[Federal Register Volume 67, Number 154 (Friday, August 9, 2002)]
[Rules and Regulations]
[Pages 52010-52048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19730]



[[Page 52009]]

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Part V





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; Final Rule

  Federal Register / Vol. 67, No. 154 / Friday, August 9, 2002 / Rules 
and Regulations  

[[Page 52010]]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 563b, 574, and 575

[No. 2002-34]
RIN 1550-AB24


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

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is amending its 
regulations on the mutual-to-stock conversion process and portions of 
its regulations on mutual holding company reorganizations. This rule is 
based on the Notice of Proposed Rulemaking (First Proposal) and the 
Interim Final Rule, published July 12, 2000, and a re-proposed 
regulation (Re-proposal), published April 9, 2002.
    This final rule 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.

DATES: Effective on October 1, 2002.

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. The final rule 
and the related forms will also be posted on the OTS Internet Site at 
http://www.ots.treas.gov.

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 the First 
Proposal, proposing changes to OTS rules governing stock conversions 
and MHCs.\3\ On April 9, 2002, OTS published the Re-proposal, refining 
the First Proposal in response to public comments and requesting 
additional public comment.\4\
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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.
    \4\ 67 FR 17228.
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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 final 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.

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. See the Re-proposal for specific references to issued 
guidance.

III. Summary of Comments

    OTS received 13 comment letters on the Re-proposal. Two 
individuals, three law firms, two thrifts, a regulator, and five trade 
groups submitted comments. OTS also participated in a meeting on the 
Re-proposal sponsored by America's Community Bankers on April 26 
(attended by 23 participants), a conference telephone call on April 16 
sponsored by the Mutual Advisory Council of the American Bankers 
Association (with representatives from 4 mutual institutions, two 
outside counsel, and representatives of the ABA), and a meeting with 
representatives of the FDIC on April 17. Issues raised by commenters 
are discussed in the item-by-item summary below.

IV. Item-by-Item Summary

A. General

    The greatest number of comments on the First Proposal and the Re-
proposal involved the business plan, Regional Office non-objection to 
the business plan, and the pre-filing meeting requirements. While most 
commenters expressed appreciation for OTS revisions to the business 
plan provisions, there were still specific objections to portions of 
the Re-proposal. For example, commenters generally approved the removal 
of prior Regional Office non-objection to the business plan, but 
certain commenters objected to one or more of the factors OTS proposed 
to use in evaluating the business plan.

B. Pre-filing Meeting

    Under the Re-proposal, OTS would have required each association 
contemplating a conversion to meet with the appropriate Regional 
Office, in a pre-filing meeting at least ten days prior to publishing a 
plan of conversion, to discuss the proposed business plan. The proposed 
regulations contemplated that the association's board of directors, or 
a committee of the board including outside directors, would attend the 
meeting. One commenter commended OTS for the changes to the pre-filing 
meeting requirement, and stated it had no objection to the requirement. 
Two commenters opposed the pre-filing meeting in its entirety, and two 
other commenters supported such meetings, provided they were not used 
to ``second guess'' management. One commenter questioned whether the 
proposed strategic plan to be discussed at the pre-filing meeting was 
just an early draft of the business plan. A number of commenters asked 
for clarification of whether OTS was requiring the whole board to 
attend the pre-filing meeting and where it had to be held.
    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 
request for

[[Page 52011]]

clarification as to where and who must attend the meeting, OTS has 
added language to the final regulation indicating that, if the board 
desires, OTS will send a representative from the Regional Office to the 
association to meet with the board of directors or a committee of the 
board. To respond to a comment questioning why the pre-filing meeting 
must occur at least ten days prior to passage of the plan of 
conversion, OTS has revised the final regulation to require a meeting 
prior to passage of the plan, but without requiring the meeting to 
occur a specified number of days before passage. The short, written 
strategic plan OTS has requested to review and discuss at the meeting 
is not intended to take the place of the business plan. OTS reiterates 
that the purpose of this meeting is not to substitute the agency's 
judgment for that of the directors, but to require the board to 
articulate its plans for the association and the implications of those 
plans before the conversion process actually begins.

C. General Comments on the Business Plan

    The commenters considered the business plan provisions in the Re-
proposal to be an improvement over those in the First Proposal. Several 
commenters commended OTS for eliminating the requirement for prior 
Regional Office non-objection to the business plan. Several of the 
commenters supported a business plan requirement generally. Certain 
others opposed the business plan as unnecessary, claiming, in one case, 
that OTS did not require such plans for other capital raising efforts 
and so should not for conversions. Another commenter suggested that any 
mutual association that did not convert should produce a business plan 
to justify that decision. One commenter stated that the implication 
still remained that if the business plan is unacceptable, the 
application will be denied.
    OTS requires business plans for significant capital raising 
applications, such as applications for new savings associations and 
continues to believe such plans are necessary in stock conversions, 
because of the generally large amount of capital that will be raised 
and the change in form of ownership inherent in the transaction. Under 
the final regulation, 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 Re-proposal provided that a converting association's business 
plan should, 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 lending needs in the proposed market area; (iii) 
demonstrate how the new capital will support projected operations and 
activities; (iv) describe the risks associated with the plan; (v) 
demonstrate adequate expertise and staffing to manage growth prudently; 
and (vi) demonstrate that the association will achieve a reasonable 
return on equity. The Re-proposal also provided that the association 
could not project stock repurchases or returns of capital in the first 
year of the business plan, or extraordinary dividends at any time 
during the three-year plan. OTS also clarified that OTS would weigh all 
of the factors together, and no single factor would determine whether a 
business plan was acceptable.
    One commenter asked for clarification whether the business plan 
components were ``standards'' or ``requirements'' and whether all of 
them had to be met. The same commenter asked for a waiver provision for 
when a component was inapplicable. One commenter thought the 
regulations should specifically state that a business plan for a state-
chartered savings association would require state approval by the 
appropriate state regulator. Several commenters asked for clarification 
whether there was a business plan requirement for MHC reorganizations 
that do not involve a stock offering. Several commenters who discussed 
the business plan opposed the reasonable return on equity (ROE) factor.
    In addition, certain commenters asserted that OTS was ``over[ly] 
paternalistic'' and concerned about the ``need for capital;'' that the 
business plan standards were ``onerous'' or meant to protect OTS 
interests; that OTS was biased in favor of management; or that the 
business plan was a way to ``second guess'' management. One commenter 
asserted that OTS appeared to believe that ``need'' for capital is a 
threshold requirement for conversion, and that OTS is ignoring the fact 
that there are many other reasons to justify a conversion.
    To address the concerns of the commenters, the final regulation 
combines several of the business plan components, indicates that no 
single factor will be determinative for any business plan, and that OTS 
will look at every plan on a case-by-case basis. OTS reiterates that 
the business plan does not create a ``needs'' test for conversions, and 
recognizes that many other factors go into the decision whether to 
convert.
    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 final regulation continues to include a 
business plan requirement, and sets forth the factors OTS will consider 
in evaluating business plans.\5\
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    \5\ OTS notes that failure to submit a business plan for an MHC 
reorganization gives rise to a rebuttable presumptive disqualifier 
under Sec. 575.4(c)(2). In addition, establishing a Mid-tier, with 
or without a stock issuance, requires OTS approval under the 
Acquisition of Control Regulations, which also establish a 
rebuttable presumptive disqualifier for failure to submit a business 
plan. See 12 CFR 574.7(g)(2)(ii). An applicant may provide 
information to rebut the presumptive disqualifier.
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    Several of the comments demonstrate that commenters believed the 
various factors in the Re-proposal were separate ``requirements'' that 
had to be satisfied for approval of a conversion. The final regulation 
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.
    All of the commenters addressing the proposed ROE factor objected 
to OTS's use of ROE as a factor in evaluating the business plan, 
pointing out that such a standard was generally unrealistic for a newly 
converted company, and particularly difficult to achieve for an already 
well-capitalized company. OTS has reviewed the factors it will consider 
when evaluating a business plan and decided to combine several factors 
that address similar issues concerning deployment of proceeds. OTS 
continues to believe that investor reaction to return on their 
investment should be a valid concern for a converting institution. The 
final rule will emphasize that the business plan must describe how it 
will safely and soundly deploy the proceeds received from the 
perspectives of opportunities to deploy proceeds, the projected 
operations and

[[Page 52012]]

activities, and what the return will be to investors who buy stock in 
the association, in particular, 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.
    One commenter believed that the requirement that the converting 
association submit a certificate signed by two-thirds of the board of 
directors, stating that the business plan adequately reflects their 
plans should be deleted, claiming it is redundant, because the board of 
directors certifies elsewhere that it has read and approved the plan 
when it submits the application for conversion. OTS believes it is 
important that directors certify specifically that the business plan 
reflects their actual plans. The same commenter also asserted that the 
required legal opinion at the completion of the conversion was too 
broad and would cause counsel to opine on matters of which it had no 
knowledge. OTS has considered this comment and believes that an opinion 
that the association has complied with all laws applicable to the 
conversion is appropriate. For years OTS has required similar opinions 
with respect to compliance with state laws (for converting state-
chartered institutions), and has not encountered difficulties regarding 
the submission of such opinions.
    Another commenter objected to the requirement that each applicant 
demonstrate that the deployment of proceeds in the business plan will 
help meet the credit and lending needs of the communities served by the 
applicant. The commenter, apparently believing this requirement to be 
newly proposed, asserted that the requirement would reduce 
``flexibility'' in the conversion process. OTS points out that this 
standard has been in the conversion regulations since 1994.\6\ In 
evaluating applications under this standard, OTS has taken into account 
the differing positions of converting savings associations, and has 
found many different types of plans to be acceptable under the 
standard.
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    \6\ See 12 CFR 563b.11, as added by 59 FR 61262, Nov. 30, 1994.
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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 first to 
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, 
and a number of other innovations that OTS believes will enhance the 
attractiveness of the MHC option. Taken together, these steps appeared 
to some commenters as expressing an agency bias for the MHC form.
    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 sec. 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\ The final 
regulation retains the proposed 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 continues to encourage mutual associations seeking new capital 
to 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.

F. Mutual Capital Questions

    OTS asked a number of questions in the preambles to the First 
Proposal and the Re-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. One 
commenter suggested that MHCs should be allowed to issue non-voting 
stock that would have a claim on the economic interest of the MHC 
without controlling management. OTS is concerned that issuing non-
voting stock with a claim on the economic interest of the MHC might 
complicate the ability of an MHC to complete a second step stock 
conversion. Another commenter recommended amending the MHC regulations 
to allow stock to be issued for acquisitions without offering shares to 
existing stockholders. OTS has already authorized such an acquisition 
under existing MHC regulations, and is willing to consider such 
acquisitions in the future.
    Both the preamble to the First Proposal and to the Re-proposal 
discussed 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 
does not propose to issue regulatory 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 
capital distribution regulations at 12 CFR part 563, subpart E.
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    However, in response to a request from an association, the Chief 
Counsel issued a legal opinion addressing this issue on June 21, 
2002.\10\
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    \10\ The legal opinion is avaialble on the OTS website.
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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. Two 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 final regulation is consistent with the Interim Rule and the 
Re-proposal. See Secs. 563b.510 and 563b.515. OTS is also making 
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

[[Page 52013]]

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 final regulation, at 
Sec. 563b.510, clarifies this point. However, OTS will 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. 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.\11\ The final regulation will extend this exclusion from 
the repurchase limitations to fully converted companies. OTS notes that 
the FDIC permits purchases for employee stock ownership plans (ESOPs) 
to be excluded from the repurchase limitations for fully converted 
companies.
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    \11\ 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 certain dividends 
waived 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, stating their belief that OTS had 
changed its policy from protecting depositors to protecting management 
and minority interests. The final regulation is unchanged from the 
Interim Rule and the Re-proposal. OTS notes that the waiver of 
dividends results in more capital at the savings association, enhancing 
the safety and soundness of the savings association. OTS retains the 
authority to take enforcement action if it discovers abuses.

I. Charitable Organizations

    The First Proposal and the Re-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 final regulation 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.
    Most commenters on this subject were in favor of the proposed 
regulations, although one commenter stated that OTS should not allow 
for the establishment of a foundation in second step conversions. OTS 
believes that establishing a foundation in a second step conversion is 
acceptable with a separate minority shareholder vote in such 
transactions and has included that requirement in the final regulation. 
One commenter suggested that the requirement that certain language be 
included in all of the foundation's governing documents was excessive. 
In addition, this commenter suggested several regulatory revisions that 
OTS believes are improvements to the proposal, such as not requiring 
the submission of the operating plan until six months following the 
conversion. The final regulation and Exhibit 9 to the Form AC provide 
that applicants will not be required to submit the operating plan until 
six months after the conversion, and delete a previously requested 
legal opinion regarding the legality of the chartering documents under 
state law. Similarly, OTS will delete the requirement to include 
certain language in the foundation's bylaws and operating plan, and 
will make several other minor revisions at the suggestion of this 
commenter. OTS will also delete the provision that foundation 
compensation arrangements may need to be reviewed by the agency, 
because OTS already has that option. Upon effectiveness of the final 
regulation, waivers from certain provisions in the current conversion 
regulations now routinely requested in a conversion with a charitable 
foundation will no longer be necessary.

J. Acquisitions of Converted Associations

    OTS regulations at Sec. 563b.3(i)(3) provide 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.
    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. In the Re-proposal, OTS requested comment on 
whether these provisions should apply to MHCs and whether Mid-tiers 
should be permitted to enact anti-takeover protections in their 
charters.
    Several commenters expressed support for the OTS position that a 
three-year restriction on acquisitions was appropriate and should apply 
to MHCs, and that anti-takeover protections for Mid-tiers were 
appropriate. One commenter thought OTS should implement a five-year 
restriction on acquisitions. One commenter suggested post-conversion 
restrictions for state-chartered savings associations should follow 
state law restrictions, rather than OTS restrictions. One commenter 
expressed confusion regarding what OTS is willing to allow. Another 
commenter suggested that OTS needed to show some flexibility in 
applying the rule, such as allowing acquisitions in less than three 
years in certain circumstances. Another commenter suggested OTS should 
allow no exceptions to the three-year ``prohibition'' on acquisitions. 
OTS reiterates that it always considers the merits of every case, and 
will continue to do so. OTS believes that all savings associations that 
convert under part 563b be subject to the post-conversion restrictions. 
After considering the comments, for the reasons stated above, OTS is 
finalizing the regulation as originally proposed.

K. Demand Account Holders

    In both the First Proposal and the Re-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

[[Page 52014]]

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 and one specifically supported 
it. OTS will enact the final regulation as proposed.

L. Management Stock Benefit Plans

    In the First Proposal and the Re-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 two suggested 
OTS add retirement within one year of conversion as another reason for 
allowing acceleration.
    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 final regulation does not provide for accelerated vesting based on 
retirement.
    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 pointed out that the proposed 
language in the revision did not accomplish the purpose of the 
revision. OTS concurs and has revised the language in the final 
regulation to be consistent with the proposal.
    In response to the First Proposal, most commenters supported 
expansion of option plan opportunities for MHCs. However, two 
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. After considering the potential for small 
offerings in MHC structures, OTS proposed an additional limitation in 
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.
    One commenter on the Re-proposal specifically supported 
establishment of the 25% limitation. Several commenters were unclear on 
how the 25% limit would be applied, and one commenter asserted that 
notwithstanding the 25% limit, the Re-proposal increased rewards to 
management without justification. One commenter asked OTS to clarify 
whether the 25% limit would apply to stock benefit plans enacted after 
the initial stock issuance.
    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. With 
respect to the comments requesting clarification, the regulation has 
been revised to indicate that all stock benefit plans for officers and 
directors are included in the 25% limitation, except for ESOPs (whether 
allocated or unallocated). Also, the 25% limit would apply to 
subsequent stock benefit plans, but would be based on 25% of the stock 
outstanding on the date subsequent stock plans were ratified by the 
shareholders.
    One commenter suggested two technical revisions to 
Secs. 563b.380(c) and 563b.500(c). Those revisions correct language 
that was inadvertently deleted from the proposal regarding ESOP 
purchases in the offering and amendments of previously approved benefit 
plans. OTS appreciates the technical corrections and is including them 
in the final rule.
    OTS also proposed 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. This provision is included in the final regulation. 
See 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 
Re-proposal clarified that 50% of the net proceeds must be infused into 
the savings association. One commenter concurred with the 
clarification. OTS is enacting this provision as re-proposed.

N. Mutual Holding Company Revisions

1. General
    In the First Proposal and the Re-proposal, OTS proposed allowing 
the adoption of additional stock option plans without the need to issue 
stock to all categories of subscribers. The final regulation 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, and 
supervisory considerations at the converted savings association.
    OTS received a number of comments after the First Proposal that 
holding companies inserted in between MHCs and their savings 
association subsidiaries (Mid-tiers) should be allowed to be state-
chartered entities. In the Re-proposal, OTS noted that Mid-tiers are 
MHCs, and MHCs, by statute, must be federally chartered.\12\ One 
commenter claimed OTS chartering and regulation of Mid-tiers had worked 
very well. Two commenters claimed that OTS was attempting to 
``eviscerate'' state law in this area. OTS continues to believe that 
the statute requires that all Mid-tier holding companies be federally 
chartered. OTS believes the two commenters may be assuming that OTS's 
position applies to MHC structures that involve neither a savings 
association nor an institution that has elected to be treated as a 
savings association under sec. 10(l) of HOLA (that is, to MHCs that 
draw membership from banks but not savings associations). OTS notes 
that if the MHC structure does not include a savings association within 
the meaning of sec. 10 of HOLA, the MHC structure is not subject to 
part 575, and in such case, neither the MHC nor the Mid-tier may be 
chartered by OTS.
---------------------------------------------------------------------------

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

    Two commenters recommended that OTS allow Mid-tiers to adopt 
certain provisions of state law with regard to indemnification or 
limitation of liability currently available to state chartered 
corporations. As OTS noted in response to a comment from the First 
Proposal, 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.
2. Acquisitions of Mutual Holding Company Structures
    In the Re-proposal, OTS asked for comment on the recent series of 
proposals to acquire MHC structures. 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,

[[Page 52015]]

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.
    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-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.\13\ One commenter discussed this issue and agreed with 
OTS that such provisions should be included in Mid-tier charters.
---------------------------------------------------------------------------

    \13\ 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.\14\ 
In addition, OTS intends to apply Sec. 563b.3(i)(3) to Mid-tier holding 
companies and subsidiary stock institutions that complete stock 
offerings under Sec. 575.7. One commenter agreed with OTS that it 
should apply Sec. 563b.3(i)(3) in the context of Mid-tiers and MHC 
savings association subsidiaries.
---------------------------------------------------------------------------

    \14\ If an existing Mid-tier wishes to amend its charter to 
include such provisions, it may do so following the provisions at 12 
CFR 575.14(c)(2).
---------------------------------------------------------------------------

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 proposed 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). One commenter disagreed with OTS on this issue but 
offered no reasons for the disagreement. OTS has included the 
requirement in the final regulation.

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. There were no comments on this language. The 
revised language can be found at Secs. 563b.625 and 563b.630 of the 
final regulation.

P. Merger Conversions

    One commenter suggested that OTS should change its policy to allow 
merger conversions for institutions with greater than $25 million in 
assets. Another commenter suggested the federal regulators should take 
a consistent approach to merger conversions to discourage ``forum 
shopping.'' That same commenter suggested OTS should use the CAMELS 
rating categories as factors to be considered in merger conversions. In 
response to these comments, OTS reiterates that there is no set asset 
size for an institution undertaking a merger conversion. OTS merely 
suggested in its 1994 statement about merger conversions that 
institutions smaller than $25 million in assets may encounter 
difficulties in completing standard conversions and, therefore, were 
more likely candidates for 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.\15\
---------------------------------------------------------------------------

    \15\ See 59 FR 61247, 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 that 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. OTS 
notes that these are the same criteria the FDIC uses when it evaluates 
proposals for merger conversions.

Q. 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 suggestions for revisions to the section on 
foundations. As discussed earlier, OTS concurs with some of the 
proposed revisions and has revised the form 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

------------------------------------------------------------------------
                                   Re-proposed
     Original provision             provision              Comment
------------------------------------------------------------------------
12 CFR 563b.1...............  12 CFR 563b.5.......  Nonsubstantive
                                                     revision, moved.

[[Page 52016]]

 
12 CFR 563b.2(a)............  12 CFR 563b.25......  Substantive
                                                     revisions,
                                                     deletions, and
                                                     moved.
12 CFR 563b.2(b)............  ....................  Deleted.
12 CFR 563b.3(a)............  12 CFR 563b.5(a)....  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(b)............  12 CFR 563b.200(a)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(c)(1).........  12 CFR 563b.330(a)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(c)(2).........  12 CFR 563b.355(a)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(c)(2)(i)-(ii).  12 CFR 563b.375(a),   Nonsubstantive
                               (d).                  revision, moved.
12 CFR 563b.3(c)(3).........  12 CFR 563b.360.....  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(c)(4).........  12 CFR 563b.335(b),   Nonsubstantive
                               (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 563b.320(d),   Nonsubstantive
                               365.                  revision, moved.
12 CFR 563b.3(c)(6).........  12 CFR 563b.320(e),   Nonsubstantive
                               335(b), (d).          revision,
                                                     deletions, and
                                                     moved.
12 CFR 563b.3(c)(6)(i)......  12 CFR 563b.385(a),   Substantive
                               (c), 380(a).          revision,
                                                     deletions, and
                                                     moved.
12 CFR 563b.3(c)(6)(ii)-      12 CFR 563b.395.....  Nonsubstantive
 (iii).                                              revision, moved.
12 CFR 563b.3(c)(6)(iv).....  12 CFR 563b.390(b)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(c)(7).........  12 CFR 563b.385(a),   Nonsubstantive
                               (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 563b.330(a),   Nonsubstantive
                               335(b).               revision, moved.
12 CFR 563b.3(c)(11)........  12 CFR 563b.420(a)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(c)(12)........  12 CFR 563b.445(a)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(c)(13)........  12 CFR 563b.430(d),   Nonsubstantive
                               445(b), 465, 485.     revision, moved.
12 CFR 563b.3(c)(14)........  12 CFR 563b.25......  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(c)(15)........  12 CFR 563b.440,      Nonsubstantive
                               445(c).               revision, moved.
12 CFR 563b.3(c)(16)........  12 CFR 563b.140, 425  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(c)(17)........  12 CFR 563b.505(a)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(c)(18)........  12 CFR 563b.505(b)-   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 563b.445(b),   Nonsubstantive
                               450, 455, 480.        revision, moved.
12 CFR 563b.3(f)(2).........  12 CFR 563b.445(b),   Nonsubstantive
                               450.                  revision, moved.
D12 CFR 563b.3(f)(3)........  12 CFR 563b.470(e),   Revision with
                               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, 515  Substantive revision
                                                     with deletion,
                                                     moved.
12 CFR 563b.3(g)(4).........  12 CFR 563b.500.....  Substantive
                                                     revision, moved.
12 CFR 563b.3(h)............  12 CFR 563b.340(a)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.3(i)(1)-(2).....  12 CFR                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 563b.430(a),   Nonsubstantive
                               (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)-     ....................  Deleted.
 (iv).
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 563b.135(a),   Nonsubstantive
 (4)(i)-(xviii).               (b).                  revision, moved.
12 CFR 563b.4(a)(4)(xix)....  ....................  Deleted.
12 CFR 563b.4(a)(5).........  12 CFR 563b.135(c)..  Nonsubstantive
                                                     revision, moved.

[[Page 52017]]

 
12 CFR 563b.4(b)(1)(i)......  12 CFR 563b.180.....  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.4(b)(1)(ii).....  12 CFR 563b.185.....  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.4(b)(2).........  ....................  Deleted.
12 CFR 563b.4(b)(3).........  12 CFR 563b.180(b)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.4(c)............  12 CFR 563b.160.....  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.5(a)............  12 CFR 563b.250.....  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.5(b)-(c)........  12 CFR 563b.270(b)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.5(d)(1).........  12 CFR 563b.255.....  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.5(d)(2).........  12 CFR 563b.260, 265  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.5(d)(3).........  12 CFR 563b.255(h)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.5(d)(4).........  12 CFR 563b.260.....  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.5(e)(1)-(2).....  12 CFR 563b.150, 155  Nonsubstantive
                                                     revision,
                                                     deletions, and
                                                     moved.
12 CFR 563b.5(e)(3).........  12 CFR 563b.275(d)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.5(e)(4).........  ....................  Deleted.
12 CFR 563b.5(e)(5).........  12 CFR 563b.150,      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 563b.300(e),   Nonsubstantive
                               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 563b.335(a),   Nonsubstantial
                               Form OF, Items (1),   revisions,
                               (2).                  deletions, and
                                                     moved.
12 CFR 563b.7(g)(3), (4),     Form OF, Items (3),   Nonsubstantive
 (5).                          (4), (5).             revision, moved.
12 CFR 563b.7(h)............  12 CFR 563b.345(a),   Nonsubstantive
                               350(c).               revision, moved.
12 CFR 563b.7(i)............  12 CFR 563b.400.....  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.7(j)............  12 CFR 563b.350(a)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.7(k)(1)-(2).....  12 CFR 563b.405.....  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.7(k)(2)(i)-(ii).  12 CFR 563b.310(d)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.7(k)(3).........  ....................  Deleted.
12 CFR 563b.7(k)(4).........  12 CFR 563b.310(a)..  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.7(k)(5).........  12 CFR 563b.310(b)-   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)-   12 CFR 563b.240.....  Nonsubstantive
 (ii).                                               revision, moved.
12 CFR 563b.8(c)(2)(iii)....  12 CFR 563b.260.....  Substantive
                                                     revision, moved.
12 CFR 563b.8(c)(3).........  12 CFR 563b.300(a),   Substantial
                               (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 563b.115(a),   Nonsubstantial
                               155, 180(b), Form     revisions,
                               AC, General           deletions, and
                               Instruction B.        moved.
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.
12 CFR 563b.8(t)(2).........  ....................  Deleted.

[[Page 52018]]

 
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, 610  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.22..............  ....................  Deleted.
12 CFR 563b.23(a)-(c).......  12 CFR 563b.670, 675  Nonsubstantive
                                                     revision,
                                                     additions, and
                                                     moved.
12 CFR 563b.23(d)...........  12 CFR 563b.690.....  Nonsubstantive
                                                     revision, moved.
12 CFR 563b.24(a)-(b)(1),     12 CFR                Nonsubstantive
 (3).                          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, 20,   New provisions.
                               105, 110, 115, 165.
                              12 CFR 563b.295.....  New provision.
                              12 CFR 563b.550-575.  New provisions.
                              Form OF--1683.......  New form.
------------------------------------------------------------------------

VI. Use of ``Plain Language''

    Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the use 
of ``plain language'' in all proposed and final rules published after 
January 1, 2001. OTS invited comment on whether the proposed rule was 
written in ``plain language'' and how to make the proposed rule easier 
to understand. No commenter indicated that the First Proposal or the 
Re-proposal needed to be revised to be understood. The final rule is 
substantially similar to the First Proposal and the Re-proposal and OTS 
believes the final rule is written plainly and clearly.

VII. Executive Order 12866

    The Director of OTS determined that this final rule is not 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 a final regulatory flexibility analysis with 
this final rule or certify that the rule would not have a significant 
impact on a substantial number of small entities.\16\ In its proposed 
rules, OTS requested comments on whether the rule would have a 
significant impact on a substantial number of small entities. No 
commenters addressed this issue. Therefore, OTS has prepared the 
following analysis.\17\
---------------------------------------------------------------------------

    \16\ 5 U.S.C. 605(b).
    \17\ 5 U.S.C. 604(a).
---------------------------------------------------------------------------

    A description of the reasons why OTS is taking this action, and a 
statement of the objectives of, and legal basis for, the final rule are 
in the supplementary material above.

1. Small Entities to Which the Final Rule Would Apply

    The final rule applies to mutual savings associations that propose 
to

[[Page 52019]]

convert to the stock form of ownership. Under OTS jurisdiction, there 
are currently approximately 390 mutual savings associations, 34 
publicly traded MHCs, 2 non-publicly traded MHCs, and 27 MHCs with no 
stock issued. Of these institutions, approximately 230 have less than 
$100 million in assets. Small depository institutions are generally 
defined, for RFA purposes, as those with assets under $100 million.\18\ 
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 final rule 
affects fewer than 15 savings associations annually.
---------------------------------------------------------------------------

    \18\ 13 CFR 121.201 Section 52, Subsection 522 (2002).
---------------------------------------------------------------------------

2. Requirements of the Final Rule

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

3. Significant Alternatives

    Section 604(a) of the RFA requires OTS to describe how the agency 
attempted to minimize the rule's impact on small entities and why it 
chose the alternative adopted in the final rule over other 
alternatives. Section 603(c) lists several examples of potential 
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 final rule could apply meet the RFA standard 
for ``small depository institutions.'' In fact, the conversion process 
is aimed largely at small institutions that want to raise capital in 
the open market by converting to the stock form of ownership. Given 
that the conversion process is designed with small institutions in 
mind, modifying the requirements for such small institutions is not 
necessary. Moreover, given that a conversion cannot be measured for 
performance until it takes place, the use of performance standards 
rather than design standards is impractical.
    To reduce regulatory burden consistent with the goals of this 
regulation, the final rule 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.

IX. Unfunded Mandates Reform 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 final rule will not 
result in expenditures by state, local, or tribal governments or by the 
private sector of $100 million or more in any one year. Accordingly, 
this rulemaking is not subject to sec. 202 of the Unfunded Mandates 
Act.

X. Paperwork Reduction Act

    The information collection requirements contained in the final 
rule, 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 on August 31, 2000 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.

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.

[[Page 52020]]

12 CFR Part 575

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


    Accordingly, the Office of Thrift Supervision amends 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 review 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?
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 Conversions

563b.600   What does this subpart do?
563b.605   How may I conduct a voluntary supervisory conversion?

[[Page 52021]]

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.


Sec. 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.
    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 in part 574 of this chapter.
    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.

[[Page 52022]]

    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 sec. 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) Your board, or a subcommittee of your board, must meet with OTS 
before you pass your plan of conversion. The meeting may occur at OTS 
or your offices at your option. 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), what opportunities are available to reasonably 
achieve your planned deployment of conversion proceeds in your proposed 
market areas, and how your deployment will provide a reasonable return 
on investment commensurate with investment risk, investor expectations, 
and industry norms, by the final year of the business plan. You must 
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) The risks associated with your plan for deployment of 
conversion proceeds, and the effect of this plan on management 
resources, staffing, and facilities.
    (4) 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.
    (b) You may not project returns of capital or special dividends in 
any part of the business plan. A newly converted company may not plan 
on stock repurchases in the first year of the business plan.


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 of 
directors must approve, the business plan.
    (b) Your chief executive officer and at least two-thirds of the 
board of directors 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 review my business plan?

    (a) OTS will review your business plan to determine that it 
demonstrates a safe and sound 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 applicable 
factors of Sec. 563b.105. No single factor will be determinative. OTS 
will review every case on its merits.
    (b) You must file your business plan with the Regional Office. OTS 
may

[[Page 52023]]

request additional information, if necessary, to support its 
determination under paragraph (a) of this section. You must 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.485 and 563b.505. 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.485 and 563b.505 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 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.

[[Page 52024]]

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.

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.

[[Page 52025]]

    (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 meeting of your members, which may be a special or 
annual 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?

    (a) Promptly after the members' meeting, you must file all of the 
following information with OTS:
    (1) A certified copy of each adopted resolution on the conversion.
    (2) The total votes eligible to be cast.
    (3) The total votes represented in person or by proxy.
    (4) The total votes cast in favor of and against each matter.
    (5) The percentage of votes necessary to approve each matter.
    (6) An opinion of counsel that you conducted the members' meeting 
in compliance with all applicable state or federal laws and 
regulations.
    (b) 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 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, pursuant to Sec. 563b.280, 
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 of directors adopts the plan of conversion. Any 
newspaper advertisements 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 that 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

[[Page 52026]]

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 the 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;
    (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

[[Page 52027]]

Sec. 516.40 of this chapter) and OTS's website (http://www.ots.treas.gov).
    (b) You must condition your stock offering upon member 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
    (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 allowable 
under 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.

[[Page 52028]]

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

    (b) The purchase limitations in this 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 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 is not able 
to or 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.

[[Page 52029]]

    (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) In your plan of conversion, you must set a date by which the 
conversion must be completed. This date must not be more than 24 months 
from the date that your members approve the plan of conversion. The 
date, once set, may not be extended by you or by OTS. You must 
terminate the conversion if it is not completed by that 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).
    (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).
    (d) Your new or amended charter must require you to establish and 
maintain a liquidation account for 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.

[[Page 52030]]

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 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

[[Page 52031]]

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 of this chapter.
    (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 amended 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 written 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;
    (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

[[Page 52032]]

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, other than ordinary dividends, 
to purchasers during the term of the business plan submitted with the 
conversion.


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 your minority 
shareholders separately approve the charitable contribution by a 
majority of their total eligible votes.


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 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 (or trust agreement) and gift 
instrument 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, it must 
vote those shares 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

[[Page 52033]]

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 (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) As long as the charitable organization controls shares, you 
must consider those shares as voted in the same ratio as all of the 
shares voted on each proposal considered by your shareholders.
    (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 (within six months after your stock 
offering), 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 secs. 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-or 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
    (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.

[[Page 52034]]

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, when 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 at OTS's website 
(www.ots.treas.gov).
    (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 parts 563b and 563g of this chapter.
    (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 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

[[Page 52035]]

before and after the conversion. OTS may impose these conditions and 
restrictions on you (before and after the conversion), your acquiror, 
controlling parties, or 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 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 ``Sec. 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'';
    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 
part 563b of this chapter.
    (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:

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

    (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

[[Page 52036]]

than the association's mutual holding company parent at the close of 
the proposed issuance:

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

    (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.295 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: July 26, 2002.

    By the Office of Thrift Supervision.
James E. Gilleran,
Director.

    Note: The following appendixes will not appear in the Code of 
Federal Regulations.

Appendix A

Office of Thrift Supervision

Form AC--Application for Conversion

Paperwork Reduction Act Statement

    The Office of Thrift Supervision will use this information to 
provide OTS with all necessary information to evaluate the 
application for conversion to meet all agency safety and soundness 
requirements. See 12 CFR part 563b.
    Public reporting burden for this collection of information is 
estimated to average 299 hours if not creating a foundation and 309 
hours if creating a foundation, per response, including the time for 
reviewing instructions and completing and reviewing the collection 
of information. If a valid OMB Control Number does not appear on 
this form, you are not required to complete this form. 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 Chief Counsel's Office, Office of 
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. Send a 
copy of comments to Joseph F. Lackey, Jr., Attention: 1550-0014, by 
e-mail to [email protected] or by mail to him at 
Office of Information and Regulatory Affairs, Office of Management 
and Budget, New Executive Office Building, Washington, DC 20503.

OMB No. 1550-0014
Expiration Date: 08/31/2003

Form AC--Application for Conversion

[Not to be codified in the Code of Federal Regulations]

Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 
20552


Application for Conversion

----------------------------------------------------------------------
(Name of Applicant as specified in charter)                  (Docket 
No.)

----------------------------------------------------------------------
(Street Address of Applicant)

----------------------------------------------------------------------
(City, State, and Zip Code)

Index to Items

Item 1. Form of Application
Item 2. Plan of Conversion
Item 3. Proxy Statement and Offering Circular
Item 4. Form of Proxy
Item 5. Additional Information Required for Conversion with a 
Charitable Contribution

[[Page 52037]]

Item 6. Sequence and Timing of the Plan
Item 7. Record Dates
Item 8. Expenses Incident to the Conversion
Item 9. Indemnification
Item 10. Federally Chartered Stock Savings Associations
Exhibits

General Instructions

A. Use of Form AC

    You must use Form AC to seek OTS approval of a conversion from 
the mutual to the stock form of organization under 12 CFR part 563b. 
You must indicate on the cover if you are filing using Regulation S-
B.

B. Application of Rules and Regulations

    You should follow the general requirements in this section when 
you prepare and file this Form AC and all other forms required under 
12 CFR part 563b.
    (1) Method of preparation. In your applications, you must 
furnish information in item-and-answer form, and must include the 
captions on the form. You may omit the text of items and 
instructions. In a proxy statement or offering circular, you may 
present the required information in any order and omit the captions 
and text of all items and instruction. You must not present the 
information in a way that obscures any of the required information 
or other information necessary to keep the required information from 
being incomplete or misleading. Where an item requires you to 
provide information in tabular form, you must provide the 
information substantially in the tabular form specified in the item.
    You must set out all information in the plan of conversion, 
proxy statement, or offering circular under appropriate headings 
that reasonably indicate the principal subject matter. Except for 
financial statements and other tabular data, you must present all 
information in reasonably short paragraphs or sections. You must set 
out financial statements, including interim financial statements, in 
comparative form, and must include all notes and the accountants' 
certificate or certificates. You must follow 12 CFR 563c.1, which 
governs the certification, form, and content of financial 
statements, including the basis of consolidation.
    In a proxy statement or offering circular, you must present all 
information in a clearly understandable format. The reader should 
not have to refer to the OTS form or 12 CFR part 563b to understand 
the document. You must include a reasonably detailed table of 
contents in each proxy statement and offering circular.
    In every application, you must include a cross-reference sheet 
showing where the responses to each item of the appropriate form are 
located in the proxy statement and offering circular. In the cross-
reference sheet, you must state where any item is inapplicable, or 
where you omitted an answer because it was no.
    (2) Additional information. In addition to the information 
required under 12 CFR part 563b, you must include any material 
information necessary to make the required statements, in the light 
of the circumstances under which you have made them, not misleading.
    (3) Information unknown or not reasonably available. You must 
provide information to the extent you know the information or it is 
reasonably available to you. You may omit any required information 
that you do not know or is not reasonably available to you. You must 
explain why such information is not known or reasonably available to 
you. Information is not reasonably available if obtaining it would 
involve an unreasonable effort or expense, or if it rests peculiarly 
within the knowledge of another person who is not your affiliate. 
You must provide all information on the subject that you possess or 
can acquire without unreasonable effort or expense, together with 
the sources of the information.
    (4) Incorporation by reference. If an item in an application 
calls for certain information and the proxy statement or offering 
circular does not require you to include it, you may incorporate the 
information by reference from any part of the application, including 
exhibits, in the answer, or partial answer, to the item. In a proxy 
statement or offering circular, you may not incorporate information 
by reference unless you attach, summarize, or outline the document 
containing the information. To summarize or outline a document, you 
must make a brief statement of the most important provisions of the 
document. In addition, you may incorporate by reference particular 
items, sections, or paragraphs of any exhibit, and your summary or 
outline may be qualified in its entirety by the reference. In an 
offering circular, you may incorporate by reference information from 
a proxy statement that you have delivered. You do not need to 
summarize or outline the information. If you incorporate material by 
reference you must clearly identify the material in the reference. 
You must expressly state that the specified matter is incorporated 
by reference at the particular place in the application where the 
information is required. You may not incorporate information by 
reference if the incorporation would render the statement 
incomplete, unclear, or confusing.
    (5) Signatures Required. The following individuals must manually 
sign at least two copies of every application and every amendment to 
an application that you file with OTS:
    (a) Your duly authorized representative.
    (b) Your principal executive officer.
    (c) Your principal financial officer.
    (d) Your principal accounting officer.
    (e) At least two-thirds of your directors.
    (6) Consents of persons about to become directors. If you 
indicate in a proxy statement or offering circular that a person is 
about to become a director, and that person has not signed your 
application, you must file that person's written consent to the 
application with the appropriate form.
    (7) Consents of experts. If you indicate that an accountant, 
attorney, investment banker, appraiser, or other professional 
prepared, reviewed, passed upon, or certified any part of an 
application, or any report or valuation used in connection with the 
application, you must file the written consent of that person to use 
their name in connection with the stated action with the 
application. If you quote or summarize any portion of a report of an 
expert in any filing under 12 CFR part 563b, you must file a written 
consent of the expert that expressly states that the expert consents 
to the quotation or summarization. All written consents must be 
dated and signed manually by the expert. You must file a list of 
consents with the application. If the expert's report contains his 
or her consent, you must refer to the report containing the consent 
in your list. You must file a new consent for any accounting 
amendment.
    (8) Date of filing. Your documents are filed as of the date the 
last OTS office where they are filed receives them, and you paid any 
applicable fee.
    (9) Amendments. You must file all amendments to any application 
with an appropriate facing sheet. You must number your amendments 
consecutively in the order in which you file them. You must comply 
with all regulations applicable to the original application.

Item 1. Form of Application

    You must include the following form in your application for 
approval of the plan of conversion. You must set out the names and 
titles of the officers and directors below their signatures:
    The undersigned applies for approval to convert into a stock 
association. We have attached a statement of the proposed plan of 
conversion and other information and exhibits as required by 12 CFR 
part 563b.
    In submitting this application, we understand and agree that, if 
OTS requires further examinations or appraisals, OTS will conduct or 
approve the examination or appraisal at our expense. We will pay the 
costs as computed by OTS.
    At least two-thirds of the board of directors approved the 
application. By filing this application, the undersigned officers 
and directors severally represent that: (1) Each person read this 
application; and (2) Each person adequately examined and 
investigated this application and concluded that this application 
complies with 12 CFR part 563b.

Attest:
----------------------------------------------------------------------
(Duly Authorized Representative)                     (Principal 
Executive Officer)

----------------------------------------------------------------------
(Principal Financial Officer)                    (Principal 
Accounting Officer)

----------------------------------------------------------------------
(Director)                    (Director)


[[Page 52038]]


----------------------------------------------------------------------
(Director)                    (Director)

(Signatures of at least two-thirds of the Board of Directors)

Item 2. Plan of Conversion

    You must furnish the complete written plan that your board of 
directors adopted for the conversion to the stock form. You must 
prepare the plan of conversion in accordance with 12 CFR 563b.320 
through 563b.485 and 563b.505. OTS will base its approval on the 
terms of this plan. You must distribute the approved plan as an 
attachment to the proxy statement.

Item 3. Proxy Statement and Offering Circular

    You must furnish preliminary copies of the proxy statement and 
offering circular. You must prepare the proxy statement and offering 
circular in accordance with Forms PS and OC, respectively.

Item 4. Form of Proxy

    You must furnish preliminary copies of the form of proxy that 
your management will distribute to your members.

Item 5. Additional Information Required for Conversion With a 
Charitable Contribution

    If your conversion application includes a charitable 
contribution, you must include the following information in your 
application:
    (a) Your reasons for concluding that the proposed contribution 
is reasonable.
    (b) The impact of the proposed contribution on the appraised 
valuation.
    (c) A description of the charitable organization.
    (d) The exhibits required under Exhibit 9.

Item 6. Sequence and Timing of the Plan

    You must describe the expected chronological order of the events 
for your conversion. Begin with the filing of this application and 
end with the sale of all the stock under the plan. Estimate the 
timing of any requisite approvals by state or other regulators other 
than OTS. Indicate the proposed timing of all aspects of the 
subscription offering. If a selling agent will assist in the 
community offering, or if an underwriter will offer shares in the 
public offering, indicate the proposed timing of all aspects of the 
community offering and public offering.

Item 7. Record Dates

    If the eligibility record date in your plan of conversion is 
more than one year before your board of directors adopted the plan 
of conversion, you must state why you selected the earlier date.
    You must indicate what circumstances may require you to use a 
supplemental eligibility record date.

Item 8. Expenses Incident to the Conversion

    You must estimate the expense of your conversion in the tabular 
form indicated below:


 
 
 
Legal......................................................    $________
Postage and Mailing........................................     ________
Printing...................................................     ________
Escrow or Agent Fees.......................................     ________
Underwriting Fees..........................................     ________
Appraisal Fees.............................................     ________
Transfer Agent Fees........................................     ________
Auditing and Accounting....................................     ________
Proxy Solicitation Fees....................................     ________
Advertising................................................     ________
Other Expenses.............................................     ________
  Total....................................................     ________
 


    Instructions:
    1. Expenses that you incur in the conversion must be reasonable.
    2. You may exclude salaries and wages of regular employees and 
officers, if you state that you excluded these items. You must state 
solicitation costs by specially engaged employees or paid solicitors 
under paragraph (b) of item 3 of Form PS under ``Proxy Solicitation 
Fees'' in this item.
    3. You may not include any category of expense exceeding $10,000 
in ``Other Expenses.'' If an expense exceeds $10,000 and is not 
specified above, you must itemize the expense under an appropriate 
category.
    4. If your management does not conduct the solicitation, you 
must provide the information under ``Proxy Solicitation Fees'' for 
the cost of the solicitation.

Item 9. Indemnification

    If you will insure or indemnify any underwriter, appraiser, 
lawyer, accountant or expert, or director or officer against any 
liability which he or she may incur in his or her capacity under any 
charter provisions, bylaw, contract, arrangement, statute, or 
regulation, you must state the general effect of the charter 
provision, bylaw, contract, arrangement, or regulation.

Item 10. Federally Chartered Stock Savings Associations

    You must state whether you are applying to amend your charter 
and bylaws to comply with 12 CFR part 552.

Exhibits

    You must attach the following exhibits to this Form.

Exhibit 1. Resolution of Board of Directors

    You must include a certified copy or copies of your board of 
directors' resolution or resolutions: (1) Adopting the plan of 
conversion; and (2) authorizing this application. Two-thirds of your 
board of directors must approve the plan of conversion and authorize 
this application.

Exhibit 2. Copies of Documents, Contracts, and Agreements

    You must furnish the following documents, contracts, and 
agreements.
    (a) Proposed certificates for shares.
    (b) Proposed order forms with respect to the subscription 
rights.
    (c) Proposed charter (including a liquidation account provision) 
and bylaws.
    (d) Any proposed stock option plan, form of stock option 
agreement, and management or employee stock benefit plan.
    (e) Any proposed management employment contracts.
    (f) Any contract described in response to item 6 of Form PS.
    (g) Contracts or agreements with paid solicitors described in 
response to item 3(b) of Form PS.
    (h) Any material loan agreements relating to your borrowing 
other than from a Federal Home Loan Bank and other than subordinated 
debt securities approved by OTS.
    (i) Any appraisal agreement or proposed agreement, underwriting 
contract, agreement among underwriters, or selling agent agreement.
    (j) Any required undertaking or affidavits by officers or 
directors purchasing shares in the conversion stating that they are 
acting independently.
    (k) Any documents referred to in the answer to item 9 of Form 
AC.
    (l) Any trustee agreements or indentures.
    (m) Any agreements for the making of markets or the listing on 
exchanges of your conversion stock.
    (n) Proposed marketing materials.
    If you furnish any document, contract, or agreement in draft 
form under this exhibit, you must furnish the final form immediately 
after the meeting of your members to consider the plan of 
conversion. You may provide documents required by subsection (i) 
above, that by their nature cannot be practically expected until a 
later time, in substantially final form.

Exhibit 3. Opinion of Counsel

    You must furnish an opinion of counsel discussing each of the 
following matters:
    (a) The legal sufficiency of your proposed certificates and 
order forms for any shares.
    (b) State law requirements that apply to the plan of conversion. 
The opinion must cite to applicable state law and address whether 
the plan will fulfill the requirements.
    (c) The legal sufficiency of your bylaws.
    (d) The type and extent of each class of voting rights after 
conversion. The opinion must discuss any state law that requires you 
to provide savings account holders or borrowers with voting rights.
    (e) A certification or statement that the proposed charter and 
bylaws conform to 12 CFR part 552 of this chapter.
    (d) The legal sufficiency of your marketing materials.
    You must discuss the matters listed in subdivisions (b), (c) and 
(d) of this Exhibit only if you are converting to a state-chartered 
stock association.

Exhibit 4. Federal and State Tax Opinions or Ruling

    (a) You must furnish an opinion of your tax advisor or an 
Internal Revenue Service ruling

[[Page 52039]]

on the federal income tax consequences of the plan of conversion. 
The opinion or ruling must address the tax consequences to you and 
to the various account holders who receive nontransferable 
subscription rights to purchase shares.
    Instruction. OTS may require you to obtain a ruling from the 
Internal Revenue Service if the IRS has not issued a favorable 
ruling on plans of conversion that are substantially similar to your 
plan. OTS also may require you to obtain a ruling if your plan of 
conversion contains novel provisions or raises questions with 
federal income tax consequences.
    (b) You must furnish an opinion of your tax advisor or, if 
applicable, a ruling from the appropriate state taxing authority on 
any tax consequences of the plan of conversion under the laws of the 
state where you will be located. The opinion must address the tax 
consequences to you and to your eligible account holders.

Exhibit 5. Valuation Materials

    You must furnish the materials required under 12 CFR 563b.200(b) 
regarding the valuation of your shares. You are not required to file 
the materials if you will not begin to offer shares before your 
members' meeting to vote on the plan of conversion.

Exhibit 6. Notice to Members

    You must furnish evidence that you have notified your members as 
required by 12 CFR 563b.135 and 563b.180.

Exhibit 7. Other Materials

    (a) If you do not provide information required by an appropriate 
form because you do not know the information or the information is 
not reasonably available, you must:
    (1) Show that you will incur unreasonable effort or expense to 
obtain the information; or
    (2) Indicate that you have no affiliation with the person who 
has the information, state that you have requested the person to 
provide the information, and indicate the result of that request.
    (b) You must furnish all required consents.
    (c) If anyone has signed an application or any amendment to an 
application using a power of attorney, you must furnish four copies 
of the power of attorney. Two copies must be manually signed.
    (d) You must furnish the cross-reference sheet.
    (e) If you request a waiver under 12 CFR 563b.5(c), you must 
furnish the materials required by that section.

Exhibit 8. Business Plans

    (a) You must furnish a consolidated business plan as required by 
12 CFR 563b.105. You must detail how you will use the capital that 
you acquire in the conversion. You should not project stock returns 
of capital or payment of extraordinary dividends in your business 
plan. OTS views a return of capital to shareholders as a material 
deviation from the business plan that requires the prior written 
approval of the Regional Director.
    (b) You must follow 12 CFR 563b.160 if you wish OTS to deem any 
portion of your business plan confidential.

Exhibit 9. Conversion Application That Includes a Charitable 
Organization

    If your conversion includes a contribution to a charitable 
organization, you must provide:
    (a) The current and proposed charter and bylaws (or trust 
agreement) for the charitable organization.
    (b) The proposed gift instrument.
    (c) Within six months of completing your conversion, a three-
year operating plan for the charitable organization, including the 
following:
    (1) Pro-forma financial statements, including a balance sheet 
and income statement.
    (2) Plans and expenses for any office space, employees, office 
equipment, supplies, and other items.
    (3) A description and the estimated annual value of any 
contributed office space, personnel, furniture, equipment, and 
supplies and the name of the organization that will make the 
contribution.
    (4) Any director, officer, and employee requirements and job 
descriptions.
    (5) The terms of employment and any expected compensation for 
the directors (or trustees), officers, and employees.
    (6) The charitable causes that the charitable organization will 
support, including their location and a description of how the 
activities will aid the local community.
    (7) Plans, policies, and procedures for soliciting and accepting 
grant applications.
    (8) Decision standards for grant approval.
    (9) The anticipated number and dollar amount of grants the 
charitable organization will make each year for the three years 
after it is established.
    (10) Projected sources of revenues, including whether the 
operations and grant activities will be funded by dividends, stock 
sales, or additional contributions.
    (11) An explanation of how the charitable organization will 
select directors (or trustees) and how much experience the directors 
(or trustees) will have with local community charitable 
organizations and grant making.
    (d) A conflicts of interest policy for the charitable 
organization that prohibits grants to your officers, directors, and 
employees, your affiliates' officers, directors, and employees, and 
members of their immediate families.
    (e) A tax opinion from an independent accountant or independent 
tax counsel discussing whether the proposed contribution and any 
other contributions during the same year are deductible under 
federal and state law. The tax opinion must address deductibility 
for the year that you will make the contribution and for a five-year 
carry forward period.

OTS Form 1680
August 2002

Appendix B

Office of Thrift Supervision

Form PS--Proxy Statement

Paperwork Reduction Act Statement

    The Office of Thrift Supervision will use this information to 
provide mutual members with information necessary for voting on the 
transaction. See 12 CFR part 563b.
    Public reporting burden for this collection of information is 
estimated to average 50 hours, per response, including the time for 
reviewing instructions and completing and reviewing the collection 
of information. If a valid OMB Control Number does not appear on 
this form, you are not required to complete this form. 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 Chief Counsel's Office, Office of 
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. Send a 
copy of comments to Joseph F. Lackey, Jr., Attention: 1550-0014, by 
e-mail to [email protected] or by mail to him at 
Office of Information and Regulatory Affairs, Office of Management 
and Budget, New Executive Office Building, Washington, DC 20503.

OMB No. 1550-0014
Expiration Date: 08/31/2003

Form PS--Proxy Statement

[Not to be codified in the Code of Federal Regulations]
Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 
20552

Proxy Statement

----------------------------------------------------------------------
(Name of Applicant as specified in charter)                    
(Docket No.)

----------------------------------------------------------------------
(Street Address of Applicant)

----------------------------------------------------------------------
(City, State, and Zip Code)

Index to Items

Item 1. Notice of meeting
Item 2. Revocability of proxy
Item 3. Persons making the solicitation
Item 4. Voting rights and vote required for approval

[[Page 52040]]

Item 5. Directors and executive officers
Item 6. Management compensation
Item 7. Business
Item 8. Description of the plan of conversion
Item 9. Description of stock
Item 10. Capitalization
Item 11. Use of new capital
Item 12. New charter, bylaws, or other documents
Item 13. Other matters
Item 14. Financial statements
Item 15. Consents of experts and reports
Item 16. Attachments

General Information

    If OTS requests information on your directors, officers, or 
other persons holding specified positions or relationships during a 
specified period, you must give the information for every person who 
held the positions or relationships any time during the period. You 
do not have to include information for any portion of the period 
when a person did not hold any position or relationship. You must 
state, however, that you did not include this information.

Item 1. Notice of Meeting

    You must include the following information on the cover page of 
your proxy statement:
    (a) Notice of the members' meeting to vote on the conversion;
    (b) The meeting date, time, and place;
    (c) A brief description of each matter that will be voted at the 
meeting;
    (d) The date of record for determining which members are 
entitled to vote at the meeting;
    (e) The date of the proxy statement; and
    (f) Your mailing address, zip code, and telephone number.

Item 2. Revocability of Proxy

    (a) You must state that a member may revoke his or her proxy 
before it is exercised.
    (b) You must briefly describe the procedures a member must 
follow to revoke his or her proxy.
    (c) You must describe any charter provision, bylaw, or federal 
or state law that limits voting by proxy.
    (d) You must state that the proxy is solicited for the meeting 
and any adjournment of the meeting, and that you will not vote the 
proxy at any other meeting.

Item 3. Persons Making the Solicitation

    (a) You must state whether your management is soliciting the 
proxy. If any director informs you in writing that he or she intends 
to oppose any action, you must name the director and indicate the 
action he or she intends to oppose.
    (b) You must describe the method that you will use to solicit 
proxies, unless you solicit by mail. If specially engaged employees 
or paid solicitors will solicit proxies, you must state the material 
features of any contract or arrangement and must identify the 
parties.
    (c) If your management is not soliciting the proxies, you must 
name the persons on whose behalf the solicitation is made. You do 
not have to respond to items 5 through 16 for such solicitations, 
but must comply with 12 CFR 563b.285 on false and misleading 
statements and other prohibited matters.

Item 4. Voting Rights and Vote Required for Approval

    (a) You must describe briefly:
    (1) The voting rights of each class of your members;
    (2) The approximate total number of votes entitled to be cast at 
the meeting;
    (3) The approximate number of votes to which each class is 
entitled; and
    (4) The voting rights of beneficiaries of accounts held in a 
fiduciary capacity, such as IRA accounts.
    (b) You must give the record date for members entitled to vote 
at the meeting.
    (c) You must state the vote required for approval of each matter 
that you will submit to a vote of members.
    (d) You may not use previously executed proxies to vote on the 
conversion.

Item 5. Directors and Executive Officers

    (a) You must furnish the information on directors and executive 
officers and certain relationships and related transactions required 
in items 401 and 404 of Regulation S-K, 17 CFR 229.401 and 229.404, 
and item 6 of Regulation 14A, 17 CFR 240.14a-101. Unless the context 
otherwise requires, the words ``registrant'' and ``issuer'' in those 
regulations refer to you and the word ``Commission'' refers to OTS.
    (b) If your conversion application includes a charitable 
contribution, you must disclose:
    (1) The proposed number of directors (or trustees) and officers 
of the charitable organization.
    (2) The name and background of each person proposed as a 
director (or trustee) or officer of the charitable organization.
    (3) The position, if any, that each proposed director (or 
trustee) and officer holds with you.
    (c) You must state whether anyone will exercise control through 
the use of proxies and describe the nature of the control.

Item 6. Management Compensation

    You must furnish the information on executive compensation 
required in item 402 of Regulation S-K, 17 CFR 229.402, and item 7 
of Regulation 14A, 17 CFR 240.14a-101. Unless the context otherwise 
requires, the words ``registrant'' and ``issuer'' in those 
regulations refer to you and the word ``Commission'' refers to OTS.

Item 7. Business

    (a) Narrative description of business. (1) You must discuss 
briefly your organizational history, including the year of 
organization, the identity of the chartering authority, and any 
material charter conversions.
    (2) You must describe the business that you and your 
subsidiaries conduct and intend to conduct. You must describe how 
your business and any predecessor(s) business developed over the 
past five years. If you have been engaged in business less than five 
years, you must provide information from when you began operations. 
You must disclose this information for earlier periods if the 
information is material to understand how your business developed. 
You must discuss material changes in the way you conduct business.
    Instruction. If you are filing under Regulation S-B, you must 
include audited comparative balance sheets for the two most recent 
fiscal years.
    (3) You must describe your historical lending practices, 
including the average remaining term to maturity of your portfolio 
of mortgage loans. You must state your plans for lending. You must 
address whether you will offer real estate or other types of loans, 
the nature of security you will receive, the terms of loans you will 
offer, whether the loans will carry fixed or variable interest 
rates, and whether you will retain the loans or resell them in 
secondary mortgage markets. You must identify the magnitude of 
various activities.
    (4) You must explain whether any material acquisitions have had 
or will have significant impact on you, and the nature of the 
impact.
    (b) Selected financial data. You must furnish a summary of your 
selected financial data. You must provide this information in 
columns that permit the comparison of data in each of the last five 
fiscal years. You must provide data for any additional fiscal years, 
if the data is necessary to keep the summary from being misleading.
    Instructions:
    1. The purpose of this summary is to supply selected data 
highlighting significant trends in your financial condition and 
results of operations in a convenient and readable format.
    2. You must include the following items in the summary total 
interest income; total interest expense; income (loss) from 
continuing operations; net income; total loans; total investments; 
total assets; total deposits; total borrowings; total retained 
earnings; total shareholders' equity; total regulatory capital; and 
total number of customer service facilities, indicating the number 
which provide full service. You may vary this data if the variance 
is appropriate to conform to the nature of your business. You may 
include additional items if you believe the items would enhance 
understanding and highlight trends in your financial condition and 
results of operations. You must briefly describe factors that 
materially affect the comparability of the financial data, such as 
accounting changes, business combinations, or dispositions of 
business operations. You may describe such factors by a cross 
reference to other discussions in the proxy statement. You must also 
discuss any material uncertainties that may cause the data not to be 
indicative of your future financial condition or results of 
operations.
    3. If you elect to provide five-year summary information in 
accordance with the Financial Accounting Standards Board's Statement 
of Financial Accounting Standards No. 89 (``SFAS 89'') ``Financial 
Reporting and Changing Prices,'' you may combine this information 
with the selected financial data required in this item.
    4. If you include interim-period financial statements, or you 
are required to include interim-period financial statements under 
item 14, you must update the selected financial data for the interim 
period to reflect any material change in the trends indicated. If 
updating information is necessary, you

[[Page 52041]]

must provide the information on a comparative basis, unless the 
comparison is not necessary to understand the updating information. 
You must provide a management statement of presentation for the 
required interim-period financial data reported.
    5. ``You'' in the summary and in these instructions refers to 
you and your consolidated subsidiaries.
    (c) Management's discussion and analysis of financial condition 
and results of operations. (1) You must discuss your financial 
condition, changes in financial condition, and results of 
operations. You must discuss the information in paragraphs (i), 
(ii), and (iii) of this paragraph (c) with respect to liquidity, 
capital resources, and results of operations. You must also provide 
all other information necessary to understand your financial 
condition, changes in your financial condition, and results of your 
operations. You must discuss significant business combinations. You 
may combine the discussion of liquidity and capital resources, if 
the two topics are interrelated. If a discussion of the subdivisions 
of your business is appropriate to understand your business, you 
must focus your discussion on each relevant, reportable segment or 
other subdivision of the business, and on your business as a whole.
    (i) Liquidity. You must identify any known trends or any known 
demands, commitments, events, or uncertainties that are reasonably 
likely to cause your liquidity to materially increase or decrease. 
If you identify a material deficiency, indicate what you have done 
or will do to remedy the deficiency. You must identify and 
separately describe internal and external sources of liquidity, and 
briefly discuss any material unused sources of liquid assets. You 
must comment on maturity imbalances between assets and liabilities, 
and planned activities in the secondary mortgage market.
    (ii) Committed resources. You must describe your material 
commitments for funding loans or other expenditures as of the end of 
the latest fiscal period. You must indicate the general purpose of 
the commitments and the anticipated source of funds to fulfill the 
commitments. You must describe known material trends, favorable or 
unfavorable, in your committed resources. You must indicate any 
expected material changes in the mix and the relative cost of the 
resources. You must discuss changes between deposits, equity, debt, 
and any off-balance-sheet financing arrangements.
    (iii) Results of operations. (A) You must describe any unusual 
or infrequent events or transactions or any significant economic 
changes that materially affected the amount of reported income from 
continuing operations. In each case, you must indicate the extent to 
which these events, transactions, or changes affected income. In 
addition, you must describe any other significant components of 
revenues or expenses necessary to understand your results of 
operations.
    (B) You must describe any known trends or uncertainties that 
have had, or will have, a materially favorable or unfavorable impact 
on net sales or revenues or income from your continuing operations. 
If you know of events which will cause a material change in the 
relationship between costs and revenues, you must disclose the 
change in the relationship.
    (C) If your financial statements disclose material increases in 
interest expense, you must discuss the extent to which the increases 
are attributable to increases in rates or to increases in volume.
    (D) For your three most recent fiscal years, or for those fiscal 
years in which you have been engaged in business, whichever period 
is shorter, you must discuss the impact of inflation and changing 
prices on your revenues and on income from continuing operations.
    (E) For the most recent financial statement, you must discuss 
any unusual risk characteristics in your assets, including real 
estate development, significant amounts of commercial real estate 
held as loan collateral, and significant increases in amounts of 
nonaccrual, past due, restructured, and potential problem loans (see 
Securities and Exchange Commission's Securities Act Industry Guide 
3, section III C).
    (iv) You must provide a qualitative and quantitative discussion 
of your market risk analysis.
    Instructions:
    1. Your discussion and analysis must address your financial 
statements and other statistical data that will enhance a reader's 
understanding of your financial condition, changes in your financial 
condition, and results of your operations. Generally, you must 
discuss the three-year period covered by the financial statements 
and use year-to-year comparisons or other formats to enhance a 
reader's understanding. However, where trend information is 
relevant, you should refer to the five-year selected financial data 
appearing in item 7(b) above.
    2. Your discussion and analysis should provide investors and 
other users with relevant information to assess your financial 
condition and results of operations, based on the user's evaluation 
of the amounts and certainty of cash flows from operations and from 
outside sources. You must only provide information that you may 
obtain without undue effort or expense, and that does not clearly 
appear in your financial statements.
    3. Your discussion and analysis must specifically focus on 
material events and uncertainties known to you which would cause 
reported financial information not to be indicative of future 
operating results or of future financial condition. You should 
describe (a) matters that would affect future operations, but have 
not affected reported operations, and (b) matters that have affected 
reported operations, but would not affect future operations.
    4. If the consolidated financial statements reveal material 
changes from year to year in one or more line items, you must state 
the causes for the changes if the causes are necessary to understand 
your business as a whole. If the causes for a change in one line 
item also relate to other line items, you do not have to repeat the 
explanation. You do not have to provide a line-by-line analysis of 
the financial statements as a whole. You do not have to recite the 
amounts of changes from year to year, if the reader may readily 
compute these changes from the financial statements. You must not 
merely repeat numerical data contained in the consolidated financial 
statements.
    5. ``Liquidity,'' as used in paragraph (c)(1)(i) of this item 7, 
refers to your ability to generate adequate amounts of cash to meet 
your cash needs. You must identify the balance sheet conditions or 
income or cash flow items that indicate your liquidity condition. 
You must discuss liquidity in the context of your own business or 
businesses. Liquidity means more than ``liquid assets,'' as defined 
in OTS liquidity regulations at 12 CFR part 566.
    6. OTS encourages you, but does not require you, to supply 
forward-looking information. You must disclose known data that will 
have an impact upon future operating results, such as known future 
increases in rates or other costs. If you provide any forward-
looking information, you may have a safe-harbor from liability for 
the projections under 12 CFR 563d.3b-6.
    7. If you disclose narrative explanations of supplementary 
information in accordance with SFAS 89, you may combine these 
explanations with your discussion and analysis required under this 
provision or you may supply the information separately. If you 
combine the information, you must place it reasonably near the 
discussion and analysis. If you do not combine the information, you 
may omit the required discussion of the impact of inflation and 
cross reference the explanations provided under SFAS 89.
    8. If you do not disclose explanations of supplementary 
information in accordance with SFAS 89, you may discuss the effects 
of inflation and changes in prices in an appropriate manner. OTS 
encourages you to voluntarily comply with SFAS 89. However, you must 
include a brief textual presentation of management's views. You do 
not have to present specific numerical financial data.
    9. ``You'' in the discussion and in these instructions means you 
and your consolidated subsidiaries.
    (2) If you include interim-period financial statements, you must 
provide management's discussion and analysis of the financial 
condition and results of operations. This discussion and analysis 
must enable the reader to assess material changes in your financial 
condition and results of operations between the periods specified in 
subdivisions (i) and (ii) of this paragraph (2). Your discussion and 
analysis must address material changes in the items specifically 
listed in paragraph (c)(1) of this item 7. However, you do not have 
to address the impact of inflation and changing prices on operations 
for interim periods.
    (i) Material changes in financial condition. You must discuss 
any material changes in financial condition from the end of the 
preceding fiscal year to the date of the most recent interim balance 
sheet that you provide. If you provide an interim balance sheet as 
of the corresponding interim date of the preceding fiscal year, you 
must discuss any material change in financial condition from that 
date to the date of the most recent interim balance sheet that you 
provide. You may combine any discussion of changes from the end, and 
the corresponding interim date, of the preceding fiscal year.

[[Page 52042]]

    (ii) Material changes in results of operations. You must discuss 
any material changes in your results of operations from the most 
recent fiscal year-to-date period for which you provide an income 
statement to the corresponding year-to-date period of the preceding 
fiscal year. If you provide an income statement for the most recent 
fiscal year quarter, you must discuss material changes with respect 
to that fiscal quarter and the corresponding fiscal quarter in the 
preceding fiscal year. In addition, if you provide an income 
statement for the 12-month period ended as of the date of the most 
recent interim balance sheet you provide, you must discuss material 
changes with respect to that 12-month period and the 12-month period 
ended as of the corresponding interim balance sheet date of the 
preceding fiscal year.
    Instructions:
    1. If you present interim financial statements and financial 
statements for full fiscal years, you must discuss the interim 
financial information under paragraph (c)(2) and the full fiscal 
year information under paragraph (c)(1) of this item 7. You may 
combine the discussions.
    2. In your discussion and analysis required by paragraph (c)(2), 
you must focus on material changes. If your interim financial 
statements reveal material change from period to period in one or 
more significant line items, you must describe the causes for the 
changes, unless you have already disclosed these causes. You do not 
have to repeat the description if the causes for a change in one 
line item relate to other line items. You do not have to recite the 
amounts of changes from period to period, if a reader may readily 
compute the amounts from the financial statements. You must not 
merely repeat numerical data from the financial statements. You must 
only provide information that you may obtain without undue effort or 
expense, and that does not clearly appear in your interim financial 
statements.
    3. In your discussion of material changes in results of 
operations, you must identify significant elements of your income or 
loss from continuing operations that do not arise from or are not 
necessarily representative of your ongoing business.
    4. You are encouraged, but not required, to supply forward-
looking information. You must disclose known data that will have an 
impact upon future operating results, such as known future increases 
in rates or other costs. If you provide any forward-looking 
information, you may have a safe-harbor from liability for the 
projections under 12 CFR 563d.3b-6.
    (d) Lending activities. (1) You must briefly describe federal 
and state restrictions on your lending activities and laws affecting 
mortgage lending or other lending. You must also briefly describe 
your general policy on loan-to-value ratios; your customary methods 
of obtaining loan originations (e.g., the use of loan consultants or 
brokers); your general policy on approval of properties as security 
for loans; your use of a loan committee, if any; and your title, 
fire, and casualty insurance requirements on security properties. 
You must indicate your future plans for secondary mortgage market 
activities, such as transactions with Freddie Mac or other secondary 
mortgage agency. You must identify significant loan service fee 
income as a percentage of net interest income for the years required 
by item 14(b).
    (2) You must describe briefly (i) the areas where you normally 
lend; and (ii) any areas where you have a material concentration of 
loans. You may include maps illustrating these areas. You must 
estimate the housing vacancy rates in areas where you have a 
concentration of loans, if practicable.
    (3) You must describe briefly your long-term investments in 
mortgage loans, and the effect of these investments on your earnings 
spread. You must provide the normal maturity of loans that you made 
on the security of single-family dwellings and estimate the average 
length of time these loans are outstanding.
    (4) For each of the periods required by item 14(b), you must 
provide the following information in tabular form. You may exclude 
fees that are not adjustments of yield.
    (i) Average yield during the period on: (A) Your loan portfolio, 
(B) your investment portfolio, (C) other interest-earning assets, 
and (D) all interest-earning assets. You must compute average yield 
at least monthly.
    (ii) Average rate paid during the period on: (A) Deposits, (B) 
borrowings and Federal Home Loan Bank advances, (C) other interest-
bearing liabilities, and (D) all interest-bearing liabilities ((A), 
(B), and (C)). You must compute average rate paid at least monthly.
    (iii) Weighted-average yield at the end of the latest required 
period, for items (i) and (ii) of paragraph (4).
    (iv) The net yield on average interest-earning assets (i.e., net 
interest earnings divided by average interest-earning assets. Net 
interest earnings is the difference between the amount of interest 
earned and interest paid). You must determine average interest-
earning assets no more frequently than monthly.
    (v) For each of the periods required by item 14(b), you must 
provide in tabular form: (A) The amount of change in interest 
income, and (B) the amount of change in interest expense. For each 
major category of interest-earning asset and interest-bearing 
liability (as stated in items (i) and (ii) of paragraph (4)), you 
must attribute the amount of change to: (1) Changes in volume 
(change in volume multiplied by old rate), (2) changes in rates 
(change in rate multiplied by old volume), and (3) changes in rate-
volume (change in rate multiplied by the change in volume). You must 
allocate the rate/volume variances consistently between rate and 
volume variance and disclose the basis of allocation in a note to 
the table.
    (5) For each of the periods required by item 14(b), you must 
present the following:
    (i) Return on assets (net income divided by average total 
assets).
    (ii) Return on equity (net income divided by average equity).
    (iii) Equity-to-assets ratio (average equity divided by average 
total assets).
    Instruction. You must supply any additional ratios if the ratios 
are necessary to explain your operations.
    (6) As of the end of the latest reported fiscal year, you must 
present separately the amounts of loans in each category required by 
balance sheet item 7(b), 12 CFR 563c.102, which are due:
    (i) In each of the three years following the balance sheet,
    (ii) After three through five years,
    (iii) After five through ten years,
    (iv) After ten through fifteen years, and
    (v) After fifteen years.
    In addition, you must present separately the total amount of all 
loans due after one year which have predetermined interest rates, 
and floating or adjustable interest rates.
    Instructions.
    1. You must report scheduled principal repayments in the 
maturity category in which the payment is due.
    2. You must report demand loans, loans having no stated schedule 
of repayments and no stated maturity, and overdrafts as due in one 
year or less.
    3. You must base your maturities on contract terms. If terms 
vary due to your ``rollover policy,'' you must revise the maturity 
and briefly discuss the rollover policy.
    (7) You must describe briefly the risk elements in your loan and 
investment portfolios, and your procedures for delinquent loans. As 
of the end of each of the periods covered by the statements of 
operation required by item 14(b)(1) and as of the date of the latest 
statement of financial condition required by item 14(a), you must 
set forth in tables the amounts and categories of nonaccrual, past 
due, restructured, and potential problem loans (see Securities and 
Exchange Commission's Securities Act Industry Guide 3, section III. 
C.) and the ratio of such loans to total assets. If the amount of 
real estate that has been in substance foreclosed, or acquired by 
foreclosure or by deed in lieu of foreclosure is significant, you 
must briefly describe the major properties. You must also estimate 
your probable losses, if any, on disposition of the properties.
    (e) Savings activities. (1) You must state that, if you 
liquidate after conversion, you will fully pay savings account 
holders before you pay shareholders. You also must indicate the 
percentage of total savings accounts that are from out-of-state 
sources, if the total is significant.
    (2) You must set forth in a table the amounts of time deposit 
accounts categorized by interest rates on the dates of each balance 
sheet that you filed. You must use interest-rate categories that are 
not more than 200 basis points wide. As of the date of the latest 
balance sheet, you must set forth, in a table for each interest-rate 
category, the amounts of savings that will mature during each of the 
three years following the balance sheet date, and the total amount 
that will mature after three years.
    Instruction. This information is not required for S-B filers.
    (3) You must disclose the weighted-average rate and general 
terms (as well as formal provisions for the extension of the 
maturity) of each category of short-term borrowings required by 
Balance Sheet Caption 14, 12 CFR 563c.102. You must also disclose 
the maximum amount of borrowings in each

[[Page 52043]]

category that are outstanding at any month-end during each period 
for which an end-of-period balance sheet is required. You must 
disclose the approximate average short-term borrowings outstanding 
during the period and the approximate weighted-average interest rate 
for such aggregate short-term borrowings. You must briefly describe 
how you computed these averages. You do not have to disclose 
borrowings in each category if the aggregate amount of the 
borrowings at the balance sheet date does not exceed one percent of 
assets at that date. However, if the weighted average of your 
borrowings outstanding during the year exceeds one percent of assets 
at year-end and significantly exceeds the amount of your borrowings 
at year-end, you must furnish this disclosure. You are not required 
to provide this information for any category of short-term 
borrowings if the average balance outstanding during the period was 
less than 30 percent of shareholders equity at the end of the 
period.
    (f) Federal regulation. You must describe briefly, to the extent 
not otherwise covered by other items, how federal agencies regulate 
you and your operations. In particular, you must describe briefly 
how the Federal Deposit Insurance Corporation (FDIC) insures your 
accounts and how FDIC and OTS regulate your operations. You must 
describe federal regulatory capital requirements, what will happen 
to you if you fail to meet those capital requirements, and whether 
your regulatory capital position complies with those requirements. 
You must also describe how the FDIC and OTS charge assessments on 
your operations. In addition, you must describe briefly the 
liquidity requirements under section 6 of the Home Owners' Loan Act 
and OTS liquidity regulations, and state law. You must state whether 
you meet those liquidity requirements.
    (g) Federal Home Loan Bank System. You must describe briefly the 
Federal Home Loan Bank (FHLB) System and state whether you are a 
member. If you are a member, you must describe the following:
    (1) Limitations on your borrowings,
    (2) Recent loan policies of your FHLB and the current interest 
rates your FHLB charges, and
    (3) FHLB share purchase requirements and the amount of FHLB 
stock you own.
    (h) State savings association law. If you are converting to a 
state-chartered stock association, you must describe state law 
provisions that materially affect your business.
    (i) Federal and state taxation. (1) You must describe briefly 
applicable federal income tax laws, including:
    (i) Permissible bad debt reserves;
    (ii) Your position with respect to the maximum bad debt reserve 
limitations as of the date of the latest statement of financial 
condition required under item 14(a);
    (iii) Future increases in your effective income tax rate;
    (iv) The date through which the Internal Revenue Service audited 
your federal income tax returns; and
    (v) How the payment of cash dividends on your capital stock 
after conversion will effect your federal income taxes.
    (2) You must briefly describe applicable state tax laws.
    (j) Competition. You must describe the material sources of 
competition for savings associations generally. You must indicate, 
to the extent practicable, your position in your principal lending 
and savings markets.
    (k) Office and other material properties. (1) You must furnish 
the location of your home office, branch offices, and other office 
facilities (such as mobile or satellite offices). You must state the 
total net book value of all offices as of the date of the latest 
statement of financial condition required by item 14(a). You must 
state the expiration date of the lease on every leased office.
    (2) You must describe briefly any undeveloped land that you own, 
including its location, net book value, prospective use, and holding 
period.
    (l) Employees. You must state the number of full-time employees, 
including executive officers listed under item 5. You must state 
whether employees are represented by a collective bargaining group, 
and whether you have satisfactory relations with your employees. You 
must summarize briefly any loan, profit sharing, retirement, 
medical, hospitalization, or other compensation plans that you 
provide to your employees, unless you have already included this 
information under item 6.
    (m) Subsidiaries. You must describe briefly your investment in 
each subsidiary, and the major lines of the subsidiary's business 
(including any joint ventures) that are material to your operations.
    (n) Legal proceedings. You must furnish the information on legal 
proceedings required by item 103 of Regulation S-K, 17 CFR 229.103. 
Unless the context otherwise requires, ``registrant'' in that 
regulation means you.
    (o) Additional information. You may request permission to omit 
any information required by this item, or to substitute appropriate 
information of comparable character. OTS may permit you to omit or 
substitute information where it is consistent with the protection of 
account holders. OTS may also require you to furnish other 
additional or substitute information if the information is necessary 
or appropriate to adequately describe past and future business.

Item 8. Description of the Plan of Conversion

    (a) You must include the following statement in the proxy 
statement. You must place this statement before the information 
required by this item 8. ``OTS has approved the plan of conversion, 
subject to member approval of the plan and certain other conditions. 
OTS approval does not mean that OTS recommends or endorses the 
plan.''
    (b) You must describe your plan of conversion. You must describe 
the information required by paragraphs (c) through (j) of this item. 
You must include any additional information necessary to accurately 
describe the material provisions of the plan.
    (c) You must briefly describe the effects of conversion from a 
mutual to a stock association, including all of the following:
    (1) That your savings account holders will continue to hold 
FDIC-insured accounts in the converted savings association, with the 
same dollar amount, rates of return, and general terms as existing 
accounts;
    (2) That your savings and borrowing members will not have voting 
rights after conversion. In the mutual holding company context, 
however, you must describe what voting rights, if any, your savings 
and borrowing members will have after reorganization;
    (3) That the account holders have liquidation rights. You must 
describe the liquidation account you will establish and maintain, 
including when you will pay the account, the interest of eligible 
account holders and supplemental eligible account holders in the 
account, and the formula that you will use to adjust the account;
    (4) That the conversion will not effect borrowers' loans, 
including the amount, rate, maturity, security, or other contractual 
terms;
    (5) That the FDIC will not insure your stock;
    (6) That you will not distribute any assets other than to pay 
conversion expenses or to make a charitable contribution; and
    (7) The reasons management recommends the conversion, including 
any advantages to the community that you serve.
    (d) You must furnish the following information regarding the 
subscription rights of members:
    (1) The formula that you will use to determine the subscription 
rights of account holders to purchase shares under 12 CFR 563b.320 
through 563b.395;
    (2) The purchase priorities, total purchase limitations, total 
number of shares that members may purchase, and the allocation 
formula in the plan of conversion;
    (3) The allocation formulas that you will use if shares are 
oversubscribed during the sale under the plan of conversion; and
    (4) The use and timing of the order forms for the exercise of 
subscription rights.
    (e)(1) You must estimate the price range per share of the shares 
you will sell in the public offering under your plan of conversion. 
You do not have to estimate the price range if you will not begin 
the offering until after your members' meeting;
    (2) You must indicate that the offering price will be the pro 
forma market value of the shares, as determined by your management 
and the underwriter; and
    (3) You must state that you must sell all of the shares.
    (f) Unless you will not begin the offering until after your 
members' meeting, you must discuss the following for stock you will 
sell:
    (1) the earnings per share on a pro forma basis as of the most 
recent year-end and interim period required by item 14(b); and
    (2) the book value per share on a pro forma basis as of the most 
recent year-end and interim period required by item 14(a).
    Instructions:
    1. You must provide earnings and book value per share data (a) 
without giving effect to the estimated net proceeds from the sale of 
the stock and (b) after giving effect to such proceeds. You must 
clearly state all of your assumptions.
    2. In computing pro forma earnings, you must use the average of 
(i) the average yield on all interest-earning assets (item

[[Page 52044]]

7(d)(4)(i)(D)) and (ii) the average rate paid on deposits (item 
7(d)(4)(ii)(A)).
    3. If interest rates have significantly changed during the 
applicable periods, OTS may permit you to use properly supported 
alternative computations.
    4. You must explain that pro forma data may not be indicative of 
your actual financial position or the results of continuing 
operations after the conversion.
    (g) You must state when the proposed subscription period will 
begin and end, and must describe whether the plan of conversion 
permits you to change or extend these dates. You must also state the 
following:
    (1) You will set a maximum subscription price in the offering 
circular that you will use for the offering of subscription rights;
    (2) The actual subscription price will be the public offering 
price;
    (3) The actual subscription price will not exceed the maximum 
subscription price on the order form; and
    (4) You will refund any difference between the maximum and 
actual subscription prices, unless the subscriber affirmatively 
elects to apply the difference to the purchase of additional shares.
    (h) You must also:
    (1) Describe, to the extent practicable, whether you intend to 
list your shares on an exchange, or how you will otherwise provide a 
market for the purchase and sale of shares in the future;
    (2) Describe briefly the tax effect of the conversion on you and 
on the various classes of account holders receiving nontransferable 
subscription rights in the conversion;
    (3) State that the plan of conversion is attached as an exhibit 
to the proxy statement and that the reader may consult the plan for 
further information.
    (i) You must state whether the plan of conversion permits you to 
offer unsubscribed shares to the public directly or through 
underwriters. If so, you must provide the information, to the extent 
known, required by item 6 of Form OC, and indicate the estimated 
timing of the proposed offering.
    (j) You must furnish the following information on proposed 
purchases of shares by your directors and officers in a table:
    (1) The total proposed number of shares that all officers, 
directors, and their associates as a group may purchase.
    (2) The name and position of each officer and director in item 
5(a) and the number of shares each will purchase.
    (3) If any officer, director, or his or her associate proposes 
to purchase one percent or more of the total number of shares that 
will be outstanding, the name, position, and the number of shares 
that the officer, director, or associate will purchase.
    (4) Indicate separately the number of shares that will be 
purchased in each offering category with respect to the information 
required by items (1), (2), and (3) of paragraph (j).
    (5) If your conversion application includes a charitable 
contribution, you must disclose the following additional 
information:
    (i) The amount and percentage of shares that each proposed 
director (or trustee) and officer of the charitable organization 
will purchase in the conversion.
    (ii) The aggregate number and percentage of shares that the 
charitable organization and its proposed officers and directors (or 
trustees) will hold.
    (iii) The number of shares and value of the contribution at the 
minimum, midpoint, maximum, and maximum as adjusted, of the 
valuation range.
    (iv) The decrease in shares that you will sell in the 
conversion, in number of shares and dollar amounts, at the minimum, 
midpoint, maximum, and maximum as adjusted, of the valuation range.
    (v) The dilution in ownership and book value per share from the 
proposed contribution.
    (vi) Your plans for additional charitable contributions over the 
next three years.
    Instruction. You are only required to furnish information on 
associates of officers and directors to the extent that you know 
this information. If you are unable to confirm the number of shares 
an associate will purchase, you must disclose the number of shares 
the associate is given subscription rights to purchase.

Item 9. Description of Stock

    (a) You must furnish the information required in item 202 of 
Regulation S-K, 17 CFR 229.202. Unless the context otherwise 
requires, ``registrant'' refers to you.
    (b) You must undertake to use your best efforts to encourage and 
assist a professional market maker to establish and maintain a 
market for your shares.
    (c) You must discuss the trading market that you expect will 
exist for your shares. You must estimate the number of market makers 
and shareholders, and describe your plans for listing the stock.
    Instruction. You must describe the basic requirements you must 
meet to list your stock.
    (d) If the rights of your stockholders will be materially 
limited or qualified by the rights of savings account holders or 
borrowers, you must describe these limitations or qualifications so 
that investors can understand their stock rights.

Item 10. Capitalization

    You must set forth the amounts of your capitalization in 
substantially the tabular form indicated below. You may modify the 
captions as appropriate.

------------------------------------------------------------------------
                          (A)                             (C) Pro forma
                   Capitalization on    (B) Pro forma    capitalization,
                      most recent     adjustments as a    after giving
                     balance sheet        result of       effect to the
                          date           conversion        conversion
------------------------------------------------------------------------
Deposits           .................  ................  ................
FHLB advances      .................  ................  ................
Other              .................  ................  ................
Borrowings         .................  ................  ................
Capital stock      .................  ................  ................
    Preferred      .................  ................  ................
     stock
    Paid-in        .................  ................  ................
     capital
Retained earnings  .................  ................  ................
    Restricted     .................  ................  ................
    Unrestricted   .................  ................  ................
        Total      .................  ................  ................
------------------------------------------------------------------------

    Instructions:
    1. You must indicate in the table, or in a footnote to the 
table, the total number of shares you will authorize, the par or 
stated value of the shares, and the number of shares you will sell 
in the conversion.
    2. You must estimate in the table the total amount of funds you 
will receive when you sell your stock. In a footnote, you must state 
the price per share that you used for the estimate. You must clearly 
indicate that the total amount and price per share are estimates.
    3. In Column A, you must use the most recent balance sheet date 
required by item 14.

Item 11. Use of New Capital

    You must explain how you will use the new proceeds of the 
conversion, including the approximate amount that you will use for 
each purpose.
    Instruction. You do not have to detail proposed investments. You 
must, for example, only briefly describe any investment or other 
activity that will be affected materially by availability of the 
proceeds. Examples of such activities include: expanded secondary 
market activities, larger scale lending projects, loan portfolio 
diversification, increased liquidity investments, repayment of debt, 
additional branch offices and other facilities, service corporation 
investments, and acquisitions.

Item 12. New Charter, Bylaws, or Other Documents

    You must describe the material changes to your existing charter, 
bylaws, and other similar documents that will take effect after 
conversion.

[[Page 52045]]

    Instruction. You only have to briefly summarize provisions that 
are pertinent from an investment and a voting standpoint. You do not 
have to provide a complete legal description of each provision.

Item 13. Other Matters

    You must state that you will register your stock under section 
12(g) of the Securities Exchange Act of 1934, and that you will not 
deregister the stock for three years after the date of conversion. 
You are subject to the proxy rules, insider trading reporting and 
restrictions, annual and periodic reporting, and other requirements 
of that Act when you register your stock.

Item 14. Financial Statements

    Subpart A of 12 CFR part 563c governs the certification, form, 
and content of the financial statements, including the basis of 
consolidation.
    (a) Consolidated balance sheets. (1) You and your subsidiaries 
must furnish consolidated, audited balance sheets as of the end of 
each of the two most recent fiscal years, even if the applicant is 
filing using the provisions of Regulation S-B.
    (2) If the latest balance sheets you furnish under paragraph (1) 
of this paragraph (a) are dated 135 days or more before the date OTS 
approves the conversion, you must furnish an interim balance sheet 
dated within 135 days of OTS approval. This interim balance sheet 
may be unaudited.
    (3) If the latest balance sheets you furnish under paragraph (1) 
of this paragraph (a) are dated 105 days or more before the date OTS 
approves the conversion, you must furnish a Recent Development 
section of selected financial data and a Management's Discussion and 
Analysis section of significant variances.
    (b) Consolidated statements of income and cash flows. (1) You, 
your subsidiaries, and your predecessors must furnish consolidated, 
audited statements of income and cash flows for each of the three 
fiscal years preceding the date of the most recent balance sheet 
furnished.
    (2) In addition, you must furnish statements of income and cash 
flows (i) for any interim period between the latest audited balance 
sheet and the date of the most recent interim balance sheet that you 
file, and (ii) for the corresponding period of the preceding fiscal 
year. The interim financial statements may be unaudited.
    (c) Changes in stockholders' equity. You must analyze the 
changes in each caption of stockholders' equity in the balance 
sheets. You must present this analysis in a note or separate 
statement that reconciles the beginning balance with the ending 
balance for each period for which you are required to furnish an 
income statement. You must describe all significant reconciling 
items with appropriate captions. You must reconcile total generally 
accepted accounting principles (GAAP) capital with actual tangible, 
core, and risk-based capital in the notes to the financial 
statements.
    (d) Financial statements of business acquired or to be acquired. 
You must furnish the information required by 17 CFR 210.3-05 and 
210.11-01 to -03 for any business that you have acquired or will 
acquire.
    (e) Separate financial statements of subsidiaries not 
consolidated and 50-percent- or less-owned persons. You must furnish 
the information required by 17 CFR 210.3-09 on separate financial 
statements of subsidiaries not consolidated and 50-percent- or less- 
owned persons.
    (f) Filing of other statements in certain cases. You may request 
permission to omit any of the statements required by this item, or 
to substitute appropriate statements of comparable character. OTS 
may permit you to omit or substitute statements where it is 
consistent with the protection of account holders. OTS may also 
require you to include other additional or substitute statements, if 
the statements are necessary or appropriate to adequately present 
the financial condition of any person whose financial statements are 
required, or whose statements are otherwise necessary for the 
protection of account holders and others.
    Instructions:
    1. If you previously used an audit period for your certified 
financial statements and this audit period does not coincide with 
your fiscal year, you may use the audit period instead of any 
required fiscal year. You may use this audit period, however, only 
if it covers a full twelve months' operations and you have used this 
period consistently.
    2. Interim financial statements must be comparative and reported 
in the same format as the audited financial statements.

Item 15. Consents of Experts and Reports

    (a) You must briefly describe all consents of experts filed 
under the instructions in the Form AC.
    (b) You must provide a report of the independent public 
accountants who certified your financial statements and other 
matters in the proxy statement.
    Instruction. You must summarize only the provisions of the 
consents that are pertinent from an investment and a voting 
standpoint. You do not have to provide a complete legal description 
of each consent.

Item 16. Attachments

    You must attach a copy of your plan of conversion as approved by 
OTS to the proxy statement distributed to members and others. 
Alternatively, in a transaction that does not utilize a state-
chartered holding company, you may disclose in the proxy statement 
that you will provide the plan of conversion, if a recipient 
requests it within a specified period by means of a postage-paid 
postcard or other written communication.

OTS Form 1681
August 2002

Appendix C

Office of Thrift Supervision

Form OC--Offering Circular

Paperwork Reduction Act Statement

    The Office of Thrift Supervision will use this information to 
ensure that the public receives adequate information about the 
Applicant and the securities being offered. See 12 CFR parts 563b 
and 563g.
    Public reporting burden for this collection of information is 
estimated to average 150 hours, per response, including the time for 
reviewing instructions and completing and reviewing the collection 
of information. If a valid OMB Control Number does not appear on 
this form, you are not required to complete this form. 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 Chief Counsel's Office, Office of 
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. Send a 
copy of comments to Joseph F. Lackey, Jr., Attention: 1550-0014, by 
e-mail to [email protected] or by mail to him at 
Office of Information and Regulatory Affairs, Office of Management 
and Budget New Executive Office Building, Washington, DC 20503.

OMB No. 1550-0014
Expiration Date: 08/31/2003

Form OC--Offering Circular

[Not to be codified in the Code of Federal Regulations]

Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 
20552

Offering Circular

----------------------------------------------------------------------
(Name of Applicant as specified in charter)                    
(Docket No.)

----------------------------------------------------------------------
(Street Address of Applicant)

----------------------------------------------------------------------
(City, State, and Zip Code)

Index to Items

Item 1. Information Required by and Use of Form OC
Item 2. Additional Current Information Required
Item 3. Statement Required in Offering Circulars
Item 4. Preliminary Offering Circular
Item 5. Information with Respect to Exercise of Subscription Rights
Item 6. Stock Selling Arrangements

[[Page 52046]]

Item 1. Information Required by and Use of Form OC

    You must date the offering circular as of the effective date. 
You must include in your offering circular substantially the same 
information that you must include in the proxy statement that you 
distribute to your members to vote on the conversion. You may omit 
information from the offering circular that you included in the 
proxy statement only to the extent the information is clearly 
inapplicable and only if the offering circular is delivered with the 
proxy statement.
    Instructions:
    1. The ``offering circular'' is the offering circular for the 
subscription offering and the offering circular for any community 
offering or public offering, or both. It may also be called a 
``prospectus.''
    2. If you previously furnished a copy of the proxy statement to 
your members, you do not need to include the proxy statement with 
your offering circular in the subscription offering. However, you 
must state in the offering circular that you previously furnished a 
copy of the proxy statement to the members, and that you will 
furnish an additional copy promptly upon request. You also must 
state your telephone number and mailing address.

Item 2. Additional Current Information Required

    You must include the following additional current information in 
your offering circular, if the information is available and you did 
not already include the information in the proxy statement:
    (a) If your members' meeting took place before you mailed the 
Form OC, the result of the vote of your members on the conversion 
and any other proposals considered at the meeting.
    (b) Any recent material developments in your business or 
affairs.
    (c) The trading market that you expect for your conversion 
shares.
    (d) A summary of the results of any separate subscription 
offering. You must include the number of shares that you sold to 
eligible account holders, supplemental eligible account holders, and 
other voting members; the price at which you sold the shares; and 
the number of unsubscribed shares. You must include this summary on 
the outside front cover page.
    (e) The information required by Items 8(e)(1) and 8(f) of Form 
PS.
    (f) Any other information necessary to make the offering 
circular current, including full financial statements dated within 
six months before the date you mail the offering circular. You must 
also include, in your subscription offering circular, any more 
recent financial statements if, at the time you commence your 
subscription offering, you determine that you must include the 
financial statement in an offering circular in the community 
offering or public offering, or both.

Item 3. Statement Required in Offering Circulars

    If you are not forming a holding company as part of your 
reorganization, you must set out the following statement on the 
outside front cover page of every offering circular. You must set 
out the statement printed in bold-face Roman type at least as large 
as ten-point modern type:
    ``The Office of Thrift Supervision has not approved or 
disapproved these shares. The office has not passed on the accuracy 
or adequacy of this offering circular. Any representation to the 
contrary is unlawful.''

Item 4. Preliminary Offering Circular

    You must include the caption ``Preliminary Offering Circular,'' 
the date you issue the preliminary offering circular, and the 
following statement on the outside front cover page of any 
preliminary offering circular. You must set out the statement in red 
ink, printed in type as large as you use generally in the body of 
the offering circular.
    ``We have filed this offering circular with the Office of Thrift 
Supervision, but it has not been authorized for use in final form. 
We may complete or amend the information in this offering circular. 
We may not sell or accept offers to buy the shares covered by this 
offering circular before the Office of Thrift Supervision declares 
the offering circular effective. The offering circular is not an 
offer to sell or the solicitation of an offer to buy. We will not 
sell these shares in a state that prohibits offers, solicitations, 
or sales before registration or qualification under the securities 
laws of that state.''

Item 5. Information With Respect to Exercise of Subscription Rights

    In any offering circular that you will deliver to subscribers, 
you must describe all material terms of the offering relating to the 
exercise of subscription rights. You may exclude this information if 
you have already included this information in the proxy statement. 
Material terms include the expiration date, any subscription agent, 
method of exercising subscription rights, payment for shares, 
delivery of stock certificates for shares purchased, maximum 
subscription price, possible reduction of subscription price, 
relationship of subscription price to public offering price, 
requirement that all unsubscribed shares be sold, and any other 
material conditions relating to the exercise of subscription rights.

Item 6. Stock Selling Arrangements

    In each offering circular you must describe the material terms 
of the plan or plans of distribution for all shares.
    (a) You must include the following information in substantially 
the tabular form set forth below. You must set out this information 
on the outside front cover page of the offering circular.

----------------------------------------------------------------------------------------------------------------
                                                              Selling discounts and
                                     Price to public               commissions           Proceeds to applicant
----------------------------------------------------------------------------------------------------------------
Per share....................  $.........................  $.........................  $
Total........................  ..........................  ..........................  .........................
----------------------------------------------------------------------------------------------------------------

    (b) If there is a community offering or public offering, or 
both, you must provide an offering circular. You may omit the 
description relating to the exercise of subscription rights required 
by item 5, unless you commence your community offering or public 
offering, or both, simultaneously with your subscription offering.
    (c) If you sell any shares through a community offering, you 
must indicate: (1) The timing for the offering, (2) the geographic 
area where you will make the offering, (3) the method you will 
employ to market the shares (including the frequency and nature of 
communications or contracts with potential purchasers), (4) any 
preferences that you will give to any geographic area or to any 
class of potential purchasers, and (5) the limitations on purchases 
by potential purchasers.
    (d) If a selling agent assists in offering shares, you must 
identify the selling agent, disclose how the selling agent will 
offer the shares, and disclose the commissions and fees you will pay 
to the selling agent.
    (e) If you will offer any shares through underwriters, you must 
include in the offering circular for the public offering the names 
of the principal underwriters and the amounts that each will 
underwrite. You may omit this information for principal 
underwriters, other than the managing underwriters, from the 
offering circular for the subscription offering if you include the 
following conditions: (1) that all subscription rights will be 
exercisable by delivery of order forms to the underwriters or 
selling group for the public offering; and (2) that orders of 
persons exercising subscription rights will be filled prior to 
orders for stock in the direct community or public offerings, or 
both. You must identify each principal underwriter that has a 
material relationship with you and describe the relationship. In 
each offering circular, you must state briefly the underwriter's 
obligation to take unsubscribed shares.
    (f) You must briefly disclose in the offering circular the 
discounts and commissions that you may allow or may pay dealers in 
connection with the sale of unsubscribed shares for the community or 
public offering, or both. You may omit this information from the 
offering circular for any subscription offering, unless you use the 
subscription offering circular for the community offering or public 
offering, or both.
    Instructions:
    1. Commissions include all cash, securities, contracts, or 
anything else of value, paid, to be set aside, or disposed of. 
Commissions also include understandings

[[Page 52047]]

made with or for the benefit of any persons in which any underwriter 
or dealer is interested, in connection with the sale of the shares.
    2. You must include any cash commissions in the table. You must 
describe other consideration you will make to the underwriters 
following the table with a reference in the second column of the 
table. You also must appropriately disclose any finder's fees or 
similar payments.
    3. You must state whether the selling agents or underwriters are 
or will be committed to take and to pay for all of the shares if any 
are taken, or whether it is merely an agency or ``best efforts'' 
arrangement under which the selling agents or underwriters are 
required to take and pay for only the shares that they sell to the 
public.

OTS Form 1682
August 2002

Appendix D

Office of Thrift Supervision

Form OF--Order Form

Paperwork Reduction Act Statement

    The Office of Thrift Supervision will use this information to 
ensure subscribers to Applicant's stock receive adequate disclosures 
regarding the purchase of Applicant's stock. See 12 CFR part 563b 
and Sec. 563.76.
    Public reporting burden for this collection of information is 
estimated to average one hour, per response, including the time for 
reviewing instructions and completing and reviewing the collection 
of information. If a valid OMB Control Number does not appear on 
this form, you are not required to complete this form. 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 Chief Counsel's Office, Office of 
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. Send a 
copy of comments to Joseph F. Lackey, Jr., Attention: 1550-0014, by 
e-mail to [email protected] or by mail to him at 
Office of Information and Regulatory Affairs, Office of Management 
and Budget New Executive Office Building, Washington, DC 20503.

OMB No. 1550-0014
Expiration Date: 08/31/2003

Form OF--Order Form

[Not to be codified in the Code of Federal Regulations]

Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 
20552

Order Form for Purchase of Conversion Shares

----------------------------------------------------------------------
(Name of Applicant as specified in charter)                    
(Docket No.)

----------------------------------------------------------------------
(Street Address of Applicant)

----------------------------------------------------------------------
(City, State, and Zip Code)

    (1) After OTS declares your offering circular for the 
subscription offering effective, you must promptly distribute order 
forms for the purchase of shares of stock to: (a) All eligible 
account holders, (b) supplemental eligible account holders, and (c) 
other voting members who may subscribe for shares under the plan of 
conversion.
    (2) You must provide a final offering circular for the 
subscription offering or any community or public offerings with the 
order form (unless you previously provided a final offering 
circular). You must include detailed instructions explaining how to 
complete the order forms.
    (3) You must state the maximum subscription price on each order 
form. This amount is the amount that is payable to you when the 
subscriber returns the order form. You must establish a maximum 
subscription price and an actual subscription price that is within 
the subscription price range stated in OTS's approval and in the 
offering circular. If the maximum subscription price or the actual 
subscription price is not within the subscription price range, you 
must receive OTS approval to amend the range. If appropriate, OTS 
may require you to resolicit proxies and order forms as a condition 
to its approval. If the public offering price is less than the 
maximum subscription price on the order form, you must reduce the 
actual subscription price to correspond to the public offering 
price. You must refund the difference to those subscribers who paid 
the maximum subscription price, unless the subscriber affirmatively 
elects to apply the difference to the purchase of additional shares.
    (4) You must describe in a simple, clear, and intelligible 
manner the actions that are required or available to the persons who 
will receive the order form. Specifically, you must provide all of 
the following information:
    (i) Indicate the maximum number of shares that the person may 
purchase under the subscription rights;
    (ii) Indicate the time period during which the person must 
exercise the subscription rights. This period must be at least 20 
days and not more than 45 days after you mail the subscription 
offering order form;
    (iii) State the maximum subscription price per share;
    (iv) Indicate any minimum share purchase requirements;
    (v) Specifically designate blank space or spaces for the person 
to indicate the number of shares he or she wishes to purchase;
    (vi) Indicate how the person must pay. If the person withdraws 
funds from a certificate of deposit, you must indicate that the 
person may withdraw the funds without penalty. If the person pays by 
withdrawing from a savings account or certificate of deposit, you 
must provide for the person to check a box on the order form. If a 
person pays by withdrawing from a savings account or certificate of 
deposit, you may, but need not, withdraw funds from the account when 
you receive the order form. If the person withdraws funds before the 
closing date of the public offering, you must pay interest to the 
account holder as if the amount remained in the account until the 
closing date;
    (vii) Specifically designate blank spaces for the person to date 
and sign the order form;
    (viii) Include an acknowledgment that the person who signed the 
order form received a final offering circular before he or she 
signed the form; and
    (ix) Indicate what will happen if the person does not properly 
complete and return the order form. You must state that the person 
may not transfer the subscription rights to another and state that 
the subscription rights are void at the end of the subscription 
period. You must include in the instructions to the form the address 
where the person must send the order form and the date that you will 
deem the order form received (for instance, by date and time of 
actual receipt at the indicated address, or by date and time of 
postmark).
    (5) You may state that no one may modify the order form without 
your consent.
    (6) You must include the following statements in bold print in 
your order form:
    (a) ``Federal Regulations prohibit any person from transferring 
or entering into any agreement directly or indirectly to transfer 
the legal or beneficial ownership of conversion subscription rights, 
or the underlying securities to the account of another.''
    (b) ``Under penalty of perjury, I certify that I, __________, am 
purchasing shares solely for my account and that there is no 
agreement or understanding regarding the sale or transfer of such 
shares, or my right to subscribe for shares.''
    (7) You must also include the following certification on your 
order form.
    ``I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT 
AND IS NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY [insert name 
of savings association] OR BY THE FEDERAL GOVERNMENT.''
    If anyone asserts that this security is federally insured or 
guaranteed, or is as safe as an insured deposit, I should call the 
Office of Thrift Supervision Regional Director [insert Regional 
Director's name and telephone number with area code].
    I further certify that, before purchasing the [description of 
security being offered] of [name of issuer, name of savings 
association,

[[Page 52048]]

and affiliation to issuer (if different)], I received an offering 
circular.
    The offering circular that I received contains disclosure 
concerning the nature of the security being offered and describes 
the risks involved in the investment, including: [list briefly the 
principle risks involved and cross reference certain specified pages 
of the offering circular where a more complete description of the 
risks is made].

Signature:------------------------------------------------------------
Date:-----------------------------------------------------------------

OTS Form 1683
August 2002

[FR Doc. 02-19730 Filed 8-8-02; 8:45 am]
BILLING CODE 6720-01-P