[Federal Register Volume 71, Number 7 (Wednesday, January 11, 2006)]
[Proposed Rules]
[Pages 1704-1718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-240]


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FARM CREDIT ADMINISTRATION

12 CFR Part 611

RIN 3052-AC29


Organization; Termination of System Institution Status

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend our regulations that allow a 
Farm Credit System (FCS, Farm Credit, or System) bank or association to 
terminate its FCS charter and become a financial institution under 
another Federal or State chartering authority. With these amendments, 
we propose to update the existing regulations to clarify our 
requirements, separate our review of stockholder disclosure information 
from our review of the termination itself, improve communications, 
strengthen the role of an institution's directors in the termination 
process, and make other changes.

DATES: Please send your comments to us by March 13, 2006.

ADDRESSES: Comments may be sent by electronic mail to ``[email protected],'' through the Pending Regulations section of our Web site 
at http://www.fca.gov or through the Government-wide http://www.regulations.gov portal. You may also send written comments to Gary 
K. Van Meter, Deputy Director, Office of Regulatory Policy, Farm Credit 
Administration, 1501 Farm Credit Drive, McLean, Virginia 22102-5090 or 
by fax to (703) 734-5784.
    You may review copies of all comments we receive at our office in 
McLean, Virginia or from our Web site at http://www.fca.gov. Once you 
are in the Web site, select ``Legal Info,'' and then select ``Public 
Comments.'' We will show your comments as submitted, but for technical 
reasons we may omit items such as logos and special characters. 
Identifying information you provide, such as phone numbers and 
addresses, will be publicly available. However, we will attempt to 
remove electronic-mail addresses to help reduce Internet spam.

FOR FURTHER INFORMATION CONTACT:

Dale Aultman, Senior Policy Analyst, Office of Regulatory Policy, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4414; TTY (703) 
883-4434; or
Rebecca S. Orlich, Senior Counsel, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 
883-4020.

SUPPLEMENTARY INFORMATION:

I. Objectives

    The objectives of our current proposal are to:
    1. Update the termination procedure for FCS banks and associations 
under sections 7.10 and 7.11 of the Farm Credit Act of 1971, as amended 
(Act);
    2. Ensure that the FCA, an institution's board of directors, and 
the institution's equity holders have sufficient time and opportunities 
to be fully informed about a termination proposal before deciding 
whether to approve the termination;
    3. Provide that we may require a terminating institution to obtain 
independent analyses and rulings regarding a proposed termination;
    4. Ensure that a significant proportion of stockholders are engaged 
in the termination process; and
    5. Clarify existing requirements and ensure that stockholder 
disclosure materials are informative and easy to understand.

II. Background

    The Agricultural Credit Act of 1987, among other things, amended 
the Act expressly to permit System institutions to terminate their Farm 
Credit status and become another type of financial institution. We 
first issued regulations governing terminations in 1991. At that time, 
the regulations covered only ``small'' FCS associations. Our current 
termination rule, published on April 12, 2002, reflected amendments to 
cover all associations and banks.\1\ Since 1991, no FCS bank or 
association has terminated its charter under FCA regulations. However, 
in 2004 one System association adopted a commencement resolution to 
terminate its Farm Credit charter and subsequently be acquired by the 
subsidiary of a non-System bank. Ultimately, the association decided 
not to be acquired and not to terminate Farm Credit status. Although 
the association never submitted a termination application to us, the 
experience presented us with an actual event to evaluate the 
effectiveness and efficiency of our existing termination regulations. 
We found that, while the existing regulations provide the basic 
requirements to comply with the Act and effect a termination, certain

[[Page 1705]]

revisions to the regulations would ensure a more orderly process for a 
FCS bank or association to terminate its charter.
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    \1\ See 67 FR 17907.
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III. Proposed Amendments

    The following outlines several new provisions and major revisions 
we propose to make to our regulations:
    1. Proposed new Sec. Sec.  611.1230 and 611.1247 separate our 
review of a terminating institution's disclosure information, as 
required by section 7.11 of the Act, from our approval of the 
termination itself, as set forth in section 7.10 of the Act. Our review 
of the disclosure information will precede the submission of the 
information to equity holders, as in the existing regulation, and we 
will begin the statutory period on the date the disclosure information 
is complete, as determined by us. We propose to review and approve or 
disapprove the termination itself after the equity holders have voted 
to approve the termination.
    2. Proposed new Sec. Sec.  611.1215 and 611.1216 give a terminating 
institution more flexibility in communicating with stockholders and the 
public during the termination process, and also provides that we may 
require certain termination-related documents to be posted on our Web 
site or the institution's Web site.
    3. Proposed new Sec.  611.1211 provides that we may require a 
terminating institution to obtain independent analyses of and rulings 
on matters related to the proposed termination, as well as to hold 
convenient informational meetings for stockholders.
    4. Proposed new Sec.  611.1218 strengthens protections for 
directors to consult independent legal counsel and allow public or 
private expressions of their opinions about the termination. In 
addition, proposed Sec.  611.1235 provides that the board of directors 
of a terminating institution must again vote to approve the proposed 
termination before mailing the plan of termination, to ensure that the 
board continues to support the termination.
    5. Proposed amendments to Sec.  611.1240 ensure sufficient equity 
holder representation in voting processes by imposing a quorum 
requirement of 30 percent of voting stockholders at the stockholder 
meetings for the termination vote.
    6. Proposed new Sec.  611.1247 eliminates potentially confusing 
criteria pertaining to reasons why we may disapprove a termination 
application.
    7. Throughout the regulations, we propose to add language requiring 
disclosure of information related to any planned or contemplated 
corporate restructuring, such as the merger of the successor 
institution with, or its acquisition by, another entity.
    8. Throughout the regulations, we propose to remove outdated 
references to the Financial Assistance Corporation (FAC), which was 
created in 1988 as part of the Federal assistance to the System. That 
assistance has now been repaid.
    We note that we are not proposing substantive amendments to the 
existing regulations that pertain to the applicability of this subpart, 
dissenting stockholders rights, repayment of obligations, stockholder 
reconsiderations, retirement of investments in other System 
institutions, loan refinancing by borrowers, and continuation of 
borrower rights.
    These proposals are more fully described below.

IV. Section-by-Section Analysis

Section 611.1200--Applicability of This Subpart

    We do not propose any changes to this section.

Section 611.1205--Definitions That Apply in This Subpart

    We propose to add definitions of ``days'' to mean calendar days and 
``business days'' to mean days on which the FCA is open for business.
    We also propose to define ``equity holders'' to mean holders of 
stock, participation certificates, or other equities such as allocated 
equities.

Section 611.1210--Advance Notices--Commencement Resolution and Notice 
to Equity Holders

    We propose to require a terminating institution to send us a draft 
of its notice to equity holders before the notice is sent to equity 
holders. If we do not request modifications to the draft notice within 
2 business days of receiving it, the terminating institution may mail 
the notice to its equity holders. Our purpose in requiring prior review 
is to ensure that the notice complies with plain language principles 
and contains the information required. We propose changing the existing 
heading to the above heading to better describe the requirements of 
this section.
    We propose to require the terminating institution to place the 
advance notice to equity holders on its Web site and to send us copies 
of all contracts and agreements related to the termination.
    We also propose other minor and nonsubstantive changes to the 
language in this section.

Section 611.1211--Special Requirements

    We propose a new section with requirements that we may impose 
regarding special assessments, analyses, rulings, or studies. A 
termination raises issues that the FCA does not routinely address, such 
as how to assess the value the institution and the tax implications of 
terminating. If we determine that expert analyses, studies, or rulings 
are needed, we will require a terminating institution to engage experts 
acceptable to us to perform such work. We may require that such 
analyses, studies, or rulings, or summaries, be provided to equity 
holders as part of the plan of termination, or separately.
    We also propose that we may require a terminating institution to 
hold regional or local informational meetings for equity holders during 
the time period after they receive notice of the proposed termination 
and before the stockholder vote on termination. These meetings will 
give equity holders an opportunity to ask questions directly to 
management of the institution at an early point in the termination 
process, as well as giving management an opportunity to explain the 
termination plan and procedure. The meetings would be subject to the 
plain language requirements of proposed Sec.  611.1217(b) regarding 
balanced statements of anticipated benefits and potential 
disadvantages.
    We note that we may hold public meetings anytime after your notice 
to equity holders is sent, in order to obtain the perspective of 
interested parties.

Section 611.1215--Communications

    We propose a new section on ``Communications with the public and 
equity holders.'' This section would permit a terminating institution 
to communicate with the public and with its equity holders during the 
termination process, provided that written communications are filed 
with the FCA on the date of first use. Such written communications must 
contain a legend urging equity holders to read the information 
statement that contains important information about the termination. If 
we believe any communications are inaccurate or misleading, we will 
require corrections to be made. We may also require a terminating 
institution to file written communications made by other participants 
in the termination and related transactions, such as a merger partner. 
The regulation contains a safe harbor for unintentional failures to 
make timely filings with the FCA and provides that communications that

[[Page 1706]]

contain no new information from previously filed communications do not 
need to be filed.
    We believe that this proposed regulation on communications will 
give a timely, reasonable and flexible accommodation to terminating 
institutions as well as comply with section 7.11(a)(1) of the Act. That 
statutory provision requires FCA review of information on the 
termination that is to be distributed to equity holders.
    The provisions in existing Sec.  611.1215 would be moved to Sec.  
611.1219, as described below.

Section 611.1216--Public Availability of Documents Related to the 
Termination

    In proposed new Sec.  611.1216, we provide that we may post on our 
Web site, or require a terminating institution to post on its Web site, 
documents related to the termination. We believe that disclosure of the 
documents will, at an early stage in the termination process, enable 
equity holders and others to understand the structure and ramifications 
of the plan of termination. We would expect the institution to post the 
board of directors' resolution on its Web site to commence the 
termination process in addition to the notice to equity holders. Also, 
we may require the posting of other documents such as charter documents 
of the successor institution or contracts entered into with a merger or 
acquisition partner. In addition, we may require the posting of the 
results of any special assessments, analyses, studies, and rulings. It 
is not our intention to require the posting of confidential 
information. The proposed rule provides that the terminating 
institution may request us to keep specific documents confidential.

Section 611.1217--Plain Language Requirements

    We propose to move the plain language requirements in existing 
Sec.  611.1223(a) to new Sec.  611.1217 and to apply them to all 
communications with equity holders required by these regulations, not 
just to the information statement. To help ensure a balanced 
presentation of the information, we also provide that communications 
describing the anticipated benefits of the proposed termination should 
also give similar prominence to the potential disadvantages of the 
termination.

Section 611.1218--Role of Directors

    In this new section, we emphasize the importance of directors in 
the termination process, not only when they take action as the whole 
board but also when they act individually. First, we provide that 
directors may not be prohibited by confidentiality agreements or 
otherwise from publicly or privately commenting on a termination 
proposal and related transactions. We do not believe such prohibitions 
would be in the best interests of the equity holders because they 
prevent directors from consulting with the persons they represent and 
prevent equity holders from learning the opinions of those who should 
have the most detailed knowledgeof the proposal. We note that this 
provision does not permit directors to reveal trade secrets or 
confidential financial information that they would be prohibited from 
revealing in the absence of a confidentiality agreement or similar 
document.
    We further propose to provide that one or more directors have the 
right to obtain legal and financial advice on a proposed or 
contemplated termination, and that the institution must pay reasonable 
expenses. This will ensure that each director has the opportunity to 
obtain advice from parties who have no conflict of interest in the 
proposed transaction.

Section 611.1219--Prohibited Acts

    We propose to move existing Sec.  611.1215 to this new Sec.  
611.1219 with a few revisions. One revision is to delete a reference to 
our preliminary approval of the termination, because we are proposing 
to eliminate the preliminary approval provision. We also propose to 
prohibit the institution and any director, officer, employee, and agent 
from making any untrue or misleading statement of a material fact, or 
failing to disclose any material fact to the FCA about the proposed 
termination and any related transactions. This prohibition already 
applies to statements made to or withheld from current or prospective 
equity holders.

Section 611.1220--Termination Resolution

    Proposed Sec.  611.1220 is an expansion of the requirement in 
existing Sec.  611.1220(a) for the board to adopt a termination 
resolution. We propose to require that adoption of the resolution must 
occur no more than 1 week before submitting the plan of termination to 
us and to specify that the resolution must authorize submission of the 
plan of termination to us and to voting stockholders, then (if 
approved) submission of the application for termination to us and 
submission of an application to a Federal or State authority to charter 
the successor institution.

Section 611.1221--Submission to FCA of Plan of Termination and 
Disclosure Information; Other Required Submissions

    Proposed Sec.  611.1221 revises the existing regulation to provide 
that a terminating institution may not file a plan of termination until 
at least 30 days after the institution has sent the notice to equity 
holders under Sec.  611.1210(b). In addition, we propose to move to 
this section a requirement from existing Sec.  611.1220(b) regarding 
the number of copies of the plan to submit to the FCA; to move existing 
Sec.  611.1220(c) to Sec.  611.1223(d); and to move provisions in 
existing Sec.  611.1222 to this section.
    We also propose to remove references to the FAC because all 
outstanding FAC debt has been repaid.

Section 611.1223--Plan of Termination--Contents

    We propose to rename this section ``Plan of termination--contents'' 
and to remove references to ``Information Statement'' because the 
latter term is not found in section 7.11 of the Act. Instead, we 
propose to refer to the material to be submitted to equity holders as 
the plan of termination.
    As described above, we propose moving the ``plain language'' 
requirements in existing Sec.  611.1223(a) to new Sec.  611.1217 and 
applying them more broadly, and to move the requirement to update 
information in existing Sec.  611.1220(c) to paragraph (d) of this 
section. We propose to add several requirements to the contents of the 
information statement.
    Proposed paragraph (b)(7) would require a terminating institution 
to explain in the summary to the plan of termination whether the 
successor institution expects to engage in a corporate restructuring in 
the 18 months following termination.
    Proposed paragraph (c)(7) would require a terminating institution 
to include copies of contracts and agreements in connection with the 
termination and operations of the successor institution. The FCA may 
permit or require a summary of the documents instead of copies.
    Proposed paragraph (c)(13) would contain the requirement of 
existing Sec.  611.1223(d)(9) to disclose employment, retirement, and 
severance agreements, and would also require disclosure of such 
agreements with any entity that may merge with or acquire the successor 
institution.
    Proposed paragraph (c)(26) would provide that we may require a 
terminating institution to disclose assessments, analyses, studies, or

[[Page 1707]]

rulings that we require the institution to obtain under proposed Sec.  
611.1211.
    Proposed paragraph (c)(29) would require the terminating 
institution to include statements by directors that desire to make 
individual or group statements regarding the proposed termination and 
related transactions. We believe that directors, especially directors 
of a cooperative, are entitled to share both supporting and opposing 
views on such an important matter with equity holders and to have those 
views set forth in the plan of termination without prior approval or 
constraint by the board. However, as with all information in the 
information statement, statements by directors must be reasonable in 
length and free of material misstatements or omissions. We note that 
the director certification requirement in new paragraph (c)(28) 
(existing Sec.  611.1223(d)(24)) would not be deemed to be 
certifications of the opinions in these statements by directors.
    Proposed paragraph (c)(30) would require the terminating 
institution to include a copy of the reaffirmation resolution, a 
proposed new requirement set forth in proposed Sec.  611.1235, 
described below. The terminating institution would add this to the plan 
of termination after the FCA's review period, since we would require 
the institution to adopt it just before mailing the plan to equity 
holders.
    Proposed paragraph (d) contains the requirements in existing 
Sec. Sec.  611.1220(c) and 611.1223(d)(20).

Section 611.1230--FCA Review and Approval--Plan of Termination

    Existing Sec.  611.1230 provides for our ``preliminary approval'' 
of the termination application, which combines our approval of the 
information statement to be submitted to equity holders with our 
preliminary approval of the termination itself. The regulation also 
sets forth certain conditions of final approval of the termination 
application--i.e., approval of the termination itself--and contains a 
reservation of our right to disapprove the termination if, in addition 
to any other reason for disapproval, we determine that the termination 
would have a material adverse impact on the remaining System 
institutions to fulfill their statutory purpose.
    We propose to revise this section to pertain only to our approval 
of the plan of termination as described in proposed Sec.  611.1222. As 
provided in section 7.11(a)(1) of the Act, we state that the 
terminating institution may submit its plan to its equity holders if we 
take no action on the plan within 60 days of receiving a complete plan 
of termination. We will inform the institution in writing of the date 
on which we determine the application complete.
    We also provide that our approval of the plan of termination is not 
our approval of the termination itself and, the plan may be subject to 
any condition we impose. As with all proposed corporate restructurings, 
we may reject a plan of termination that we determine is incomplete.

Section 611.1235--Plan of Termination--Distribution

    We propose this new section regarding distribution of the plan of 
termination. In paragraph (a) we propose requiring your board of 
directors to adopt another resolution approving the termination, in 
order to ensure the continuing support of the board for the 
termination. In addition, we propose to move existing Sec.  611.1240(c) 
to this section and revise it to require the terminating institution to 
provide the plan of termination to equity holders at least 45 days 
(instead of the existing regulation's 30 days) before the stockholder 
vote will occur. This will ensure that the voting stockholders have 
ample time to read and evaluate the proposal.

Section 611.1240--Voting Record Date and Stockholder Approval

    Except for existing paragraph (c), which we propose to move to 
Sec.  611.1235, we propose to retain existing Sec.  611.1240 with the 
following revisions. In paragraph (a), we propose to require the 
stockholder vote to take place at least 60 days after we have approved 
the plan of termination (or 60 days after the end of our review period) 
instead of no more than 60 days after. We propose this change to ensure 
that voters have enough time to review and evaluate the proposal. In 
paragraph (c), we propose a quorum requirement of 30 percent of voting 
stockholders present (in person or by proxy) at the meeting. This would 
not require 30 percent of voting stockholders to cast a vote but would 
require their presence (in person or by proxy) at the meeting. We are 
making this proposal because we believe an issue of such importance to 
all equity holders should be deliberated upon by a significant number 
of the voting stockholders, regardless of the number who ultimately 
vote. In paragraph (d), we restate the requirement in section 
7.10(a)(6) of the Act that a majority vote by stockholders voting in 
person or by proxy is needed to approve the termination.
    We also propose to add a reference in new paragraph (e) to Sec.  
611.340, to clarify that the voting security regulation applies to this 
stockholder vote as well as Sec.  611.330, which covers confidentiality 
in voting.

Section 611.1245--Stockholder Reconsideration

    In this section, we propose adding a quorum requirement of at least 
30 percent of voting stockholders in paragraph (b) for the same reasons 
we propose a quorum requirement for the original vote.

Section 611.1246--Filing of Termination Application and Its Contents

    Proposed new Sec.  611.1246 provides that, within 90 days of 
notifying us that voting stockholders have approved the plan of 
termination, a terminating institution may submit a termination 
application containing the following:
     The board resolutions required by Sec. Sec.  611.1220 and 
611.1235,
     A board certification that there has been no material 
change to the information in the plan of termination or information 
statement since FCA approval of the plan of termination, and that there 
have been no subsequent events that could have a material impact on the 
information in the information statement or the termination, and
     Any additional information that is required by the 
termination regulations, that we request, or that the terminating 
institution's board wishes to submit.

Section 611.1247--FCA Review and Approval--Termination

    New Sec.  611.1247 would provide for a separate approval of the 
termination application. As noted above, we are proposing to review the 
termination application after our review of the plan of termination 
required by section 7.11(a)(1) of the Act and after a stockholder vote 
approving the termination. We have determined that a clear separation 
of the two approvals will ensure the proper level of scrutiny as to the 
merits of the proposal apart from the adequacy of the disclosure 
materials. A termination is an extraordinary event with numerous, 
complicated ramifications that are of broad interest to equity holders, 
other System institutions, lawmakers and the public. The FCA's 
approvals require a significant devotion of time by FCA staff and 
involve issues not routinely addressed by staff. A separate termination 
application review would also allow sufficient opportunities to 
schedule and hold public meetings where appropriate.

[[Page 1708]]

    In this new section, paragraph (a) states that, after we receive 
the termination application, we will review it and either approve or 
disapprove the termination. Paragraph (b) states that we will 
disapprove the termination if we determine that there are one or more 
appropriate reasons for disapproval, consistent with our statutory and 
regulatory authorities. We propose to delete existing Sec.  
611.1230(b), which provides that we may disapprove a termination if we 
determine it would have a ``material adverse effect on the ability of 
the remaining System institutions to fulfill their statutory purpose.'' 
We are proposing this deletion because of our experience last fall when 
a System association took some initial steps to terminate. Some members 
of the public were confused by this provision and incorrectly assumed 
it would be the only reason for us to disapprove a termination. While 
we are not ruling out disapproval of a termination based on its 
``material adverse impact'' on the remaining System institutions, we 
may disapprove a termination for any appropriate reason.
    There is a possibility that we could approve a plan of termination 
and stockholders vote in favor of a termination, and then we disapprove 
the termination because of the results of special studies, analyses, 
rulings, meetings, or for any other reason that we deem as appropriate 
given the specific circumstances.
    Paragraph (c) sets forth conditions required for our approval of 
the termination, including the following:
    (1) A stockholder vote and a reconsideration vote, if any, 
approving the termination,
    (2) Submission to FCA of executed copies of all documents required 
for the plan of termination;
    (3) The terminating institution has paid or provided for payment of 
debts and retirement of equities,
    (4) A charter for the successor institution has been granted a 
Federal or State authority,
    (5) The terminating institution has made the escrow payments 
required by Sec.  611.1255(c), and
    (6) The terminating institution has fulfilled any condition of 
termination we have imposed.
    In proposed paragraph (d), we provide that, when we approve a 
termination, we will also determine an effective date for the 
termination. Such date could be no earlier than the last to occur of 
the following events: fulfillment of the conditions in paragraph (c) of 
this section, 90 days after we received the termination application, 15 
days after any reconsideration vote, and the terminating institution's 
proposed termination date.

Section 611.1250--Preliminary Exit Fee Estimate and Sec.  611.1255--
Exit Fee Calculation

    We propose several parallel revisions to these sections, which 
explain how to calculate the preliminary exit fee estimate that must be 
included in the plan of termination, and how to calculate the final 
exit fee. We add expenditures for tax services, studies, and equity 
holder meetings as examples of expenses an institution may incur that 
are related to a termination in Sec. Sec.  611.1250(a)(4)(i) and 
611.1255(a)(4)(i) pertaining to associations, and in Sec. Sec.  
611.1250(b)(5)(i)(A) and 611.1255(b)(5)(i)(A) pertaining to banks. In 
Sec.  611.1250(c), which contains the 3-year look-back adjustment 
provision, we expressly include real property and servicing rights as 
assets that may be undervalued, overvalued, or not recorded on the 
institution's books.
    We also propose expressly to require a terminating institution to 
include in assets any tax benefit that has arisen or will arise due to 
the termination. We already have discretionary authority under existing 
Sec.  611.1250(c)(1)(vi) to require such an adjustment,\2\ but we have 
decided to apply it to all terminations. This requirement will balance 
existing and continuing provisions allowing for the deduction of tax 
expenses, due to termination, from assets in the preliminary and final 
exit fee calculations. We note that States have a variety of tax 
expenses and benefits, and many System institutions operate in more 
than one State. We are seeking comment on whether we should limit the 
tax expense deductions from, and tax benefits to, assets in the exit 
fee calculation to Federal taxes. We are also interested in whether we 
should more narrowly draw the tax provision so that it includes only 
income taxes, or unavoidable tax expenses, or both.
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    \2\ See the preamble discussion of ``Section 611.1240--Exit 
Fee'' in our proposed termination rule for small associations, 55 FR 
28639 (July 12, 1990).
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    In Sec.  611.1250(c), we propose to rename the subsection 
``Adjustments'' and to add the phrase ``account balances'' to paragraph 
(c)(1) to clarify that we may adjust any balance sheet ``assets'' 
whether or not a specific related ``transaction'' has occurred within 
the previous 3 years. We also propose to replace references to ``tax 
liability'' with the term ``tax expense'' to clarify that we intend to 
refer to both current and deferred taxes.
    In paragraphs (a) and (b) of both sections, we propose to remove 
outdated references to the FAC.
    Finally, in Sec.  611.1255(a)(4)(i), regarding a terminating 
association's final exit fee calculation, we remove language that sets 
a 12-month timeframe for which termination expenses can be added to the 
calculation. This change will make the calculation parallel to the 
existing calculation for terminating banks.

Section 611.1260--Payment of Debts and Assessments--Terminating 
Association

    In this section, we propose to remove outdated references to the 
FAC.

Section 611.1265--Retirement of a Terminating Association's Investment 
in Its Affiliated Bank

    We do not propose any amendments to this section.

Section 611.1270--Repayment of Obligations--Terminating Bank

    In this section, we propose to remove outdated references to the 
FAC.

Section 611.1275--Retirement of Equities Held by Other System 
Institutions

    In this section, we propose to remove outdated references to the 
FAC.

Section 611.1280--Dissenting Stockholder's Rights

    In this section, we propose to remove outdated references to the 
FAC.

Section 611.1285--Loan Refinancing by Borrowers

    We do not propose any changes to this section.

Section 611.1290--Continuation of Borrower Rights

    We do not propose any changes to this section.

IV. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), FCA hereby certifies the proposed rule will not 
have a significant economic impact on a substantial number of small 
entities. Each of the Farm Credit banks, considered with its affiliated 
associations, has assets and annual income over the amounts that would 
qualify them as small entities. Therefore, System institutions are not 
``small entities'' as defined in the Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 611

    Agriculture, Banks, banking, Rural areas.


[[Page 1709]]


    For the reasons stated in the preamble, part 611 of chapter VI, 
title 12 of the Code of Federal Regulations is proposed to be amended 
as follows:

PART 611--ORGANIZATION

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

    Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15, 
4.20, 4.21, 5.9, 5.10, 5.17, 6.9, 6.26, 7.0-7.13, 8.5(e) of the Farm 
Credit Act (12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 
2203, 2208, 2209, 2243, 2244, 2252, 2278a-9, 2278b-6, 2279a-2279f-1, 
2279aa-5(e)); secs. 411 and 412 of Pub. L. 100-233, 101 Stat. 1568, 
1638; secs. 409 and 414 of Pub. L. 100-399, 102 Stat. 989, 1003, and 
1004.

    2. Revise subpart P to read as follows:

Subpart P--Termination of System Institution Status

Sec.
611.1200 Applicability of this subpart.
611.1205 Definitions that apply in this subpart.
611.1210 Advance notices--commencement resolution and notice to 
equity holders.
611.1211 Special requirements.
611.1215 Communications with the public and equity holders.
611.1216 Public availability of documents related to the 
termination.
611.1217 Plain language requirements.
611.1218 Role of directors.
611.1219 Prohibited acts.
611.1220 Termination resolution.
611.1221 Submission to FCA of plan of termination and disclosure 
information; other required submissions.
611.1223 Plan of termination--contents.
611.1230 FCA review and approval--plan of termination.
611.1235 Plan of termination--distribution.
611.1240 Voting record date and stockholder approval.
611.1245 Stockholder reconsideration.
611.1246 Filing of termination application and its contents.
611.1247 FCA review and approval--termination.
611.1250 Preliminary exit fee estimate.
611.1255 Exit fee calculation.
611.1260 Payment of debts and assessments--terminating association.
611.1265 Retirement of a terminating association's investment in its 
affiliated bank.
611.1270 Repayment of obligations--terminating bank.
611.1275 Retirement of equities held by other System institutions.
611.1280 Dissenting stockholders-- rights.
611.1285 Loan refinancing by borrowers.
611.1290 Continuation of borrower rights.

Subpart P--Termination of System Institution Status


Sec.  611.1200  Applicability of this subpart.

    The regulations in this subpart apply to each bank and association 
that desires to terminate its System institution status and become 
chartered as a bank, savings association, or other financial 
institution.


Sec.  611.1205  Definitions that apply in this subpart.

    Assets means all assets determined in conformity with GAAP, except 
as otherwise required in this subpart.
    Business days means days the FCA is open for business.
    Days means calendar days.
    Equity holders means holders of stock, participation certificates, 
or other equities such as allocated equities.
    GAAP means ``generally accepted accounting principles'' as that 
term is defined in Sec.  621.2(c) of this chapter.
    OFI means an ``other financing institution'' that has a funding and 
discount agreement with a Farm Credit bank under section 1.7(b)(1) of 
the Act.
    Successor institution means the bank, savings association, or other 
financial institution that the terminating bank or association will 
become when we revoke its Farm Credit charter.


Sec.  611.1210  Advance notices--commencement resolution and notice to 
equity holders.

    (a) Adoption of commencement resolution. Your board of directors 
must begin the termination process by adopting a commencement 
resolution stating your intention to terminate Farm Credit status under 
section 7.10 of the Act. Immediately after you adopt the commencement 
resolution, send a certified copy by overnight mail to us and to the 
Farm Credit System Insurance Corporation (FCSIC). If your institution 
is an association, also send a copy to your affiliated bank. If your 
institution is a bank, also send a copy to your affiliated 
associations, the other Farm Credit banks, and the Federal Farm Credit 
Banks Funding Corporation (Funding Corporation).
    (b) Advance notice. Within 5 business days after adopting the 
commencement resolution, you must:
    (1) Send us copies of all contracts and agreements related to the 
termination.
    (2) Subject to paragraph (b)(2)(ii) of this section:
    (i) Send an advance notice to all equity holders stating you are 
taking steps to terminate System status. Immediately upon mailing the 
notice to equity holders, you must also place it in a prominent 
location on your Web site. The advance notice must describe the 
following:
    (A) The process of termination;
    (B) The expected effect of termination on borrowers and other 
equity holders, including the effect on borrower rights and the 
consequences of any stock retirements before termination;
    (C) The type of charter the successor institution will have; and
    (D) Any bylaw creating a special class of borrower stock and 
participation certificates under paragraph (f) of this section.
    (ii) Send us a draft of the advance notice by facsimile or 
electronic mail before mailing it to your equity holders. If we have 
not contacted you within 2 business days of our receipt of the draft 
notice regarding modifications, you may mail the notice to your equity 
holders.
    (c) Bank negotiations on joint and several liability. If your 
institution is a terminating bank, within 10 days of adopting the 
commencement resolution, your bank and the other Farm Credit banks must 
begin negotiations to provide for your satisfaction of liabilities 
(other than your primary liability) under section 4.4 of the Act. The 
Funding Corporation may, at its option, be a party to the negotiations 
to the extent necessary to fulfill its duties with respect to financing 
and disclosure. The agreement must comply with the requirements in 
Sec.  611.1270(c).
    (d) Disclosure to loan applicants and equity holders after 
commencement resolution. Between the date your board of directors 
adopts the commencement resolution and the termination date, you must 
give the following information to your loan applicants and equity 
holders:
    (1) For each loan applicant who is not a current stockholder, 
describe at the time of loan application:
    (i) The effect of the proposed termination on the prospective loan; 
and
    (ii) Whether, after the proposed termination, the borrower will 
continue to have any of the borrower rights provided under the Act and 
regulations.
    (2) For any equity holders who ask to have their equities retired, 
explain that the retirement would extinguish the holder's right to 
exchange those equities for an interest in the successor institution. 
In addition, inform holders of equities entitled to your residual 
assets in liquidation that retirement before termination would 
extinguish their right to dissent from the termination and have their 
equities retired.
    (e) Terminating bank's right to continue issuing debt. Through the 
termination date, a terminating bank may continue to participate in the 
issuance of consolidated and Systemwide obligations to the same extent 
it would be able to participate if it were not terminating.
    (f) Special class of stock. Notwithstanding any requirements to

[[Page 1710]]

the contrary in Sec.  615.5230(b) of this chapter, you may adopt bylaws 
providing for the issuance of a special class of stock and 
participation certificates between the date of adoption of a 
commencement resolution and the termination date. Your voting 
stockholders must approve the special class before you adopt the 
commencement resolution. The equities must comply with section 4.3A of 
the Act and be identical in all respects to existing classes of 
equities that are entitled to the residual assets of the institution in 
a liquidation, except for the value a holder will receive in a 
termination. In a termination, the holder of the special class of stock 
receives value equal to the lower of either par (or face) value, or the 
value calculated under Sec.  611.1280(c) and (d). A holder must have 
the same right to vote (if the equity is held on the voting record 
date) and to dissent as holders of similar equities issued before the 
commencement resolution. If the termination does not occur, the special 
classes of stock and participation certificates must automatically 
convert into shares of the otherwise identical equities.


Sec.  611.1211  Special requirements.

    (a) Special assessments, analyses, studies, and rulings. At any 
time after we receive your commencement resolution, and as we deem 
necessary or useful to evaluate your proposal, we may require you to 
engage independent experts, acceptable to us, to conduct assessments, 
analyses, or studies, or to request rulings, including, but not limited 
to:
    (1) Assessments of fair value;
    (2) Analyses and rulings on tax implications; and
    (3) Studies of the effect of your proposal on equity holders 
(including the effect on holders in their capacity as borrowers), the 
System, and other parties.
    (b) Informational meetings. After the advance notice, but before 
the stockholder vote, we may require you to hold regional or local 
informational meetings in convenient locations, at convenient times, 
and in a manner conducive to accommodating all equity holders that wish 
to attend, to discuss equity holder issues and answer questions. These 
meetings are subject to the plain language requirements of Sec.  
611.1217(b) regarding balanced statements.


Sec.  611.1215  Communications with the public and equity holders.

    (a) Communications after commencement resolution and before 
termination. The terminating institution may communicate with equity 
holders and the public regarding the proposed termination, as long as 
written communications (other than non-public communications among 
participants, i.e., persons or entities that are parties to a proposed 
corporate restructuring involving the successor institution, or their 
agents) made in connection with or relating to the proposed termination 
and any related transactions are filed in accordance with paragraph (c) 
of this section and the conditions in this section are satisfied.
    (b) To rely on this section, you must include the following legend 
in each communication in a prominent location:

    Equity holders should read the plan of termination that they 
have received or will receive (as appropriate) because it contains 
important information, including an enumerated statement of the 
anticipated benefits and potential disadvantages of the proposal.

    (c) All your written communications and all written communications 
by your directors, employees, and agents in connection with or relating 
to the proposed termination or any related transactions must be filed 
with us under this section on or before the date of first use.
    (d) We will require you to correct communications that we deem are 
misleading or inaccurate.
    (e) In addition to the filings we require under paragraph (c), we 
may require you to file timely any written communications you have 
knowledge of that are made by any other participants or their agents in 
connection with or related to the proposed termination or to any 
transaction related to the proposed termination.
    (f) An immaterial or unintentional failure to file or a delay in 
filing a written communication described in this section will not 
result in a violation of this section, as long as:
    (1) A good faith and reasonable effort was made to comply with the 
filing requirement; and
    (2) The written communication is filed as soon as practicable after 
discovery of the failure to file.
    (g) Communications that exist in electronic form must be filed 
electronically with the FCA as we direct. For communications that do 
not exist in electronic form, you must timely notify us by electronic 
mail and send us a copy by regular mail.
    (h) You do not need to file a written communication that does not 
contain new or different information from that which you have 
previously publicly disclosed and filed under this section.


Sec.  611.1216  Public availability of documents related to the 
termination.

    (a) We may post on our Web site, or require you to post on your Web 
site:
    (1) Results of any special assessments, analyses, studies, and 
rulings required under Sec.  611.1211;
    (2) Documents you submit to us or file with us under Sec.  
611.1215; and
    (3) Documents you submit to us under section 7.11 of the Act that 
are related directly or indirectly to the proposed termination, 
including but not limited to contracts entered into in connection with 
or relating to the proposed termination and any related transactions.
    (b) We will not post confidential information on our Web site and 
will not require you to post it on your Web site.
    (c) You may request that we treat specific information as 
confidential under the Freedom of Information Act, 5 U.S.C. 552 (see 12 
CFR part, 602 subpart B). You should draft your request for 
confidential treatment narrowly to extend only to those portions of a 
document you consider to be confidential. If you request confidential 
treatment for information that we do not consider to be confidential, 
we may post that information on our Web site after providing notice to 
you. On our own initiative, we may determine that certain information 
should be treated as confidential and, if so, we will not make that 
information public.


Sec.  611.1217  Plain language requirements.

    (a) Plain language presentation. All communications to equity 
holders required under Sec. Sec.  611.1210, 611.1223, 611.1240, and 
611.1280 must be clear, concise, and understandable. You must:
    (1) Use short, explanatory sentences, bullet lists or charts where 
helpful, and descriptive headings and subheadings;
    (2) Minimize the use of glossaries or defined terms;
    (3) Write in the active voice when possible; and
    (4) Avoid legal and highly technical business terminology.
    (b) Balanced statements. Communications to equity holders that 
describe or enumerate anticipated benefits of the proposed termination 
should also describe or enumerate the potential disadvantages to the 
same degree of detail.


Sec.  611.1218  Role of directors.

    (a) Statements by directors. Directors may not be prohibited by 
confidentiality agreements or otherwise from publicly or privately 
commenting orally or in writing on the termination proposal and related 
matters.

[[Page 1711]]

    (b) Directors' right to obtain independent legal advice. One or 
more directors of a terminating institution or an institution that is 
considering terminating have the right to obtain independent legal and 
financial advice regarding the proposed termination and related 
transactions. The institution must pay for such advice and related 
expenses as are reasonable in light of the circumstances.


Sec.  611.1219  Prohibited acts.

    (a) Statements about termination. Neither the institution nor any 
director, officer, employee, or agent may make any untrue or misleading 
statement of a material fact, or fail to disclose any material fact, to 
the FCA or a current or prospective equity holder about the proposed 
termination and any related transactions.
    (b) Representations regarding FCA approval. Neither the institution 
nor any director, officer, employee, or agent may make an oral or 
written representation to anyone that our approval of the plan of 
termination or the termination is, directly or indirectly, either a 
recommendation on the merits of the proposal or an assurance that the 
information you give to your equity holders is adequate or accurate.


Sec.  611.1220  Termination resolution.

    No more than 1 week before you submit your plan of termination to 
us, your board of directors must adopt a termination resolution stating 
its support for terminating your status as a System institution and 
authorizing:
    (a) Submission to us of a plan of termination and other required 
submissions that comply with Sec.  611.1222; and
    (b) Submission of the plan of termination to the voting 
stockholders if we approve the plan of termination under Sec.  611.1230 
or, if we take no action, after the end of our approval period.


Sec.  611.1221  Submission to FCA of plan of termination and disclosure 
information; other required submissions.

    (a) Filing. Send us an original and five copies of the plan of 
termination, including the disclosure information, and other required 
submissions. You may not file the plan of termination until at least 30 
days after you mail the equity holder notice under Sec.  611.1210(b). 
If you send us the plan of termination in electronic form, you must 
send us at least one hard copy with original signatures.
    (b) Plan contents. The plan of termination must include your equity 
holder disclosure information that complies with Sec.  611.1223.
    (c) Other submissions. You must also submit the following:
    (1) A statement of how you will transfer assets to, and have your 
liabilities assumed by, the successor institution;
    (2) A copy of the charter application for the successor 
institution, with any exhibits or other supporting information; and
    (3) A statement, if applicable, whether the successor institution 
will continue to borrow from a Farm Credit bank and how such a 
relationship will affect your provision for payment of debts. You must 
also provide evidence of any agreement and plan for satisfaction of 
outstanding debts.


Sec.  611.1223  Plan of termination--contents.

    (a) Disclaimer. Place the following statement in boldface type in 
the material to be sent to equity holders, either on the notice of 
meeting or the first page of the plan of termination:

    The Farm Credit Administration has not determined if this 
information is accurate or complete. You should not rely on any 
statement to the contrary.

    (b) Summary. The first part of the plan of termination must be a 
summary that concisely explains:
    (1) Which stockholders have a right to vote on the termination and 
related transactions;
    (2) The material changes the termination will cause to the rights 
of borrowers and other equity holders;
    (3) The effect of those changes;
    (4) The anticipated benefits and potential disadvantages of the 
termination;
    (5) The right of certain equity holders to dissent and receive 
payment for their existing equities; and
    (6) The estimated termination date.
    (7) If applicable, an explanation of any corporate restructuring 
that the successor institution expects to engage in within 18 months 
after the date of termination.
    (c) Remaining requirements. You must also disclose the following 
information to equity holders:
    (1) Termination resolution. Provide a certified copy of the 
termination resolution required under Sec.  611.1220.
    (2) Plan of termination. Summarize the plan of termination.
    (3) Benefits and disadvantages. Provide an enumerated statement of 
the anticipated benefits and potential disadvantages of the 
termination.
    (4) Recommendation. Explain the board's basis for recommending the 
termination.
    (5) Exit fee. Explain the preliminary exit fee estimate, with any 
adjustments we require, and estimated expenses of termination and 
organization of the successor institution.
    (6) Initial board of directors. List the initial board of directors 
and senior officers for the successor institution, with a brief 
description of the business experience of each person, including 
principal occupation and employment during the past 5 years.
    (7) Relevant contracts and agreements. Include copies of all 
contracts and agreements related to the termination, including any 
proposed contracts in connection with the termination and subsequent 
operations of the successor institution. The FCA may, in its 
discretion, permit or require you to provide a summary or summaries of 
the documents in the disclosure information to be submitted to equity 
holders instead of copies of the documents.
    (8) Bylaws and charter. Summarize the provisions of the bylaws and 
charter of the successor institution that differ materially from your 
bylaws and charter. The summary must state:
    (i) Whether the successor institution will require a borrower to 
hold an equity interest as a condition for having a loan; and
    (ii) Whether the successor institution will require equity holders 
to do business with the institution.
    (9) Changes to equity. Explain any changes in the nature of equity 
investments in the successor institution, such as changes in dividends, 
patronage, voting rights, preferences, retirement of equities, and 
liquidation priority. If equities protected under section 4.9A of the 
Act are outstanding, the plan of termination must state that the Act's 
protections will be extinguished on termination.
    (10) Effect of termination on statutory and regulatory rights. 
Explain the effect of termination on rights granted to equity holders 
by the Act and FCA regulations. You must explain the effect termination 
will have on borrower rights granted in the Act and part 617 of this 
chapter.
    (11) Loan refinancing by borrowers. (i) State, as applicable, that 
borrowers may seek to refinance their loans with the System 
institutions that already serve, or will be permitted to serve, your 
territory. State that no System institution is obligated to refinance 
your loans.
    (ii) If we have assigned the chartered territory you serve to 
another System institution before the plan of termination is mailed to 
equity holders, or if another System institution is already chartered 
to make the same type of loans you make in the chartered

[[Page 1712]]

territory, identify such institution(s) and provide the following 
information:
    (A) The name, address, and telephone number of the institution; and
    (B) An explanation of the institution's procedures for borrowers to 
apply for refinancing.
    (iii) If we have not assigned the territory before you mail the 
plan of termination, give the name, address, and telephone number of 
the System institution specified by us and state that borrowers may 
contact the institution for information about loan refinancing.
    (12) Equity exchanges. Explain the formula and procedure to 
exchange equity in your institution for equity in the successor 
institution.
    (13) Employment, retirement, and severance agreements. Describe any 
employment agreement or arrangement between the successor institution 
(or any entity that will directly or indirectly merge with or acquire 
the successor institution) and any of your senior officers (as defined 
in Sec.  619.9265 of this chapter) or directors. Describe any severance 
and retirement plans that cover your employees or directors and state 
the costs you expect to incur under the plans in connection with the 
termination.
    (14) Final exit fee and its calculation. Explain how the final exit 
fee will be calculated under Sec.  611.1255 and how it will be paid.
    (15) New charter. Describe the nature and type of financial 
institution the successor institution will be and any conditions of 
approval of the new chartering authority or regulator.
    (16) Differences in successor institution's programs and policies. 
Summarize any differences between you and the successor institution on:
    (i) Interest rates and fees;
    (ii) Collection policies;
    (iii) Services provided; and
    (iv) Any other item that would affect a borrower's lending 
relationship with the successor institution, including whether a 
stockholder's ability to borrow from the institution will be 
restricted.
    (17) Capitalization. Discuss expected capital requirements of the 
successor institution, and the amount and method of capitalization.
    (18) Sources of funding. Explain the sources and manner of funding 
for the successor institution's operations.
    (19) Contingent liabilities. Describe how the successor institution 
will address any contingent liability it will assume from you.
    (20) Tax status. Summarize the differences in tax status between 
your institution and the successor institution, and explain how the 
differences may affect equity holders.
    (21) Regulatory environment. Describe briefly how the regulatory 
environment for the successor institution will differ from your current 
regulatory environment, and any effect on the cost of doing business or 
the value of stockholders' equity.
    (22) Dissenters' rights. Explain which equity holders are entitled 
to dissenters' rights and what those rights are. The explanation must 
include the estimated liquidation value of the stock, procedures for 
exercising dissenters' rights, and a statement of when the rights may 
be exercised.
    (23) Financial information. (i) Present the following financial 
data:
    (A) A balance sheet and income statement for each of the 3 
preceding fiscal years;
    (B) A balance sheet as of a date within 90 days of the date you 
send the plan of termination to us, presented on a comparative basis 
with the corresponding period of the previous 2 fiscal years;
    (C) An income statement for the interim period between the end of 
the last fiscal year and the date of the balance sheet required by 
paragraph (d)(23)(i)(B) of this section, presented on a comparative 
basis with the corresponding period of the previous 2 fiscal years;
    (D) A pro forma balance sheet of the successor institution 
presented as if termination had occurred as of the date of the most 
recent balance sheet presented in the statement; and
    (E) A pro forma summary of earnings for the successor institution 
presented as if the termination had been effective at the beginning of 
the interim period between the end of the last fiscal year and the date 
of the balance sheet presented under paragraph (d)(23)(i)(D) of this 
section.
    (ii) The format for the balance sheet and income statement must be 
the same as the format in your annual report and must contain 
appropriate footnote disclosures, including data on high-risk assets, 
other property owned, and allowance for losses.
    (iii) The financial statements must include either:
    (A) A statement signed by the chief executive officer and each 
board member that the various financial statements are unaudited but 
have been prepared in all material respects in conformity with GAAP 
(except as otherwise disclosed) and are, to the best of each signer's 
knowledge, a fair and accurate presentation of the financial condition 
of the institution; or
    (B) A signed opinion by an independent certified public accountant 
that the various financial statements have been examined in conformity 
with generally accepted auditing standards and included such tests of 
the accounting records and other such auditing procedures as were 
considered necessary in the circumstances, and, as of the date of the 
statements, present fairly the financial position of the institution in 
conformity with GAAP applied on a consistent basis, except as otherwise 
disclosed.
    (24) Subsequent financial events. Describe any event after the date 
of the financial statements, but before the date you send the plan of 
termination to us, that would have a material impact on your financial 
condition or the condition of the successor institution.
    (25) Other subsequent events. Describe any event after you send the 
plan of termination to us that could have a material impact on any 
information in the plan of termination.
    (26) Other material disclosures. Describe any other material fact 
or circumstance that a stockholder would need to know to make an 
informed decision on the termination, or that is necessary to make the 
disclosures not misleading. We may require you to disclose any 
assessments, analyses, studies, or rulings we require under Sec.  
611.1211.
    (27) Ballot and proxy. Include a ballot and proxy, with 
instructions on the purpose and authority for their use, and the proper 
method for the stockholder to sign the proxy.
    (28) Board of directors certification. Include a certification 
signed by the entire board of directors as to the truth, accuracy, and 
completeness of the information contained in the plan of termination. 
If any director refuses to sign the certification, the director must 
inform us of the reasons for refusing.
    (29) Directors' statements. You must include statements, if any, by 
directors regarding the proposed termination.
    (30) Reaffirmation resolution. Provide a copy of the reaffirmation 
resolution required by Sec.  611.1235.
    (d) Requirement to provide updated information. After you send us 
the plan of termination, you must immediately send us:
    (1) Any material change to information in the plan of termination, 
including financial information, that occurs between the date you file 
the plan of termination and the termination date;
    (2) Copies of any additional written information on the termination 
that you have given or give to current or prospective equity holders 
before termination; and
    (3) A description of any subsequent event(s) that could have a 
material

[[Page 1713]]

impact on any information in the plan of termination or on the 
termination.


Sec.  611.1230  FCA review and approval--plan of termination.

    (a) FCA review period. No later than 60 days after we receive the 
plan of termination, we will review it and either approve or disapprove 
the plan for submission to your equity holders. If we take no action on 
the plan of termination within 60 days, you may submit the plan to your 
equity holders. The 60-day review period under section 7.11 of the Act 
will begin on the date we receive a complete plan of termination. We 
will advise you in writing when the 60-day period begins.
    (b) FCA approval of the plan of termination. Our approval of the 
plan of termination for submission to your equity stockholders:
    (1) Is not our approval of the termination; and
    (2) May be subject to any condition we impose.


Sec.  611.1235  Plan of termination--distribution.

    (a) Reaffirmation resolution. Not more than 14 days before mailing 
the plan of termination to your equity holders, your board of directors 
must adopt, by a majority vote of all directors, a resolution 
reaffirming support of the termination. A certified copy of the 
resolution must be sent to us and must accompany the plan of 
termination when it is distributed to stockholders.
    (b) Notice of meeting and distribution of plan. You must provide 
all equity holders with a notice of meeting and the plan of termination 
at least 45 days before the stockholder vote. You must also provide a 
copy of the plan to us when you provide it to your equity holders.


Sec.  611.1240  Voting record date and stockholder approval.

    (a) Stockholder meeting. You must call the meeting by written 
notice in compliance with your bylaws. The stockholder meeting to vote 
on the termination must occur at least 60 days after our approval of 
the plan of termination (or, if we take no action, at least 60 days 
after the end of our approval period).
    (b) Voting record date. The voting record date may not be more than 
70 days before the stockholders' meeting.
    (c) Quorum requirement for termination vote. At least 30 percent, 
unless your bylaws provide for a higher quorum, of the voting 
stockholders of the institution must be present at the meeting either 
in person or by proxy in order to hold the vote on the termination.
    (d) Approval requirement. The affirmative vote of a majority of the 
voting stockholders of the institution present and voting or voting by 
proxy at the duly authorized meeting at which a quorum is present as 
prescribed in paragraph (c) of this section is required for approval of 
the termination.
    (e) Voting procedures. The voting procedures must comply with 
Sec. Sec.  611.330 and 611.340. You must have an independent third 
party count the ballots. If a voting stockholder notifies you of the 
stockholder's intent to exercise dissenters' rights, the tabulator must 
be able to verify to you that the stockholder voted against the 
termination. Otherwise, the votes of stockholders must remain 
confidential.
    (f) Notice to FCA and equity holders of voting results. Within 10 
days of the termination vote, you must send us a certified record of 
the results of the vote. You must notify all equity holders of the 
results within 30 days after the stockholder meeting. If the 
stockholders approve the termination, you must give the following 
information to equity holders:
    (1) Stockholders who voted against termination and equity holders 
who were not entitled to vote have a right to dissent as provided in 
Sec.  611.1280; and
    (2) Voting stockholders have a right, under Sec.  611.1245, to file 
a petition with the FCA for reconsideration within 35 days after the 
date you mail to them the notice of the results of the termination 
vote.
    (g) Requirement to notify new equity holders. You must provide the 
information described in paragraph (f)(1) of this section to each 
person that becomes an equity holder after the termination vote and 
before termination.


Sec.  611.1245  Stockholder reconsideration.

    (a) Right to reconsider termination. Voting stockholders have the 
right to reconsider their approval of the termination if a petition 
signed by at least 15 percent of the voting stockholders is filed with 
us within 35 days after you mail notices to stockholders that the 
termination was approved. If we determine that the petition complies 
with the requirements of section 7.9 of the Act, you must call a 
special stockholders' meeting to reconsider the vote. The meeting must 
occur within 60 days after the date on which you mailed to stockholders 
the results of the termination vote.
    (b) Quorum requirement for termination reconsideration vote. At 
least 30 percent, unless your bylaws provide for a higher quorum, of 
the voting stockholders of the institution must be present at the 
stockholders' meeting either in person or by proxy in order to hold the 
reconsideration vote. If a majority of the voting stockholders voting 
in person or by proxy vote against the termination, the termination may 
not take place.
    (c) Stockholder list and expenses. You must, at your expense, 
timely give stockholders who request it a list of the names and 
addresses of stockholders eligible to vote in the reconsideration vote. 
The petitioners must pay all other expenses for the petition. You must 
pay expenses that you incur for the reconsideration vote.


Sec.  611.1246  Filing of termination application and its contents.

    (a) Filing of termination application. Send us your termination 
application no later than 90 days after you send us notice of the 
stockholder vote approving the termination. Please send us an original 
and five copies of the termination application for review and approval. 
If you send us the termination application in electronic form, you must 
send us at least one hard copy with original signatures.
    (b) Contents of termination application. The application must 
contain:
    (1) A certified copy of the termination and reaffirmation 
resolutions;
    (2) A certification signed by the board of directors that the board 
continues to support the termination, there has been no material change 
to any of the information contained in the plan of termination or 
information statement after the FCA approved the plan of termination, 
and there have not been any subsequent events that could have a 
material impact on any of the information in the plan of termination or 
the termination; and
    (3) Any additional information that is required under this subpart, 
that we request or that your board of directors wishes to submit in 
support of the application.


Sec.  611.1247  FCA review and approval--termination.

    (a) FCA action on application. After we receive the termination 
application, we will review it and either approve or disapprove the 
termination.
    (b) Basis for disapproval. We will disapprove the termination if we 
determine that there are one or more appropriate reasons for 
disapproval consistent with our authorities under the Act and our 
regulations. We will inform you of our reason(s) for disapproval in 
writing.
    (c) Conditions of FCA approval. We will approve your termination 
application only if:

[[Page 1714]]

    (1) Your stockholders have voted in favor of termination in the 
termination vote and in any reconsideration vote;
    (2) You have given us executed copies of all contracts, agreements, 
and other documents submitted under Sec. Sec.  611.1221 and 611.1223;
    (3) You have paid or made adequate provision for payment of debts, 
including responsibility for any contingent liabilities, and for 
retirement of equities;
    (4) A Federal or State chartering authority has granted a new 
charter to the successor institution;
    (5) You deposit into escrow an amount equal to 110 percent of the 
estimated exit fee plus 110 percent of the estimated amount you must 
pay to retire equities of dissenting stockholders and Farm Credit 
institutions, as described in Sec.  611.1255(c); and
    (6) You have fulfilled any condition of termination we impose.
    (d) Effective date of termination. If we approve the termination, 
we will revoke your charter, and the termination will be effective on 
the date that we provide, but no earlier than the last to occur of:
    (1) Fulfillment of all conditions listed in or imposed under 
paragraph (c) of this section;
    (2) Your proposed termination date;
    (3) Ninety (90) days after we receive your termination application 
described in Sec.  611.1246; or
    (4) Fifteen (15) days after any reconsideration vote.


Sec.  611.1250  Preliminary exit fee estimate.

    (a) Preliminary exit fee estimate--terminating association. You 
must provide a preliminary exit fee estimate to us when you submit the 
plan of termination under Sec.  611.1222. Calculate the preliminary 
exit fee estimate in the following order:
    (1) Base your exit fee calculation on the average daily balances of 
assets and liabilities for the 12-month period as of the quarter end 
immediately before the date you send us your plan of termination.
    (2) Any amounts we refer to in this section are average daily 
balances unless we specify that they are not. Amounts that are not 
average daily balances will be referred to as ``dollar amount.''
    (3) Compute the average daily balances based on financial 
statements that comply with GAAP. The financial statements, as of the 
quarter end immediately before the date you send us your plan of 
termination, must be independently audited by a qualified public 
accountant, as defined in Sec.  621.2(i) of this chapter. We may, in 
our discretion, waive the audit requirement if an independent audit was 
performed as of a date less than 6 months before you submit the plan of 
termination.
    (4) Make adjustments to assets as follows:
    (i) Add back expenses you have incurred related to termination. 
Related expenses include, but are not limited to, legal services, 
accounting services, tax services, studies, auditing, business 
planning, equity holder meetings, and application fees for the 
termination and reorganization.
    (ii) Subtract the dollar amount of estimated current and deferred 
tax expenses, if any, due to the termination.
    (iii) Add the dollar amount of estimated current and deferred tax 
benefits, if any, due to the termination.
    (iv) Adjust for the dollar amount of significant transactions you 
reasonably expect to occur between the quarter end before you file your 
plan of termination and date of termination. Examples of these 
transactions include, but are not limited to, gains or losses on the 
sale of assets, retirements of equity, loan repayments, and patronage 
distributions. Do not make adjustments for future expenses related to 
termination, such as severance or special retirement payments, or stock 
retirements to dissenting stockholders and Farm Credit institutions.
    (5) Subtract from liabilities any liability that we treat as 
regulatory capital under the capital or collateral requirements in 
subparts H and K of part 615 of this chapter.
    (6) Make any adjustments we require under paragraph (c) of this 
section.
    (7) After making these adjustments to assets and liabilities, 
subtract liabilities from assets. This is your preliminary total 
capital for purposes of termination.
    (8) Multiply assets as adjusted above by 6 percent, and subtract 
this amount from preliminary total capital. This is your preliminary 
exit fee estimate.
    (b) Preliminary exit fee estimate-terminating bank. (1) Affiliated 
associations that are terminating with you must calculate their 
individual preliminary exit fee estimates as described in paragraph (a) 
of this section.
    (2) Base your exit fee calculation on the average daily balances of 
assets and liabilities for the 12-month period as of the quarter end 
immediately before the date you send us your plan of termination.
    (3) Any amounts we refer to in this section are average daily 
balances unless we specify that they are not. Amounts that are not 
average daily balances will be referred to as ``dollar amount.''
    (4) Compute the average daily balances based on bank-only financial 
statements that comply with GAAP. The financial statements, as of the 
quarter end immediately before the date you send us your plan of 
termination, must be independently audited by a qualified public 
accountant, as defined in Sec.  621.2(i) of this chapter. We may, in 
our discretion, waive this requirement if an independent audit was 
performed as of a date less than 6 months before you submit the plan of 
termination.
    (5) Make adjustments to assets and liabilities as follows:
    (i) Add back to assets the following:
    (A) Expenses you have incurred related to termination. Related 
expenses include, but are not limited to, legal services, accounting 
services, tax services, studies, auditing, business planning, equity 
holder meetings, and application fees for the termination and 
reorganization; and
    (B) Any specific allowance for losses, and a pro rata portion of 
any general allowance for loan losses, on direct loans to associations 
that you do not expect to incur before or at termination.
    (ii) Subtract from your assets and liabilities an amount equal to 
your direct loans to your affiliated associations that are not 
terminating.
    (iii) Subtract the following from assets:
    (A) Equity investments in your institution that are held by 
nonterminating associations and that you expect to transfer to another 
System bank before or at termination. A nonterminating association's 
investment consists of purchased equities, allocated equities, and a 
share of the bank's unallocated surplus calculated in accordance with 
the bank's bylaw provisions on liquidation. We may require a different 
calculation method for the unallocated surplus if we determine that 
using the liquidation provision would be inequitable to stockholders; 
and
    (B) The dollar amount of estimated current and deferred tax 
expenses, if any, due to the termination.
    (iv) Add the dollar amount of current and deferred estimated tax 
benefits, if any, due to the termination.
    (v) Subtract from liabilities any liability that we treat as 
regulatory capital under the capital or collateral requirements in 
subparts H and K of part 615 of this chapter.
    (vi) Adjust for the dollar amount of significant transactions you 
reasonably expect to occur between the quarter end before you file your 
plan of termination and date of termination. Examples of these 
transactions include, but are not limited to, retirements of equity, 
loan

[[Page 1715]]

repayments, and patronage distributions. Do not make adjustments for 
future expenses related to termination, such as severance or special 
retirement payments, or stock retirements to dissenting stockholders 
and Farm Credit institutions.
    (6) Make any adjustments we require under paragraph (c) of this 
section.
    (7) After the above adjustments, combine your balance sheet with 
the balance sheets of your terminating associations after they have 
made the adjustments required in paragraph (a) of this section. 
Subtract liabilities from assets. This is your preliminary total 
capital estimate for purposes of termination.
    (8) Multiply the assets of the combined balance sheet after the 
above adjustments by 6 percent. Subtract this amount from the 
preliminary total capital estimate of the combined balance sheet. The 
remainder is the preliminary exit fee estimate of the bank and 
terminating affiliated associations.
    (9) Your preliminary exit fee estimate is the amount by which the 
preliminary exit fee estimate for the combined entity exceeds the total 
of the individual preliminary exit fee estimates of your affiliated 
terminating associations.
    (c) Adjustments. (1) We will review your account balances, 
transactions over the 3 years before the date of the termination 
resolution under Sec.  611.1220, and any subsequent transactions. Our 
review will include, but not be limited to, the following:
    (i) Additions to or subtractions from any allowance for losses;
    (ii) Additions to assets or liabilities, or subtractions from 
assets or liabilities, due to transactions that are outside your 
ordinary course of business;
    (iii) Dividends or patronage refunds exceeding your usual 
practices;
    (iv) Changes in the institution's capital plan, or in implementing 
the plan, that increased or decreased the level of borrower investment;
    (v) Contingent liabilities, such as loss-sharing obligations, that 
can be reasonably quantified; and
    (vi) Assets, including real property and servicing rights, that may 
be overvalued, undervalued, or not recorded on your books.
    (2) If we determine the account balances do not accurately show the 
value of your assets and liabilities (whether the assets and 
liabilities were booked before or during the 3-year look-back 
adjustment period), we will make any adjustments we deem necessary.
    (3) We may require you to reverse the effect of a transaction if we 
determine that:
    (i) You have retired capital outside the ordinary course of 
business;
    (ii) You have taken any other actions unrelated to your core 
business that have the effect of changing the exit fee; or
    (iii) You incurred expenses related to termination prior to the 12-
month average daily balance period on which the exit fee calculation is 
based.
    (4) We may require you to make these adjustments to the preliminary 
exit fee estimate that is disclosed in the information statement, the 
final exit fee calculation, and the calculations of the value of 
equities held by dissenting stockholders, Farm Credit institutions that 
choose to have their equities retired at termination, and reaffiliating 
associations.


Sec.  611.1255  Exit fee calculation.

    (a) Final exit fee calculation--terminating association. Calculate 
the final exit fee in the following order:
    (1) Base your exit fee calculation on the average daily balances of 
assets and liabilities for the 12-month period preceding the 
termination date. Assume for this calculation that you have not paid or 
accrued the items described in paragraph (a)(4)(ii) of this section.
    (2) Any amounts we refer to in this section are average daily 
balances unless we specify that they are not. Amounts that are not 
average daily balances will be referred to as ``dollar amount.''
    (3) Compute the average daily balances based on financial 
statements that comply with GAAP. The financial statements, as of the 
termination date, must be independently audited by a qualified public 
accountant, as defined in Sec.  621.2(i) of this chapter.
    (4) Make adjustments to assets and liabilities as follows:
    (i) Add back expenses related to the termination. Related expenses 
include, but are not limited to, legal services, accounting services, 
tax services, studies, auditing, business planning, payments of 
severance and special retirements, equity holder meetings, and 
application fees for the termination and reorganization.
    (ii) Subtract from assets the dollar amount of current and deferred 
tax expenses, if any, due to the termination.
    (iii) Add to assets the dollar amount of current and deferred tax 
benefits, if any, due to the termination.
    (iv) Subtract from liabilities any liability that we treat as 
regulatory capital under the capital or collateral requirements in 
subparts H and K of part 615 of this chapter.
    (v) Make the adjustments that we require under Sec.  611.1250(c). 
For the final exit fee, we will review and may require additional 
adjustments for transactions between the date you adopted the 
termination resolution and the termination date.
    (5) After making these adjustments to assets and liabilities, 
subtract liabilities from assets. This is your total capital for 
purposes of termination.
    (6) Multiply assets by 6 percent, and subtract this amount from 
total capital. This is your final exit fee.
    (b) Final exit fee calculation--terminating bank. (1) The 
individual exit fees of affiliated associations that are terminating 
with you must be calculated as described in paragraph (a) of this 
section.
    (2) Base your exit fee calculation on the average daily balances of 
assets and liabilities for the 12-month period preceding the 
termination date. Assume for this calculation that you have not paid or 
accrued the items described in paragraph (b)(5)(iii)(B) and (C) of this 
section.
    (3) Any amounts we refer to in this section are average daily 
balances unless we specify that they are not. Amounts that are not 
average daily balances will be referred to as ``dollar amount.''
    (4) Compute the average daily balances based on bank-only financial 
statements that comply with GAAP. The financial statements, as of the 
termination date, must be independently audited by a qualified public 
accountant, as defined in Sec.  621.2(i) of this chapter.
    (5) Make adjustments to assets and liabilities as follows:
    (i) Add back the following to your assets:
    (A) Expenses you have incurred related to termination. Related 
expenses include, but are not limited to, legal services, accounting 
services, tax services, studies, auditing, business planning, payments 
of severance and special retirements, equity holder meetings, and 
application fees for the termination and reorganization.
    (B) Any specific allowance for losses, and a pro rata share of any 
general allowance for losses, on direct loans to associations that are 
paid off or transferred before or at termination.
    (ii) Subtract from your assets and liabilities your direct loans to 
affiliated associations that were paid off or transferred in the 12-
month period before termination or at termination.
    (iii) Subtract from your assets the following:
    (A) Equity investments held in your institution by affiliated 
associations that you transferred at termination or during the 12 
months before termination; and

[[Page 1716]]

    (B) The dollar amount of current and deferred tax expenses, if any, 
due to the termination;
    (iv) Add to assets, the dollar amount of estimated current and 
deferred tax benefits, if any, due to the termination.
    (v) Subtract from liabilities any liability that we treat as 
regulatory capital (or that we do not treat as a liability) under the 
capital or collateral requirements in subparts H and K of part 615 of 
this chapter.
    (vi) Make the adjustments that we require under Sec.  611.1250(c). 
For the final exit fee, we will review and may require additional 
adjustments for transactions between the date you adopted the 
termination resolution and the termination date.
    (6) After the above adjustments, combine your balance sheet with 
the balance sheets of terminating associations after making the 
adjustments required in paragraph (a) of this section.
    (7) Subtract combined liabilities from combined assets. This is the 
total capital of the combined balance sheet.
    (8) Multiply the assets of the combined balance sheet after the 
above adjustments by 6 percent. Subtract this amount from the total 
capital of the combined balance sheet. This amount is the combined 
final exit fee for your institution and the terminating affiliated 
associations.
    (9) Your final exit fee is the amount by which the combined final 
exit fee exceeds the total of the individual final exit fees of your 
affiliated terminating associations.
    (c) Payment of exit fee. On the termination date, you must:
    (1) Deposit into an escrow account acceptable to us and the FCSIC 
an amount equal to 110 percent of the preliminary exit fee estimate, 
adjusted to account for stock retirements to dissenting stockholders 
and Farm Credit institutions, and any other adjustments we require.
    (2) Deposit into an escrow account acceptable to us an amount equal 
to 110 percent of the equity you must retire for dissenting 
stockholders and System institutions holding stock that would be 
entitled to a share of the remaining assets in a liquidation.
    (d) Pay-out of escrow. Following the independent audit of the 
institution's account balances as of the termination date, we will 
determine the amount of the final exit fee and the amounts owed to 
stockholders to retire their equities. We will then direct the escrow 
agent to:
    (1) Pay the exit fee to the Farm Credit Insurance Fund;
    (2) Pay the amounts owed to dissenting stockholders and Farm Credit 
institutions; and
    (3) Return any remaining amounts to the successor institution.
    (e) Additional payment. If the amount held in escrow is not enough 
to pay the amounts under paragraph (d)(1) and (d)(2) of this section, 
the successor institution must pay any remaining liability to the 
escrow agent for distribution to the appropriate parties. The 
termination application must include evidence that, after termination, 
the successor institution will pay any remaining amounts owed.


Sec.  611.1260  Payment of debts and assessments--terminating 
association.

    (a) General rule. If your institution is a terminating association, 
you must pay or make adequate provision for the payment of all 
outstanding debt obligations and assessments.
    (b) No OFI relationship. If the successor institution will not 
become an OFI, you must either:
    (1) Pay debts and assessments owed to your affiliated Farm Credit 
bank at termination; or
    (2) With your affiliated Farm Credit bank's concurrence, arrange to 
pay any obligations or assessments to the bank after termination.
    (c) Obligations to other Farm Credit institutions. You must pay or 
make adequate provision for payment of obligations to any Farm Credit 
institution (other than your affiliated bank) under any loss-sharing or 
other agreement.


Sec.  611.1265  Retirement of a terminating association's investment in 
its affiliated bank.

    (a) Safety and soundness restrictions. Notwithstanding anything in 
this subpart to the contrary, we may prohibit a bank from retiring the 
equities you hold in the bank if the retirement would cause the bank to 
fall below its regulatory capital requirements after retirement, or if 
we determine that the bank would be in an unsafe or unsound condition 
after retirement.
    (b) Retirement agreement. Your affiliated bank may retire the 
purchased and allocated equities held by your institution in the bank 
according to the terms of the bank's capital revolvement plan or an 
agreement between you and the bank.
    (c) Retirement in absence of agreement. Your affiliated bank must 
retire any equities not subject to an agreement or revolvement plan no 
later than when you or the successor institution pays off your loan 
from the bank.
    (d) No retirement of unallocated surplus. When your bank retires 
equities you own in the bank, the bank must pay par or face value for 
purchased and allocated equities, less any impairment. The bank may not 
pay you any portion of its unallocated surplus.
    (e) Exclusion of equities from capital ratios. If another Farm 
Credit institution makes an agreement to retire equities you hold in 
that institution after termination, we may require that institution to 
exclude part or all of those equities from assets and capital when the 
institution calculates its capital and net collateral ratios under 
subparts H and K of part 615 of this chapter.


Sec.  611.1270  Repayment of obligations--terminating bank.

    (a) General rule. If your institution is a terminating bank, you 
must pay or make adequate provision for the payment of all outstanding 
debt obligations, and provide for your responsibility for any probable 
contingent liabilities identified.
    (b) Satisfaction of primary liability on consolidated or Systemwide 
obligations. After consulting with the other Farm Credit banks, the 
Funding Corporation, and the FCSIC, you must pay or make adequate 
provision for payment of your primary liability on consolidated or 
Systemwide obligations in a method that we deem acceptable. Before we 
make a final decision on your proposal and as we deem necessary, we may 
consult with the other Farm Credit banks, the Funding Corporation, and 
the FCSIC.
    (c) Satisfaction of joint and several liability and liability for 
interest on individual obligations. (1) You and the other Farm Credit 
banks must enter into an agreement, which is subject to our approval, 
covering obligations issued under section 4.2 of the Act and 
outstanding on the termination date. The agreement must specify how you 
and your successor institution will make adequate provision for the 
payment of your joint and several liability to holders of obligations 
other than those obligations on which you are primarily liable, in the 
event we make calls for payment under section 4.4 of the Act. You and 
your successor institution must also provide for your liability under 
section 4.4(a)(1) of the Act to pay interest on the individual 
obligations issued by other System banks. As a part of the agreement, 
you must also agree that your successor institution will provide 
ongoing information to the Funding Corporation to enable it to fulfill 
its funding and disclosure duties. The Funding Corporation may, at its 
option, be a

[[Page 1717]]

party to the agreement to the extent necessary to fulfill its duties 
with respect to financing and disclosure.
    (2) If you and the other Farm Credit banks are unable to reach 
agreement within 90 days before the proposed termination date, we will 
specify the manner in which you will make adequate provision for the 
payment of the liabilities in question and how we will make joint and 
several calls for those obligations outstanding on the termination 
date.
    (3) Notwithstanding any other provision in these regulations, the 
successor institution will be jointly and severally liable for 
consolidated and Systemwide debt outstanding on the termination date 
(other than the obligations on which you are primarily liable). The 
successor institution will also be liable for interest on other banks' 
individual obligations as described in section 4.4(a)(1) of the Act and 
outstanding on the termination date. The termination application must 
include evidence that the successor institution will continue to be 
liable for consolidated and Systemwide debt and for interest on other 
banks' individual obligations.


Sec.  611.1275  Retirement of equities held by other System 
institutions.

    (a) Retirement at option of equity holder. If your institution is a 
terminating institution, System institutions that own your equities 
have the right to require you to retire the equities on the termination 
date.
    (b) Value of equity holders' interests. You must retire the 
equities in accordance with the liquidation provisions in your bylaws 
unless we determine that the liquidation provisions would result in an 
inequitable distribution to stockholders. If we make such a 
determination, we will require you to distribute the equity in 
accordance with another method that we deem equitable to stockholders. 
Before you retire any equity, you must make the following adjustments 
to the amount of stockholder equity as stated in the financial 
statements on the termination date:
    (1) Make deductions for any taxes due to the termination that have 
not yet been recorded;
    (2) Deduct the amount of the exit fee; and
    (3) Make any adjustments described under Sec.  611.1250(c) that we 
may require as we deem appropriate.
    (c) Transfer of affiliated association's investment. As an 
alternative to equity retirement, an affiliated association that 
reaffiliates with another Farm Credit bank instead of terminating with 
its bank has the right to require the terminating bank to transfer its 
investment to its new affiliated bank when it reaffiliates. If your 
institution is a terminating bank, at the time of reaffiliation you 
must transfer the purchased and allocated equities held by the 
association, as well as its share of unallocated surplus, to the new 
affiliated bank. Calculate the association's share before deduction of 
the exit fee as of the month end preceding the reaffiliation date (or 
the termination date if it is the same as the reaffiliation date) in 
accordance with the liquidation provisions of your bylaws, unless we 
determine that the liquidation provisions would result in an 
inequitable distribution. If we make such a determination, we will 
require you to distribute the association's share of your unallocated 
surplus in accordance with another method that we deem equitable to 
stockholders. Before you distribute any unallocated surplus, you must 
make the following adjustments to stockholder equity as stated in the 
financial statements as of the month end preceding the reaffiliation 
date (or the termination date if it is the same as the reaffiliation 
date):
    (1) Add back any taxes due to the termination, and the exit fee; 
and
    (2) Make any adjustments described under Sec.  611.1250(c) that we 
may require as we deem appropriate.
    (d) Prohibition on certain affiliations. No Farm Credit institution 
may retain an equity interest otherwise prohibited by law in a 
successor institution.


Sec.  611.1280  Dissenting stockholders' rights.

    (a) Definition. A dissenting stockholder is an equity holder (other 
than a System institution) in a terminating institution on the 
termination date who either:
    (1) Was eligible to vote on the termination resolution and voted 
against termination;
    (2) Was an equity holder on the voting record date but was not 
eligible to vote; or
    (3) Became an equity holder after the voting record date.
    (b) Retirement at option of a dissenting stockholder. A dissenting 
stockholder may require a terminating institution to retire the 
stockholder's equity interest in the terminating institution.
    (c) Value of a dissenting stockholder's interest. You must pay a 
dissenting stockholder according to the liquidation provision in your 
bylaws, except that you must pay at least par or face value for 
eligible borrower stock (as defined in section 4.9A(d)(2) of the Act). 
If we determine that the liquidation provision is inequitable to 
stockholders, we will require you to calculate their share in 
accordance with another formula that we deem equitable.
    (d) Calculation of interest of a dissenting stockholder. Before you 
retire any equity, you must make the following adjustments to the 
amount of stockholder equity as stated in the financial statements on 
the termination date:
    (1) Deduct any taxes due to the termination that you have not yet 
recorded;
    (2) Deduct the amount of the exit fee; and
    (3) Make any adjustments described under Sec.  611.1250(c) that we 
may require as we deem appropriate.
    (e) Form of payment to a dissenting stockholder. You must pay 
dissenting stockholders for their equities as follows:
    (1) Pay cash for the par or face value of purchased stock, less any 
impairment;
    (2) For equities other than purchased equities, you may:
    (i) Pay cash;
    (ii) Cause or otherwise provide for the successor institution to 
issue, on the date of termination, subordinated debt to the stockholder 
with a face value equal to the value of the remaining equities. This 
subordinated debt must have a maturity date of 7 years or less, must 
have priority in liquidation ahead of all equity, and must carry a rate 
of interest not less than the rate (at the time of termination) for 
debt of comparable maturity issued by the U.S. Treasury plus 1 percent; 
or
    (iii) Provide for a combination of cash and subordinated debt as 
described above.
    (f) Payment to holders of special class of stock. If you have 
adopted bylaws under Sec.  611.1210(g), you must pay a dissenting 
stockholder who owns shares of the special class of stock an amount 
equal to the lower of the par (or face) value or the value of such 
stock as determined under Sec.  611.1280(c) and (d).
    (g) Notice to equity holders. The notice to equity holders required 
in Sec.  611.1240(f) must include a form for stockholders to send back 
to you, stating their intention to exercise dissenters' rights. The 
notice must contain the following information:
    (1) A description of the rights of dissenting stockholders set 
forth in this section and the approximate value per share that a 
dissenting stockholder can expect to receive. State whether the 
successor institution will require borrowers to be stockholders or 
whether

[[Page 1718]]

it will require stockholders to be borrowers.
    (2) A description of the current book and par value per share of 
each class of equities, and the expected book and market value of the 
stockholder's interest in the successor institution.
    (3) A statement that a stockholder must return the enclosed form to 
you within 30 days if the stockholder chooses to exercise dissenters' 
rights.
    (h) Notice to subsequent equity holders. Equity holders that 
acquire their equities after the termination vote must also receive the 
notice described in paragraph (g) of this section. You must give them 
at least 5 business days to decide whether to request retirement of 
their stock.
    (i) Reconsideration. If a reconsideration vote is held and the 
termination is disapproved, the right of stockholders to exercise 
dissenters' rights is rescinded. If a reconsideration vote is held and 
the termination is approved, you must retire the equities of dissenting 
stockholders as if there had been no reconsideration vote.


Sec.  611.1285  Loan refinancing by borrowers.

    (a) Disclosure of credit and loan information. At the request of a 
borrower seeking refinancing with another System institution before you 
terminate, you must give credit and loan information about the borrower 
to such institution.
    (b) No reassignment of territory. If, at the termination date, we 
have not assigned your territory to another System institution, any 
System institution may lend in your territory, to the extent otherwise 
permitted by the Act and the regulations in this chapter.


Sec.  611.1290  Continuation of borrower rights.

    You may not require a waiver of contractual borrower rights 
provisions as a condition of borrowing from and owning equity in the 
successor institution. Institutions that become other financing 
institutions on termination must comply with the applicable borrower 
rights provisions in the Act and part 617 of this chapter.

    Dated: January 6, 2006.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. 06-240 Filed 1-10-06; 8:45 am]
BILLING CODE 6705-01-P