Title: PROPOSED RULE--Organization; Personnel Administration; General Provisions; Disclosure to Shareholders--12 CFR Parts 611, 612, 618 and 620
Issue Date: 06/06/1988
Agency: FCA
Federal Register Cite: 53 FR 20637
___________________________________________________________________________
FARM CREDIT ADMINISTRATION

12 CFR Parts 611, 612, 618 and 620

Organization; Personnel Administration; General Provisions; Disclosure to Shareholders


ACTION: Proposed rule.

SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit Administration Board (Board), publishes for comment proposed amendments to Parts 611, 612, 618, and 620 to implement changes made necessary as a result of enactment of the Agricultural Credit Act of 1987 (1987 Act), Pub. L. 100-233. The proposed amendments to Part 611 and 618 are conforming changes which implement the statutory amendments that eliminated the Farm Credit District boards. Other proposed amendments to Part 611 would add regulations regarding eligibility of candidates for bank and association director positions; standards for the election process; mergers of banks; stockholder reconsideration of previously approved mergers; contents of disclosure statements in connection with transfers of Federal land bank lending authorities to Federal land bank associations; other procedures and provisions for disclosure requirements relating to mergers and reorganizations. Finally, regulations are proposed for addition to Part 620 regarding disclosure requirements for candidates for Bank directors.

DATE: Written comments are due on or before July 6, 1988.

ADDRESSES: Submit comments (in triplicate) in writing to Anne E. Dewey, General Counsel, Farm Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102-5090. Copies of all communications received will be available for examination by interested parties in the Office of General Counsel, Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT:

James F. Thies, Assistant Chief, Financial Analysis and Standards Division, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090, (703) 883-4475,
or
Gary L. Norton, Senior Attorney, Office of General Counsel, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-4444.

TEXT: SUPPLEMENTARY INFORMATION: The 1987 Act established new authorities and requirements relating to the organization of Farm Credit System (System) institutions. The 1987 Act: (1) Requires the merger or consolidation of the Federal land banks and Federal intermediate credit banks in each district; (2) requires a stockholder vote on the merger or consolidation of Federal land bank associations and production credit associations that share substantially the same geographical territory; (3) mandates stockholder votes on a proposal to consolidate the banks for cooperatives, and on a proposal to consolidate the twelve Farm Credit districts into no less than six banks; (4) provides for the petitioning by association stockholders to reconsider association mergers completed between December 23, 1985 and January 6, 1988, or to seek a transfer of territory to an adjoining district; (5) permits the merger or consolidation of banks in a district into one bank.

The 1987 Act requires the FCA to issue regulations to implement the new or amended reorganization authorities contained in the Act. To prepare for the issuance of proposed regulations, the FCA published an Advance Notice of Proposed Rulemaking (ANPRM) on February 16, 1988, (53 FR 4416) requesting comment on the implementation of the new reorganization authorities of System institutions and on the election of individuals to the boards of directors of the newly established or authorized System institutions. The comment period closed March 1, 1988.

Comments were received from the Farm Credit Corporation of America (FCCA) on behalf of the 37 Farm Credit banks, several individual Farm Credit banks, a number of production credit associations and Federal land bank associations, a west coast growers' cooperative, and the counsel for the Special Committee on Bank for Cooperatives Structure (established in accordance with section 413 of the 1987 Act). All of the comments were analyzed and taken into consideration in the development of the proposed regulations.

I. Election of Directors and Candidate Disclosure Statements

The FCA received comments from the FCCA and three Farm Credit banks and associations regarding the need for regulations addressing the elections of the board of directors of a consolidated bank for cooperatives and the board of directors of an Agricultural Credit Bank, created by merger of a Farm Credit Bank and a bank for cooperatives. A majority of the respondents indicated that regulations governing the nomination and elections of boards of directors were not needed.

The 1987 Act deleted Farm Credit Act of 1971, as amended (1971 Act) sections 5.1 through 5.6 which governed the nomination and election of Farm Credit District Boards in connection with the creation of a separate board for each bank. The deletion of these sections also eliminated the FCA's responsibility and authority to conduct polls for the nomination and election of individuals to district and association boards of directors. The 1987 Act provided that policies governing the nomination and election of directors should be detailed in the bylaws of the institutions, which would be subject to the FCA's regulation. In addition, new sections 7.1 and 3.21 require the FCA to regulate the conduct of elections for the boards of Agricultural Credit Banks, formed by the merger of a Farm Credit Bank and bank for cooperatives, and elections for the board of a consolidated bank for cooperatives.

In accordance with these general and specific authorities, the FCA has proposed regulations that would establish fundamental eligibility requirements for membership on all bank and association boards based on safety and soundness considerations, and require each bank and association to adopt policies and procedures to ensure impartiality, confidentiality, and security in the election of directors.

The proposed regulation at 12 CFR 611.310 is based in part on provisions previously contained in sections 5.1 to 5.6 of the 1971 Act and would provide for a one-year period between service by any person as director and employee of any bank or association in order to maintain clear and separate accountability of the policy and management functions and require the termination of service of a bank or association director when continued service is clearly incompatible with the integrity and reputation of the institution.

The proposed regulation at 12 CFR 611.320 would incorporate the provisions of 12 CFR 612.2200 which prohibit participation in director elections by bank and association employees and would provide for equal access to bank or association property, facilities, and resources to all declared candidates, if such access is provided to one candidate. Also, the regulation would provide for distribution or mailing of candidate biographical information in a standard format.

New section 4.20 of the 1971 Act prohibits the use of signed ballots in elections for directors of System institutions. The proposed regulation at 12 CFR 611.330 would address this new prohibition by requiring bank and association policies and procedures to protect the confidentiality of stockholders' identity and votes. The proposed regulation contains an exception to this general requirement to enable institutions to identify the voting strength of a ballot or proxy when that type of voting is provided for in the bylaws or required in the Act. These records would be available for review by the FCA through its examination authorities.

Proposed regulations at 12 CFR 620.30, 620.31, 620.32 establish disclosure requirements for bank director candidates consistent with the disclosure requirements for association director candidates. To accommodate the differences between bank and association election scheduling, the proposed regulations for banks do not require these disclosures to be provided in connection with an annual meeting, as is the case for associations. The proposed regulations would require banks to adopt policies and procedures to assure that a disclosure statement is prepared by each candidate for bank director and require such statements to be mailed with the balloting materials.

II. Transfers of Lending Authorities

New section 7.6 of the 1971 Act provides for the transfer of lending authorities from a Federal land bank (or a merged bank having a Federal land bank as one of its constituents) to the Federal land bank associations in its district. This section also contains a provision which provides for the automatic transfer of direct lending authority from a Federal land bank to any association in the district created by the merger of a Federal land bank association and a production credit association.
The FCA received comments from the FCCA and seven Farm Credit banks and associations regarding the transfer of lending authorities. Six of the respondents indicated that a transfer should not be approved if the need for financial assistance was thereby increased. Several commentators expressed a concern that the flexibility for staggered or phased-in transfers should be maintained and that technical assistance agreements between the bank and associations should be allowed. A majority of respondents indicated that regulations are needed to ensure the safe and sound delivery of credit to the member-borrowers of the banks and associations involved in assignments or transfers of lending authorities.

The proposed regulations at 12 CFR 611.500 through 611.525 would establish the manner in which the statutorily required approvals of stockholders, affiliated banks, and the FCA are obtained in connection with a transfer of lending authority. The regulations specify the procedures and disclosures requirements for transfers of lending authorities that are similar to the regulations for other association disclosures requiring stockholder vote. To preserve the totality of circumstances involved in any proposed transfer, the regulations do not contain specific eligibility criteria for approval, such as minimum capital ratios. The regulations provide for an administrative review by the FCA, which would evaluate the proposed assignment or transfer from a safety and soundness standpoint. Under the regulations FCA could deny a request for cause provided that the reasons for denial are fully explained.

III. Special Reconsideration of Mergers

The FCA received comments from the FCCA and six banks and associations regarding new section 7.9 of the 1971 Act which provides for the reconsideration and possible dissolution of mergers that occurred after December 23, 1985, but before January 5, 1988. Half of the respondents stated that there was a need for regulations that protected the rights and interests of the stockholders of each association involved in any reorganization.

A majority of the respondents believed that the FCA should not approve a reorganization which resulted in associations that would be clearly nonviable or would require additional financial assistance from the System. Other commentators supported the need for regulations to ensure the safety and soundness of any institution that may result from a reorganization and that would require the institution to meet minimum capital adequacy standards. Several respondents stated that full disclosure similar to that required for association mergers, should be required in the petition process so that stockholders would have a balanced presentation of the relevant information. One respondent suggested that the regulations should require institutions to prepare financial statements that demonstrate how the association would have performed if the merger had not taken place. Another respondent believed that the association board should have the right to include its opinion on the reorganization in the disclosure materials. Several parties commented that the FCA should establish procedures that would minimize the potentially disruptive impact that multiple votes on different petitions could have on the association and its member-borrowers during this process. One respondent stated that the territorial rights of an association choosing to withdraw should be limited to those it held before the merger, whereas a second respondent believed that the regulations should be flexible on this point so that the desired restructuring could occur with only one, rather than multiple, stockholder votes. Two respondents expressed the need for regulatory guidance on the distribution of assets and liabilities on a fair and equitable basis should an association be restructured.

The proposed regulations at 12 CFR 611.1190 through 611.1198 set forth the procedures for petitions, disclosures, and stockholder votes during the one-year reconsideration period. The regulations are not applicable to any mergers or consolidations implemented prior to December 23, 1985, or after January 5, 1988.
To minimize the disruptive effect that repeated or multiple petitions could have on the association and stockholders and ensure that a reorganization achieves the results intended by the stockholders, the regulations provide for a petition process which expands the options available to stockholders and directors. Stockholders may petition to either withdraw from the existing association or to reorganize the entire association into two or more separate associations which may or may not have territory similar to that held by predecessor associations. The regulations also authorize an association board of directors to initiate, by board resolution, a complete reorganization of an association and submit it to stockholders for approval.

The proposed regulations specify the types of disclosures that must be provided in an information statement prior to a vote on a petition or board resolution. If the reorganization involves the entire association, an affirmative vote of the majority of the association's stockholders is needed before the reorganization can occur. The disclosure requirements are similar to those for association mergers and include a plan of reorganization for any association created by withdrawal or reorganization as well as pro forma financial statements for the same. The information statement must also include a discussion of the likelihood that the associations involved would need financial assistance during their first three years of operations.

The proposed regulations provide for the verification of signatures on the petition by the association and require that the petitions or board resolutions and the accompanying disclosure materials be submitted to the FCA for approval. The FCA could deny approval of a petition or board resolution provided that the reasons for denial are fully explained.

IV. Merger and Reorganization Proposals Required by the 1987 Act

The FCA received comments from the FCCA and one Farm Credit district regarding section 412 of the 1987 Act which provides for the establishment of the Special Committee for the consolidation of Farm Credit districts. The FCA Board has addressed these regulations in a separate Federal Register document which contains interim rules relating to the Special Committee.

The proposed regulations at 12 CFR 611.1145 set forth requirements governing the development of proposals for the merger of certain Federal land bank associations and production credit associations and timetables for the submission of merger proposals to the affiliated banks and to the FCA. The proposed regulations clarify the meaning of "substantially the same" as used in section 411 of the 1987 Act by requiring merger proposals for the creation of agricultural credit associations to be developed in instances in which 90 percent or more of the chartered territory of a production credit association overlaps with 90 percent or more of the chartered territory of a Federal land bank association. The proposed regulations provide that the merger proposals shall be submitted to the affiliated banks no later than 60 days following the creation of the Farm Credit Bank and to the FCA no more than 30 days later. In addition, the proposed regulations specify that merger proposals must comply with the provisions of Subpart G of Part 611 relating to contents of the proposal, required information statements, Farm Credit Administration approval, and stockholder votes.

V. Other Changes to Current Merger Regulations.

The FCA Board adopted other proposed regulations and amendments to current regulations that implement the provisions of sections 7.0 and 7.12 of the 1971 Act which provide for the merger of banks operating under the same or different titles of the 1971 Act. The proposed amendments at 12 CFR 611.1000 and 611.1010 establish the general authority for changes to bank charters and the procedures for amending bank charters. Proposed regulations at 611.1020 set forth the requirements for mergers and consolidations of banks and incorporate the requirements of 611.1122 and 611.1123 relating to mergers of associations, that are applicable to bank mergers. Proposed regulations at 611.1030 would provide for association representation on the board of directors of an Agricultural Credit Bank created by the consolidation of a Farm Credit Bank and a bank for cooperatives.
The proposed amendments to 611.1122(g) and 611.1123(a) implement the provisions of section 7.9 of the 1971 Act, by requiring a delay in the implementation of any voluntary bank or association merger which provides the stockholders with the opportunity to reconsider their approval. Upon the filing of a reconsideration petition by 15 percent or more of the stockholders of any one bank or association that is a party to a merger, there would be a new stockholder vote on the merger.

Section 433 of the 1987 Act permits the stockholders of a Federal land bank association or production credit association whose chartered territory adjoins the territory of another district to petition the FCA to incorporate the petitioning association into the adjoining district. The FCA has decided not to promulgate regulations governing this process because the statutory provisions are clear and the FCA's existing regulations at 12 CFR 611.1124 adequately address the requirements for transfers of territory.

List of Subjects in 12 CFR Parts 611, 612, 618, and 620

Accounting, Agriculture, Archives and records, Banks, banking, Conflict of interests, Insurance, Organizations and functions (Government agencies), Reporting and recordkeeping requirements, Rural areas, Technical assistance.

For the reasons stated in the preamble, Parts 611, 612, 618, and Part 620 of Chapter VI, Title 12, of the Code of Federal Regulations are 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, 3.21, 4.12, 4.15, 5.0, 5.9, 5.10, 5.17, 7.0-7.13; 12 U.S.C. 2011, 2031, 2071, 2091, 2142, 2183, 2203, 2221, 2243, 2244, 2252, 2279a-2279f-1; secs. 411 and 412 of Pub. L. 100-233.

Subpart A -- [Removed and Reserved]

2. Part 611, Subpart A is removed and reserved.

3. Part 611, Subpart C, is added to read as follows:

Subpart C -- Election of Directors

Sec.

611.310 Eligibility for membership on bank association boards and subsequent employment.

611.320 Impartiality in the election of bank and associated directors.

611.330 Confidentiality in the election of bank and association directors.

611.340 Security in the election of bank and associated directors.

Subpart C -- Election of Directors

611.310 Eligibility for membership on bank and associated boards and subsequent employment.

(a) No person shall be eligible for membership on a bank or association board who is or has been, within one year next preceding the date the term of office begins, a salaried officer or employee of any bank or association in the System.

(b) No bank or association director shall be eligible to continue to serve in that capacity and his or her office shall become vacant if after election as a member of the board, he or she becomes legally incompetent or is finally convicted of a felony or held liable in damages for fraud.

(c) No bank or association director shall, within one year after the date when he or she ceases to be a member of the board, serve as a salaried officer or employee of any bank or association for which he or she served as a director.

611.320 Impartiality in the election of bank and association directors.

(a) Each bank and association shall adopt policies and procedures that assure the elections of board members are conducted in an impartial manner.

(b) No employee or agent of a System institution shall take any part, directly or indirectly, in the nomination or election of members of a bank, association, or service organization board, or make any statement, either orally or in writing, which may be construed as intended to influence any vote in such nominations, or elections. This paragraph shall not prohibit employees or agents from providing biographical and other similar information or engaging in other activities pursuant to policies and procedures for nominations and elections. This paragraph does not affect the right of an employee or agent to nominate or vote for directors of an institution in which the employee or agent is a voting member.

(c) No property, facilities, or resources of any System institution shall be used by any candidate for nomination or election or any other person for the benefit of any candidate for nomination or election, unless the same property, facilities, or resources are simultaneously available and made known to be available for use by all declared candidates.

(d) No director, employee, or agent shall, for the purpose of furthering the interests of any candidates for nomination or election, furnish or make use of System records that are not made available for use by all declared candidates.

(e) No bank or association shall distribute or mail directly or at the expense of the bank or association, any campaign materials for director candidates. Banks and associations shall request biographical information from all declared candidates who certify that they are eligible, restate such information in a standard format, and distribute or mail it with ballots or proxy ballots.

611.330 Confidentiality in the election of bank and association directors.

(a) Each bank and association shall adopt policies and procedures that assure confidentiality in the election of board members.

(b) Except as provided in this paragraph, System institutions shall not use ballots or proxy ballots that must be signed by the stockholder or that contain an identifying character or mark that can be used to identify how an individual stockholder's vote is cast. Institutions may adopt procedures which require the stockholders to sign or otherwise verify their eligibility to vote on an envelope which contains a marked ballot in a sealed envelope. Institutions may also use signed proxy statements or eligibility certificates which will accompany a ballot or instructions on how to vote the proxy in a separate sealed envelope. Where the identity of the voting stockholders is necessary to determine the voting strengths of ballots, the institution shall use a form of identity code on the ballot and shall require that the votes are tabulated by an independent party.

(c) When a bank or association receives a ballot by mail or at a meeting, the vote of such stockholder shall be final. When proxy voting is permitted, a stockholder voting by proxy may revoke the proxy prior to balloting at the stockholders meeting.

(d) Ballots, proxy ballots, election records, and information about how or whether individual stockholders have voted shall be held in confidence and not be disclosed to any person except as required by the Farm Credit Administration.

611.340 Security in the election of bank and association directors.

(a) Each bank and association shall adopt policies and procedures that assure the security of ballots, proxy ballots, and records in the election of board members.

(b) Bank and association procedures shall assure that ballots and proxy ballots are provided only to stockholders who are eligible to vote.

(c) Ballots and proxy ballots shall be physically safeguarded before the time of distribution or mailing to voting stockholders and after the time of receipt by the banks and associations until disposal. Ballots, proxy ballots, and election records shall be retained until the end of the term of office for the election and promptly destroyed thereafter.

(d) The validity of ballots, including proxy ballots, and vote totals for each nominee or candidate shall be verified by the banks and associations before public announcement of election results. No information about vote totals shall be released before public announcement of election results.

4. Part 611, Subpart D is amended by revising the heading and redesignating existing
611.1020 in Subpart F as new 611.400 in this Subpart D to read as follows:

Subpart D -- Rules for Compensation of Board Members

611.400 Compensation of bank board members.

* * * * *

5. Part 611, Subpart E is revised to read as follows:

Subpart E -- Transfer of Authorities

Sec.

611.500 General.

611.501 Procedures.

611.505 Farm Credit Administration review.

611.510 Stockholder vote.

611.515 Information statement.

611.520 Plan of transfer.

611.525 Stockholder reconsideration.

Subpart E -- Transfer of Authorities

611.500 General.

(a) Each Farm Credit Bank or Agricultural Credit Bank created by the merger of a Farm Credit Bank and bank for cooperatives is authorized, in accordance with section 7.6 of the Act, to transfer certain authorities to Federal land bank associations. The regulations in this subpart set forth the procedures and voting and approval requirements applicable to such transfers.

611.501 Procedures.

(a) The boards of directors of a bank and an association which seek to transfer authorities may adopt appropriate resolutions proposing such transfer and providing for the submission of such a proposal to their respective stockholders for a vote.

(b) The resolutions accompanied by the following information shall be submitted to the Farm Credit Administration for review and approval:

(1) Any proposed amendments to the charters of the institutions;

(2) A copy of the transfer plan as required under 611.520 of this part;

(3) An information statement that complies with the requirements of 611.515;

(4) The proposed bylaws of the bank and the association, as applicable; and

(5) Any additional information the boards of directors wish to submit in support of the request or that the Farm Credit Administration requests.

611.505 Farm Credit Administration review.

(a) Upon receipt of the board of directors resolution and the accompanying documents, the Farm Credit Administration shall review the request and either deny or give its approval to the request.

(b) If the request is denied, written notice stating the reasons for the denial shall be transmitted to the chief executive officer of the bank and the association who shall notify their respective boards of directors.

(c) Upon approval of the proposed transfer of authorities by the stockholders as provided in 611.510, the secretary of the bank and the secretary of the association shall forward to the Farm Credit Administration a certified copy of their respective stockholders' vote.

(d) Each institution shall notify its stockholders not later than 30 days after the stockholder vote of the final results of the vote. The transfer shall not take effect until 30 days after such notification is mailed to stockholders provided that no petition is filed with the Farm Credit Administration to reconsider the approval. The transfer shall be effective when thereafter finally approved and on the date as specified by the Farm Credit Administration. Notice of final approval shall be transmitted to the institutions involved.

611.510 Stockholder vote.

(a) Upon approval of a resolution by the Farm Credit Administration, the bank and the association shall call a meeting of its voting stockholders. The meeting shall be called on written notice sent after receipt of the Farm Credit Administration approval and shall notify each stockholder that the resolution has been filed and the meeting shall be held in accordance with the institutions' bylaws. The stockholders meeting shall be held within 60 days of receipt of the approval from the Farm Credit Administration.

(b) The notice of meeting to consider and act upon the directors' resolution shall be accompanied by an information statement that complies with the requirements of 611.515.

611.515 Information statement.

(a) An information statement shall be prepared for each bank and association involved which discloses certain information regarding the proposed transfer of authorities and the effect of the proposal on the bank and the association.

(b) The information statement for each institution involved shall contain the following materials as applicable to the institution:

(1) A statement either on the first page of the materials or on the notice of the stockholders meeting, in capital letters and boldface type, that:

THE FARM CREDIT ADMINISTRATION HAS NEITHER APPROVED NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION ACCOMPANYING THE NOTICE OF MEETING OR PRESENTED AT THE MEETING AND NO REPRESENTATION TO THE CONTRARY SHALL BE MADE OR RELIED UPON.

(2) A description of the material provisions of the plan under 611.520 and the effect of the transaction on the institution, its stockholders, and the territory to be served.

(3) A statement enumerating the advantages and disadvantages of the proposed transfer including changes in operating efficiencies, one-stop service, branch offices, local control, financial condition, etc.

(4) A summary of the provisions of the charter and bylaws following the transfer that differ materially from the charter or bylaws currently existing.

(5) A brief statement by the board of directors of the institution setting forth the board's opinion on the advisability of the transfer.

(6) A presentation of the following financial data:

(i) An audited balance sheet and income statement and notes thereto of the bank or the association, as applicable, for the preceding two fiscal years.

(ii) A balance sheet and income statement of the bank or the association, as applicable, showing its financial condition before the transfer and a pro forma balance sheet and income statement for the bank or association, as applicable, showing its financial condition after the transfer which meet the following conditions:

(A) Such financial statements shall be presented in columnar form, showing the financial condition as of the end of the most recent quarter of the institution, and operating results since the end of the last fiscal year through the end of the most recent quarter of the institution.

(B) If the request is made within 90 days after the end of the fiscal year, the institution's financial statements shall be as of the most recent fiscal year-end.

(C) If the request is made within 45 days after the end of the most recent quarter, the institution's financial statements shall be as of the end of the quarter preceding the quarter just ended.

(D) If the request is made more than 45 days after the end of the most recent quarter, the institution's financial statement shall be as of the end of that quarter.

(E) The financial statements must be accompanied by appropriate notes, describing the assets being transferred and including data relating to nonperforming loans and related assets, allowance for loan losses, and current year-to-date chargeoffs.

(7) A description of the type and dollar amount of any financial assistance that has been provided to the bank or the association, as applicable, during the past year; the conditions on which the financial assistance was extended, the terms of repayment or retirement, if any; and, the liability for repayment of this assistance by the bank or the association if the transfer were approved.

(8) A statement as to whether the bank or the association, as applicable, would require financial assistance during the first 3 years of operation, the estimated type and dollar amount of the assistance, and terms of repayment or retirement, if known.

(9) A statement indicating the possible tax consequences to stockholders and whether any legal opinion, ruling or external auditor's opinion has been obtained on the matter.

(10) A presentation of the association's interest rate and fee program, interest collection policy, capitalization plan and other factors that would affect a borrower's cost of doing business with the association.

(11) A description of any event subsequent to the date of the last quarterly report, but prior to the stockholder vote, that would have a material impact on the financial condition of the bank or the association.

(12) A statement of any other material fact or circumstances that a stockholder would need in order to make an informed and responsive decision, or that would be necessary in order to provide a disclosure that is not misleading.

(13) A form of written proxy together with instructions on its purpose, use and authorization by the stockholder. The proxy instructions must ensure the secrecy of the stockholder's ballot if the stockholder votes by proxy.

(14) A copy of the plan of transfer provided for in 611.520 of this part.

(c) No bank or association director, officer, or employee shall make any untrue or misleading statement of a material fact, or fail to disclose any material fact necessary under the circumstances to make statements made not misleading, to a stockholder of the association in connection with a transfer under this subpart.

611.520 Plan of transfer.

The transfer of authorities and assets under this subpart shall occur pursuant to a written plan. There shall be a written plan for the bank and the association which shall include the following:

(a) An explanation of the value of the equity ownership as of the last monthend held by stockholders of the bank and the association and the impact of the transfer on the value of that equity.

(b) A provision for the distribution of assets, liabilities, and authorities to the association and a description of the basis upon which the distribution is to be made.

(c) A description of how the association would obtain loan funds after the transfer.

(d) A statement on how the expenses connected with the transfer are to be borne by the affected parties.

(e) A statement of any conditions which must be satisfied prior to the effective date of the transfer, including but not limited to approval by stockholders and approval by the Farm Credit Administration.

(f) A statement that prior to the effective date of the transfer the board of directors of the bank or the association may rescind its resolution, with the concurrence of the Farm Credit Administration, on the basis that:

(1) The information disclosed to stockholders contained material errors or omissions;

(2) Material misrepresentations were made to stockholders regarding the impact of the transfer;

(3) Fraudulent activities were used to obtain the stockholders' approval; or,

(4) An event occurred between the time of the vote and the transfer that would have a significant adverse impact on the future viability of the association.

(g) A designation of those persons who have authority to carry out the plan of transfer, including the authority to execute any documents necessary to perfect title, on behalf of the bank and the association.

611.525 Stockholder reconsideration.

(a) Stockholders have the right to reconsider the approval of the transfer provided that a petition signed by 15 percent of the stockholders of either institution involved in the transfer is filed with the Farm Credit Administration within 30 days of the date of notification of the final results of the stockholder vote required under 611.505(d) and such petition is approved by the Farm Credit Administration.

(b) A special stockholders meeting shall be called by the institution to vote on the reconsideration following the Farm Credit Administration's approval of a stockholder petition to reconsider the transfer. If a majority of stockholders of the institution involved in the transfer votes against the transfer, the transfer is not approved.
6. Part 611, Subpart F is revised to read as follows:

Subpart F -- Bank Mergers, Consolidations and Charter Amendments

Sec.

611.1000 General authority.

611.1010 Bank charter amendment procedures.

611.1020 Requirements for mergers or consolidations of banks.

611.1030 Board of directors of an Agricultural Credit Bank.

611.1040 Creation of new associations.

Subpart F -- Bank Mergers, Consolidations and Charter Amendments

611.1000 General authority.

(a) An amendment to a bank charter may relate to any provision that is properly the subject of a charter, including, but not limited to, the name of the bank, the location of its offices, or the territory served.

(b) The Farm Credit Administration may make changes in the charter of a bank as may be requested by that bank and approved by the Farm Credit Administration pursuant to 611.1010 of this part.

(c) The Farm Credit Administration may make changes in the charter of a bank as may be necessary or expedient to implement the provisions of the Act.

611.1010 Bank charter amendment procedures.

(a) A bank may recommend a charter amendment to accomplish any of the following actions:

(1) A merger or consolidation with any other bank or banks operating under Titles I and III of the Act;

(2) A transfer of territory with any other bank operating under the same title of the Act;

(3) A change to its name or location.

(b) Upon approval of an appropriate resolution by the bank board, the certified resolution, together with supporting documentation, shall be submitted to the Farm Credit Administration for preliminary approval.

(c) The Farm Credit Administration shall review the material submitted and either approve or disapprove the request. The Farm Credit Administration may require submission of any supplemental materials it deems appropriate. If the request is for merger, consolidation, or transfer of territory, the approval of Farm Credit Administration will be preliminary only, will final approval subject to an affirmative vote of a majority of the bank's stockholders.

(d) Following receipt of the Farm Credit Administration's written preliminary approval, the proposal shall be submitted for approval by a majority vote of the associations or cooperatives that are stockholders of the requesting bank.

(e) Upon approval by the stockholders of the bank in paragraph (d) of this section, the request for final approval and issuance of the appropriate charter or amendments to charter for the banks involved shall be submitted to the Farm Credit Administration.

611.1020 Requirements for mergers or consolidations of banks.

(a) As authorized under sections 7.0 and 7.12 of the Act, a bank may merge or consolidate with one or more banks operating under the same or different titles of the Act.

(b) Where two or more banks plan to merge or consolidate, the banks shall jointly submit to the Farm Credit Administration the documents itemized in 611.1122(a)-(e) and 661.1123 for the merger of associations.

(c) No bank director, officer, or employee shall make any untrue or misleading statement of a material fact, or fail to disclose any material fact necessary under the circumstances to make statements made not misleading, to any stockholder of the bank in connection with a bank merger or consolidation.

(d) Upon approval of a proposed bank merger or consolidation by the stockholders of each constituent bank, the following documents shall be submitted from the constituent banks to the Farm Credit Administration for final approval and issuance of the appropriate charters or amendments to charter:

(1) A certified copy of the stockholders' resolution, on which the stockholders cast their votes, from each constituent bank;

(2) A certification of the stockholder vote from the corporate secretary of each bank or from an independent third party;

(3) An Agreement of Merger or Consolidation duly executed by those authorized to sign on behalf of each constituent bank.

(4) Two signed copies of the Articles of Association for the new bank entity.

611.1030 Board of directors of an Agricultural Credit Bank.

Each Agricultural Credit Bank formed by the consolidation of a Farm Credit Bank and a bank for cooperatives shall elect a board of directors of such number, for such term, in such manner, and with such qualifications, as may be required in its bylaws, except that at least one member shall be elected by the other directors, which member shall not be a director, officer, employee, or stockholder of a System institution. In electing such directors each association shall be entitled to cast a number of votes equal to the number of its voting stockholders.

611.1040 Creation of new associations.

Any application for the issuance of a charter to a new production credit association or Federal land bank association shall meet the requirements of sections 2.0 or 2.10, respectively, of the Act. Any application for the issuance of a charter to an agricultural credit association which has the authorities of a production credit association and a Federal land bank association, shall meet the requirements of section 2.0 of the Act.

Subpart G -- Mergers, Consolidations, and Charter Amendments of Associations

7. Section 611.1122 is amended by redesignating paragraphs (e)(11) through (e)(16) as paragraphs (e)(17) through (e)(22); and adding new paragraphs (e)(11) through (e)(16); and by revising paragraph (g) to read as follows:

611.1122 Requirements for mergers or consolidations.

* * * * *

(e) * * *

(11) A management discussion and analysis of the financial condition and results of operation for the past two fiscal years for each constituent institution. Substitution of the management discussion and analysis of each institution's most recent annual report shall satisfy this requirement.

(12) A discussion of any material changes in financial condition of each constituent institution from the end of the last fiscal year to the date of the interim balance sheet provided.

(13) A discussion of any material changes in the results of operations of each constituent institution with respect to the most recent fiscal-year-to-date period for which an income statement is provided.

(14) Three-year financial projections of each constituent institution individually and combined for the continuing or new institution.

(15) A discussion of any change in the tax status of the new institution from those of the constituent institutions as a result of merger or consolidation. A statement on any adverse tax consequences to the stockholders of the institution as a result of the change in tax status.

(16) A statement on the proposed institution's relationship with a independent public accountant, including any change that may occur as a result of the merger or consolidation.

* * * * *

(g) Upon approval of a proposed merger or consolidation by the stockholders of the constituent associations, a certified copy of the stockholders' resolution shall be forwarded to the Farm Credit Administration. Each constituent association shall notify its stockholders not later than 30 days after the stockholder vote of the final results of the vote. The merger shall not take effect until 30 days after such notification is mailed to stockholders provided that no petition is filed with the Farm Credit Administration to reconsider the approval. The merger or consolidation shall be effective when thereafter finally approved and on the date as specified by the Farm Credit Administration. Notice of final approval shall be transmitted to the associations and a copy provided to the affiliated bank.

* * * * *

Section 611.1123 is amended by redesignating paragraph (a)(9) as paragraph (a)(11) and adding new paragraphs (a)(9) through (a)(10); and by adding paragraph (c) to read as follows:

611.1123 Merger or consolidation agreements.

(a)* * *

(9) The capitalization plan and capital structure for the new institution and a statement that the capitalization plan shall comply with applicable FCA regulations and shall be approved by the institution's stockholders before incorporation into the institution's bylaws.

(10) Provision for the employee benefits plan, its subsequent continuation or adaption by the board of directors of the proposed institution following the merger or consolidation.

* * * * *

(c) Stockholders have the right to reconsider the approval of the merger provided that a petition signed by 15 percent of the stockholders of one or more of the constituent institutions is filed with the Farm Credit Administration within 30 days of the date of notification of the final results of the stockholder vote required under 611.1122(g); and such petition is approved by the Farm Credit Administration.

(1) A special stockholders meeting shall be called by the institution to vote on the reconsideration following the Farm Credit Administration's approval of a stockholder petition to reconsider the merger.

(2) If a majority of stockholders of any one of the constituent institutions that is a party to the merger vote against the merger, the merger is not approved.

Subpart J -- Merger and Reorganization Proposals Required by the Agricultural Credit Act of 1987

9. Section 611.1145 is added to read as follows:

611.1145 Required consideration of proposals to merge production credit associations and Federal land bank associations.

(a) In accordance with section 411 of the Agricultural Credit Act of 1987 certain Federal land bank associations and production credit associations are required to develop proposals for the merger of such associations into agricultural credit associations.

(b) The merger proposals for the creation of agricultural credit associations shall be developed in those instances in which 90 percent or more of the chartered territory of a production credit association overlaps with 90 percent or more of the chartered territory of a Federal land bank association.

(c) Merger proposals shall be developed by the associations involved and submitted to the affiliated Farm Credit Bank for approval not later than 60 days following the creation of the Farm Credit Bank. Following review and approval by the affiliated Farm Credit Bank, the associations shall submit the merger proposal to the Farm Credit Administration for approval not later than 90 days after the creation of the Farm Credit Bank.

(d) Each merger proposal shall comply with and be subject to all of the provisions of Subpart G of Part 611 relating to contents of the proposal, required information statements, Farm Credit Administration approval, and stockholder votes.

(e) Each merger proposal submitted to the stockholders for a vote shall have an effective date not later than 6 months after the creation of the affiliated Farm Credit Bank.

10. Subpart O is added to read as follows:

Subpart O -- Special Reconsideration of Mergers

Sec.

611.1190 General.

611.1191 Petitions and resolutions.

611.1192 Requirements for petitions.

611.1193 Filing date -- additional materials.

611.1194 Farm Credit Administration review
.
611.1195 Stockholder vote.

611.1196 Notice of meeting.

611.1197 Information statement.

611.1198 Plan of reorganization.

Subpart O -- Special Reconsideration of Mergers

611.1190 General.

The regulations in this Subpart O implement the provisions of Agricultural Credit Act of 1987 relating to special reconsideration of voluntary mergers and consolidations that occurred after December 23, 1985 and prior to January 6, 1988. The regulations establish the procedures for petitions, disclosures, and stockholder votes for reconsideration of such mergers and consolidations and, if approved by stockholders, for the establishment of separate associations. The regulations shall apply to any request to reorganize an association that was created by merger or consolidation and become effective during the period, December 24, 1985 to January 5, 1988. For the purposes of this part, the term "Merger" includes a merger or consolidation. The regulations in this subpart are applicable only to those associations that were created by the merger of two or more associations after December 23, 1985 and before January 6, 1988.

611.1191 Petitions and resolutions.

(a) The voting stockholders of an association who were stockholders of a predecessor association may seek to have the stockholders reconsider their association's participation in such merger by filing a petition for reconsideration with the Farm Credit Administration. The purpose of the petition shall be either:
The withdrawal of one or more predecessor associations from the existing association or

(2) The general reorganization into two or more separate associations of the existing association that was formed by the merger of three or more predecessor associations.

(b) The board of directors of an association may adopt a resolution proposing the general reorganization of the association into two or more separate associations and the submission of such proposal to the stockholders for a vote.

611.1192 Requirements for petitions.

(a) In order for a petition to be acted upon, the petition must be signed by 15 percent or more of the voting stockholders of the existing association who were stockholders of each of the predecessor associations that seeks to withdraw from the existing association, or 5 percent of the total number of voting stockholders of the existing association if the petition seeks to reorganize the existing association that was formed by the merger of three or more associations.

(b) Each petition shall include the signature, printed name and the full address of each voting stockholder on the petition. If the petition proposes the withdrawal of one or more predecessor associations, the association shall certify that the signatures on the petition are the signatures of persons who were voting stockholders of such predecessor associations and that such persons continue to have their farming operations in the territory that was served by the predecessor association. If the petition proposes the reorganization of the entire association, the association shall certify that the signatures are from voting stockholders of the association.

(c) The petition shall describe the manner in which the existing association will be reorganized and the territory in which each proposed separate association would operate.

(d) The certification process shall be completed and the petition forwarded to the Farm Credit Administration within 5 working days of the date of its receipt by the association.

(e) No petition will be considered by the Farm Credit Administration if filed later than (one year after the effective date of this section).

611.1193 Filing date -- Additional materials.

(a) A certified copy of a petition or resolution, together with the additional materials provided for in this section, shall be forwarded by the association to the Farm Credit Administration. The filing date of a petition or resolution shall be the date the petition or resolution and additional materials are received by the FCA.

(b) Each petition or resolution shall be accompanied by the following materials:

(1) The proposed charter for each of the separate associations and the proposed effective date of the withdrawal or reorganization;

(2) A statement of the reasons for the proposed reorganization of the existing association or the proposed withdrawal of one or more associations from the existing association.

(3) A copy of the reorganization plan as required under 611.1198 of this part;

(4) An information statement that complies with the requirements of 611.1197 and that is prepared in accordance with 611.1196.

(5) Any additional information that the petitioning stockholders or the board of directors wishes to submit in support of its request or that the Farm Credit Administration requests.

611.1194 Farm Credit Administration review.

(a) Upon receipt of the petition or resolution and the accompanying documents, the Farm Credit Administration shall review the request and either deny or give its approval to the request.

(b) If the request is denied, written notice stating the reasons for the denial shall be transmitted to the chief executive officer of the association who shall notify the board of directors and the stockholders of such denial.

(c) Upon approval of the proposed withdrawal or reorganization by the stockholders as provided for in 611.1195, the secretary of the association shall forward to the Farm Credit Administration a certification of the stockholder vote and a signed copy of the Articles of Association.

(d) On receipt of the certification and Articles of Association as required in paragraph

(c) of this section, the Farm Credit Administration shall issue charters or amended charters as are necessary to reflect the territory to be served by the resulting associations.

611.1195 Stockholder vote.

(a) Upon approval of a petition or resolution by the Farm Credit Administration, the association shall call a meeting of its voting stockholders. The meeting shall be called on written notice sent after receipt of the Farm Credit Administration's approval which shall notify each stockholder that a petition or resolution has been filed and that a meeting will be held in accordance with the association's bylaws. The stockholders' meeting shall be scheduled for a date which is no later than 60 days after the filing date.

(b) In the case of a petition to withdraw from the existing association, ballots shall be sent to each stockholder of the existing association who would be a stockholder of one of the separate associations. The petition, as it applies to each such separate association, shall be approved if agreed to by a majority of the stockholders who would be served by the separate association.

(c) Approval of the resolution or petition to reorganize the entire association into two or more associations shall require the affirmative vote of a majority of the voting stockholders of the existing association.

611.1196 Notice of meeting.

(a) The notice of meeting to consider and act upon the petition shall be accompanied by an information statement that complies with the requirements of 611.1197 which shall be prepared by the existing association with the cooperation and assistance of the petitioning stockholders or, at their discretion, by the petitioning stockholders.

(b) The notice of meeting to consider and act upon a resolution to reorganize the association shall be accompanied by an information statement that complies with the requirements of 611.1197 prepared by the existing association.

611.1197 Information statement.

(a) An information statement shall be prepared which discloses certain information regarding the existing association and (1) each association that is proposed to be withdrawn from the existing association, or (2) each association that would result from the total reorganization of the existing association.

(b) The information statement shall contain the following materials:

(1) A statement either on the first page of the materials or on the notice of the stockholders' meeting, in capital letters and bold face type, that:

THE FARM CREDIT ADMINISTRATION HAS NEITHER APPROVED NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION ACCOMPANYING THE NOTICE OF MEETING OR PRESENTED AT THE MEETING AND NO REPRESENTATION TO THE CONTRARY SHALL BE MADE OR RELIEF UPON.

(2) A description of the material provisions of the reorganization plan and the effect of the reorganization on each proposed association, their stockholders, and the territory to be served.

(3) A statement enumerating the advantages and disadvantages of the proposed reorganization including changes in operating efficiencies, one-stop service, branch offices, local control, financial condition, etc.

(4) A summary of the provisions of the charter and bylaws of the proposed association that differ materially from the charter or bylaws of the existing association.

(5) A brief statement by the board of directors of the existing association setting forth the board's opinion on the advisability of the separation or reorganization.
(6) A presentation of the following financial data:

(i) An audited balance sheet and income statement and notes thereto of the existing association for the preceding two fiscal years.

(ii) A balance sheet and income statement of the existing association showing its financial condition before the separation or reorganization and the pro forma balance sheet and income statement of each proposed association showing its financial condition which meet the following conditions:

(A) The financial statements of the existing and each proposed association (collectively, "constituent financial statements") shall be presented in columnar form, showing the financial condition as of the end of the most recent quarter of the existing association, and operating results since the end of the last fiscal year through the end of the most recent quarter of the existing association.

(B) If the request is made within 90 days after the end of the fiscal year, the constituent financial statements shall be based on the most recent fiscal year-end financial statements of the existing association.

(C) If the request is made within 45 days after the end of the most recent quarter, the constituent financial statements shall be based on the financial statements of the existing association as of the end of the quarter preceding the quarter just ended.

(D) If the request is made more than 45 days after the end of the most recent quarter, the constituent financial statements shall be based on the financial statements of the existing association as of the end of that quarter.

(E) The financial statements must be accompanied by appropriate notes, including data relating to nonperforming loans and related assets, allowance for loan losses, and current year-to-date chargeoffs.

(7) A description of the types and dollar amount of any financial assistance that has been provided to the existing association during the past year; the conditions on which the financial assistance was extended, the terms of repayment or retirement, if any; and, the liability for repayment of this assistance by the existing and proposed associations if the withdrawal or reorganization were approved.

(8) A statement as to whether the proposed association would require financial assistance during the first 3 years of its operation as a new association, the estimated type and dollar amount of the assistance, and terms of repayment or retirement, if known.

(9) A statement indicating the possible tax consequences to stockholders and to the proposed associations, and whether any legal opinion, ruling or external auditor's opinion has been obtained on the matter.

(10) A presentation on each proposed association's interest rate and fee programs, interest collection policy, capitalization plan and other factors that would affect a borrower's cost of doing business with the association.

(11) A description of any event subsequent to the date of the last quarterly report, but prior to the stockholder vote, that would have a material impact on the financial condition of each proposed association as of its effective date.

(12) A statement of any other material fact or circumstance that a stockholder would need in order to make an informed and responsible decision, or that would be necessary in order to provide a disclosure that is not misleading.

(13) A form of written proxy, together with instructions on its purpose, use and authorization by the stockholder. The proxy instructions must ensure the secrecy of the stockholder's ballot if the stockholder votes by proxy.

(14) A copy of the plan of reorganization provided for in 611.1198 of this part.

(c) No bank or association director, officer, or employee shall make any untrue or misleading statement of a material fact, or fail to disclose any material fact necessary under the circumstances to make statements made not misleading, to a stockholder of the association in connection with a reorganization under this subpart.

611.1198 Plan of reorganization.

(a) The withdrawal of an association or other reorganization under this subpart shall occur pursuant to a written plan. There shall be a written plan of reorganization for each association to be withdrawn from an existing association or each association to be created by the complete reorganization of an existing association.

(b) A written plan shall include, but not be limited to, all of the following provisions:

(1) The proposed Articles of Association which shall contain the following:

(i) The proposed name and headquarters of the association.

(ii) The territory to be served by the association.

(iii) The purposes for which the association is being formed.

(iv) The powers and authorities to be exercised by the association in carrying out its functions under Title II of the Act.

(v) A statement which shall provide that the corporate existence of the association shall commence upon issuance of its charter by the Farm Credit Administration and shall continue until dissolved in accordance with the law.

(vi) The signatures of those persons who choose to establish the association and a statement signed by each such person establishing eligibility to borrow from the association in which such person will become a stockholder.

(2) As an attachment to the Articles of Association, the proposed bylaws of the new association.

(3) An explanation of the value of the equity ownership as of the last monthend held by stockholders of the existing association who would be served by the proposed association.

(4) A statement on the formula for the retirement and transfer of stock, participation certificates and equities held by stockholders of the existing association who would become stockholders of the proposed association, and the issuance of an equivalent amount of stock, participation certificates and equities by the proposed association to its stockholders.

(5) A provision for the distribution of assets and liabilities of the existing association and a description of the basis upon which the distribution is to be made to the proposed association.

(6) A statement on how the expenses connected with the reorganization are to be borne by the affected parties.

(7) The names of the persons who will serve as the initial board of directors until the first annual meeting of stockholders following the reorganization. Any director of an existing association who is eligible to serve as a director of the proposed association may be designated as a member of the initial board of directors for a period not to exceed his or her current term, after which he or she must stand for reelection.

(8) A statement of any conditions which must be satisfied prior to the effective date of the proposed reorganization, including but not limited to approval by stockholders and issuance of a charter by the Farm Credit Administration.

(9) A statement that prior to the effective date of the reorganization, the petitioning stockholders may withdraw their petition or the board of directors of the existing association may rescind its resolution, with the concurrence of the Farm Credit Administration, on the basis that:

(i) The information disclosed to stockholders contained material errors or omissions;

(ii) Material misrepresentations were made to stockholders regarding the impact of the reorganization;

(iii) Fraudulent activities were used to obtain the stockholders' approval; or

(iv) An event occurred between the time of the vote and the reorganization that would have a significant adverse impact on the future viability of the proposed association.

(10) A designation of those persons who have authority to carry out the plan of reorganization, including the authority to execute any documents necessary to perfect title, on behalf of the proposed association.

PART 612 -- PERSONNEL ADMINISTRATION

11. The authority citation for Part 612 is revised to read as follows:

Authority: Secs. 5.9, 5.17; 12 U.S.C. 2243, 2252.

Subpart B -- Standards of Conduct for Directors, Officers and Employees

612.2200 [Removed and Reserved]

12. In Subpart B section 612.2200 is removed and reserved.

PART 618 -- GENERAL PROVISIONS

13. The authority citation for Part 618 is revised to read as follows:

Authority: Secs. 1.12, 2.5, 3.7, 4.13A, 4.29, 5.9, 5.17; 12 U.S.C. 2020, 2076, 2128, 2200, 2218, 2243, 2252.

Subparts D and E [Removed and Reserved]

14. Subparts D and E are removed and reserved.

PART 620 -- DISCLOSURE TO SHAREHOLDERS

15. The authority citation for Part 620 continues to read as follows:

Authority: Secs. 5.17; 12 U.S.C. 2252; sec. 424 of Pub. L. 100-233.

16. Subpart D is added to read as follows:

Subpart D -- Bank Director Disclosure Requirements

Sec.

620.30 Disclosure statement for bank director candidates.

620.31 Contents of disclosure statements.

620.32 Prohibition against incomplete, inaccurate, or misleading disclosure.

Subpart D -- Bank Director Disclosure Requirements

620.30 Disclosure statement for bank director candidates.

Each bank shall adopt policies and procedures that assure that a disclosure statement is prepared by each candidate for election to the bank board. The banks shall provide a form providing for the information required and distribute or mail copies of completed and signed disclosure statements to stockholders with the election ballots. No person may be a candidate for bank director who does not make the disclosure required by this subpart.

620.31 Contents of disclosure statements.

Disclosure statements shall include the following information:
(a) A statement of the institution's policies, if any, on loans to and transactions with directions of the bank.

(b) Candidate's name, residential address, business address if any, citizenship, business experience during the last 5 years including principal occupation and employment during the last 5 years, a list of any business entities on whose board of directors the candidate serves and state the principal business in which the entities are engaged, and any information pertinent to the creation of a nepotistic relationship upon election to the bank board.

(c) Transactions other than loans. The disclosure statement should describe briefly any transaction or series of transactions other than loans that occurred since the last annual meeting between the bank and the candidate, any member of the immediate family of such person, or any organization with which such person is affiliated, the nature of the person's interest in the transaction, and the terms of the transaction. No information need be given where the purchase price, fees, or charges involved were determined by competitive bidding or where the amount involved in the transaction (including the total of all periodic payments) does not exceed $5,000, or the interest of the person arises solely as a result of his or her status as a stockholder of the institution and the benefit received is not a special or extra benefit not available to all stockholders.

(d) Loans to director candidates.

(1) To the extent applicable, state that the bank has had loans outstanding during the last full fiscal year to date to the candidate, his or her immediate family members, and any organizations with which such persons are affiliated that:

(i) Were made in the ordinary course of business;

(ii) Were made on the same terms, including interest rate, amortization schedule, and collateral, as those prevailing at the time for comparable transactions with other persons.

(2) To the extent applicable, state that no loan to a candidate, or to any organization affiliated with the candidate, or to any immediate family member who resides in the same household as the candidate or in whose loan or business operation the candidate has a material financial or legal interest, involved more than the normal risk of collectibility; provided that no such statement need be made with respect to any director who has resigned before the time for filing the applicable report with the Farm Credit Administration (but in no case than the actual filing), or whose term of office will expire or terminate no later than the date of the meeting of stockholders to which the report relates.

(3) If the conditions stated in paragraphs (d) (1) and (2) of this section do not apply to the loan(s) of the candidates or organizations specified therein with respect to such loans, state:

(i) The name of the candidate to whom the loan was made or to whose relative or affiliated organization the loan was made;

(ii) The largest aggregate amount of each indebtedness outstanding at any time during the last fiscal year;

(iii) The nature of the loan(s);

(iv) The amount outstanding as of the latest practicable date;

(v) The reasons the loan does not comply with the criteria contained in this section;

(vi) If the loan does not comply with this section, the rate of interest payable on the loan and the repayment terms;

(vii) If the loan does not comply with this section, the amount past due, if any, and the reason the loan is deemed to involve more than a normal risk of collectibility.

(e) Involvement in certain legal proceedings. The disclosure statement should describe any of the following events that occurred during the past 5 years and that are material to an evaluation of the ability or integrity of the candidate:

(1) A petition under the Federal bankruptcy laws or any State insolvency law was filed by or against, or a receiver, fiscal agent, or similar officer was appointed by a court for the business or property of the candidate, or any partnership in which the candidate was a general partner at or within 2 years before the time of such filing;

(2) The candidate was convicted in a criminal proceeding or is a named party in a pending criminal proceeding (excluding traffic violations and other misdemeanors);

(3) The candidate was the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, by any court of competent jurisdiction, permanently or temporarily enjoining or otherwise limited the candidate from engaging in any type of business practice.

620.32 Prohibition against incomplete, inaccurate, or misleading disclosure.

No employee or director or candidate for director of the bank shall make any disclosure to stockholders with respect to an election that is incomplete, inaccurate, or misleading. When any such person makes disclosure, that, in the judgement of the Farm Credit Administration is incomplete, inaccurate, or misleading, whether or not such disclosure is made pursuant to this subpart, the Farm Credit Administration may direct such institution or person to make such additional or corrective disclosure as is necessary to provide stockholders with full and fair disclosure.

Dated: May 31, 1988.

David A. Hill,

Secretary, Farm Credit Administration Board.

[FR Doc. 88-12698 Filed 6-3-88; 8:45 am]

BILLING CODE 6705-01-M