This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

2614 

Vol. 80, No. 12 

Tuesday, January 20, 2015 

1See 53 FR 50381 (Dec. 15, 1988). 

FARM CREDIT ADMINISTRATION 

12 CFR Part 611 

RIN 3052–AC72 

Organization; Mergers, Consolidations, 

and Charter Amendments of Banks or 

Associations 

AGENCY: Farm Credit Administration. 

ACTION: Proposed rule. 

SUMMARY: The Farm Credit 

Administration (FCA, Agency, we, or 

our) proposes to amend existing 

regulations related to mergers and 

consolidations of Farm Credit System 

(System) banks and associations to 

clarify the merger review and approval 

process and incorporate existing 

practices in the regulations. The 

proposed rule would identify when the 

statutory 60-day review period begins, 

require that only independent tabulators 

be authorized to validate ballots and 

tabulate stockholder votes on mergers or 

consolidations, require institutions to 

hold informational meetings on 

proposed mergers or consolidations if 

circumstances warrant, explain the 

reconsideration petition process and 

specify the voting record date list to be 

provided to stockholders who wish to 

file a reconsideration petition. The 

proposed rule would update crossreferences in the existing regulations, 

incorporate cross references to 

stockholder voting rules contained 

elsewhere in part 611, and clarify or 

update terminology to enhance 

transparency. 

DATES: You may send comments on or 

before April 20, 2015. 

ADDRESSES: We offer a variety of 

methods for you to submit your 

comments. For accuracy and efficiency 

reasons, commenters are encouraged to 

submit comments by email or through 

the FCA’s Web site. As facsimiles (fax) 

are difficult for us to process and 

achieve compliance with section 508 of 

the Rehabilitation Act, we do not accept 

comments submitted by fax. Regardless 

of the method you use, please do not 

submit your comment multiple times 

via different methods. You may submit 

comments by any of the following 

methods: 

• Email: Send us an email at regcomm@fca.gov. 

• FCA Web site: http://www.fca.gov. 

Select ‘‘Public Commenters,’’ then 

‘‘Public Comments,’’ and follow the 

directions for ‘‘Submitting a Comment.’’ 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Barry F. Mardock, Deputy 

Director, Office of Regulatory Policy, 

Farm Credit Administration, 1501 Farm 

Credit Drive, McLean, VA 22102–5090. 

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 ‘‘Public 

Commenters,’’ then ‘‘Public 

Comments,’’ and follow the directions 

for ‘‘Reading Submitted 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 email addresses 

to help reduce Internet spam. 

FOR FURTHER INFORMATION CONTACT: 

Shirley Hixson, Policy Analyst, Office of 

Regulatory Policy, Farm Credit 

Administration, McLean, VA 22102– 

5090, (703) 883–4318, TTY (703) 883– 

4056, or Laura McFarland, Senior 

Counsel, Office of General Counsel, 

Farm Credit Administration, McLean, 

VA 22102–5090, (703) 883–4020, TTY 

(703) 883–4056. 

SUPPLEMENTARY INFORMATION: 

I. Objectives 

The objectives of the proposed rule 

are to: 

• Enhance the efficiency and 

effectiveness of the reconsideration 

petition process for the stockholder and 

provide clarity to System banks and 

associations on how they must provide 

a stockholder list to a stockholder when 

requested for the purpose of filing a 

petition; 

• Improve security and 

confidentiality over the voting process 

on mergers and consolidations through 

the use of independent third-party 

tabulators; 

• Clarify the FCA’s review and 

approval process related to proposed 

plans of mergers or consolidation in 

order to facilitate an efficient and timely 

response; and 

• Enhance existing regulations by 

updating terminology and making other 

grammatical changes. 

II. Background 

The FCA issued subparts F and G of 

part 611 to address the procedures and 

stockholder disclosure requirements for 

Farm Credit banks and associations 

proposed plans of merger or 

consolidation (collectively, merger(s)), 

and charter amendments.1 We propose 

to amend our merger and charter 

amendment regulations to respond to 

inquiries from System banks, 

associations, their stockholders, and 

third parties regarding the process for 

submitting proposed plans of merger 

and proposed charter amendments to 

the FCA for review and the related 

stockholder reconsideration petition 

process on a stockholder vote in favor 

of a merger. This proposed rule would 

enhance existing merger provisions and 

clarify our review process. Also, this 

proposed rule would clarify the various 

ways stockholders may file a 

reconsideration petition with the FCA, 

explaining who they would address the 

petition to and when we would consider 

the petition to be filed with the FCA. 

III. Section-by-Section Analysis 

A. Terminology and Other Grammatical 

Changes [Existing Subparts F and G] 

The FCA is committed to using plain 

language in its rulemaking to facilitate 

understanding and compliance with 

requirements that we administer or 

enforce. Therefore, we propose updating 

certain terminology and making 

grammatical changes in subparts F and 

G to make our regulations more clear, 

concise, and well organized. 

1. Terminology Updates [Existing 

Subparts F and G] 

To be consistent and avoid confusion 

in how we use certain terms in our 

regulations, we propose replacing the 

varied references to ‘‘funding bank’’, 

‘‘supervisory bank’’, and ‘‘district bank’’ 

with ‘‘funding bank’’ where used in 

subparts F and G. Existing regulations in 

these subparts currently use the terms 


rljohnson on DSK3VPTVN1PROD with PROPOSALS
Federal Register / Vol. 80, No. 12 / Tuesday, January 20, 2015 / Proposed Rules 2615 

2Farm Credit bank as defined in § 619.9140 

means Farm Credit Banks, agricultural credit banks, 

and banks for cooperatives. 

3Sections 7.0(3), 7.8(a)(3), 7.12(a)(3), 7.13(a)(3) of 

the Act. 

interchangeably. All three terms refer to 

the same relationship between Farm 

Credit banks and their affiliated 

associations. As such, there is no 

distinguishable purpose for using one 

term over the other so we believe using 

a single term will facilitate clear and 

concise regulations. 

We propose adding ‘‘agricultural 

credit associations’’ to the list of 

institutions subject to the merger 

provisions in existing § 611.1120(c). 

This change would update our rules to 

recognize that System associations may 

be organized and chartered as 

agricultural credit associations and 

operate as cooperatives within the 

System. Similarly, we propose 

identifying service corporations in 

existing §§ 611.1000(c) and 611.1120(c) 

to recognize their potential existence in 

merging associations and banks. Also, 

we propose replacing the term ‘‘bank’’ 

in subparts F and G with ‘‘Farm Credit 

bank’’ to reconcile the term’s usage with 

the definition in § 619.9140.2 We further 

propose updating § 611.1010(d) to 

incorporate the part 611 term 

‘‘stockholder-association.’’ Using this 

term should help in making the 

appropriate distinctions among those 

stockholders voting on bank charter 

amendments. 

We also propose updating 

§ 611.1010(d) on Farm Credit bank 

charter amendment votes to recognize 

different voting structures among Farm 

Credit banks. The proposal is to add 

language to the existing rule on bank 

charter amendments to recognize that 

agricultural credit banks have different 

voting procedures from Farm Credit 

banks. 

2. Grammatical Changes [Existing 

Subparts F and G] 

We propose adding the term 

‘‘association’’ to the section headings for 

§§ 611.1121, 611.1122, and 611.1123 for 

clarity. We also propose substituting the 

phrase ‘‘Farm Credit institution’’ for 

‘‘bank or association’’ when discussing 

prohibited conduct in § 611.1122, to 

cover all chartered institutions, as well 

as implement the terminology used in 

§ 619.9146. 

We propose general language changes 

to subparts F and G to enhance 

readability. The proposed language 

changes include: 

• Replacing the word ‘‘shall’’ 

throughout subparts F and G with 

‘‘must’’, ‘‘will’’, ‘‘does’’, ‘‘may’’, or ‘‘is’’, 

as appropriate and consistent with the 

manner in which ‘‘shall’’ is currently 

used. The word ‘‘shall’’ would remain 

in §§ 611.1122(c)(1) and 611.1124(f)(1). 

• Removing the introductory 

language of existing §§ 611.1121 and 

611.1122 due to redundancy and the 

definitions for ‘‘consolidation’’ and 

‘‘merger’’ in § 611.1122, which are 

already addressed in existing 

§§ 619.9110 and 619.9210. 

• Revising § 611.1121(d) to combine 

the existing two sentences into one 

cohesive sentence explaining that 

charter amendment approvals will 

include the amended charter. 

• Bifurcating the two provisions in 

existing § 611.1122(a)(7) into two 

distinct paragraphs (a)(7) and (8). The 

proposed rule would amend 

§ 611.1122(a)(7) to include the existing 

provision that the requesting 

associations may include any additional 

information or documents that they 

wish to submit in support of their 

request to merge. New § 611.1122(a)(8) 

would include the other existing 

provision that the funding bank or the 

FCA may request additional 

information. 

• Adding the word ‘‘granted’’ in the 

last sentence of new § 611.1122(c)(2) to 

clarify that merger approvals are granted 

according to our rules. 

• Adding the word ‘‘stockholder’’ in 

revised § 611.1122(d) and (e) to clarify 

that the meetings discussed in these 

paragraphs are stockholder meetings. 

• Adding the phrase ‘‘in person’’ to 

§ 611.1122(d) to clarify and ensure that 

stockholder voting on a proposed plan 

of merger is permitted only by voting in 

person or by proxy. We propose the 

change in response to inquiries we 

received on whether or not mail 

balloting was permitted under existing 

regulations. The Farm Credit Act of 

1971, as amended, (Act) limits 

stockholder voting methods on 

proposed plans of mergers to in-person 

voting and voting by proxy ballots.3

Voting by mail ballots on mergers is not 

permitted. 

• Adding the reference of 

‘‘constituent associations’’ to existing 

§ 611.1123(b) to clarify that all 

associations subject to the proposed 

plan of merger are required to discuss 

the proposed changes to their respective 

bylaws that will result from the 

proposed merger. 

As with the other grammatical 

changes, we intend no change in the 

meaning of the affected regulatory 

provisions. 

B. Definitions [Existing § 611.100] 

We propose adding three new 

definitions to § 611.100 that would 

apply to all of part 611, unless 

otherwise stated in the regulations. 

First, we propose adding as new 

paragraph (b) the term ‘‘FCA’’ in order 

to allow for the use of the ‘‘FCA’’ 

acronym throughout part 611 instead of 

the full agency name. We then propose 

the conforming change of replacing 

‘‘Farm Credit Administration’’ with 

‘‘FCA’’ in subparts F and G where used. 

The use of the acronym would enhance 

readability of the regulation. 

Next, we propose adding as new 

paragraph (i) a definition of ‘‘voting 

record date’’ or ‘‘record date.’’ Several 

regulatory provisions in part 611 

reference a voting record date but do not 

define the term. We propose defining 

‘‘voting record date’’ as the date set by 

each institution before a voting event on 

which a stockholder must own voting 

stock in order to vote at the event. We 

recognize there is a practical need for 

System institutions to identify eligible 

voting stockholders as of the voting 

record date set for each stockholder 

voting event and believe the term must 

be used consistently throughout the 

System. We would expect System 

institutions set a voting record date that 

is not too far removed from the voting 

event. Due to changes in the make-up of 

the stockholder base that may occur 

between the voting record date and the 

date the vote is held, the stockholders 

permitted to vote on the event may not 

fully reflect the stockholders that will be 

affected by the long-term results of the 

voting action if the voting record date is 

too far removed from the voting event. 

Lastly, we propose adding as new 

§ 611.100(j) the term ‘‘voting record date 

list’’ or ‘‘record date list.’’ The proposed 

rule would define a ‘‘voting record date 

list’’ as a list of the names and addresses 

of borrowers holding voting stock as of 

the voting record date and who are 

eligible to cast a vote for a particular 

event (e.g., a proposed plan of merger or 

director elections). As proposed, the list 

would be different from the stockholder 

list requirements in § 618.8310. The list 

in new § 611.100(j) would only include 

voting stockholders, not all stockholders 

as provided for in § 618.8310, and 

would identify the person designated to 

cast the vote. In situations where the 

voting stock is owned by more than one 

person or owned by an entity, the list 

would name the individual designated 

to cast the vote. Each institution would 

be expected to update its voting record 

date list of stockholders, including the 

names of individuals designated to vote 

on behalf of multiple obligors or for a 


rljohnson on DSK3VPTVN1PROD with PROPOSALS
2616 Federal Register / Vol. 80, No. 12 / Tuesday, January 20, 2015 / Proposed Rules 

4See 12 U.S.C. 2279e(a)(2). 

legal entity that is a voting stockholder, 

each time a voting record date is set. We 

believe defining this list will facilitate 

the orderly and accurate distribution of 

ballots and help ensure proper 

validation of ballots and tabulation of 

votes for each voting event. 

C. Mergers and Consolidations 

[Subparts F and G] 

1. Prohibited Activities [Existing 

§§ 611.1020(c) and 611.1122(f) and (h); 

New § 611.1122(i)] 

We propose relocating in new 

§ 611.1122(i) the existing provisions on 

prohibited acts in connection with a 

merger or consolidation, currently 

located in existing §§ 611.1020(c) and 

611.1122(f) and (h). This is intended to 

improve the readability of our rule and 

ensure institutions are fully aware of the 

requirement that stockholders be 

provided with information that is 

complete, accurate and not misleading. 

Also, the differences in the existing 

provisions would be reconciled. 

Additionally, we propose adding 

‘‘agents’’ and other parties participating 

in the affairs of the institution to the 

existing list of those covered by the 

prohibitions. Adding these persons is 

intended to provide consistency with 

similar prohibitions elsewhere in our 

rules and reduce the potential for using 

third-parties agents to circumvent the 

prohibitions. We also propose the 

conforming change of adding ‘‘agents’’ 

and other parties participating in the 

affairs of the institution to the list of 

those covered by prohibited conduct 

under our regulations on territorial 

adjustments at existing § 611.1124(g) 

and (i). 

The proposed rule would also clarify 

the FCA’s existing authority to require 

that Farm Credit banks and associations 

issue a corrected stockholder disclosure 

document to replace the document 

originally issued in connection with a 

stockholder vote on a proposed merger. 

The proposed clarification would add 

language to existing §§ 611.1020(c) and 

611.1122(h) explaining our authority to 

require reissuance of the document if 

we determine that the stockholder 

disclosure document is inaccurate, 

incomplete, or misleading. Complete 

and accurate information is necessary to 

stockholders’ understanding of the 

action on which they will vote and is 

critical to their making an informed 

decision. We also propose a conforming 

change to our regulations on territorial 

adjustments to add a new § 611.1124(j) 

containing the same language. 

2. Farm Credit Bank Mergers and 

Consolidations [Existing § 611.1020] 

We propose updating § 611.1020 to 

clarify that proposed bank mergers are 

generally subject to the same merger 

requirements as associations. Existing 

§ 611.1020(b) references certain 

association merger provisions related to 

document submission that Farm Credit 

banks must follow. We propose 

updating § 611.1020(b) to clarify that 

Farm Credit banks seeking to merge 

must follow requirements for 

association mergers, including the FCA 

review process, stockholder voting, and 

reconsideration petition requirements. 

However, given that bank mergers may 

result in processing considerations that 

differ from associations, we also 

propose adding an exemption to 

§ 611.1020(b) that would relieve banks 

from complying with association merger 

provisions, if determined appropriate by 

the FCA. 

As a conforming change, we propose 

removing § 611.1020(d). The provisions 

in this paragraph are contained in the 

association merger rules at § 611.1122 

and would be incorporated by reference 

under the above proposed change to 

§ 611.1020(b). 

3. Association Mergers [Existing 

§ 611.1122] 

a. Reorganization 

We propose rearranging existing 

provisions within § 611.1122 to 

consolidate like provisions and to 

improve transparency of requirements. 

The organizational changes we propose 

are: 

• Incorporating paragraph (i) on the 

timing of the notice and accompanying 

information of stockholder meetings 

into paragraph (e), which addresses the 

content of notices. We also propose a 

conforming change to paragraph (i) by 

removing the reference to paragraph (e). 

• Moving and redesignating 

paragraph (j) on the mergers of more 

than two institutions as new paragraph 

(f). The proposed change would place 

the exemptions to the requirements of 

paragraph (e) immediately after 

paragraph (e). 

• Bifurcating paragraph (g) into two 

paragraphs—one addressing effective 

dates and the other addressing notice of 

stockholder votes on a proposed merger. 

Specifically, we propose keeping those 

parts of paragraph (g) that address 

effective dates as part of new paragraph 

(g) and moving the provision in 

paragraph (g) requiring notice of the 

stockholder vote into new paragraph (h). 

• Moving and redesignating 

paragraph (k) on the effective date of 

mergers to new paragraphs (g)(1) and 

(2). As proposed, the new paragraph 

(g)(1) would contain the existing 

provisions on effective dates when 

reconsideration petitions are filed and 

the new paragraph (g)(2) would contain 

the existing provision on effective dates 

when no reconsideration petition is 

filed. 

b. FCA Review [Existing § 611.1122(c) 

and (g); New § 611.1122(c) and (h)] 

The proposed rule would clarify the 

FCA review process. We believe the 

proposed changes will aid institutions 

in managing expectations, setting 

merger effective dates, and scheduling 

the stockholder vote on a merger 

proposal. As proposed, new 

§ 611.1122(c) and (h) would: 

• Break existing § 611.1122(c) into 

paragraphs for ease of use; 

• Specify the need for a complete 

application before the commencement 

of the statutory 60-day review period; 4

• Require the FCA to notify the 

requesting associations when the 

statutory 60-day review period begins; 

• Restate the existing authority of 

FCA to require additional information to 

supplement an application; and 

• Reiterate the existing authority 

under sections 5.17(a) and 5.25(a) of the 

Act regarding the FCA’s authority to 

impose in writing and enforce 

conditions of approval. 

The statutory review process 

performed by the FCA is a serious 

undertaking during which we seek to 

determine the potential impact of the 

merger on the safety and soundness of 

the constituent institutions and their 

stockholders, as well as the System as 

a whole. In order to conduct a 

thoughtful and comprehensive review, 

it is imperative that we be provided all 

the necessary documentation and 

information to begin our review. The 

FCA evaluates the initial merger 

submissions to determine if they are 

complete, recognizing that each 

proposed merger may have unique facts 

and circumstances. Under this practice, 

if additional information is required, we 

would explain to the associations that 

until the information is received, the 

statutory 60-day review period will not 

begin. This is to ensure our review gives 

full consideration of the relevant and 

unique facts and circumstances 

applicable to each proposed merger, 

such as size, complexity, geographic 

territory, and other relevant factors 

necessary to considering whether or not 

to approve or deny the request to merge. 

The proposed rule would incorporate 

this practice into our regulations to 

enhance the understanding of the FCA’s 


rljohnson on DSK3VPTVN1PROD with PROPOSALS
Federal Register / Vol. 80, No. 12 / Tuesday, January 20, 2015 / Proposed Rules 2617 

5See 12 U.S.C. 2184. 

review and approval process related to 

proposed plans of merger. 

We propose conforming changes to 

our regulations on territorial 

adjustments in § 611.1124(d) to add 

language on supplemental information 

and conditions of approval. 

c. Stockholder Meetings and Votes 

[Existing § 611.1122(d)] 

We propose changes to the 

requirements regarding stockholder 

votes on proposed plans of merger. The 

proposed rule would separate the 

existing provisions of § 611.1122(d) into 

paragraphs (d)(1) through (d)(3) for ease 

of use and clarity. As proposed, new 

paragraph (d)(1) would contain the 

existing requirement that the 

constituent associations to a proposed 

plan of merger call a meeting on written 

notice to each of its voting stockholders 

entitled to vote on the proposed plan of 

merger. New paragraph (d)(3) would 

contain the existing requirement that 

the voting be in person or by proxy. 

Proposed new paragraph (d)(2) would 

clarify that merger voting procedures 

must follow the existing confidentiality 

and security in voting procedures 

contained in § 611.340. This change is 

made to clearly state that the 

confidentiality and security in voting 

requirements of § 611.340 are applicable 

to stockholder votes on proposed 

mergers. Based on the inquiries we 

received from System banks and 

associations, we consider it appropriate 

to clarify in § 611.1122(d) that an 

institution’s policies and procedures for 

a stockholder vote on a proposed merger 

must comply with existing 

confidentiality and security in voting 

rules at § 611.340. 

We propose that only an independent 

third party be authorized to validate 

ballots and tabulate stockholder votes 

on a merger or consolidation. Existing 

regulations at § 611.340 provide that 

System banks and associations may use 

either an independent third party or a 

tellers committee (which consists of 

voting stockholders) to validate ballots 

and tabulate voting results. The use of 

an independent third party for mergers 

would provide added security and 

confidentiality over the voting process 

on an issue that is not routinely 

presented to stockholders for a vote and 

that may have long-lasting effects on 

stockholders. Also, we believe that due 

to the time constraints imposed on 

certain phases of the merger process, 

using an independent third party to 

validate ballots and tabulate votes will 

facilitate the process and allow voting 

stockholders to focus solely on the 

merger vote itself. We propose a 

conforming change in new § 611.1122(h) 

to recognize the proposed rule limiting 

the responsibility for validating ballots 

and proxies and tabulating voting 

results on proposed mergers to only 

independent third parties. 

We also propose adding language to 

§ 611.1122(d) to clarify that FCA may 

require that the constituent banks or 

associations hold informational 

meetings with their respective 

stockholders prior to putting the 

proposed plan of merger to a vote. 

Depending on the complexity, 

geography, specific facts and 

circumstances, or stockholder inquiry 

relevant to a proposed plan of merger, 

we believe there may be instances 

where a question and answer forum 

would benefit stockholder 

understanding of the transaction and its 

consequences to them, and contribute to 

a more informed stockholder decision. 

In those instances, we believe 

stockholders would benefit from an 

open discussion with the board of 

directors and management of the 

constituent institutions where all views 

may be expressed and heard by all 

interested parties. We believe holding 

informational meetings with 

stockholders prior to the meeting held 

for the merger vote would enhance 

communication and stockholder 

understanding of an action that will 

have long-term effects for the 

stockholders. 

4. Stockholder Reconsiderations 

[Existing § 611.1123(c); New § 611.1126] 

Bank and association voting 

stockholders have the right to 

reconsider the approval of a merger by 

filing a reconsideration petition with the 

FCA, provided that certain provisions of 

our regulations are met. In order to 

make it easier to review those 

provisions, we propose moving them 

from § 611.1123(c), which sets forth our 

requirements on merger agreements, to 

new § 611.1126. Also, we propose 

clarifying that only voting stockholders 

have the right to file a reconsideration 

petition. 

We also propose the following 

changes to the reconsideration petition 

regulations: 

a. List of Stockholders [New 

§ 611.1126(b)] 

We propose adding a new provision 

to address the process by which 

stockholders wishing to file a petition 

obtain a list of stockholders from their 

bank or association. Stockholders have 

a statutory right to obtain a list of 

stockholders in their institution.5

Existing § 618.8310 addresses the 

process by which stockholders may 

request a list of stockholders’ names, 

addresses, and classes of stock held by 

the stockholder, and the prohibitions on 

the use of the list. We propose language 

in new § 611.1126(b) to clarify that the 

process set forth in § 618.8310, with one 

change, applies to requests for a list of 

stockholders when the purpose is to 

seek signatures on a petition for 

reconsideration of a merger. The 

proposed difference from the § 618.8310 

provisions is that the stockholder list 

provided to a stockholder wishing to file 

a reconsideration petition be the voting 

record date list developed for the 

stockholder vote on the proposed plan 

of merger. This change enables the 

stockholder filing the petition to have 

the names of only those stockholders 

who would be eligible to sign the 

reconsideration petition. The list 

provided to the stockholder under 

§ 618.8310 includes all stockholders of 

the bank or association, both voting and 

nonvoting. Absent the proposed 

provision, any stockholder wishing to 

file a reconsideration petition would 

have the added step of culling the 

ineligible stockholders from the list 

before proceeding with any further 

actions to timely filing the petition. The 

Act provides a very limited amount of 

time for filing a reconsideration petition 

and we believe giving stockholders a list 

of nonvoting, as well as voting, 

stockholders would be an unnecessary 

burden and one unintended by 

Congress. Also, we believe using the 

merger voting record date list will ease 

the burden on the bank or association, 

since the list will already exist and be 

up-to-date. As the reconsideration 

petition process has a very short 

timeframe, we believe these changes 

will aid all parties in coordinating their 

efforts and help ensure timely access to 

the appropriate and relevant 

stockholder lists. 

b. Filing of Petition With the FCA [New 

§ 611.1126(c)] 

We have received requests for 

clarification from both System 

institutions and their stockholders 

regarding the date that the FCA 

considers a reconsideration petition to 

be filed with the Agency and how the 

petition may be filed. We propose 

adding new § 611.1126(c) to explain that 

there are various means of filing a 

reconsideration petition (e.g., the U.S. 

Postal Service, hand delivery, electronic 

mail), and all are acceptable to the FCA. 

We propose allowing petitions to be 

filed in electronic form in recognition of 

advances in communication technology. 

We also propose that reconsideration 

petitions must be addressed to the 


rljohnson on DSK3VPTVN1PROD with PROPOSALS
2618 Federal Register / Vol. 80, No. 12 / Tuesday, January 20, 2015 / Proposed Rules 

6Section 7.9(b)(3) of the Act (12 U.S.C. 2279c–2). 

7Unless our rules specify ‘‘business days’’, any 

use of the term ‘‘days’’ means calendar days. 8See 12 U.S.C. 2208. 

Secretary to the FCA Board. We propose 

that reconsideration petitions may be 

filed at: 

• The FCA headquarters office in 

McLean, Virginia; 

• Any FCA office, including the most 

local FCA office; or 

• Delivered in-person during normal 

business hours to any FCA employee 

who is in official duty status at the time. 

We would expect that if a 

reconsideration petition is filed by inperson delivery to an FCA employee, 

then the delivery should be followed up 

with notice of the delivery to the 

Secretary to the FCA Board. We believe 

that proposing various means for a 

stockholder to file a petition with the 

FCA will aid the stockholder in working 

within the 35-day time constraint for 

filing a petition, and will make the 

petition process less burdensome on the 

stockholder. Also, we propose clarifying 

that the date of postmark, ship date, or 

the timestamp reflected in the metadata 

of electronic transmissions will be used 

to determine the date the petition is 

considered filed with the FCA. 

The Act requires reconsideration 

petitions to be ‘‘presented’’ to FCA 

within 30 days after the date that 

stockholders receive notification of the 

final results of the stockholder vote on 

the proposed plan of merger.6 However, 

existing § 611.1123(c) provides that 

petitions must be filed with the FCA 

within 35 days 7 after notification of the 

voting results is mailed to stockholders. 

The additional 5 days for filing a 

petition as provided in the regulation 

allows time for the stockholder to 

receive the notification and ensures that 

stockholders have the full statutory 30 

days to file a reconsideration petition. 

We believe a similar concession is 

necessary to determine when 

reconsideration petitions are filed with 

the FCA. For example, a petition would 

be considered timely filed with the FCA 

if it was mailed via the U.S. Postal 

Service and the postmark date was the 

35th day of the regulatory 

reconsideration period. This concession 

would give stockholders the added 

benefit of having the full statutory 30 

days to acquire needed signatures and 

file the petition with the FCA without 

concern for delivery delays. 

We also propose that petitions contain 

contact information on the stockholder 

filing the petition. Having contact 

information on the stockholder filing 

the petition would enable the FCA to 

readily contact that individual, if 

necessary. 

c. FCA Review of Petitions [Existing 

§ 611.1123(c); New § 611.1126(d)] 

We propose to clarify and enhance the 

existing rule on the notice process used 

by the FCA when a reconsideration 

petition is filed. In new § 611.1126(d), 

we propose that if a petition is received 

in a timely manner, notice that a 

reconsideration petition has been filed 

be sent to the relevant institutions. We 

believe all parties should be notified 

that a reconsideration petition was 

timely and appropriately filed with the 

FCA since institution action on a 

petition will be required. 

We further propose to clarify in new 

§ 611.1126(d) that institutions have no 

expectation of receiving a copy of the 

petition. We believe the rule should be 

clear regarding access to the names on 

the petition. By necessity, one or more 

stockholder will identify themselves to 

the institution in order to obtain the list 

of stockholders. However, there is no 

legitimate business purpose for the 

institutions to have the names of 

stockholders signing the petition. We do 

not believe Congress intended the 

institutions to have this information, or 

they would not have required that the 

petition be filed with the FCA, rather 

than the institution. Also, providing the 

names of stockholders signing a petition 

to their respective institutions may 

allow the institution to infer how that 

stockholder voted on the proposed plan 

of merger and impact the statutory right 

to confidential voting.8

d. Reconsideration Votes [Existing 

§ 611.1123(c); New § 611.1126(e)] 

We propose to clarify in new 

§ 611.1126(e) the existing rule on the 

voting process after a reconsideration 

petition is filed. We propose clarifying 

that reconsideration votes are only cast 

in person or by proxy, similar to merger 

votes, and, just as merger votes, must 

follow the voting and confidentiality 

provisions of existing § 611.340, but 

without use of a tellers committee. This 

is to ensure the reconsideration voting 

process is the same as that used for the 

original merger vote. 

VI. Regulatory Flexibility Act 

Pursuant to section 605(b) of the 

Regulatory Flexibility Act (5 U.S.C. 601 

et seq.), FCA hereby certifies that the 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities. 

Each of the banks in the Farm Credit 

System, considered together with its 

affiliated associations, has assets and 

annual income in excess of the amounts 

that would qualify them as small 

entities. Therefore, Farm Credit 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. 

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 

continues to read as follows: 

Authority: Secs. 1.2, 1.3, 1.4, 1.5, 1.12, 

1.13, 2.0, 2.1, 2.2, 2.10, 2.11, 2.12, 3.0, 3.1, 

3.2, 3.3, 3.7, 3.8, 3.9, 3.21, 4.3A, 4.12, 4.12A, 

4.15, 4.20, 4.21, 4.25, 4.26, 4.27, 4.28A, 5.9, 

5.17, 5.25, 7.0–7.13, 8.5(e) of the Farm Credit 

Act (12 U.S.C. 2002, 2011, 2012, 2013, 2020, 

2021, 2071, 2072, 2073, 2091, 2092, 2093, 

2121, 2122, 2123, 2124, 2128, 2129, 2130, 

2142, 2154a, 2183, 2184, 2203, 2208, 2209, 

2211, 2212, 2213, 2214, 2243, 2252, 2261, 

2279a–2279f–1, 2279aa–5(e)); secs. 411 and 

412 of Pub. L. 100–233, 101 Stat. 1568, 1638; 

sec. 414 of Pub. L. 100–399, 102 Stat. 989, 

1004. 

■ 2. Section 611.100 is amended by: 

■ a. Redesignating existing paragraphs 

(b) through (g) as paragraphs (c) through 

(h); and 

■ b. Adding new paragraphs (b), (i) and 

(j) to read as follows: 

§ 611.100 Definitions. 

* * * * * 

(b) FCA means the Farm Credit 

Administration. 

* * * * * 

(i) Voting record date or record date 

means the official date set by a Farm 

Credit institution whereby a stockholder 

must own voting stock in that 

institution in order to cast a vote. 

(j) Voting record date list or record 

date list means the list of names, 

addresses, and classes of stock held by 

stockholders in the Farm Credit 

institution who are eligible to vote as of 

a specific voting record date. 

■ 3. Section 611.1000 is revised to read 

as follows: 

§ 611.1000 General authority. 

(a) An amendment to a Farm Credit 

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 FCA may make changes in the 

charter of a Farm Credit bank as may be 

requested by that bank and approved by 

the FCA pursuant to § 611.1010. 

(c) The FCA may, in accordance with 

the provisions of the Act, make changes 


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in the charter of a Farm Credit bank, and 

any chartered service corporation 

thereof, as may be necessary or 

expedient to implement the provisions 

of the Act. 

■ 4. Section 611.1010 is revised to read 

as follows: 

§ 611.1010 Farm Credit bank charter 

amendment procedures. 

(a) A Farm Credit bank may 

recommend a charter amendment to 

accomplish any of the following 

actions— 

(1) A merger or consolidation with 

any other Farm Credit bank or banks 

operating under title I or III of the Act. 

(2) A transfer of territory with any 

other Farm Credit bank operating under 

the same title of the Act. 

(3) A change to its name or location. 

(4) Any other change that is properly 

the subject of a Farm Credit bank 

charter. 

(b) Upon approval of an appropriate 

resolution by the Farm Credit bank 

board, the certified resolution, together 

with supporting documentation, must 

be submitted to the FCA for preliminary 

or final approval, as the case may be. 

(c) The FCA will review the material 

submitted and either approve or 

disapprove the request. The FCA may 

require submission of any supplemental 

information and analysis it deems 

appropriate. If the request is for merger, 

consolidation, or transfer of territory, 

the approval of the FCA will be 

preliminary only, with final approval 

subject to a vote of the Farm Credit 

bank’s stockholders. 

(d) Following receipt of the FCA’s 

written preliminary approval, the 

proposal must be submitted for approval 

to the voting stockholders of the Farm 

Credit bank. A proposal will be 

considered approved if agreed to by a 

majority of the voting stockholders of 

each Farm Credit bank voting, in person 

or by proxy, at a duly authorized 

stockholder meeting with each 

stockholder-association entitled to cast a 

number of votes equal to the number of 

the association’s voting shareholders, 

unless another voting scheme has been 

approved by the FCA. 

(e) Upon approval by the stockholders 

of the Farm Credit bank, the request for 

final approval and issuance of the 

appropriate charter or amendments to 

charter for the Farm Credit banks 

involved must be submitted to the FCA. 

■ 5. Section 611.1020 is revised to read 

as follows: 

§ 611.1020 Requirements for mergers or 

consolidations of Farm Credit banks. 

(a) As authorized under sections 7.0 

and 7.12 of the Act, a Farm Credit bank 

may merge or consolidate with one or 

more Farm Credit banks operating under 

the same or different titles of the Act. 

(b) The plan to merge or consolidate 

two or more Farm Credit banks is 

subject to the requirements of 

§§ 611.1122, 611.1123, and 611.1126 of 

this part, unless otherwise instructed by 

the FCA. In interpreting those sections, 

the phrase ‘‘Farm Credit bank(s)’’ will 

be read for the word ‘‘association(s)’’ 

and references to ‘‘funding bank’’ are to 

be ignored. 

§ 611.1040 [Amended] 

■ 6. Section 611.1040 is amended by 

removing the word ‘‘shall’’ and adding 

in its place the word ‘‘must’’ each place 

it appears. 

■ 7. Section 611.1120 is amended by: 

■ a. Removing the words ‘‘Farm Credit 

Administration’’ and adding in their 

place, the acronym ‘‘FCA’’ each place 

they appear in paragraph (b); and 

■ b. Revising paragraph (c). 

The revision reads as follows: 

§ 611.1120 General authority. 

* * * * * 

(c) The FCA may, on its own 

initiative, make changes in the charter 

of an agricultural credit association, 

Federal land bank association, or a 

production credit association, and any 

chartered service corporation thereof, 

where the FCA determines that the 

change is necessary to accomplish the 

purposes of the Act. 

■ 8. Section 611.1121 is revised to read 

as follows: 

§ 611.1121 Association charter 

amendment procedures. 

(a) An association which proposes to 

amend its charter must submit a request 

to its funding bank containing the 

following information: 

(1) A statement of the provision(s) of 

the charter that the association proposes 

to amend and the proposed 

amendment(s); 

(2) A statement of the reasons for the 

proposed amendment(s), the impact of 

the amendment(s) on the association 

and its stockholders, and the requested 

effective date of the amendment(s); 

(3) A certified copy of the resolution 

of the board of directors of the 

association approving the 

amendment(s); and 

(4) Any additional information or 

documents that the association wishes 

to submit in support of the request or 

that may be requested by the funding 

bank. 

(b) Upon receipt of a proposed 

amendment from an association, the 

funding bank must review the materials 

submitted and provide the association 

with its analysis of the proposal within 

a reasonable period of time. 

Concurrently, the funding bank must 

communicate its recommendation on 

the proposal to the FCA, including the 

reasons for the recommendation, and 

any analysis the bank believes 

appropriate. Following review by the 

bank, the association must transmit the 

proposed amendment with attachments 

to the FCA. 

(c) Upon receipt of an association’s 

request for a charter amendment, the 

FCA will review the materials submitted 

and either approve or disapprove the 

request. The FCA may require 

submission of any supplemental 

information and analysis it deems 

appropriate. 

(d) The FCA will notify the 

association of its approval or 

disapproval of the amendment request, 

including a copy of the amended charter 

with the approval notification, and 

provide a copy of such communication 

to the funding bank. 

■ 9. Section 611.1122 is revised to read 

as follows: 

§ 611.1122 Requirements for association 

mergers or consolidations. 

(a) Where two or more associations 

plan to merge or consolidate, or where 

the funding bank board has adopted a 

reorganization plan for the associations 

in the district, the associations involved 

must jointly submit a request to the 

funding bank containing the following: 

(1) In the case of a merger, a copy of 

the charter of the continuing association 

reflecting any proposed amendments. In 

the case of consolidation, a copy of the 

proposed charter of the new association; 

(2) A statement of the reasons for the 

proposed merger or consolidation, the 

impact of the proposed transaction on 

the associations and their stockholders, 

and the planned effective date of the 

merger or consolidation; 

(3)(i) A certified copy of the 

resolution of the board of directors of 

each association recommending 

approval of the merger or consolidation; 

or 

(ii) In the case of a district 

reorganization plan, a certified copy of 

the resolution of the board of directors 

of each association recommending 

either approval or disapproval of the 

proposal; 

(4) A copy of the agreement of merger 

or consolidation; 

(5) Two signed copies of the 

continuing or proposed Articles of 

Association; 

(6) All of the information specified in 

paragraph (e) of this section; 

(7) Any additional information or 

documents each association wishes to 

submit in support of the request; and 


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2620 Federal Register / Vol. 80, No. 12 / Tuesday, January 20, 2015 / Proposed Rules 

(8) All additional information and 

documentation that the funding bank or 

the FCA requests. 

(b) Upon receipt of a request for 

approval of an association merger or 

consolidation, the funding bank must 

review the materials submitted to 

determine whether they comply with 

the requirements of these regulations 

and must communicate with the 

associations concerning any deficiency. 

When the bank approves the request to 

merge or consolidate it must notify the 

associations. The bank must also notify 

the FCA of its approval together with 

the reasons for its approval and any 

supporting analysis. The associations 

must jointly submit the proposal 

together with required documentation to 

the FCA for preliminary approval. 

(c) Upon receipt of a complete 

association merger or consolidation 

request, the FCA will review the request 

and either deny or give its written 

preliminary approval to the request 

within 60 days. The FCA will notify the 

requesting associations when the 60-day 

preliminary approval review period 

begins. The FCA may require 

submission of any supplemental 

information and analysis it deems 

appropriate for its consideration of the 

merger or consolidation request. 

(1) When a request is denied, written 

notice stating the reasons for the denial 

will be transmitted to the associations 

and a copy provided to the funding 

bank(s). 

(2) When a request is preliminarily 

approved, written notice of the 

preliminary approval will be given to 

the associations and a copy provided to 

the funding bank(s). Preliminary 

approval by the FCA does not constitute 

approval of the merger or consolidation. 

Approval of a merger or consolidation is 

only issued pursuant to this subpart. In 

connection with granting preliminary 

approval, the FCA may impose 

conditions in writing. 

(d) Upon receipt of preliminary 

approval by the FCA of a merger or 

consolidation request, each constituent 

association must call a meeting of its 

voting stockholders. The FCA may also 

require the associations to hold 

informational meetings before a 

stockholder vote. The stockholder 

meeting to vote on a merger or 

consolidation must: 

(1) Be called on written notice to each 

stockholder entitled to vote on the 

transaction as of the record date and be 

held in accordance with the terms of 

each association’s bylaws. 

(2) Follow the voting procedures of 

§ 611.340, except associations may not 

use tellers committees to validate ballots 

and tabulate votes on the merger or 

consolidation. 

(3) Require the affirmative vote of a 

majority of the voting stockholders of 

each association present and voting, 

either in person or by written proxy, at 

a meeting at which a quorum is present 

to constitute stockholder approval of a 

merger or consolidation proposal. 

(e) Notice of the stockholder meeting 

to consider and act upon a proposed 

merger or consolidation must be 

accompanied by the information 

required under this paragraph. The 

notice and accompanying information 

must not be sent to stockholders until 

preliminary approval of the merger or 

consolidation has been given by the 

FCA. 

(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 

RELIED UPON. 

(2) A description of the material 

provisions of the agreement of merger or 

consolidation and the effect of the 

proposed merger or consolidation on the 

associations, their stockholders, the new 

or continuing board of directors, and the 

territory to be served. In addition, a 

copy of the agreement must be 

furnished with the notice to 

stockholders. 

(3) A summary of the provisions of 

the charter and bylaws of the continuing 

or new association that differ materially 

from the existing charter or bylaw 

provisions of the constituent 

associations. 

(4) A brief statement by the boards of 

directors of the constituent associations 

setting forth the basis for the boards’ 

recommendation on the merger or 

consolidation. 

(5) A description of any agreement or 

arrangement between a constituent 

association and any of its officers 

relating to employment or termination 

of employment and arising from the 

merger or consolidation. 

(6) A presentation of the following 

financial data: 

(i) A balance sheet and income 

statement for each constituent 

association for each of the 2 preceding 

fiscal years. 

(ii) A balance sheet for each 

constituent association as of a date 

within 90 days of the date the request 

for preliminary approval is forwarded to 

the FCA presented on a comparative 

basis with the corresponding period of 

the prior fiscal year. 

(iii) An income statement for the 

interim period between the end of the 

last fiscal year and the date of the 

required balance sheet presented on a 

comparative basis with the 

corresponding period of the preceding 

fiscal year. The balance sheet and 

income statement format must be that 

contained in the association’s annual 

report to stockholders; must contain any 

significant changes in accounting 

policies that differ from those in the 

latest association annual report to 

stockholders; and must contain 

appropriate footnote disclosures, 

including data relating to high-risk 

assets and other property owned, and 

allowance for loan losses, including net 

chargeoffs as required in paragraph 

(e)(10) of this section. 

(7) The financial statements (balance 

sheet and income statement) must be in 

sufficient detail to show separately all 

significant categories of interest-earning 

assets and interest-bearing liabilities 

and the income or expense accrued 

thereon. 

(8) Attached to the financial 

statements for each constituent 

association, either: 

(i) A statement signed by the chief 

executive officer and each member of 

the board of directors of the association 

that the various financial statements are 

unaudited, but have been prepared in 

all material respects in accordance with 

generally accepted accounting 

principles (except as otherwise 

disclosed therein) and are, to the best of 

the knowledge of the board, a fair and 

accurate presentation of the financial 

condition of the association; or 

(ii) A signed opinion by an 

independent certified public accountant 

that the various financial statements 

have been examined in accordance with 

generally accepted auditing standards 

and, accordingly, included such tests of 

the accounting records and such other 

auditing procedures as were considered 

necessary in the circumstances, and, as 

of the date of the statements, present 

fairly the financial position of the 

association in conformity with generally 

accepted accounting principles applied 

on a consistent basis, except as 

otherwise noted thereon. 

(9) A presentation for each constituent 

association regarding its policy on 

accounting for loan performance, 

together with the number and dollar 

amount of loans in all performance 

categories, including those categorized 

as high-risk assets. 


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(10) Information of each constituent 

association concerning the amount of 

loans charged off in each of the 2 fiscal 

years preceding the date of the balance 

sheet, the current year-to-date net 

chargeoff amount, and the balance in 

the allowance for loan losses account 

and a statement regarding whether, in 

the opinion of management, the 

allowance for loan losses is adequate to 

absorb the risk currently existing in the 

loan portfolio. This information may be 

appropriately included in the footnotes 

to the financial statements. 

(11) A management discussion and 

analysis of the financial condition and 

results of operation for the past 2 fiscal 

years for each constituent institution. 

This requirement can be satisfied by 

including the materials contained in the 

management discussion and analysis of 

each institution’s most recent annual 

report. 

(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) 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. 

(15) A statement on the proposed 

institution’s relationship with an 

independent public accountant, 

including any change that may occur as 

a result of the merger or consolidation. 

(16) A pro forma balance sheet of the 

continuing or consolidated association 

presented as if the merger or 

consolidation had occurred as of the 

date on the balance sheets required in 

paragraph (e)(6) of this section, as 

recommended to the stockholders. A 

pro forma summary of earnings for the 

continuing or consolidated association 

presented as if the merger or 

consolidation had been effective at the 

beginning of the interim period between 

the end of the last fiscal year and the 

date of the balance sheets. 

(17) A description of the type and 

dollar amount of any financial 

assistance that has been provided 

during the past year or will be provided 

by the funding bank or other party to 

assist the constituent or the continuing 

or new association(s), the conditions on 

which financial assistance has been or 

will be extended, the terms of 

repayment or retirement, if any, and the 

impact of the assistance on the subject 

association(s) or the stockholders. 

(18) A presentation for each 

constituent association of interest rate 

comparisons for the last 2 fiscal years 

preceding the date of the balance sheet, 

together with a statement of the 

continuing or new association’s 

proposed interest rate and fee programs, 

interest collection policies, 

capitalization rates, dividends or 

patronage refunds, and other factors that 

would affect a borrower’s cost of doing 

business with the continuing or new 

association. Where agreement has not 

been reached on such matters, current 

related information must be presented 

for each constituent association. 

(19) A description for each 

constituent association of any event 

subsequent to the date of the financial 

statements, but prior to the merger or 

consolidation vote, that would have a 

material impact on the financial 

condition of the constituent or 

continuing or new association(s). 

(20) A statement of any other material 

fact or circumstance that a stockholder 

would need in order to make an 

informed decision on the merger or 

consolidation proposal, or that is 

necessary to make the required 

disclosures not misleading. 

(21) Where proxies are to be solicited, 

a form of written proxy, together with 

instructions on the purpose and 

authority for its use, and the proper 

method for signature by the stockholder. 

(f) Where a proposed merger or 

consolidation will involve more than 

three associations, the FCA may require 

the supplementation, or allow the 

condensation or omission of any 

information required under paragraph 

(e) of this section in furtherance of 

meaningful disclosure to stockholders. 

Any waiver sought under this paragraph 

must be obtained before preparation of 

the financial statements and 

accompanying schedules required under 

paragraph (e) of this section. 

(g) The effective date of a merger or 

consolidation may not be less than 35 

days after the date of mailing of the 

notification to stockholders of the 

results of the stockholder vote, or 15 

days after the date of submission to the 

FCA of all required documents for the 

FCA’s consideration of final approval, 

whichever occurs later. 

(1) The constituent institutions must 

agree on a second effective date to be 

used in the event the merger or 

consolidation is approved on 

reconsideration. The second effective 

date may not be less than 60 days after 

stockholder notification of the results of 

the first vote, or 15 days after the date 

of the reconsideration vote, whichever 

occurs later. 

(2) If no reconsideration petition is 

filed with the FCA, upon final approval 

by the FCA, the merger or consolidation 

will be effective on the date specified in 

the merger agreement or at such later 

date as may be required by the FCA. 

(h) Each constituent association must 

notify its stockholders not later than 30 

days after the stockholder vote of the 

final results of the vote. Upon approval 

of a proposed merger or consolidation 

by the stockholders of the constituent 

associations, each association must 

submit to the FCA a certified copy of the 

stockholders’ resolution on which the 

stockholders cast their votes and a 

certification of the stockholder vote 

from the independent third party(s) 

used to tally the vote. After the time for 

submitting reconsideration petitions has 

expired, and if no petition is filed, the 

FCA will make a final approval decision 

on the merger or consolidation, 

imposing conditions as appropriate. The 

FCA will send written notice of the final 

FCA approval decision to the 

associations and provide a copy to the 

affiliated funding bank(s). 

(i) No Farm Credit institution, or any 

director, officer, employee, agent, or 

other person participating in the 

conduct of the affairs thereof, may 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 any 

association in connection with an 

association merger or consolidation. 

(1) No Farm Credit institution or any 

director, officer, employee, agent, or 

other person participating in the 

conduct of the affairs of a Farm Credit 

institution may make an oral or written 

representation to any person that a 

preliminary or final approval by the 

FCA of a merger or consolidation 

constitutes, directly or indirectly, either 

a recommendation on the merits of the 

transaction or an assurance concerning 

the adequacy or accuracy of any 

information provided to any 

association’s stockholders in connection 

therewith. 

(2) When a Farm Credit institution, or 

any of its employees, officers, directors, 

agents, or other person participating in 

the conduct of the affairs thereof, make 

disclosures or representations in 

connection with an association merger 

or consolidation that, in the judgment of 

the FCA, are incomplete, inaccurate, or 

misleading, whether or not such 

disclosure or representation is made in 

disclosure statements required by this 

subpart, such institution must make 


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2622 Federal Register / Vol. 80, No. 12 / Tuesday, January 20, 2015 / Proposed Rules 

such additional or corrective disclosure 

as directed by the FCA and as is 

necessary to provide stockholders and 

the general public with full and fair 

disclosure. 

■ 10. Section 611.1123 is amended by: 

■ a. Revising the section heading and 

paragraph (a) introductory text; 

■ b. Removing the word ‘‘shall’’ and 

adding in its place, the word ‘‘must’’ in 

the last sentence of paragraph (a)(3); 

■ c. Removing the word ‘‘shall’’ and 

adding in its place, the word ‘‘may’’ in 

paragraph (a)(4); 

■ d. Removing the words ‘‘supervising 

bank’’ and ‘‘Farm Credit 

Administration’’ and adding in their 

place the words ‘‘funding bank’’ and the 

acronym ‘‘FCA’’, respectively, in 

paragraph (a)(5); 

■ e. Removing the words ‘‘Farm Credit 

Administration’’ and adding in their 

place the acronym ‘‘FCA’’ in paragraph 

(a)(7) introductory text; 

■ f. Removing the word ‘‘institution’’ 

and adding in its place the words ‘‘or 

consolidated association’’ in paragraph 

(a)(7)(iv); 

■ g. Removing the words ‘‘new 

institution’’ and ‘‘shall’’ and adding in 

their place the words ‘‘continuing or 

consolidated association’’ and ‘‘must’’, 

respectively, in paragraph (a)(9); 

■ h. Removing the words ‘‘proposed 

institution’’ and adding in its place the 

words ‘‘continuing or consolidated 

association’’ in paragraph (a)(10); 

■ i. Revising paragraph (b); and 

■ j. Removing paragraph (c). 

The revisions read as follows: 

§ 611.1123 Association merger or 

consolidation agreements. 

(a) Associations operating under the 

same title of the Act may merge or 

consolidate voluntarily, but only 

pursuant to a written agreement. The 

agreement must set forth all of the terms 

of the transaction, including, but not 

limited to, the following: 

* * * * * 

(b) As an attachment to the agreement, 

the constituent associations must set 

forth those provisions of the charter and 

bylaws of the continuing or 

consolidated association which differ 

from the existing charter or bylaw 

provisions of the constituent 

associations. 

■ 11. Section 611.1124 is revised to read 

as follows: 

§ 611.1124 Territorial adjustments. 

This section applies to any request 

submitted to the FCA to modify 

association charters for the purpose of 

transferring territory from one 

association to another. 

(a) Territorial adjustments, except as 

specified in paragraph (m) of this 

section, require approval of a majority of 

the voting stockholders of each 

association present and voting or voting 

by written proxy at a duly authorized 

meeting at which a quorum is present. 

(b) When two or more associations 

agree to transfer territory, each 

association must submit a proposal to 

the funding bank containing the 

following: 

(1) A statement of the reasons for the 

proposed transfer and the impact the 

transfer will have on its stockholders 

and holders of participation certificates; 

(2) A certified copy of the resolution 

of the board of directors of each 

association approving the proposed 

territory transfer; 

(3) A copy of the agreement to transfer 

territory that contains the following 

information: 

(i) A description of the territory to be 

transferred; 

(ii) Transferor association’s plan to 

transfer loans and the types of loans to 

be transferred; 

(iii) Transferor association’s plan to 

retire and transferee association’s plan 

to issue equities held by holders of 

stock, participation certificates, and 

allocated equities, if any, and a 

statement by each association that the 

book value of its equities is at least 

equal to par; 

(iv) An inventory of the assets to be 

sold by the transferor association and 

purchased by the transferee association; 

(v) An inventory of the liabilities to be 

assumed from the transferor association 

by the transferee association; 

(vi) A statement that the holders of 

stock and participation certificates 

whose loans are subject to transfer have 

60 days from the effective date of the 

territory transfer to inform the transferor 

association of their decision to remain 

with the transferor association for 

normal servicing until the current loan 

is paid; 

(vii) A statement that the transfer is 

conditioned upon the approval of the 

stockholders of each constituent 

association; and 

(viii) The effective date of the 

proposed territory transfer. 

(4) A copy of the stockholder 

disclosure statement provided for in 

paragraph (f) of this section; and 

(5) Any additional relevant 

information or documents that the 

association wishes to submit in support 

of its request or that may be required by 

the FCA. 

(c) Upon receipt of documents 

supporting a proposed territory transfer, 

the funding bank must review the 

materials submitted and provide the 

associations with its analysis of the 

proposal within a reasonable period of 

time. The funding bank must 

concurrently advise the FCA of its 

recommendation regarding the proposed 

territory transfer. Following review by 

the bank, the associations must transmit 

the proposal to the FCA together with 

all required documents. 

(d) Upon receipt of an association’s 

request to transfer territory, the FCA 

will review the request and either deny 

or grant preliminary approval to the 

request. The FCA may require 

submission of any supplemental 

information and analysis it deems 

appropriate for its consideration of the 

request to transfer territory. 

(1) When a request is denied, written 

notice stating the reasons for the denial 

will be transmitted to the associations, 

and a copy provided to the funding 

bank. 

(2) When a request is preliminarily 

approved, written notice of the 

preliminary approval will be 

transmitted to the associations, and a 

copy provided to the funding bank. 

Preliminary approval by the FCA does 

not constitute approval of the territory 

transfer. Final approval is granted only 

in accordance with paragraph (h) of this 

section. In connection with granting 

preliminary approval, the FCA may 

impose conditions in writing. 

(e) Upon receipt of preliminary 

approval by the FCA, each constituent 

association must, by written notice, and 

in accordance with its bylaws, call a 

meeting of its voting stockholders. The 

affirmative vote of a majority of the 

voting stockholders of each association 

present and voting or voting by written 

proxy at a meeting at which a quorum 

is present is required for stockholder 

approval of a territory transfer. 

(f) Notice of the meeting to consider 

and act upon a proposed territory 

transfer must be accompanied by the 

following information covering each 

constituent association: 

(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 

RELIED UPON. 

(2) A copy of the Agreement to 

Transfer Territory and a summary of the 

major provisions of the Agreement; 

(3) The reason the territory transfer is 

proposed; 


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Federal Register / Vol. 80, No. 12 / Tuesday, January 20, 2015 / Proposed Rules 2623 

(4) A map of the association’s territory 

as it would look after the transfer; 

(5) A summary of the differences, if 

any, between the transferor and 

transferee associations’ interest rates, 

interest rate policies, collection policies, 

service fees, bylaws, and any other 

items of interest that would impact a 

borrower’s lending relationship with the 

institution; 

(6) A statement that all loans of the 

transferor association that finance 

operations located in the transferred 

territory will be transferred to the 

transferee association except as 

otherwise provided for in this section or 

in accordance with agreements between 

the associations as provided for in 

§ 614.4070; 

(7) Where proxies are to be solicited, 

a form of written proxy, together with 

instructions on the purpose and 

authority for its use, and the proper 

method for signature by the 

stockholders; and 

(8) A statement that the associations’ 

bylaws, financial statements for the 

previous 3 years, and any financial 

information prepared by the 

associations concerning the proposed 

transfer of territory are available on 

request to the stockholders of any 

association involved in the transaction. 

(g) No Farm Credit institution, or 

director, officer, employee, agent, or 

other person participating in the 

conduct of the affairs thereof, may 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 any 

Farm Credit institution in connection 

with a territory transfer. 

(h) Upon approval of a proposed 

territory transfer by the stockholders of 

the constituent associations, a certified 

copy of the stockholders’ resolution for 

each constituent association and one 

executed Agreement to Transfer 

Territory must be forwarded to the FCA. 

The territory transfer will be effective 

when thereafter finally approved and on 

the date as specified by the FCA. Notice 

of final approval will be transmitted to 

the associations and a copy provided to 

the bank. 

(i) No director, officer, employee, 

agent, or other person participating in 

the conduct of the affairs of a Farm 

Credit institution may make an oral or 

written representation to any person 

that a preliminary or final approval by 

the FCA of a territory transfer 

constitutes, directly or indirectly, a 

recommendation on the merits of the 

transaction or an assurance concerning 

the adequacy or accuracy of any 

information provided to any 

association’s stockholders in connection 

therewith. 

(j) When a Farm Credit institution, or 

any of its employees, officers, directors, 

agents, or other persons participating in 

the conduct of the affairs thereof, make 

disclosures or representations that, in 

the judgment of the FCA, are 

incomplete, inaccurate, or misleading in 

connection with a territory transfer, 

whether or not such disclosure or 

representation is made in disclosure 

statements required by this subpart, 

such institution must make such 

additional or corrective disclosure as 

directed by the FCA and as is necessary 

to provide stockholders and the general 

public with full and fair disclosure. 

(k) The notice and accompanying 

information required under paragraph 

(f) of this section may not be sent to 

stockholders until preliminary approval 

of the territory transfer has been granted 

by the FCA. 

(l) Where a territory transfer is 

proposed simultaneously with a merger 

or consolidation, both transactions may 

be voted on by stockholders at the same 

meeting. Only stockholders of a 

transferee or transferor association may 

vote on a territory transfer. 

(m) Each borrower whose real estate 

or operations is located in a territory 

that will be transferred must be 

provided with a written Notice of 

Territory Transfer immediately after the 

FCA has granted final approval of the 

territory transfer. The Notice must 

inform the borrower of the transfer of 

the borrower’s loan to the transferee 

association and the exchange of related 

equities for equities of like kinds and 

amounts in the transferee association. If 

a like kind of equity is not available in 

the transferee association, similar 

equities must be offered that will not 

adversely affect the interest of the 

owner. The Notice must give the 

borrower 60 days from the effective date 

of the territory transfer to notify the 

transferor association in writing if the 

borrower decides to stay with the 

transferor association for normal 

servicing until the current loan is paid. 

Any application by the borrower for 

renewal or for additional credit must be 

made to the transferee association, 

except as otherwise provided for by an 

agreement between associations in 

accordance with § 614.4070. 

(n) This section does not apply to 

territory transfers initiated by order of 

the FCA or to territory transfers due to 

the liquidation of the transferor 

association. 

(o) Where a proposed action involves 

the transfer of a portion of an 

association’s territory to an association 

operating in a different district, such 

proposal must comply with the 

provisions of this section and section 

5.17(a) of the Act. 

§ 611.1125 [Amended] 

■ 12. Section 611.1125 is amended by: 

■ a. Removing the words ‘‘Farm Credit 

Administration’’ and adding in their 

place the acronym ‘‘FCA’’ in paragraph 

(a); 

■ b. Removing the word ‘‘shall’’ and 

adding in its place, the word ‘‘must’’ in 

paragraph (b) introductory text; 

■ c. Removing the words ‘‘district bank’’ 

and adding in their place, the word 

‘‘funding bank’’ in paragraphs (b) 

introductory text and (b)(1) through (4) 

wherever they appear; and 

■ d. Removing the words ‘‘district 

bank’’ and adding in their place, the 

word ‘‘funding bank’’ in paragraph (c) 

wherever they appear. 

■ 13. Subpart G is amended by adding 

§ 611.1126 to read as follows: 

§ 611.1126 Reconsiderations of mergers 

and consolidations. 

(a) Voting stockholders have the right 

to reconsider their approval of a merger 

or consolidation, provided that a 

petition is filed with the FCA. The 

petition must be signed by 15 percent of 

the stockholders (who were eligible to 

vote on the merger or consolidation 

proposal) of one or more of the 

constituent associations. The 

reconsideration petition must be filed 

with the FCA within 35 days after the 

date when the association mailed the 

notification of the final results of the 

stockholder vote pursuant to 

§ 611.1122(h). 

(b) Voting stockholders that intend to 

file a reconsideration petition have a 

right to obtain from the association of 

which they are a voting stockholder the 

voting record date list used by that 

association for the merger or 

consolidation vote. The association 

must provide the voting record date list 

as soon as possible, but not later than 7 

days after receipt of the request. The list 

must be provided pursuant to the 

provisions of § 618.8310(b). 

(c) A reconsideration petition must be 

addressed to the Secretary of the FCA 

Board and filed with the FCA on or 

before the deadline described in 

paragraph (a) of this section. 

Reconsideration petitions must identify 

a contact person and provide contact 

information for that person. 

(1) Filing of a reconsideration petition 

may only be accomplished through inperson delivery during normal business 

hours to any FCA employee in official 

duty status or by sending the petition by 

mail, facsimile, electronic transmission, 

carrier delivery, or other similar means 

to an FCA office. 


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2624 Federal Register / Vol. 80, No. 12 / Tuesday, January 20, 2015 / Proposed Rules 

(2) The FCA will use the postmark, 

ship date, electronic stamp, or similar 

evidence as the date of filing the 

reconsideration petition. 

(d) The FCA will notify the named 

contact on the reconsideration petition 

whether the petition was filed on time. 

On the timely receipt of a 

reconsideration petition, the FCA will 

review the petition to determine 

whether it complies with the 

requirements of section 7.9 of the Act. 

Following a determination that the 

petition was timely filed and complies 

with applicable requirements, the FCA 

will give notice to the associations 

involved in the merger or consolidation 

for which the reconsideration petition 

was filed. The associations are not 

entitled to either a copy of the petition 

or the names of the petitioners. 

(e) Following FCA notification that a 

reconsideration petition has been 

properly filed, a special stockholders 

meeting must be called by the 

association(s) to reconsider the merger 

or consolidation vote. The 

reconsideration vote must be conducted 

according to the merger and 

consolidation voting requirements of 

§ 611.1122(d). If a majority of the 

stockholders voting, in person or by 

proxy, at a duly authorized 

stockholders’ meeting from any one of 

the constituent associations vote against 

the merger or consolidation under the 

reconsideration vote, the merger or 

consolidation will not take place. In the 

event that the merger or consolidation is 

approved on reconsideration, the 

constituent associations must use the 

second effective date developed under 

§ 611.1122(g)(1). 

Dated: January 13, 2015. 

Dale L. Aultman, 

Secretary, Farm Credit Administration Board. 

[FR Doc. 2015–00676 Filed 1–16–15; 8:45 am] 

BILLING CODE 6705–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–153656–03] 

RIN 1545–BC70 

Credit for Increasing Research 

Activities 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Withdrawal of advance notice of 

proposed rulemaking; notice of 

proposed rulemaking and notice of 

public hearing. 

SUMMARY: This document contains 

proposed regulations concerning the 

application of section 41 of the Internal 

Revenue Code (Code), which provides a 

credit for increasing research activities. 

The proposed regulations provide 

guidance on computer software that is 

developed by (or for the benefit of) the 

taxpayer primarily for internal use by 

the taxpayer (internal use software) 

under section 41(d)(4)(E). These 

proposed regulations also include 

examples to illustrate the application of 

the process of experimentation 

requirement to computer software under 

section 41(d)(1)(C). The regulations will 

affect taxpayers engaged in research 

activities involving computer software. 

This document also provides notice of 

a public hearing on these proposed 

regulations and withdraws the advance 

notice of proposed rulemaking 

published on January 2, 2004. 

DATES: Written or electronic comments 

must be received by March 23, 2015. 

Outlines of topics to be discussed at the 

public hearing scheduled for April 17, 

2015, must be received by March 23, 

2015. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–153656–03), room 

5205, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. 

Submissions may be hand-delivered 

Monday through Friday between the 

hours of 8 a.m. and 4 p.m. to: 

CC:PA:LPD:PR (REG–153656–03), 

Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue NW., 

Washington, DC; or sent electronically 

via the Federal eRulemaking Portal at 

www.regulations.gov (IRS REG–153656– 

03). The public hearing will be held in 

IRS Auditorium, Internal Revenue 

Building, 1111 Constitution Avenue 

NW., Washington, DC 

FOR FURTHER INFORMATION CONTACT: 

Concerning the regulations, Martha 

Garcia, (202) 317–6853; concerning 

submission of comments, the hearing, 

and/or to be placed on the building 

access list to attend the hearing, call 

Oluwafunmilayo (Funmi) Taylor, (202) 

317–6901 (not toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

This document amends 26 CFR part 1 

to provide rules relating to the credit for 

increasing research activities (research 

credit) under section 41 of the Code. On 

January 2, 1997, the Treasury 

Department and the IRS published a 

notice of proposed rulemaking (REG– 

209494–90, referred to in this preamble 

as the 1997 proposed regulations) in the 

Federal Register (62 FR 81) to provide 

guidance on internal use software under 

section 41(d)(4)(E). Final regulations 

(TD 8930, referred to in this preamble as 

the 2001 final regulations), which 

substantively modified the 1997 

proposed regulations on internal use 

software, and also addressed other 

aspects of section 41, were published in 

the Federal Register (66 FR 280) on 

January 3, 2001. In response to taxpayer 

concerns regarding the 2001 final 

regulations, on January 31, 2001, 

Treasury and the IRS published Notice 

2001–19 (2001–10 IRB 784) (see 

§ 601.601(d)(2) of this chapter) 

announcing that Treasury and the IRS 

would review the 2001 final regulations 

and reconsider comments previously 

submitted. Notice 2001–19 also 

provided that, upon the completion of 

this review, Treasury and the IRS would 

announce changes to the regulations, if 

any, in the form of new proposed 

regulations. On December 26, 2001, the 

Treasury Department and the IRS 

published proposed regulations (REG– 

112991–01, referred to in this preamble 

as the 2001 proposed regulations) in the 

Federal Register (66 FR 66362) relating 

to internal use software and other 

aspects of section 41. On January 2, 

2004, the Treasury Department and the 

IRS published final regulations (TD 

9104, referred to in this preamble as the 

2004 final regulations) in the Federal 

Register (69 FR 22) on the research 

credit. The 2004 final regulations 

finalized the 2001 proposed regulations’ 

rules relating to the definition of 

qualified research under section 41(d), 

but did not finalize rules relating to 

internal use software under section 

41(d)(4)(E). The 2004 final regulations 

reserve the rules for internal use 

software. See § 1.41–4(c)(6). 

Concurrently with the 2004 final 

regulations, the Treasury Department 

and the IRS issued an advance notice of 

proposed rulemaking (2004 ANPRM) 

(published in the Federal Register (69 

FR 43)). The 2004 ANPRM invited 

comments from the public regarding the 

2001 proposed regulations relating to 

internal use software under section 

41(d)(4)(E). The Treasury Department 

and the IRS specifically requested 

comments concerning the definition of 

internal use software. In addition, the 

Treasury Department and the IRS 

requested comments on whether final 

rules relating to internal use software 

should have retroactive effect. Written 

and electronic comments responding to 

the 2004 ANPRM were received. The 

preamble to these proposed regulations 

describes many of the comments 

received by the Treasury Department 

and the IRS. Although not all of the 


rljohnson on DSK3VPTVN1PROD with PROPOSALS