FCA Proposed Rule – Termination of System Institution Status 

Fact Sheet1

(12/8/05) 

This proposed rule updates the existing regulations in 10 primary areas as follows: 

1 – Ensure Sufficient Time and Information for FCA, the Institution Board, and Institution 

Stockholder Deliberations.

To provide sufficient time for the FCA Board, the institution’s board, and institution stockholders to 

deliberate, we separate our review of stockholder disclosure information, in the plan of termination, 

from our review of the termination itself, in accordance with the Farm Credit Act. 

This means there will be a 2-step approval or disapproval process for FCA: 

 In the first step, we will review the disclosure information prior to its submission to equity holders, 

as in the existing regulation. This review is subject to a 60-day clock, in accordance with section 

7.11 the Act, and will ensure that stockholders have the necessary disclosures to make an 

informed decision. We state that we will determine when the disclosure information is complete 

and when the 60-day clock begins. 

 In the second step, we will review and approve or disapprove the termination itself, in the event 

that equity holders have voted to approve the termination. This is in accordance with section 7.10 

of the Act, and is not subject to a specific timeframe. However, FCA will act in a reasonable time. 

We believe this clear separation of the two approvals will ensure the proper level of deliberation as to 

the merits of the proposal apart from the adequacy of the stockholder disclosure materials. 

Also, to ensure sufficient time to prepare for this extraordinary event, we require the institution to wait 

30 days after the notice to equity holders is sent before the institution may submit a plan of 

termination to us for our approval. 

2 – Provide for More Timely Communication with Stockholders, the Public, and FCA. 

We propose to permit a terminating institution to communicate, without our prior approval, with 

stockholders and the public during the termination process. Along with this new flexibility, we require 

the institution to timely file such communication with us. We may require the correction of information 

that we deem misleading or inaccurate. In addition, we may require certain termination-related 

documents to be posted on the institution’s Web site and our Web site. We make this proposal to 

recognize the benefit of increasing the flow of important information to stockholders and to recognize 

the more common use of the Internet. 

3 – Provide for Special Studies, Analyses, and Rulings.

We propose 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. We make this proposal to ensure sufficient information is provided to 

stockholders and FCA for such items as: fair value assessments; rulings on tax implications; and 

effect of termination on equity holders, the Farm Credit System, and other parties. 

 

1

 In accordance with FCA Board Policy Statement 37, during a comment period, substantive oral communication between FCA staff 

(including Board Members) and the public (including System representatives) will be summarized and placed in the public rulemaking file. 

From the end of the comment period until the adoption of the final rule, substantive discussions between FCA staff and the public should be 

curtailed. If new facts or arguments are brought to the FCA's attention, the communication must be in writing so that it can be placed 

promptly in the rulemaking file. 
4 – Ensure Director Rights. 

We propose to strengthen protections to enable directors to consult with independent legal counsel 

and allow public or private expressions of their opinions about the termination. We make these 

proposals to recognize the important roles of directors in this extraordinary event. 

5 – Require Voter Quorums. 

We want to ensure sufficient stockholder representation in voting processes by imposing a quorum 

requirement of at least 30 percent of voting stockholders at the stockholder meetings for the 

termination vote and for any reconsideration vote. We believe that, in practical terms, the actual 

number of voters would be higher; however, because the termination is so important, we want to 

ensure at least a minimum number of participants. 

6 – Remove "Material Adverse Effect" Criterion. 

We eliminate a potentially confusing criterion pertaining to reasons why we may disapprove a 

termination application. That criterion in the existing rule pertains to a material adverse effect on the 

ability of the remaining System institutions to fulfill their statutory purpose. Because that is only one of 

many criteria the FCA would consider, including it in the regulation could cause some to believe it is 

our only, or main, criterion. 

7 – Disclose Changing Structure After a Termination Event.

We require the institution, if applicable, to explain any corporate restructurings that will occur within 18 

months after the termination. We believe this requirement is important for equity holders to be aware 

of post-termination plans for their institution. 

8 – Require Directors to Vote Three Times on Termination.

We also provide that the board of directors of a terminating institution must vote at three different 

times during the process, to ensure that the board continues to support the termination. We believe 

this requirement is important because the termination is such an extraordinary event. 

9 – Clarify Treatment of Taxes.

We clarify that the institution must include in assets any tax benefits. This will balance our 

requirement of subtracting tax liabilities from the assets in the exit fee calculation. 

10 – Eliminate Outdated FAC References.

We remove all references to payment of Financial Assistance Corporation debt, because that debt 

was repaid earlier this year.