (see 
Sec. 516.40 of this chapter) and OTS's website (www.ots.treas.gov).
    (6) Where indicated, written consents, signed and dated, of any 
accountant, attorney, investment banker, appraiser, or other 
professional who prepared, reviewed, passed upon, or certified any 
statement, report, or valuation for use. See Form AC, instruction B(7).
    (7) Your business plan, submitted as a separately bound, 
confidential exhibit. See Sec. 563b.160.
    (8) Any additional information OTS requests.
    (b) OTS will not accept for filing, and will return, any 
application for conversion that is improperly executed, materially 
deficient, substantially incomplete, or that provides for unreasonable 
conversion expenses.


Sec. 563b.155  How do I file my application for conversion?

    You must file seven copies of your application for conversion on 
Form AC. You must file the original and three conformed copies with the 
Applications Filing Room in Washington, and three conformed copies with 
the appropriate Regional Office at the addresses in Sec. 516.40 of this 
chapter.


Sec. 563b.160  May I keep portions of my application for conversion 
confidential?

    (a) OTS makes all filings under this part available to the public, 
but may keep portions of your application for conversion confidential 
under paragraph (b) of this section.
    (b) You may request OTS to keep portions of your application 
confidential. To do so, you must separately bind and clearly designate 
as ``confidential'' any portion of your application for conversion that 
you deem confidential. You must provide a written statement specifying 
the grounds supporting your request for confidentiality. OTS will not 
treat as confidential the portion of your application describing how 
you plan to meet your Community Reinvestment Act (CRA) objectives. The 
CRA portion of your application may not incorporate by reference 
information contained in the confidential portion of your application.
    (c) OTS will determine whether confidential information must be 
made available to the public under 5 U.S.C. 552 and part 505 of this 
chapter. OTS will advise you before it makes information you designated 
as ``confidential'' available to the public.


Sec. 563b.165  How do I amend my application for conversion?

    To amend your application for conversion, you must:
    (a) File an amendment with an appropriate facing sheet;
    (b) Number each amendment consecutively;
    (c) Respond to all issues raised by OTS; and
    (d) Demonstrate that the amendment conforms to all applicable 
regulations.

Notice of Filing of Application and Comment Process


Sec. 563b.180  How do I notify the public that I filed an application 
for conversion?

    (a) You must publish a public notice of the application under the 
procedures in Sec. 516.55 of this chapter, except that you must publish 
your notice within three days before or after you file your application 
for conversion. You must simultaneously prominently post the notice in 
your home office and all branch offices. Your notice must include the 
following information:
    (1) You filed an application for conversion with OTS;
    (2) You delivered copies of the application to OTS and to the 
Regional Office, including the addresses of the applicable OTS offices; 
and
    (3) A statement that anyone may file written comments, including 
objections to the plan of conversion and materials supporting the 
objections, within 20 days. You must include instructions regarding how 
a person may file a comment.
    (b) Promptly after publication, you must file four copies of any 
public notice and an affidavit of publication from each publisher. You 
must file the original and one copy with the Applications Filing Room 
in Washington, and two copies with the appropriate Regional Office at 
the addresses in Sec. 516.40 of this chapter.
    (c) If OTS does not accept your application for conversion under 
Sec. 563b.200 and requires you to file a new application, you must 
publish and post a new notice and allow an additional 20 days for 
comment.


Sec. 563b.185  How may a person comment on my application for 
conversion?

    Anyone may submit a written comment supporting or opposing your 
application for conversion with OTS. To do so, commenters must file 
within 20 days after you notify the public under Sec. 563b.180. A 
commenter must file the original and one copy of any comments with the 
Applications Filing Room in Washington, and two copies with the 
appropriate Regional Office at the addresses in Sec. 516.40 of this 
chapter.

[[Page 17244]]

OTS Review of the Application for Conversion


Sec. 563b.200  What actions may OTS take on my application?

    (a) OTS may approve your application for conversion only if:
    (1) Your conversion complies with this part;
    (2) You will meet your regulatory capital requirements under part 
567 of this chapter after the conversion; and
    (3) Your conversion will not result in a taxable reorganization 
under the Internal Revenue Code of 1986, as amended.
    (b) OTS will review the appraisal required by Sec. 563b.150(a)(2) 
in determining whether to approve your application. OTS will review the 
appraisal under the following requirements.
    (1) Independent persons experienced and expert in corporate 
appraisal, and acceptable to OTS, must prepare the appraisal report.
    (2) An affiliate of the appraiser may serve as an underwriter or 
selling agent, if you ensure that the appraiser is separate from the 
underwriter or selling agent affiliate and the underwriter or selling 
agent affiliate does not make recommendations or affect the appraisal.
    (3) The appraiser may not receive any fee in connection with the 
conversion other than for appraisal services.
    (4) The appraisal report must include a complete and detailed 
description of the elements of the appraisal, a justification for the 
appraisal methodology, and sufficient support for the conclusions.
    (5) If the appraisal is based on a capitalization of your pro forma 
income, it must indicate the basis for determining the income to be 
derived from the sale of shares, and demonstrate that the earnings 
multiple used is appropriate, including future earnings growth 
assumptions.
    (6) If the appraisal is based on a comparison of your shares with 
outstanding shares of existing stock associations, the existing stock 
associations must be reasonably comparable in size, market area, 
competitive conditions, risk profile, profit history, and expected 
future earnings.
    (7) OTS may decline to process the application for conversion and 
deem it materially deficient or substantially incomplete if the initial 
appraisal report is materially deficient or substantially incomplete.
    (8) You may not represent or imply that OTS approved the appraisal.
    (c) OTS will review your compliance record under part 563e of this 
chapter and your business plan to determine how you will serve the 
convenience and needs of your communities after the conversion.
    (1) Based on this review, OTS may approve your application, deny 
your application, or approve your application on the condition that you 
will improve your CRA performance or that you will address the 
particular credit or lending needs of the communities that you will 
serve.
    (2) OTS may deny your application if your business plan does not 
demonstrate that your proposed use of conversion proceeds will help you 
to meet the credit and lending needs of the communities that you will 
serve.
    (d) OTS may request that you amend your application if further 
explanation is necessary, material is missing, or material must be 
corrected.
    (e) OTS will deny your application if the application does not meet 
the requirements of this subpart, unless OTS waives the requirement 
under Sec. 563b.5(c).


Sec. 563b.205  May a court review OTS's final action on my conversion?

    (a) Any person aggrieved by OTS's final action on your application 
for conversion may ask the court of appeals of the United States for 
the circuit in which the principal office or residence of such person 
is located, or the U.S. Court of Appeals for the District of Columbia 
Circuit, to review the action under 12 U.S.C. 1464(i)(2)(B).
    (b) To obtain court review of the action, this statute requires the 
aggrieved person to file a written petition requesting that the court 
modify, terminate, or set aside the final OTS action. The aggrieved 
person must file the petition with the court within the later of 30 
days after OTS publishes notice of OTS's final action in the Federal 
Register or 30 days after you mail the proxy statement to your members 
under Sec. 563b.235.

Vote by Members


Sec. 563b.225  Must I submit the plan of conversion to my members for 
approval?

    (a) After OTS approves your plan of conversion, you must submit 
your plan of conversion to your members for approval. You must obtain 
this approval at a special meeting, unless you are a state-chartered 
savings association and state law requires you to obtain approval at an 
annual meeting.
    (b) Your members must approve your plan of conversion by a majority 
of the total outstanding votes, unless you are a state-chartered 
savings association and state law prescribes a higher percentage.
    (c) Your members may vote in person or by proxy.
    (d) You may notify eligible account holders or supplemental 
eligible account holders who are not voting members of your proposed 
conversion. You may include only the information in Sec. 563b.135 in 
your notice.


Sec. 563b.230  Who is eligible to vote?

    You determine members' eligibility to vote by setting a voting 
record date. You must set a voting record date that is not more than 60 
days nor less than 20 days before your meeting, unless you are a state-
chartered savings association and state law requires a different voting 
record date.


Sec. 563b.235  How must I notify my members of the meeting?

    (a) You must notify your members of the meeting to consider your 
conversion by sending the members a proxy statement authorized by OTS.
    (b) You must notify your members 20 to 45 days before your meeting, 
unless you are a state-chartered savings association and state law 
requires a different notice period.
    (c) You must also notify each beneficial holder of an account held 
in a fiduciary capacity:
    (1) If you are a federal association and the name of the beneficial 
holder is disclosed on your records; or
    (2) If you are a state-chartered association and the beneficial 
holder possesses voting rights under state law.


Sec. 563b.240  What must I submit to OTS after the members' meeting?

    Promptly after the members' meeting, you must file all of the 
following information with OTS:
    (a) A certified copy of each adopted resolution on the conversion.
    (b) The total votes eligible to be cast.
    (c) The total votes represented in person or by proxy.
    (d) The total votes cast in favor of and against each matter.
    (e) The percentage of votes necessary to approve each matter.
    (f) An opinion of counsel that you conducted the members' meeting 
in compliance with all applicable state or federal laws and 
regulations.
    (g) Promptly after completion of the conversion, you must submit an 
opinion of counsel that you complied with all laws applicable to the 
conversion.

Proxy Solicitation


Sec. 563b.250  Who must comply with these proxy solicitation 
provisions?

    (a) You must comply with these proxy solicitation provisions when 
you provide proxy solicitation material to

[[Page 17245]]

members for the meeting to vote on your plan of conversion.
    (b) Your members must comply with these proxy solicitation 
provisions when they provide proxy solicitation materials to members 
for the meeting to vote on your conversion, except where:
    (1) The member solicits 50 people or fewer and does not solicit 
proxies on your behalf; or
    (2) The member solicits proxies through newspaper advertisements 
after your board adopts the plan of conversion. The newspaper 
advertisement may include only the following information:
    (i) Your name;
    (ii) The reason for the advertisement;
    (iii) The proposal or proposals to be voted upon;
    (iv) Where a member may obtain a copy of the proxy solicitation 
material; and
    (v) A request for your members to vote at the meeting.


Sec. 563b.255  What must the form of proxy include?

    The form of proxy must include all of the following:
    (a) A statement in bold face type stating whether management is 
soliciting the proxy.
    (b) Blank spaces where the member must date and sign the proxy.
    (c) Clear and impartial identification of each matter or group of 
related matters that members will vote upon. You must include any 
proposed charitable contribution as an item to be voted on separately.
    (d) The phrase ``Revocable Proxy'' in bold face type (at least 18 
point).
    (e) A description of any charter or state law requirement that 
restricts or conditions votes by proxy.
    (f) An acknowledgment that the member received a proxy statement 
before he or she signed the form of proxy.
    (g) The date, time, and the place of the meeting, when available.
    (h) A way for the member to specify by ballot whether he or she 
approves or disapproves of each matter that members will vote upon.
    (i) A statement that management will vote the proxy in accordance 
with the member's specifications.
    (j) A statement in bold face type indicating how management will 
vote the proxy if the member does not specify a choice for a matter.


Sec. 563b.260  May I use previously executed proxies?

    You may not use previously executed proxies for the plan of 
conversion vote. If members consider your plan of conversion at an 
annual meeting, you may vote proxies obtained through other proxy 
solicitations only on matters not related to your plan of conversion.


Sec. 563b.265  How may I use proxies executed under this part?

    You may vote a proxy obtained under this part on matters that are 
incidental to the conduct of the meeting. You may not vote a proxy 
obtained under this subpart at any meeting other than the meeting (or 
any adjournment of the meeting) to vote on your plan of conversion.


Sec. 563b.270  What must I include in my proxy statement?

    (a) Content requirements. You must prepare your proxy statement in 
compliance with this part and Form PS. You may obtain Form PS from OTS 
Washington and Regional Offices (see Sec. 516.40 of this chapter) and 
OTS's website (http://www.ots.treas.gov).
    (b) Other requirements. (1) OTS will review your proxy solicitation 
material when it reviews the application for conversion and will 
authorize the use of proxy solicitation material.
    (2) You must provide an authorized written proxy statement to your 
members before or at the same time you provide any other soliciting 
material. You must mail authorized proxy solicitation material to your 
members within ten days after OTS authorizes the solicitation.


Sec. 563b.275  How do I file revised proxy materials?

    (a) You must file revised proxy materials as an amendment to your 
application for conversion. See Sec. 563b.155 for where to file.
    (b) To revise your proxy solicitation materials, you must file:
    (1) Seven copies of your revised proxy materials as required by 
Form PS;
    (2) Seven copies of your revised form of proxy, if applicable; and
    (3) Seven copies of any additional proxy solicitation material 
subject to Sec. 563b.270.
    (c) You must mark four of the seven required copies to clearly 
indicate changes from the prior filing.
    (d) You must file seven definitive copies of all proxy solicitation 
material, in the form in which you furnish the material to your 
members. You must file no later than the date that you send or give the 
proxy solicitation material to your members. You must indicate the date 
that you will release the materials.
    (e) Unless OTS requests you to do so, you do not have to file 
copies of replies to inquiries from your members or copies of 
communications that merely request members to sign and return proxy 
forms.


Sec. 563b.280  Must I mail a member's proxy solicitation material?

    (a) You must mail the member's authorized proxy solicitation 
material if:
    (1) Your board of directors adopted a plan of conversion;
    (2) A member requests in writing that you mail proxy solicitation 
material;
    (3) OTS has authorized the member's proxy solicitation; and
    (4) The member agrees to defray your reasonable expenses.
    (b) As soon as practicable after you receive a request under 
paragraph (a) of this section, you must mail or otherwise furnish the 
following information to the member:
    (1) The approximate number of members that you solicited or will 
solicit, or the approximate number of members of any group of account 
holders that the member designates; and
    (2) The estimated cost of mailing the proxy solicitation material 
for the member.
    (c) You must mail authorized proxy solicitation material to the 
designated members promptly after the member furnishes the materials, 
envelopes (or other containers), and postage (or payment for postage) 
to you.
    (d) You are not responsible for the content of a member's proxy 
solicitation material.
    (e) A member may furnish other members its own proxy solicitation 
material, authorized by OTS, subject to the rules in this section.


Sec. 563b.285  What solicitations are prohibited?

    (a) False or misleading statements. (1) No one may use proxy 
solicitation material for the members' meeting if the material contains 
any statement which, considering the time and the circumstances of the 
statement:
    (i) Is false or misleading with respect to any material fact;
    (ii) Omits any material fact that is necessary to make the 
statements not false or misleading; or
    (iii) Omits any material fact that is necessary to correct a 
statement in an earlier communication that has become false or 
misleading.
    (2) No one may represent or imply that OTS determined that the 
proxy solicitation material is accurate, complete, not false or not 
misleading, or passed upon the merits of or approved any proposal.
    (b) Other prohibited solicitations. No person may solicit:
    (1) An undated or post-dated proxy;
    (2) A proxy that states it will be dated after the date it is 
signed by a member;

[[Page 17246]]

    (3) A proxy that is not revocable at will by the member; or
    (4) A proxy that is part of another document or instrument.


Sec. 563b.290  What will OTS do if a solicitation violates these 
prohibitions?

    (a) If a solicitation violates Sec. 563b.285, OTS may require 
remedial measures, including:
    (1) Correction of the violation by a retraction and a new 
solicitation;
    (2) Rescheduling the members' meeting; or
    (3) Any other actions necessary to ensure a fair vote.
    (b) OTS may also bring an enforcement action against the violator.


Sec. 563b.295  Will OTS require me to re-solicit proxies?

    If you amend your application for conversion, OTS may require you 
to re-solicit proxies for your members' meeting as a condition of 
approval of the amendment.

Offering Circular


Sec. 563b.300  What must happen before OTS declares my offering 
circular effective?

    (a) You must prepare and file your offering circular with OTS in 
compliance with this part and Form OC and, where applicable, part 563g 
of this chapter. Section 563b.155 governs where to file your offering 
circular. You may obtain Form OC from OTS Washington and Regional 
Offices (see Sec. 516.40 of this chapter) and OTS's website (http://www.ots.treas.gov).
    (b) You must condition your stock offering upon the members' 
approval of your plan of conversion.
    (c) OTS will review the Form OC and may comment on the included 
disclosures and financial statements.
    (d) You must file seven copies of each revised offering circular, 
final offering circular, and any post-effective amendment to the final 
offering circular.
    (e) OTS will not approve the adequacy or accuracy of the offering 
circular or the disclosures.
    (f) After you satisfactorily address OTS's concerns, you must 
request OTS to declare your Form OC effective for a time period. The 
time period may not exceed the maximum time period for the completion 
of the sale of all of your shares under Sec. 563b.400.


Sec. 563b.305  When may I distribute the offering circular?

    (a) You may distribute a preliminary offering circular at the same 
time as or after you mail the proxy statement to your members.
    (b) You may not distribute an offering circular until OTS declares 
it effective. You must distribute the offering circular in accordance 
with this part.
    (c) You must distribute your offering circular to persons listed in 
your plan of conversion within 10 days after OTS declares it effective.


Sec. 563b.310  When must I file a post-effective amendment to the 
offering circular?

    (a) You must file a post-effective amendment to the offering 
circular with OTS when a material event or change of circumstance 
occurs.
    (b) After OTS declares the post-effective amendment effective, you 
must immediately deliver the amendment to each person who subscribed 
for or ordered shares in the offering.
    (c) Your post-effective amendment must indicate that each person 
may increase, decrease, or rescind their subscription or order.
    (d) The post-effective offering period must remain open no less 
than 10 days nor more than 20 days, unless OTS approves a longer 
rescission period.

Offers and Sales of Stock


Sec. 563b.320  Who has priority to purchase my conversion shares?

    You must offer to sell your shares in the following order:
    (a) Eligible account holders.
    (b) Tax-qualified employee stock ownership plans.
    (c) Supplemental eligible account holders.
    (d) Other voting members who have subscription rights.
    (e) Your community, your community and the general public, or the 
general public.


Sec. 563b.325  When may I offer to sell my conversion shares?

    (a) You may offer to sell your conversion shares after OTS approves 
your conversion, authorizes your proxy statement, and declares your 
offering circular effective.
    (b) The offer may commence at the same time you start the proxy 
solicitation of your members.


Sec. 563b.330  How do I price my conversion shares?

    (a) You must sell your conversion shares at a uniform price per 
share and at a total price that is equal to the estimated pro forma 
market value of your shares after you convert.
    (b) The maximum price must be no more than 15 percent above the 
midpoint of the estimated price range in your offering circular.
    (c) The minimum price must be no more than 15 percent below the 
midpoint of the estimated price range in your offering circular.
    (d) If OTS permits, you may increase the maximum price of 
conversion shares sold. The maximum price, as adjusted, must be no more 
than 15 percent above the maximum price computed under paragraph (b) of 
this section.
    (e) The maximum price must be between $5 and $50 per share.
    (f) You must include the estimated price in any preliminary 
offering circular.


Sec. 563b.335  How do I sell my conversion shares?

    (a) You must distribute order forms to all eligible account 
holders, supplemental eligible account holders, and other voting 
members to enable them to subscribe for the conversion shares they are 
permitted under the plan of conversion. You may either send the order 
forms with your offering circular or after you distribute your offering 
circular.
    (b) You may sell your conversion shares in a community offering, a 
public offering, or both. You may begin the community offering, the 
public offering, or both at any time during the subscription offering 
or upon conclusion of the subscription offering.
    (c) You may pay underwriting commissions (including underwriting 
discounts). OTS may object to the payment of unreasonable commissions. 
You may reimburse an underwriter for accountable expenses in a 
subscription offering if the public offering is limited. If no public 
offering occurs, you may pay an underwriter a consulting fee. OTS may 
object to the payment of unreasonable consulting fees.
    (d) If you conduct the community offering, the public offering, or 
both at the same time as the subscription offering, you must fill all 
subscription orders first.
    (e) You must prepare your order form in compliance with this part 
and Form OF. You may obtain Form OF from OTS Washington and Regional 
Offices (see Sec. 516.40 of this chapter) and OTS's website (http://www.ots.treas.gov).


Sec. 563b.340  What sales practices are prohibited?

    (a) In connection with offers, sales, or purchases of conversion 
shares under this part, you and your directors, officers, agents, or 
employees may not:
    (1) Employ any device, scheme, or artifice to defraud;
    (2) Obtain money or property by means of any untrue statement of a 
material fact or any omission of a material fact necessary to make the 
statements, in light of the circumstances under which they were made, 
not misleading; or

[[Page 17247]]

    (3) Engage in any act, transaction, practice, or course of business 
that operates or would operate as a fraud or deceit upon a purchaser or 
seller.
    (b) During your conversion, no person may:
    (1) Transfer, or enter into any agreement or understanding to 
transfer, the legal or beneficial ownership of subscription rights for 
your conversion shares or the underlying securities to the account of 
another;
    (2) Make any offer, or any announcement of an offer, to purchase 
any of your conversion shares from anyone but you; or
    (3) Knowingly acquire more than the maximum purchase limitations 
established in your plan of conversion.
    (c) The restrictions in paragraphs (b)(1) and (b)(2) of this 
section do not apply to offers for more than 10 percent of any class of 
conversion shares by:
    (1) An underwriter or a selling group, acting on your behalf, that 
makes the offer with a view toward public resale; or
    (2) One or more of your tax-qualified employee stock ownership 
plans so long as the plan or plans do not beneficially own more than 25 
percent of any class of your equity securities in the aggregate.
    (d) If any person is found to have violated the restrictions in 
paragraphs (b)(1) and (b)(2) of this section, they may face prosecution 
or other legal action.


Sec. 563b.345  How may a subscriber pay for my conversion shares?

    (a) A subscriber may purchase conversion shares with cash, by a 
withdrawal from a savings account, or a withdrawal from a certificate 
of deposit. If a subscriber purchases shares by a withdrawal from a 
certificate of deposit, you may not assess a penalty for the 
withdrawal.
    (b) You may not extend credit to any person to purchase your 
conversion shares.


Sec. 563b.350  Must I pay interest on payments for conversion shares?

    (a) You must pay interest from the date you receive a payment for 
conversion shares until the date you complete or terminate the 
conversion. You must pay interest at no less than your passbook rate 
for amounts paid in cash, check, or money order.
    (b) If a subscriber withdraws money from a savings account to 
purchase conversion shares, you must pay interest on the payment until 
you complete or terminate the conversion as if the withdrawn amount 
remained in the account.
    (c) If a depositor fails to maintain the applicable minimum balance 
requirement because he or she withdraws money from a certificate of 
deposit to purchase conversion shares, you may cancel the certificate 
and pay interest at no less than your passbook rate on any remaining 
balance.


Sec. 563b.355  What subscription rights must I give to each eligible 
account holder and each supplemental eligible account holder?

    (a) You must give each eligible account holder subscription rights 
to purchase conversion shares in an amount equal to the greater of:
    (1) The maximum purchase limitation established for the community 
offering or the public offering under Sec. 563b.395;
    (2) One-tenth of one percent of the total stock offering; or
    (3) Fifteen times the following number: the total number of 
conversion shares that you will issue, multiplied by the following 
fraction. The numerator is the total qualifying deposit of the eligible 
account holder. The denominator is the total qualifying deposits of all 
eligible account holders. You must round down the product of this 
multiplied fraction to the next whole number.
    (b) You must give subscription rights to purchase shares to each 
supplemental eligible account holder in the same amount as described in 
paragraph (a) of this section, except that you must compute the 
fraction described in paragraph (a)(3) of this section as follows: The 
numerator is the total qualifying deposit of the supplemental eligible 
account holder. The denominator is the total qualifying deposits of all 
supplemental eligible account holders.


Sec. 563b.360  Are my officers, directors, and their associates 
eligible account holders?

    Your officers, directors, and their associates may be eligible 
account holders. However, if an officer, director, or his or her 
associate receives subscription rights based on increased deposits in 
the year before the eligibility record date, you must subordinate 
subscription rights for these deposits to subscription rights exercised 
by other eligible account holders.


Sec. 563b.365  May other voting members purchase conversion shares in 
the conversion?

    (a) You must give rights to purchase your conversion shares in the 
conversion to voting members who are neither eligible account holders 
nor supplemental eligible account holders. You must allocate rights to 
each voting member that are equal to the greater of:
    (1) The maximum purchase limitation established for the community 
offering and the public offering under Sec. 563b.395; or
    (2) One-tenth of one percent of the total stock offering.
    (b) You must subordinate the voting members' rights to the rights 
of eligible account holders, tax-qualified employee stock ownership 
plans, and supplemental eligible account holders.


Sec. 563b.370  Does OTS limit the aggregate purchases by officers, 
directors, and their associates?

    (a) When you convert, your officers, directors, and their 
associates may not purchase, in the aggregate, more than the following 
percentage of your total stock offering:

------------------------------------------------------------------------
                                                             Officer and
                                                              director
                     Institution size                         purchases
                                                              (percent)
------------------------------------------------------------------------
$50,000,000 or less.......................................            35
$50,000,001--100,000,000..................................            34
$100,000,001--150,000,000.................................            33
$150,000,001--200,000,000.................................            32
$200,000,001--250,000,000.................................            31
$250,000,001--300,000,000.................................            30
$300,000,001--350,000,000.................................            29
$350,000,001--400,000,000.................................            28
$400,000,001 450,000,000..................................            27
$450,000,001--500,000,000.................................            26
Over $500,000,000.........................................            25
------------------------------------------------------------------------

    (b) The purchase limitations in this section do not apply to shares 
held in tax-qualified employee stock benefit plans that are 
attributable to your officers, directors, and their associates.


Sec. 563b.375  How do I allocate my conversion shares if my shares are 
oversubscribed?

    (a) If your conversion shares are oversubscribed by your eligible 
account holders, you must allocate shares among the eligible account 
holders so that each, to the extent possible, may purchase 100 shares.
    (b) If your conversion shares are oversubscribed by your 
supplemental eligible account holders, you must allocate shares among 
the supplemental eligible account holders so that each, to the extent 
possible, may purchase 100 shares.
    (c) If a person is an eligible account holder and a supplemental 
eligible account holder, you must include the eligible account holder's 
allocation in determining the number of conversion shares that you may 
allocate to the person as a supplemental eligible account holder.
    (d) For conversion shares that you do not allocate under paragraphs 
(a) and (b) of this section, you must allocate the shares among the 
eligible or supplemental eligible account holders

[[Page 17248]]

equitably, based on the amounts of qualifying deposits. You must 
describe this method of allocation in your plan of conversion.
    (e) If shares remain after you have allocated shares as provided in 
paragraphs (a) and (b) of this section, and if your voting members 
oversubscribe, you must allocate your conversion shares among those 
members equitably. You must describe the method of allocation in your 
plan of conversion.


Sec. 563b.380  May my employee stock ownership plan purchase conversion 
shares?

    (a) Your tax-qualified employee stock ownership plan may purchase 
up to 10 percent of the total offering of your conversion shares.
    (b) If OTS approves a revised stock valuation range as described in 
Sec. 563b.330(e), and the final conversion stock valuation range 
exceeds the former maximum stock offering range, you may allocate 
conversion shares to your tax-qualified employee stock ownership plan, 
up to the 10 percent limit in paragraph (a) of this section.
    (c) If your tax-qualified employee stock ownership plan chooses not 
to purchase stock in the offering, it may, with prior OTS approval and 
appropriate disclosure in your offering circular, purchase stock in the 
open market, or purchase authorized but unissued conversion shares.
    (d) You may include stock contributed to a charitable organization 
in the conversion in the calculation of the total offering of 
conversion shares under paragraphs (a) and (b) of this section, unless 
OTS objects on supervisory grounds.


Sec. 563b.385  May I impose any purchase limitations?

    (a) You may limit the number of shares that any person, group of 
associated persons, or persons otherwise acting in concert, may 
subscribe to between one percent and five percent of the total stock 
sold.
    (b) If you set a limit of five percent under paragraph (a) of this 
section, you may modify that limit with OTS approval to provide that 
any person, group of associated persons, or persons otherwise acting in 
concert subscribing for five percent, may purchase between five and ten 
percent as long as the aggregate amount that the subscribers purchase 
does not exceed 10 percent of the total stock offering.
    (c) You may require persons exercising subscription rights to 
purchase a minimum number of conversion shares. The minimum number of 
shares must equal the lesser of the number of shares obtained by a $500 
subscription or 25 shares.
    (d) In setting purchase limitations under this section, you may not 
aggregate conversion shares attributed to a person in your tax-
qualified employee stock ownership plan with shares purchased directly 
by, or otherwise attributable to, that person.


Sec. 563b.390  Must I provide a purchase preference to persons in my 
local community?

    (a) In your subscription offering, you may give a purchase 
preference to eligible account holders, supplemental eligible account 
holders, and voting members residing in your local community.
    (b) In your community offering, you must give a purchase preference 
to natural persons residing in your local community.


Sec. 563b.395  What other conditions apply when I offer conversion 
shares in a community offering, a public offering, or both?

    (a) You must offer and sell your stock to achieve a widespread 
distribution of the stock.
    (b) If you offer shares in a community offering, a public offering, 
or both, you must first fill orders for your stock up to a maximum of 
two percent of the conversion stock on a basis that will promote a 
widespread distribution of stock. You must allocate any remaining 
shares on an equal number of shares per order basis until you fill all 
orders.

Completion of the Offering


Sec. 563b.400  When must I complete the sale of my stock?

    You must complete all sales of your stock within 45 calendar days 
after the last day of the subscription period, unless the offering is 
extended under Sec. 563b.405.


Sec. 563b.405  How do I extend the offering period?

    (a) You must request, in writing, an extension of any offering 
period.
    (b) OTS may grant extensions of time to sell your shares. OTS will 
not grant any single extension of more than 90 days.
    (c) If OTS grants your request for an extension of time, you must 
provide a post-effective amendment to the offering circular under 
Sec. 563b.310 to each person who subscribed for or ordered stock. Your 
amendment must indicate that OTS extended the offering period and that 
each person who subscribed for or ordered stock may increase, decrease, 
or rescind their subscription or order within the time remaining in the 
extension period.

Completion of the Conversion


Sec. 563b.420  When must I complete my conversion?

    (a) You must complete the conversion within 24 months of the date 
that your members approve the conversion. Once OTS approves the 
conversion, it will not permit extension of the completion date.
    (b) Your conversion is complete on the date that you accept the 
offers for your stock.


Sec. 563b.425  Who may terminate the conversion?

    (a) Your members may terminate the conversion by failing to approve 
the conversion at your members' meeting.
    (b) You may terminate the conversion before your members' meeting.
    (c) You may terminate the conversion after the members' meeting 
only if OTS concurs.


Sec. 563b.430  What happens to my old charter?

    (a) If you are a federally chartered mutual savings association or 
savings bank, and you convert to a federally chartered stock savings 
association or savings bank, you must apply to OTS to amend your 
charter and bylaws consistent with part 552 of this chapter, as part of 
your application for conversion. You may only include OTS pre-approved 
anti-takeover provisions in your amended charter and bylaws. See 12 CFR 
552.4(b)(8). OTS will state the effective date of your charter 
amendments in its approval of the conversion.
    (b) If you are a federally chartered mutual savings association or 
savings bank and you convert to a state-chartered stock savings 
association under this part, you must surrender your federal charter to 
OTS for cancellation promptly after the state issues your charter. You 
must promptly file a copy of your new state stock charter with OTS.
    (c) If you are a state-chartered mutual savings association or 
savings bank, and you convert to a federally chartered stock savings 
association or savings bank, you must apply to OTS for a new charter 
and bylaws consistent with part 552 of this chapter. You may only 
include OTS pre-approved anti-takeover provisions in your charter and 
bylaws. See 12 CFR 552.4(b)(8). OTS will state the effective date of 
your charter amendments with its approval of the conversion.
    (d) Your new or amended charter must require you to establish and 
maintain a liquidation account for

[[Page 17249]]

eligible and supplemental eligible account holders under Sec. 563b.450.


Sec. 563b.435  What happens to my corporate existence after conversion?

    Your corporate existence will continue following your conversion, 
unless you convert to a state-chartered stock savings association and 
state law prescribes otherwise.


Sec. 563b.440  What voting rights must I provide to stockholders after 
the conversion?

    You must provide your stockholders with exclusive voting rights, 
except as provided in Sec. 563b.445(c).


Sec. 563b.445  What must I provide my savings account holders?

    (a) You must provide each savings account holder, without payment, 
a withdrawable savings account or accounts in the same amount and under 
the same terms and conditions as their accounts before your conversion.
    (b) You must provide a liquidation account for each eligible and 
supplemental eligible account holder under Sec. 563b.450.
    (c) If you are a state-chartered savings association and state law 
requires you to provide voting rights to savings account holders or 
borrowers, your charter must:
    (1) Limit these voting rights to the minimum required by state law; 
and
    (2) Require you to solicit proxies from the savings account holders 
and borrowers in the same manner that you solicit proxies from your 
stockholders.

Liquidation Account


Sec. 563b.450  What is a liquidation account?

    (a) A liquidation account represents the potential interest of 
eligible account holders and supplemental eligible account holders in 
your net worth at the time of conversion. You must maintain a sub-
account to reflect the interest of each account holder.
    (b) Before you may provide a liquidation distribution to common 
stockholders, you must give a liquidation distribution to those 
eligible account holders and supplemental eligible account holders who 
hold savings accounts from the time of conversion until liquidation.
    (c) You may not record the liquidation account in your financial 
statements. You must disclose the liquidation account in the footnotes 
to your financial statements.


Sec. 563b.455  What is the initial balance of the liquidation account?

    The initial balance of the liquidation account is your net worth in 
the statement of financial condition included in the final offering 
circular.


Sec. 563b.460  How do I determine the initial balances of liquidation 
sub-accounts?

    (a)(1) You determine the initial sub-account balance for a savings 
account held by an eligible account holder by multiplying the initial 
balance of the liquidation account by the following fraction: The 
numerator is the qualifying deposit in the savings account expressed in 
dollars on the eligibility record date. The denominator is total 
qualifying deposits of all eligible account holders on that date.
    (2) You determine the initial sub-account balance for a savings 
account held by a supplemental eligible account holder by multiplying 
the initial balance of the liquidation account by the following 
fraction: The numerator is the qualifying deposit in the savings 
account expressed in dollars on the supplemental eligibility record 
date. The denominator is total qualifying deposits of all supplemental 
eligible account holders on that date.
    (3) If an account holder holds a savings account on the eligibility 
record date and a separate savings account on the supplemental 
eligibility record date, you must compute separate sub-accounts for the 
qualifying deposits in the savings account on each record date.
    (b) You may not increase the initial sub-account balances. You must 
decrease the initial balance under Sec. 563b.470 as depositors reduce 
or close their accounts.


Sec. 563b.465  Do account holders retain any voting rights based on 
their liquidation sub-accounts?

    Eligible account holders or supplemental eligible account holders 
do not retain any voting rights based on their liquidation sub-
accounts.


Sec. 563b.470  Must I adjust liquidation sub-accounts?

    (a)(1) You must reduce the balance of an eligible account holder's 
or supplemental eligible account holder's sub-account if the deposit 
balance in the account holder's savings account at the close of 
business on any annual closing date, which for purposes of this section 
is your fiscal year end, after the relevant eligibility record dates is 
less than:
    (i) The deposit balance in the account holder's savings account at 
the close of business on any other annual closing date after the 
relevant eligibility record date; or
    (ii) The qualifying deposits in the account holder's savings 
account on the relevant eligibility record date.
    (2) The reduction must be proportionate to the reduction in the 
deposit balance.
    (b) If you reduce the balance of a liquidation sub-account, you may 
not subsequently increase it if the deposit balance increases.
    (c) You are not required to adjust the liquidation account and sub-
account balances at each annual closing date if you maintain sufficient 
records to make the computations if a liquidation subsequently occurs.
    (d) You must maintain the liquidation sub-account for each account 
holder as long as the account holder maintains an account with the same 
social security number.
    (e) If there is a complete liquidation, you must provide each 
account holder with a liquidation distribution in the amount of the 
sub-account balance.


Sec. 563b.475  What is a liquidation?

    (a) A liquidation is a sale of your assets and settlement of your 
liabilities with the intent to cease operations and close. Upon 
liquidation, you must return your charter to the governmental agency 
that issued it. The government agency must cancel your charter.
    (b) A merger, consolidation, or similar combination or transaction 
with another depository institution, is not a liquidation. If you are 
involved in such a transaction, the surviving institution must assume 
the liquidation account.


Sec. 563b.480  Does the liquidation account affect my net worth?

    The liquidation account does not affect your net worth.


Sec. 563b.485  What provision must I include in my new federal charter?

    If you convert to federal stock form, you must include the 
following provision in your new charter: ``Liquidation Account. Under 
OTS regulations, the association must establish and maintain a 
liquidation account for the benefit of its savings account holders as 
of ____________. If the association undergoes a complete liquidation, 
it must comply with OTS regulations with respect to the amount and 
priorities on liquidation of each of the savings account holder's 
interests in the liquidation account. A savings account holder's 
interest in the liquidation account does not entitle the savings 
account holder to any voting rights.''

Post-Conversion


Sec. 563b.500  May I implement a stock option plan or management or 
employee stock benefit plan?

    (a) You may implement a stock option plan or management or employee 
stock benefit plan within 12 months after your conversion, if you meet 
all of the following requirements.
    (1) You disclose the plans in your proxy statement and offering 
circular

[[Page 17250]]

and indicate in the offering circular that there will be a separate 
vote on the plans at least six months after the conversion.
    (2) You do not grant stock options under your stock option plan in 
excess of 10 percent of shares that you issued in the conversion.
    (3) You do not permit your management stock benefit plans, in the 
aggregate, to hold more than three percent of the shares that you 
issued in the conversion. However, if you have tangible capital of 10 
percent or more following the conversion, OTS may permit you to 
establish a management stock benefit plan that holds up to four percent 
of the shares that you issued in the conversion.
    (4) You do not permit your tax-qualified employee stock benefit 
plan(s) and your management stock benefit plans, in the aggregate, to 
hold more than 10 percent of the shares that you issued in the 
conversion. However, if you have tangible capital of 10 percent or more 
following the conversion, OTS may permit your tax-qualified employee 
stock benefit plan(s) and your management stock benefit plans, in the 
aggregate, to hold up to 12 percent of the shares that you issued in 
the conversion.
    (5) No individual receives more than 25 percent of the shares under 
any plan.
    (6) Your directors who are not your employees do not receive more 
than five percent of the shares of any plan individually, or 30 percent 
of the shares of any plan in the aggregate.
    (7) Your shareholders approve each plan by a majority of the total 
votes eligible to be cast at a duly called meeting before you establish 
or implement the plan. You may not hold this meeting until six months 
after your conversion. If you are a subsidiary of a mutual holding 
company, a majority of the total votes eligible to be cast (other than 
your parent mutual holding company) must approve each plan before you 
may establish or implement the plan.
    (8) When you distribute proxies or related material to shareholders 
in connection with the vote on a plan, you state that the plan complies 
with OTS regulations and that OTS does not endorse or approve the plan 
in any way. You may not make any written or oral representation to the 
contrary.
    (9) You do not grant stock options at less than the market price at 
the time of grant.
    (10) You do not use stock issued at the time of conversion to fund 
management or employee stock benefit plans.
    (11) Your plan does not begin to vest earlier than one year after 
your shareholders approve the plan, and does not vest at a rate 
exceeding 20 percent a year.
    (12) Your plan permits accelerated vesting only for disability or 
death, or if you undergo a change of control.
    (13) Your plan provides that your executive officers or directors 
must exercise or forfeit their options in the event the institution 
becomes critically undercapitalized (as defined in Sec. 565.4 of this 
chapter), is subject to OTS enforcement action, or receives a capital 
directive under Sec. 565.7.
    (14) You file a copy of the approved stock option plan or 
management or employee stock benefit plan with OTS and certify to OTS 
in writing that the plan approved by the shareholders is the same plan 
that you filed with, and disclosed in, the proxy materials distributed 
to shareholders in connection with the vote on the plan.
    (15) You file the plan and the certification with OTS within five 
calendar days after your shareholders approve the plan.
    (b) You may provide dividend equivalent rights or dividend 
adjustment rights to allow for stock splits or other adjustments to 
your stock in stock option plans or management or employee stock 
benefit plans under this section.
    (c) If the plan is adopted more than one year following your 
conversion, any material deviations to the requirements in paragraph 
(a) of this section must be ratified by your shareholders.


Sec. 563b.505  May my directors, officers, and their associates freely 
trade shares?

    (a) Directors and officers who purchase conversion shares may not 
sell the shares for one year after the date of purchase, except that in 
the event of the death of the officer or director, the successor in 
interest may sell the shares.
    (b) You must include notice of the restriction described in 
paragraph (a) of this section on each certificate of stock that a 
director or officer purchases during the conversion or receives in 
connection with a stock dividend, stock split, or otherwise with 
respect to such restricted shares.
    (c) You must instruct your stock transfer agent about the transfer 
restrictions in this section.
    (d) For three years after you convert, your officers, directors, 
and their associates may purchase your stock only from a broker or 
dealer registered with the Securities and Exchange Commission. However, 
your officers, directors, and their associates may engage in a 
negotiated transaction involving more than one percent of your 
outstanding stock, and may purchase stock through any of your 
management or employee stock benefit plans.


Sec. 563b.510  May I repurchase shares after conversion?

    (a) You may not repurchase your shares in the first year after the 
conversion except:
    (1) In extraordinary circumstances, you may make open market 
repurchases of up to five percent of your outstanding stock in the 
first year after the conversion if you file a notice under 
Sec. 563b.515(a) and OTS does not disapprove your repurchase. OTS will 
not approve such repurchases unless the repurchase meets the standards 
in Sec. 563b.515(c), and the repurchase is consistent with paragraph 
(c) of this section.
    (2) You may repurchase qualifying shares of a director or conduct 
an OTS approved repurchase pursuant to an offer made to all 
shareholders of your association.
    (3) Repurchases to fund management recognition plans that have been 
ratified by shareholders do not count toward the repurchase limitations 
in this section. Repurchases in the first year to fund such plans 
require prior notification to OTS.
    (4) Purchases to fund tax qualified employee stock benefit plans do 
not count toward the repurchase limitations in this section.
    (b) After the first year, you may repurchase your shares, subject 
to all other applicable regulatory and supervisory restrictions and 
paragraph (c) of this section.
    (c) All stock repurchases are subject to the following 
restrictions.
    (1) You may not repurchase your shares if the repurchase will 
reduce your regulatory capital below the amount required for your 
liquidation account under Sec. 563b.450. You must comply with the 
capital distribution requirements at part 563, subpart E of this 
chapter.
    (2) The restrictions on share repurchases apply to a charitable 
organization under Sec. 563b.550. You must aggregate purchases of 
shares by the charitable organization with your repurchases.


563b.515  What information must I provide to OTS before I repurchase my 
shares?

    (a) To repurchase stock in the first year following conversion, 
other than repurchases under Sec. 563b.510(a)(3) or (a)(4), you must 
file a written notice with the OTS. You must provide the following 
information:
    (1) Your proposed repurchase program;

[[Page 17251]]

    (2) The effect of the repurchases on your regulatory capital; and
    (3) The purpose of the repurchases and, if applicable, an 
explanation of the extraordinary circumstances necessitating the 
repurchases.
    (b) You must file your notice with your Regional Director, with a 
copy to the Applications Filing Room, at least ten days before you 
begin your repurchase program.
    (c) You may not repurchase your shares if OTS objects to your 
repurchase program. OTS will not object to your repurchase program if:
    (1) Your repurchase program will not adversely affect your 
financial condition;
    (2) You submit sufficient information to evaluate your proposed 
repurchases;
    (3) You demonstrate extraordinary circumstances and a compelling 
and valid business purpose for the share repurchases; and
    (4) Your repurchase program would not be contrary to other 
applicable regulations.


Sec. 563b.520  May I declare or pay dividends after I convert?

    You may declare or pay a dividend on your shares after you convert 
if:
    (a) The dividend will not reduce your regulatory capital below the 
amount required for your liquidation account under Sec. 563b.450;
    (b) You comply with all capital requirements under part 567 of this 
chapter after you declare or pay dividends;
    (c) You comply with the capital distribution requirements under 
part 563, subpart E of this chapter; and
    (d) You do not return any capital to purchasers in the first year 
following conversion, and return capital to purchasers after the first 
year only if the return of capital is consistent with your business 
plan.


Sec. 563b.525  Who may acquire my shares after I convert?

    (a) For three years after you convert, no person may, directly or 
indirectly, acquire or offer to acquire the beneficial ownership of 
more than ten percent of any class of your equity securities without 
OTS's prior written approval. If a person violates this prohibition, 
you may not permit the person to vote shares in excess of ten percent, 
and may not count the shares in excess of ten percent in any 
shareholder vote.
    (b) A person acquires beneficial ownership of more than ten percent 
of a class of shares when he or she holds any combination of your stock 
or revocable or irrevocable proxies under circumstances that give rise 
to a conclusive control determination or rebuttable control 
determination under Secs. 574.4(a) and (b) of this chapter. OTS will 
presume that a person has acquired shares if the acquiror entered into 
a binding written agreement for the transfer of shares. For purposes of 
this section, an offer is made when it is communicated. An offer does 
not include non-binding expressions of understanding or letters of 
intent regarding the terms of a potential acquisition.
    (c) Notwithstanding the restrictions in this section:
    (1) Paragraphs (a) and (b) of this section do not apply to any 
offer with a view toward public resale made exclusively to you, to the 
underwriters, or to a selling group acting on your behalf.
    (2) Unless OTS objects in writing, any person may offer or announce 
an offer to acquire up to one percent of any class of shares. In 
computing the one percent limit, the person must include all of his or 
her acquisitions of the same class of shares during the prior 12 
months.
    (3) A corporation whose ownership is, or will be, substantially the 
same as your ownership may acquire or offer to acquire more than ten 
percent of your common stock, if it makes the offer or acquisition more 
than one year after you convert.
    (4) One or more of your tax-qualified employee stock benefit plans 
may acquire your shares, if the plan or plans do not beneficially own 
more than 25 percent of any class of your shares in the aggregate.
    (5) An acquiror does not have to file a separate application to 
obtain OTS approval under paragraph (a) of this section, if the 
acquiror files an application under part 574 of this chapter that 
specifically addresses the criteria listed under paragraph (d) of this 
section and you do not oppose the proposed acquisition.
    (d) OTS may deny an application under paragraph (a) of this section 
if the proposed acquisition:
    (1) Is contrary to the purposes of this part;
    (2) Is manipulative or deceptive;
    (3) Subverts the fairness of the conversion;
    (4) Is likely to injure you;
    (5) Is inconsistent with your plan to meet the credit and lending 
needs of your proposed market area;
    (6) Otherwise violates laws or regulations; or
    (7) Does not prudently deploy your conversion proceeds.


Sec. 563b.530  What other requirements apply after I convert?

    After you convert, you must:
    (a) Promptly register your shares under the Securities Exchange Act 
of 1934 (15 U.S.C. 78a-78jj, as amended). You may not deregister the 
shares for three years.
    (b) Encourage and assist a market maker to establish and to 
maintain a market for your shares. A market maker for a security is a 
dealer who:
    (1) Regularly publishes bona fide competitive bid and offer 
quotations for the security in a recognized inter-dealer quotation 
system;
    (2) Furnishes bona fide competitive bid and offer quotations for 
the security on request; or
    (3) May effect transactions for the security in reasonable 
quantities at quoted prices with other brokers or dealers.
    (c) Use your best efforts to list your shares on a national or 
regional securities exchange or on the National Association of 
Securities Dealers Automated Quotation system.
    (d) File all post-conversion reports that OTS requires.

Contributions to Charitable Organizations


Sec. 563b.550  May I donate conversion shares or conversion proceeds to 
a charitable organization?

    You may contribute some of your conversion shares or proceeds to a 
charitable organization if:
    (a) Your plan of conversion provides for the proposed contribution;
    (b) Your members approve the proposed contribution; and
    (c) The IRS either has approved, or approves within two years after 
formation, the charitable organization as a tax-exempt charitable 
organization under the Internal Revenue Code.


Sec. 563b.555  How do my members approve a charitable contribution?

    At the meeting to consider your conversion, your members must 
separately approve by at least a majority of the total eligible votes, 
a contribution of conversion shares or proceeds. If you are in mutual 
holding company form and adding a charitable contribution as part of a 
second step stock conversion, you must also have a majority of your 
minority shareholders approve the charitable contribution.


Sec. 563b.560  How much may I contribute to a charitable organization?

    You may contribute a reasonable amount of conversion shares or 
proceeds to a charitable organization if your contribution will not 
exceed limits for charitable deductions under the Internal Revenue 
Code, and OTS does not object on supervisory grounds. If

[[Page 17252]]

you are a well capitalized savings association, OTS generally will not 
object if you contribute an aggregate amount of eight percent or less 
of the conversion shares or proceeds.


Sec. 563b.565  What must the charitable organization include in its 
organizational documents?

    The charitable organization's charter and bylaws (or trust 
agreement), gift instrument, and operating plan must provide that:
    (a) The charitable organization's primary purpose is to serve and 
make grants in your local community;
    (b) As long as the charitable organization controls shares, you 
must consider those shares as voted in the same ratio as all other 
shares voted on each proposal considered by your shareholders;
    (c) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for an independent director (or trustee) from your local 
community. This director may not be your officer, director, or 
employee, or your affiliate's officer, director, or employee, and 
should have experience with local community charitable organizations 
and grant making; and
    (d) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for a director from your board of directors or the board of 
directors of an acquiror or resulting institution in the event of a 
merger or acquisition of your organization.


Sec. 563b.570  How do I address conflicts of interest involving my 
directors?

    (a) A person who is your director, officer, or employee, or a 
person who has the power to direct your management or policies, or 
otherwise owes a fiduciary duty to you (for example, holding company 
directors) and who will serve as an officer, director, or employee of 
the charitable organization, is subject to Sec. 563.200 of this 
chapter. See Form AC (Exhibit 9) for further information on operating 
plans and conflict of interest plans.
    (b) Before your board of directors may adopt a plan of conversion 
that includes a charitable organization, you must identify your 
directors that will serve on the charitable organization's board. These 
directors may not participate in your board's discussions concerning 
contributions to the charitable organization, and may not vote on the 
matter.


Sec. 563b.575  What other requirements apply to charitable 
organizations?

    (a) The charitable organization's charter and bylaws (or trust 
agreement) and the gift instrument for the contribution must provide 
that:
    (1) OTS may examine the charitable organization at the charitable 
organization's expense;
    (2) The charitable organization must comply with all supervisory 
directives that OTS imposes;
    (3) The charitable organization must annually provide OTS with a 
copy of the annual report that the charitable organization submitted to 
the IRS;
    (4) The charitable organization must operate according to written 
policies adopted by its board of directors (or board of trustees), 
including a conflict of interest policy; and
    (5) The charitable organization may not engage in self-dealing, and 
must comply with all laws necessary to maintain its tax-exempt status 
under the Internal Revenue Code.
    (b) You must include the following legend in the stock certificates 
of shares that you contribute to the charitable organization or that 
the charitable organization otherwise acquires: ``The board of 
directors must consider the shares that this stock certificate 
represents as voted in the same ratio as all other shares voted on each 
proposal considered by the shareholders, as long as the shares are 
controlled by the charitable organization.''
    (c) OTS may review the compensation paid to charitable organization 
directors (or trustees) who are not your directors, employees, or 
affiliates.
    (d) After you complete your stock offering, you must submit four 
executed copies of the following documents to the OTS Applications 
Filing Room in Washington, and three executed copies to the OTS 
Regional Office: the charitable organization's charter and bylaws (or 
trust agreement), operating plan, conflict of interest policy, and the 
gift instrument for your contributions of either stock or cash to the 
charitable organization.

Subpart B--Voluntary Supervisory Conversions


Sec. 563b.600  What does this subpart do?

    (a) You must comply with this subpart to engage in a voluntary 
supervisory conversion. This subpart applies to all voluntary 
supervisory conversions under sections 5(i)(1), (i)(2), and (p) of the 
Home Owners' Loan Act (HOLA), 12 U.S.C. 1464(i)(1), (i)(2), and (p).
    (b) Subpart A of this part also applies to a voluntary supervisory 
conversion, unless a requirement is clearly inapplicable.


Sec. 563b.605  How may I conduct a voluntary supervisory conversion?

    (a) You may sell your shares or the shares of a holding company to 
the public under the requirements of subpart A of this part.
    (b) You may convert to stock form by merging into an interim 
federal- r state-chartered stock association.
    (c) You may sell your shares directly to an acquiror, who may be a 
person, company, depository institution, or depository institution 
holding company.
    (d) You may merge or consolidate with an existing or newly created 
depository institution. The merger or consolidation must be authorized 
by, and is subject to, other applicable laws and regulations.


Sec. 563b.610  Do my members have rights in a voluntary supervisory 
conversion?

    Your members do not have the right to approve or participate in a 
voluntary supervisory conversion, and will not have any legal or 
beneficial ownership interests in the converted association, unless OTS 
provides otherwise. Your members may have interests in a liquidation 
account, if one is established.

Eligibility


Sec. 563b.625  When is a savings association eligible for a voluntary 
supervisory conversion?

    (a) If you are an insured savings association, you may be eligible 
to convert under this subpart if:
    (1)You are significantly undercapitalized (or you are 
undercapitalized and a standard conversion that would make you 
adequately capitalized is not feasible), and you will be a viable 
entity following the conversion;
    (2) Severe financial conditions threaten your stability and a 
conversion is likely to improve your financial condition;
    (3) FDIC will assist you under section 13 of the Federal Deposit 
Insurance Act, 12 U.S.C. 1823; or
    (4) You are in receivership and a conversion will assist you.
    (b) You will be a viable entity following the conversion if you 
satisfy all of the following:
    (1) You will be adequately capitalized as a result of the 
conversion;
    (2) You, your proposed conversion, and your acquiror(s) comply with 
applicable supervisory policies;
    (3) The transaction is in your best interest, and the best interest 
of the federal deposit insurance funds and the public; and

[[Page 17253]]

    (4) The transaction will not injure or be detrimental to you, the 
federal deposit insurance funds, or the public interest.


Sec. 563b.630  When is a BIF-insured state-chartered savings bank 
eligible for a voluntary supervisory conversion?

    If you are a BIF-insured state-chartered savings bank you may be 
eligible to convert to a federal stock savings bank under this subpart 
if:
    (a) FDIC certifies under section 5(o)(2)(C) of the HOLA that severe 
financial conditions threaten your stability and that the voluntary 
supervisory conversion is likely to improve your financial condition, 
and OTS concurs with this certification; or
    (b) You meet the following conditions:
    (1) Your liabilities exceed your assets, as calculated under 
generally accepted accounting principles, assuming you are a going 
concern; and
    (2) You will issue a sufficient amount of permanent capital stock 
to meet your applicable FDIC capital requirement immediately upon 
completion of the conversion, or FDIC determines that you will achieve 
an acceptable capital level within an acceptable time period.

Plan of Supervisory Conversion


Sec. 563b.650  What must I include in my plan of voluntary supervisory 
conversion?

    A majority of your board of directors must adopt a plan of 
voluntary supervisory conversion. You must include all of the following 
information in your plan of voluntary supervisory conversion.
    (a) Your name and address.
    (b) The name, address, date and place of birth, and social security 
number of each proposed purchaser of conversion shares and a 
description of that purchaser's relationship to you.
    (c) The title, per-unit par value, number, and per-unit and 
aggregate offering price of shares that you will issue.
    (d) The number and percentage of shares that each investor will 
purchase.
    (e) The aggregate number and percentage of shares that each 
director, officer, and any affiliates or associates of the director or 
officer will purchase.
    (f) A description of any liquidation account.
    (g) Certified copies of all resolutions of your board of directors 
relating to the conversion.

Voluntary Supervisory Conversion Application


Sec. 563b.660  What must I include in my voluntary supervisory 
conversion application?

    You must include all of the following information and documents in 
a voluntary supervisory conversion application to OTS under this 
subpart:
    (a) Eligibility. (1) Evidence establishing that you meet the 
eligibility requirements under Secs. 563b.625 or 563b.630.
    (2) An opinion of qualified, independent counsel or an independent, 
certified public accountant regarding the tax consequences of the 
conversion, or an IRS ruling indicating that the transaction qualifies 
as a tax-free reorganization.
    (3) An opinion of independent counsel indicating that applicable 
state law authorizes the voluntary supervisory conversion, if you are a 
state-chartered savings association converting to state stock form.
    (b) Plan of conversion. A plan of voluntary supervisory conversion 
that complies with Sec. 563b.650.
    (c) Business plan. A business plan that complies with 
Sec. 563b.105, where required by OTS.
    (d) Financial data. (1) Your most recent audited financial 
statements and Thrift Financial Report. You must explain how your 
current capital levels make you eligible to engage in a voluntary 
supervisory conversion under Secs. 563b.625 or 563b.630.
    (2) A description of your estimated conversion expenses.
    (3) Evidence supporting the value of any non-cash asset 
contributions. Appraisals must be acceptable to OTS and the non-cash 
asset must meet all other OTS policy guidelines. See Thrift Activities 
Handbook Section 110 for guidelines.
    (4) Pro forma financial statements that reflect the effects of the 
transaction. You must identify your tangible, core, and risk-based 
capital levels and show the adjustments necessary to compute the 
capital levels. You must prepare your pro forma statements in 
conformance with OTS regulations and policy.
    (e) Proposed documents. (1) Your proposed charter and bylaws.
    (2) Your proposed stock certificate form.
    (f) Agreements. (1) A copy of any agreements between you and 
proposed purchasers.
    (2) A copy and description of all existing and proposed employment 
contracts. You must describe the term, salary, and severance provisions 
of the contract, the identity and background of the officer or employee 
to be employed, and the amount of any conversion shares to be purchased 
by the officer or employee or his or her affiliates or associates.
    (g) Related applications. (1) All filings required under the 
securities offering rules of 12 CFR parts 563b and 563g.
    (2) Any required Holding Company Act application, Control Act 
notice, or rebuttal submission under part 574 of this chapter, 
including prior-conduct certifications under Regulatory Bulletin 20.
    (3) A subordinated debt application, if applicable.
    (4) Applications for permission to organize a stock association and 
for approval of a merger, if applicable, and a copy of any application 
for Federal Home Loan Bank membership or FDIC insurance of accounts, if 
applicable.
    (5) A statement describing any other applications required under 
federal or state banking laws for all transactions related to your 
conversion, copies of all dispositive documents issued by regulatory 
authorities relating to the applications, and, if requested by OTS, 
copies of the applications and related documents.
    (h) Waiver request. A description of any of the features of your 
application that do not conform to the requirements of this subpart, 
including any request for waiver of these requirements.

OTS Review of the Voluntary Supervisory Conversion Application


Sec. 563b.670  Will OTS approve my voluntary supervisory conversion 
application?

    OTS will generally approve your application to engage in a 
voluntary supervisory conversion unless it determines:
    (a) You do not meet the eligibility requirements for a voluntary 
supervisory conversion under Secs. 563b.625 or 563b.630 or because the 
proceeds from the sale of your conversion stock, less the expenses of 
the conversion, would be insufficient to satisfy any applicable 
viability requirement;
    (b) The transaction is detrimental to or would cause potential 
injury to you or the federal deposit insurance funds or is contrary to 
the public interest;
    (c) You or your acquiror, or the controlling parties or directors 
and officers of you or your acquiror, have engaged in unsafe or unsound 
practices in connection with the voluntary supervisory conversion; or
    (d) You fail to justify an employment contract incidental to the 
conversion, or the employment contract will be an unsafe or unsound 
practice or represent

[[Page 17254]]

a sale of control. In a voluntary supervisory conversion, OTS generally 
will not approve employment contracts of more than one year for your 
existing management.


Sec. 563b.675  What conditions will OTS impose on an approval?

    (a) OTS will condition approval of a voluntary supervisory 
conversion application on all of the following.
    (1) You must complete the conversion stock sale within three months 
after OTS approves your application. OTS may grant an extension for 
good cause.
    (2) You must comply with all filing requirements of parts 563b and 
563g of this chapter.
    (3) You must submit an opinion of independent legal counsel 
indicating that the sale of your shares complies with all applicable 
state securities law requirements.
    (4) You must comply with all applicable laws, rules, and 
regulations.
    (5) You must satisfy any other requirements or conditions OTS may 
impose.
    (b) OTS may condition approval of a voluntary supervisory 
conversion application on either of the following:
    (1) You must satisfy any conditions and restrictions OTS imposes to 
prevent unsafe or unsound practices, to protect the federal deposit 
insurance funds and the public interest, and to prevent potential 
injury or detriment to you before and after the conversion. OTS may 
impose these conditions and restrictions on you (before and after the 
conversion), your acquiror, controlling parties, directors and officers 
of you or your acquiror; or
    (2) You must infuse a larger amount of capital, if necessary, for 
safety and soundness reasons.

Offers and Sales of Stock


Sec. 563b.680  How do I sell my shares?

    If you convert under this subpart, you must offer and sell your 
shares under part 563g of this chapter.

Post-Conversion


Sec. 563b.690  Who may not acquire additional shares after the 
voluntary supervisory conversion?

    For three years after the completion of a voluntary supervisory 
conversion, neither you nor any of your controlling shareholder(s) may 
acquire shares from minority shareholders without OTS's prior approval.

PART 574--ACQUISITION OF CONTROL OF SAVINGS ASSOCIATIONS

    2. The authority citation for part 574 is revised to read as 
follows:

    Authority: 12 U.S.C. 1467a, 1817, 1831i.


Sec. 574.3  [Amended]

    3. Section 574.3(c)(1)(vii) is amended by removing the phrase 
``563b.2(a)(39)'' and adding in lieu thereof the phrase ``563b.25''.

PART 575--MUTUAL HOLDING COMPANIES

    4. The authority citation for part 575 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828, 2901.


Sec. 575.2  [Amended]

    5. Section 575.2(a) is amended by removing the phrase ``12 CFR 
563b.2'', and by adding in lieu thereof the phrase ``563b.25 of this 
chapter''.


Sec. 575.4  [Amended]

    6. Section 575.4(c)(2) is amended by removing the phrase 
``economical home financing'', and by adding in lieu thereof the phrase 
``the credit and lending needs of your proposed market area''.
    7. Section 575.7 is amended by:
    a. Revising the paragraph heading and adding a new first sentence 
to paragraph (a) introductory text;
    b. Removing, in paragraph (a)(7), the phrase ``Sec. 563b.11 of this 
chapter'', and by adding in lieu thereof the phrase ``Sec. 563b.200(c) 
of this chapter'';
    c. Removing, in paragraph (b)(1), the phrase ``Sec. 563b.7'' where 
it appears in the first and second sentences, and by adding in lieu of 
both phrases the phrase ``part 563b of this chapter'';
    d. Removing, in paragraph (b)(2), the phrase ``Sec. 563b.7(c)'', 
and by adding in lieu thereof the phrase ``Sec. 563b.330''.
    e. Removing, in paragraph (d)(6)(i), the phrase ``12 CFR 
563b.102'', and by adding in lieu thereof the phrase ``Form OC'';
    f. Adding new paragraphs (d)(7) and (d)(8);
    g. Removing, in paragraph (e), the phrase ``Secs. 563b.3 through 
563b.8 of this chapter'', and adding in lieu thereof the phrase ``12 
CFR part 563b''.
    The additions read as follows:


Sec. 575.7  Issuances of stock by savings association subsidiaries of 
mutual holding companies.

    (a) Requirements. Before any stock issuance, a savings association 
subsidiary of a mutual holding company must submit a business plan in 
accordance with the provisions of Secs. 563b.105 through 563b.115 of 
this chapter.* * *
* * * * *
    (d) * * *
    (7) Notwithstanding the restrictions in paragraph (d)(6)(ii) of 
this section, a savings association subsidiary of a mutual holding 
company may issue stock as part of a stock benefit plan to any insider, 
associate of an insider, or tax qualified or non-tax qualified employee 
stock benefit plan of the mutual holding company or subsidiary of the 
mutual holding company without including the purchase priorities of 12 
CFR part 563b.
    (8) As part of a reorganization, a reasonable amount of shares or 
proceeds may be contributed to a charitable organization that complies 
with Secs. 563b.550 to 563b.575 of this chapter, provided such 
contribution does not result in any taxes on excess business holdings 
under section 4943 of the Internal Revenue Code (26 U.S.C. 4943).
* * * * *
    8. Section 575.8 is amended by:
    a. Removing, in paragraph (a) introductory text, the phrase 
``Sec. 563b.27(a)'', and by adding in lieu thereof the phrase 
``Sec. 563b.650'';
    b. Amending paragraphs (a)(3), (a)(4), (a)(5), and (a)(6) to remove 
the phrase ``ten'', and by adding in lieu thereof the phrase ``4.9'', 
and by removing the phrase ``held by persons other than the 
association's mutual holding company parent'';
    c. Revising paragraph (a)(7);
    d. Revising paragraph (a)(8);
    e. Redesignating paragraphs (a)(9) through (a)(21) as paragraphs 
(a)(10) through (a)(22), respectively;
    f. Adding a new paragraph (a)(9);
    g. Amending newly designated paragraph (a)(10) by removing the 
phrase ``12 CFR 563b.102'', and by adding in lieu thereof the phrase 
``Form OC''.
    The additions and revisions read as follows:


Sec. 575.8  Contents of Stock Issuance Plans.

    (a) * * *
    (7)(i) Provide that the aggregate amount of common stock acquired 
in the proposed issuance, plus all prior issuances of the association, 
by all non-tax-qualified employee stock benefit plans of the 
association, insiders of the association, and associates of insiders of 
the association, exclusive of any stock acquired by such plans, 
insiders, and associates in the secondary market, shall not exceed the 
following percentages of the outstanding common stock of the 
association, held by persons other than the association's mutual 
holding company parent at the close of the proposed issuance:

[[Page 17255]]



------------------------------------------------------------------------
                                                             Officer and
                                                              director
                     Institution size                         purchases
                                                              (percent)
------------------------------------------------------------------------
$50,000,000 or less.......................................            35
$50,000,001-100,000,000...................................            34
$100,000,001-150,000,000..................................            33
$150,000,001-200,000,000..................................            32
$200,000,001-250,000,000..................................            31
$250,000,001-300,000,000..................................            30
$300,000,001-350,000,000..................................            29
$350,000,001-400,000,000..................................            28
$400,000,001-450,000,000..................................            27
$450,000,001-500,000,000..................................            26
Over $500,000,000.........................................            25
------------------------------------------------------------------------

    (ii) In calculating the number of shares held by insiders and their 
associates under this provision or the provision in paragraph (a)(8) of 
this section, shares held by any tax-qualified or non-tax-qualified 
employee stock benefit plan of the association that are attributable to 
such persons shall not be counted.
    (8) Provide that the aggregate amount of stock, whether common or 
preferred, acquired in the proposed issuance, plus all prior issuances 
of the association, by all non-tax-qualified employee stock benefit 
plans of the association, insiders of the association, and associates 
of insiders of the association, exclusive of any stock acquired by said 
plans, insiders, and associates in the secondary market, shall not 
exceed the following percentages of the stockholders' equity of the 
association, held by persons other than the association's mutual 
holding company parent at the close of the proposed issuance:

------------------------------------------------------------------------
                                                             Officer and
                                                              director
                     Institution size                         purchases
                                                              (percent)
------------------------------------------------------------------------
$50,000,000 or less.......................................            35
$50,000,001-100,000,000...................................            34
$100,000,001-150,000,000..................................            33
$150,000,001-200,000,000..................................            32
$200,000,001-250,000,000..................................            31
$250,000,001-300,000,000..................................            30
$300,000,001-350,000,000..................................            29
$350,000,001-400,000,000..................................            28
$400,000,001-450,000,000..................................            27
$450,000,001-500,000,000..................................            26
Over $500,000,000.........................................            25
------------------------------------------------------------------------

    (9) Provide that the aggregate amount of common stock acquired in 
the proposed issuance, plus all prior issuances of the association, by 
all stock benefit plans, other than employee stock ownership plans, 
shall not exceed more than 25% of the outstanding common stock of the 
association held by persons other than the association's mutual holding 
company parent.
* * * * *
    9. Section 575.11 is amended by:
    a. Removing, in paragraphs (c)(1) and (c)(2) the phrases 
``Sec. 563b.3(g)(1)'' or ``Sec. 563b.3(g)(3)'' wherever they appear, 
and by adding in lieu thereof the phrase ``Sec. 563b.510'';
    b. Adding, in paragraph (e), after the phrase ``stock issuance'' 
the phrase ``, and OTS does not object to the subsequent stock 
issuance''; and
    c. Adding new paragraph (i).
    The addition reads as follows:


Sec. 575.11  Operating restrictions.

* * * * *
    (i) Separate vote for charitable organization contribution. In a 
mutual holding company stock issuance, a separate vote of a majority of 
the outstanding shares of common stock held by stockholders other than 
the mutual holding company or subsidiary holding company must approve 
any charitable organization contribution.
    10. Section 575.12 is amended by adding new paragraph (a)(3) to 
read as follows:


Sec. 575.12  Conversion or liquidation of mutual holding companies.

    (a)* * *
    (3) If a subsidiary holding company or subsidiary savings 
association has issued shares to an entity other than the mutual 
holding company, the conversion of the mutual holding company to stock 
form may not be consummated unless a majority of the shares issued to 
entities other than the mutual holding company vote in favor of the 
conversion. This requirement applies in addition to any otherwise 
required account holder or shareholder votes.
* * * * *
    11. Section 575.13 is amended by removing, in paragraph (c)(2), the 
phrase ``Sec. 563b.8 of this chapter'', and by adding in lieu thereof 
the phrase ``Sec. 563b.150 of this chapter'', and by revising paragraph 
(a)(1) to read as follows:


Sec. 575.13  Procedural requirements.

    (a) Proxies and proxy statements--(1) Solicitation of proxies. The 
provisions of Secs. 563b.225 to 563b.290 and 563b.25 to 563b.35 of this 
chapter shall apply to all solicitations of proxies by any person in 
connection with any membership vote required by this part. OTS must 
authorize all proxy materials used in connection with such 
solicitations. Proxy materials must be in the form and contain the 
information specified in Secs. 563b.255 and 563b.270 of this chapter 
and Form PS, to the extent such information is relevant to the action 
that members are being asked to approve, with such additions, 
deletions, and other modifications as are necessary or appropriate 
under the disclosure standard set forth in Sec. 563b.280 of this 
chapter. File proxies and proxy statements in accordance with 
Sec. 563b.155 of this chapter and address them to the Business 
Transactions Division, Chief Counsel's Office, Office of Thrift 
Supervision, at the address set forth in Sec. 516.40 of this chapter. 
For purposes of this paragraph (a)(1), the term conversion, as it 
appears in the provisions of part 563b of this chapter cited above in 
this paragraph (a)(1), refers to the reorganization or the stock 
issuance, as appropriate.
* * * * *

    Dated: March 27, 2002.

    By the Office of Thrift Supervision.
James E. Gilleran,
Director.
[FR Doc. 02-7979 Filed 4-8-02; 8:45 am]
BILLING CODE 6720-01-P