Source: http://www.dob.texas.gov/laws-regulations/adopted-rules/ch21-amd
Timestamp: 2018-07-15 19:01:28
Document Index: 299250787

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Adopted Amendments to 7 TAC§§21.9, 21.24, 21.41, 21.61, 21.64, 21.69 and 21.92 | Texas Department of Banking
Adopted Amendments to 7 TAC§§21.9, 21.24, 21.41, 21.61, 21.64, 21.69 and 21.92
7 TAC §21.9
Subchapter B. Trust Company Chartering and Powers
7 TAC §21.24
7 TAC §21.41
7 TAC §§21.61, 21.64 and 21.69
7 TAC §21.92
The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), adopts amendments to §21.9, concerning corporate filings; §21.24, concerning exemptions for trust companies administering family trusts; §21.41, concerning written notice and application for change of home office; §21.61, concerning definitions; §21.64, concerning application for merger or share exchange; §21.69, concerning rights of dissenting shareholders; and §21.92, concerning amendment of articles to effect a reverse stock split, without changes to the proposed text as published in the August 30, 2013, issue of the Texas Register (38 TexReg 5627). The rules will not be republished.
The amendments to 7 TAC Chapter 21 conform the terminology used in the rules to that used in the Finance Code and the Business Organizations Code. References to “articles of association” and “articles of incorporation” changed to “certificate of formation.” Similarly, references to “articles of merger” and “articles of amendment” changed to “certificate of merger” and “certificate of amendment.”
In addition, citation to the titles of §21.2 and §21.42 are corrected.
The amendments are adopted pursuant to Finance Code, §181.003, which authorizes the commission to adopt rules to accomplish the purposes of Subtitle F and Finance Code, §182.009, which authorizes the commission to adopt rules to alter or supplement the procedures and requirements of those laws applicable to actions taken under Chapter 182.
§21.9. Corporate Filings.
(a) In accordance with the applicable provisions of the Trust Company Act, the following corporate forms regarding a state trust company, along with the applicable filing fees, must be filed with the banking commissioner:
(1) a certificate of correction as authorized by Texas Business Organizations Code (TBOC), §4.101;
(2) certificate of amendment under the Finance Code, §182.101;
(3) restated, or, amended and restated, certificate of formation under the Finance Code, §182.101, and TBOC §3.059 and §21.052;
(4) certificate of merger under the Finance Code, §182.301 et seq, as supplemented by the TBOC §10.151;
(5) certificate of exchange under TBOC, §10.151;
(6) statement of event or fact pursuant to TBOC §4.055;
(7) establishment of a series of shares by the board of directors under the Finance Code, §182.102, as supplemented by TBOC §21.155 and §21.156;
(8) statement regarding a restriction on the transfer of shares under TBOC, §21.212; and
(9) abandonment of a merger or interest exchange prior to its effective date under TBOC §4.057.
(b) For purposes of corporate filings with the banking commissioner under subsection (a) of this section, state trust companies may utilize a modified version of forms promulgated by the secretary of state if the banking commissioner or the finance commission has not promulgated an appropriate corporate form; however, the banking commissioner may require the submission of additional information. The modified corporate forms must:
(1) specifically reference the applicable provisions of the Finance Code;
(2) change references from “corporation” to “association”; and
(3) change the references to “stated capital” and similar terms defined in the TBOC to an appropriate reference to terms defined in the Finance Code.
(c) In accordance with the applicable provisions of the Finance Code and the TBOC, a state trust company may file the following corporate forms with the secretary of state as instructed in the Finance Code or the TBOC:
(1) name registrations under TBOC §§5.151-5.155;
(2) assumed name certificates under TBOC §5.051;
(3) a statement appointing an agent authorized to receive service of process under Finance Code §201.103;
(4) an amendment to a statement appointing an agent to receive service of process under Finance Code §201.103; and
(5) a cancellation of the appointment of an agent to receive service of process under Finance Code §201.103.
(d) The following corporate forms are inapplicable to state trust companies and are not required to be filed by a state trust company with either the secretary of state or the banking commissioner:
(1) changes of registered office or agent under TBOC §5.202 or §5.203;
(2) name reservations under TBOC §5.101;
(3) certificate of termination under TBOC §11.101; and
(4) certificate of reinstatement under TBOC §11.202.
§21.24. Exemptions for Trust Companies Administering Family Trusts.
(a) Compliance required. Pursuant to Finance Code, §182.011 and §182.012, a trust company, which does not transact business with the public, may request in writing that it be exempted from specified provisions of the Trust Company Act. The banking commissioner may grant the request in whole or in part if the trust company does not transact business with the public. A trust company does not transact business with the public if it acts as a corporate fiduciary for accounts in which all beneficiaries are related within the fourth degree of affinity or consanguinity to the person who controls the trust company. A trust company administering family trusts which request exemption from specified provisions of the Trust Company Act, must comply with this section.
(b) Application for Exemption.
(1) A trust company administering family trusts which seeks exemption from specified provisions of the Trust Company Act, shall file an application, together with the appropriate filing fee required by §21.2 of this title (relating to Filing and Investigation Fees), with the banking commissioner. The application must specify the specific exemptions requested and the reasons or justification for requesting the exemptions. The application must also include a copy of the trust company’s certificate of formation which must contain the following statement in its purposes clause: “The sole purpose for which the trust company is organized is to act as a corporate fiduciary for accounts in which all beneficiaries are related within the fourth degree of affinity or consanguinity to _______________ (name of person who controls the trust company).”
(2) A person who has beneficial ownership of sufficient outstanding shares of a class of voting securities to constitute control of a state trust company may be designated as the control person for purposes of Finance Code, §182.011(a) and this section. Such identification of a beneficial shareholder as the controlling person is permissive and does not affect determinations of control made pursuant to Finance Code, §183.001.
(c) Exemption. Subject to conditions or limitations being imposed by the banking commissioner, a trust company administering family trusts may request exemption from the following provisions of the Trust Company Act:
(1) the requirement of Finance Code, §181.107(c), providing that the report of assets portion of a statement of condition and income is a public record.
(2) the requirement of Finance Code, §183.103(a), that five is the minimum number of directors, managers, or managing participants that can be specified in the certificate of formation, provided that the certificate of formation must specify the number of directors, managers, or managing participants, consistent with paragraph (3) of this subsection;
(3) the requirement of Finance Code, §183.103(a), that the number of directors, managers, or managing participants of a trust company cannot be less than five or more than 25, the majority of whom must be residents of this state, provided that the board of a trust company seeking exemption under this section must consist of not fewer than three or more than 25 directors, managers, or managing participants, at least one of whom must be a resident of this state;
(4) the restrictions of Finance Code, §183.109(a)-(c), regarding transactions with management and affiliates;
(5) the limitations of Finance Code, §184.002, on investment in trust company facilities;
(6) the limitations of Finance Code, §184.101, on securities investments, provided that the exemption request must address each limitation and the reasons for exemption separately;
(7) the restrictions of Finance Code, §184.102, regarding transactions in state trust company shares or participation shares;
(8) the limitations of Finance Code, §184.003, on other real estate investments; and
(9) the limitations of Finance Code, §§184.201-184.203, regarding lending limit and lease financing transaction restrictions, provided that no loans may be made from a trust company’s minimum restricted capital amount.
(d) Notice to applicant. The banking commissioner shall issue a written notice as required by §21.4 of this title (relating to Required Information and Abandoned Filings) informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required.
(e) Notice to beneficiary. A trust company administering family trusts which has been granted an exemption under subsection (c) of this section must provide each beneficiary of the family trust with a copy of the exemption granted by the banking commissioner. The trust company must maintain an acknowledged receipt of such notice in its files.
§21.41. Written Notice and Application for Change of Home Office.
(a) Relocation by notice. If the location that is the home office of a trust company prior to a proposed relocation of the home office is to remain an additional office of the trust company after the relocation, the trust company may relocate its home office by filing a written notice pursuant to Finance Code, §182.202(c). The filed notice must contain all information required by subsection (c) of this section, accompanied by the required filing fee pursuant to §21.2 of this title (relating to Filing and Investigation Fees), and notice of the submission must be published as required by subsection (e) of this section. A trust company filing notice of a home office relocation under this subsection may relocate its home office on the 31st day after the required notice and fee have been received by the banking commissioner, unless the banking commissioner gives notice in writing, prior to the expiration of that time period, that an earlier or later date is authorized or that additional information and additional time for analysis is required. Upon issuance of a notice requiring additional information and additional time for analysis, the trust company may relocate its home office only on written approval of the banking commissioner. Except as otherwise provided in this section, the banking commissioner shall evaluate the notice under the criteria of §21.42(e) of this title (relating to Establishment, Relocation and Closing of an Additional Office).
(b) Relocation by application. If Finance Code, §182.202(c), and subsection (a) of this section do not apply, a trust company desiring to change its home office location must file an application with the banking commissioner pursuant to Finance Code, §182.202(d), setting forth all information required by subsection (d) of this section, accompanied by the required filing fee pursuant to §21.2 of this title, and notice of the submission must be published as required by subsection (e) of this section. The banking commissioner shall issue a written notice no later than 15 days after the date the initial filing is received, as required by §21.4 of this title (relating to Required Information and Abandoned Filings), informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required. Except as otherwise provided in this section, the banking commissioner shall evaluate the application under the criteria of §21.42(e) of this title. An applicant under this subsection may not relocate its home office without the prior written approval of the banking commissioner.
(c) Contents of notice. The notice filed under subsection (a) of this section must disclose:
(1) the name of the trust company requesting the home office relocation;
(2) the street address of the trust company’s home office before the requested home office relocation;
(3) the street address of the trust company’s proposed home office;
(4) the desired effective date of the home office relocation under subsection (a) of this section;
(5) a copy of the resolution adopted by the trust company’s board of directors authorizing the proposed home office relocation;
(6) the cost to be incurred in connection with the relocation and a statement of the impact of such cost on the trust company’s ability to meet liquidity requirements;
(7) evidence that the trust company has considered applicable federal law, if any;
(8) a description of any actual, proposed, or contemplated financial involvement by an officer, director, manager, managing participant, or principal shareholder or participant of the trust company with respect to its home office relocation; and
(9) such other information as the banking commissioner may require.
(d) Contents of application. The application submitted under subsection (b) of this section must disclose:
(4) the desired effective date for the home office relocation;
(5) a copy of the resolution adopted by the trust company’s board of directors authorizing the home office relocation;
(7) a written statement signed by the principal executive officer of the trust company or a majority of the trust company’s board of directors stating whether the home office relocation will result in an abandonment of all or a part of the community served by the trust company present home office location and, if so, an explanation of how the abandonment is consistent with the original determination of public convenience and advantage for the establishment of the trust company at its existing home office location;
(8) a written statement signed by the principal executive officer of the trust company or a majority of the trust company’s board of directors stating whether the home office relocation is anticipated to result in a reduction of trust services presently offered by the trust company at its present location within the 18-month period after the proposed effective date of the relocation and, if so, an explanation of the anticipated reduction in trust and fiduciary services and how the diminution in services is consistent with the original determination of public convenience and advantage for the establishment of the trust company at its existing home office location;
(9) a description of any actual, proposed, or contemplated financial involvement by an officer, director, manager, managing participant, or principal shareholder or participant of the trust company with respect to the home office relocation;
(10) evidence that the trust company has considered applicable federal law, if any; and
(11) such other information as the banking commissioner may require.
(e) Public notice and participation.
(1) Within 14 days of the initial submission of a notice or application under subsection (a) or (b) of this section, the trust company shall publish notice of the submission as required by §21.5 of this title (relating to Public Notice). Notice must be published in the community where the current home office of the trust company is located and in the community where the proposed home office will be located, and must disclose the locations of the existing and proposed home offices.
(2) For a period of 14 days after publication of notice or such longer period as the banking commissioner may allow for good cause shown, the public may submit written comments or protests. Persons submitting comments are not entitled to further notice of or participation in the proceedings. In the event of a properly filed protest, each protesting party has the rights and responsibilities of a protesting party to a notice of additional office under §21.42 of this title.
(f) Certificate of formation. An amendment to the certificate of formation of the trust company is not required to effect a change in the location of its home office under this section. However, if the certificate of formation is subsequently restated for any reason, the trust company must include the address of its then current home office in the restated certificate of formation.
§21.61. Definitions.
(a) Words and terms used in this subchapter that are defined in the Trust Company Act or in §21.1 of this title, have the same meanings as defined therein.
(b) The following words and terms, when used in this subchapter, shall have the following meanings unless the context clearly indicates the contrary.
(1) Annual report--Formal financial statements and accompanying narrative of management issued yearly for the benefit of shareholders and other interested parties.
(2) Chartering agency--A government authority that has chartering jurisdiction over an entity involved in a transaction under this subchapter.
(3) Corporation or domestic corporation--A corporation for profit subject to the provisions of the Texas Business Organizations Code, except a foreign corporation.
(4) Current financial statements--Audited financial statements dated as of a date not more than 180 days prior to the date of submission of an application, or unaudited financial statements dated as of a date not more than 90 days prior to the date of submission of an application.
(5) Fiduciary institution--A bank, savings association, savings bank, credit union, or other financial institution with the power to act as a fiduciary under applicable law.
(6) Low-quality asset--An asset as defined in 12 United States Code, §371c(b)(10), currently an asset that falls in any one or more of the following categories:
(A) an asset classified as “substandard,” “doubtful,” or “loss,” or treated as “other loans especially mentioned” in the most recent report of examination or inspection of an affiliate prepared by either a federal or state supervisory agency;
(C) an asset on which principal or interest payments are more than 30 days past due; or
(D) an asset whose terms has been renegotiated or compromised due to the deteriorating financial condition of the obligor.
(7) Material administrative proceeding--A past or pending proceeding by a state, federal, or foreign regulatory agency against the applicant or other person involved in a transaction under this subchapter that resulted in or could result in the issuance of a cease and desist, removal, enforcement action, determination letter or other order, including an order of supervision or conservatorship; excluding, however, a past proceeding that resulted in an order, other than a removal order, that has been satisfied or otherwise terminated more than five years prior to the date the application or notice requesting such information is submitted.
(8) Material legal proceeding--
(A) a past or pending criminal proceeding against the applicant or other person involved in a transaction under this subchapter that resulted or may result in conviction of the applicant or other person of a crime under a state or federal law or the law of a foreign country relating to fiduciaries, banks or other financial institutions, securities, financial instrument reporting, or another crime involving moral turpitude; or
(B) a past or pending proceeding that has or may result in a judgment against the applicant or other person or entity involved in a transaction under this subchapter and the loss contingency must be disclosed in the financial statements of the entity under generally accepted accounting principles, or is otherwise material.
(9) Merger--A transaction that is:
(A) the division of a trust company into two or more new trust companies, fiduciary institutions, or other entities, or into a surviving trust company and one or more new trust companies, fiduciary institutions, or other entities; or
(B) the combination of one or more trust companies with one or more fiduciary institutions or other entities, resulting in:
(i) one or more surviving trust companies, fiduciary institutions, or other entities;
(ii) the creation of one or more new trust companies, fiduciary institutions, or other entities; or
(iii) one or more surviving trust companies, fiduciary institutions, or other entities and the creation of one or more new trust companies, fiduciary institutions, or other entities.
(10) Other entity--An entity, whether or not organized for profit, including a corporation, limited or general partnership, joint venture, joint stock company, cooperative, association, or another legal entity organized pursuant to the laws of this state or another state or country to the extent such laws or the constituent documents of that entity, consistent with such laws, permit that entity to enter into a merger or share exchange subject to this subchapter.
(11) Principal executive officer--An officer primarily responsible for the execution of board policies and operation of a trust company or other entity.
(12) Purchase of assets--The purchase other than in the ordinary course of business of all, substantially all, or a part of the assets of a trust company, fiduciary institution, or other entity, including but not limited to fiduciary rights pertaining to client accounts.
(13) Regulatory restriction--A memorandum of understanding, determination letter, notice of determination, order to cease and desist, or other state or federal administrative enforcement order issued by a state or federal banking regulatory agency, or another limitation imposed on a fiduciary institution or other entity by a state or federal banking regulatory agency that restricts its ability to act without authorization from the regulatory agency imposing the condition.
(14) Resulting trust company--A trust company that is a surviving or newly created entity in a merger.
(15) Sale of assets--The sale, lease, exchange, or other disposition of substantially all of the assets of a trust company, including but not limited to fiduciary rights pertaining to client accounts, other than in the ordinary course of business.
(16) Share exchange--A transaction by which one or more trust companies, fiduciary institutions, or other entities acquire all of the outstanding shares of one or more classes or series of one or more trust companies under the authority of Finance Code, §182.301, and the Texas Business Organizations Code.
(17) Trust company--A state trust company as defined by Finance Code, §181.002(a).
(18) Verified--Documents submitted by the applicant that have been attested to as true and correct, but not necessarily notarized.
§21.64. Application for Merger or Share Exchange.
(a) Scope. This section governs an application for merger or share exchange pursuant to Finance Code, §§182.301 et seq. This section does not apply to a merger that results in a trust company becoming another fiduciary institution under another regulatory system pursuant to Finance Code, §182.501, or other applicable law, and such transactions are governed by §21.67 of this title (relating to Notice of Merger, Reorganization, or Conversion of a Trust Company Into Another Fiduciary Institution).
(b) Form of application. The applicant shall submit a fully completed, verified application on a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §21.2 of this title (relating to Filing and Investigation Fees). The application must, except to the extent waived by the banking commissioner, include the following information:
(1) a summary of the proposed transaction;
(2) a copy of all agreements related to the proposed transaction executed by an authorized representative of each party to the merger or share exchange;
(3) certificate and plan of merger or share exchange in accordance with the Texas Business Organizations Code, which must include the following:
(A) a current draft of the certificate of merger or share exchange, and such number of additional copies equal to the number of surviving, new, or acquired entities, executed and acknowledged by an authorized officer for each party to the merger or share exchange;
(B) the plan of merger or share exchange;
(C) the certificate or restated certificate of formation of each resulting trust company;
(D) the certificate or restated certificate of formation, or other constitutive documents, of each newly created or surviving entity other than a resulting trust company; and
(E) if a party to a merger is an entity required to file documents with the Texas secretary of state before the transaction can be legally consummated, a provision in the certificate of merger conditioning the merger upon the approval of the banking commissioner, containing wording substantially as follows, as applicable: This merger shall become effective upon the final approval and filing of the certificate of merger by the Secretary of State of Texas and with the Banking Commissioner of Texas which shall be on or before _________ (date), which is the 90th day after the date of filing of such certificate of merger with the Secretary of State;
(4) for each party to the merger or share exchange, a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings (or their equivalent) at which action was taken regarding approval of the merger or share exchange, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the merger or share exchange, or an explanation of the basis for concluding such action was not required;
(5) for each resulting trust company, an assessment of its future prospects, proposed officers and directors, and proposed offices and other locations;
(6) an assessment of the current regulatory and financial condition of each party to the transaction;
(7) a copy of current financial statements for each entity involved in the proposed transaction, accompanied by an affidavit of no material change dated no earlier than 30 days prior to the date of submission of the application;
(8) a copy of the latest annual report for each fiduciary institution and holding company involved in the proposed transaction;
(9) a copy of that portion of the most recent watch list for each fiduciary institution involved in the proposed transaction that identifies low-quality assets;
(10) a description of the due diligence review conducted by or for each trust company that is a party to the transaction and a summary of findings;
(11) a description of all material legal or administrative proceedings involving any party to the merger or share exchange;
(12) an opinion of legal counsel that conforms with §21.68 of this title (relating to Opinion of Legal Counsel), concluding the following:
(A) each resulting trust company will be solvent and will have adequate capitalization for its business and location;
(B) the merger or share exchange has been duly authorized by the board and shareholders or participants of each participating trust company, fiduciary institution, or other entity, including trust companies in accordance with applicable law;
(C) the merger or share exchange will not cause or result in a material violation of the laws of this state relative to the organization and operation of trust companies;
(D) all liabilities of each trust company that is a party to the merger or share exchange will be discharged or otherwise assumed or retained by a trust company or other fiduciary;
(E) each surviving, new, or acquiring entity that is not authorized to engage in the trust business will not engage in the trust business and has in all respects complied with the laws of this state;
(F) all conditions with respect to the merger or share exchange that have been imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no such conditions have been imposed;
(13) a copy of each filing or application regarding the proposed merger or share exchange that is required to be made with another state or federal regulatory agency, complete with all related attachments, exhibits, and correspondence;
(14) a current pro forma balance sheet and income statement for each party to the transaction, with adjustments, reflecting the proposed merger or share exchange as of the most recent quarter ended immediately prior to the filing of the application. The pro forma must include a statement of fiduciary assets as well as corporate assets;
(15) for each resulting trust company, a copy of the strategic plan that complies with the banking commissioner’s Memorandum 1009, including projections of the balance sheet and income statement of each resulting trust company as of the quarter ending one year from the date of the pro forma financial statement required by paragraph (14) of this subsection;
(16) an explanation of compliance with or nonapplicability of provisions of governing law relating to rights of dissenting shareholders or participants to the merger or share exchange;
(17) a copy of all securities offering documents, proxy statements, or other disclosure materials delivered or to be delivered to shareholders or participants of a party concerning the merger or share exchange;
(18) an explanation of the manner and basis of converting or exchanging any of the shares or other evidences of ownership of an entity that is a party to the merger or share exchange into shares, obligations, evidences of ownership, rights to purchase securities, or other securities of one or more of the surviving, acquiring, or new entities, into cash or other property, including shares, obligations, evidences of ownership, rights to purchase securities, or other securities of another person or entity, or into a combination of the foregoing;
(19) for antitrust purposes, an analysis of the anticipated competitive effect of the proposed transaction in the affected markets and a statement of the basis of the analysis of the competitive effects, or if applicable, a copy of the analysis of competitive effects of the proposed transaction addressed in a companion federal regulatory agency application; and
(20) such other information that the banking commissioner, in the exercise of discretion, requires to be included in the particular application as considered necessary to an informed decision to approve or deny the proposed merger or share exchange.
(c) Applicant’s duty to disclose. The applicant bears the burden to supply all material information necessary to enable the banking commissioner to make a fully informed decision regarding the application.
(d) Public notice. Not earlier than the 14th day before or later than the 14th day after the date of the initial submission of the application, the applicant shall publish notice in accordance with the requirements of §21.5 of this title (relating to Public Notice) in the specified communities where the home office of the applicant, the target entity, and the resulting trust company are located.
(e) Approval by the banking commissioner and filings with a chartering agency.
(1) The banking commissioner shall approve a merger or share exchange only if the application indicates substantial compliance with all conditions of Finance Code, §182.302(c).
(2) If any party is required to file with its chartering agency after acceptance for filing pursuant to §21.4(b) of this title (relating to Required Information and Abandoned Filings), an applicant for merger or share exchange shall file the original certificate of merger or share exchange as certified by the chartering agency with the banking commissioner.
(3) After approval of an application under this section by the banking commissioner, the certificate of merger or share exchange previously filed with the chartering agency, if applicable, will be accepted and a certificate of merger or share exchange will be issued by the banking commissioner who shall perform the duties required by Finance Code, §182.303(a). With respect to a transaction that requires filing with the Texas secretary of state, if the banking commissioner does not approve the certificate of merger or share exchange on or before the 90th day after the filing of the certificate of merger with the Texas secretary of state, the applicant must refile the certificate of merger or share exchange with both the Texas secretary of state and with the banking commissioner.
(4) After issuance of the certificate of merger or share exchange by the banking commissioner, the applicant shall file a statement with the chartering authority, if applicable, certifying that any future event upon which the effectiveness of the merger or share exchange was conditioned, has been satisfied and the date upon which the condition was satisfied.
(5) The date of issuance of the certificate of merger or share exchange by the banking commissioner constitutes the date of approval pursuant to Finance Code, §182.303(b), unless the merger or exchange agreement provides for a later effective date which has been approved by the banking commissioner.
§21.69. Rights of Dissenting Shareholders.
The rights of dissenting shareholders or participants to a transaction under this subchapter may be governed by the Texas Business Organizations Code or other applicable law relating to the rights of dissenters, and applicants shall provide evidence of compliance with or inapplicability of such provisions of law.
§21.92. Amendment of Certificate to Effect a Reverse Stock Split.
(1) Affiliate--For purposes of this section only, a person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with a trust company seeking to effect a reverse stock split. A person who is not an affiliate of the trust company at the commencement of its reverse stock split will not be considered an affiliate of the trust company prior to the completion of the reverse stock split.
(2) Appraisal report--A report, opinion (other than an opinion of counsel), or appraisal, prepared by an outside party, that is materially related to the reverse stock split, including a report, opinion, or appraisal relating to the consideration or the fairness of the consideration to be offered to shareholders in connection with the reverse stock split or the fairness of such transaction to the trust company or to unaffiliated shareholders.
(3) Reverse stock split--An amendment to the certificate of formation of a trust company that achieves a reduction in the number of issued shares of such trust company by requiring exchange of all issued shares in a particular class for a proportionately smaller number of shares, generally with a proportionately increased par or stated value. The equity capital of the trust company remains substantially the same.
(4) Share--A unit representing ownership of at least part of the proprietary interests of a trust company, whether or not divided or subdivided by means of classes, series, relative rights, or preferences; and includes a stock or similar security; or a security convertible, with or without consideration, into such a security, or carrying a warrant or right to subscribe to or purchase such a security; or such warrant or right; or another security determined by the banking commissioner to be an equity security as defined by Finance Code, §181.002(a).
(5) Unaffiliated shareholder--A shareholder of a share subject to a reverse stock split who is not an affiliate of the trust company that issued the share.
(b) Procedure. Pursuant to Finance Code, §182.101, to effectuate a reverse stock split in compliance with this section, a trust company shall:
(1) obtain the approval of its shareholders as required by law; and
(2) obtain the approval of the banking commissioner pursuant to subsection (d) of this section, by filing an application setting forth the information and documents required by subsection (c) of this section and the filing fee required by §21.2 of this title (relating to Filing and Investigation Fees).
(c) Application. A trust company proposing a reverse stock split transaction shall file with the banking commissioner a written application seeking approval of the proposed amendment to its certificate of formation, stating the results of the vote of shareholders regarding the proposed reverse stock split and stating the percentage of shares of unaffiliated shareholders that were voted in favor of the proposed reverse stock split, or undertaking to supplement the application after conditional approval is obtained to provide shareholder approval information, setting forth or including as exhibits the following:
(1) the original and one copy of the proposed amendment to the certificate of formation, to be processed in the manner required by Finance Code, §182.101, and a description of the material terms of the proposed reverse stock split, including terms or arrangements relating to any shareholder of the trust company which are not identical to those relating to other shareholders of the same class;
(2) any plan or proposal of the trust company, regarding activities or transactions which are to occur after the reverse stock split which relate to or would result in:
(A) an extraordinary corporate transaction, such as a merger, reorganization, or liquidation, involving the trust company or any of its subsidiaries;
(B) a sale or transfer of a material amount of assets of the trust company or any of its subsidiaries;
(C) a change in the present board of directors or management of the trust company, including a plan or proposal to change the number or term of directors, to fill an existing vacancy on the board or to change a material term of the employment contract of an executive officer;
(D) a material change in the present dividend rate or policy or indebtedness or capitalization of the trust company;
(E) any other material change in the trust company’s corporate structure or business;
(3) the corporate purpose or purposes of the trust company for the reverse stock split, and alternative means, if any, considered by the trust company to accomplish such purposes and the reasons for their rejection, and the reason for choosing the structure of a reverse stock split and for undertaking such transaction at this time;
(4) a certified resolution of the board of directors of the trust company approving the proposed amendment to the certificate of formation, accompanied by a statement whether or not the board of directors of the trust company reasonably believes that the reverse stock split is fair or unfair to unaffiliated shareholders that:
(A) identifies each director, if any, that dissented to or abstained from voting on the merits of the reverse stock split, and describes, if known to the trust company after making reasonable inquiry, the reasons for each dissent or abstention; and
(B) states the number and percentage of disinterested directors that voted in favor of the proposed reverse stock split;
(5) whether or not the trust company obtained an appraisal report and, if an appraisal report was obtained, a copy of the appraisal report. To the extent not addressed in the appraisal report, the trust company shall disclose:
(A) the identity, qualifications, and method of selection of the outside party that prepared the appraisal report, any material relationship between the outside party or its affiliates and the trust company or its affiliates which existed during the past two years or is mutually understood to be contemplated, and any compensation received or to be received as a result of such relationship;
(B) a summary of the performance of such appraisal report, including the procedures followed, the findings and recommendations, the bases for and methods of arriving at such findings and recommendations, instructions received from the trust company, and any limitation imposed by the trust company on the scope of the investigation; and
(C) whether such appraisal report will be made available for inspection and copying at the home office of the trust company during its regular business hours by any shareholder of the trust company or such shareholder’s representative who has been so designated in writing;
(6) with respect to the class of shares to which the reverse stock split relates, the aggregate amount and percentage of shares beneficially owned by any pension, profit sharing, or similar plan of the trust company, and by each officer, director, principal shareholder, and subsidiary of the trust company;
(7) with respect to any purchases of such shares made by the trust company since the commencement of the trust company’s second full fiscal year preceding the date of the application, the amount of such shares purchased, the range of prices paid for such shares, and the average purchase price for each quarterly period of the trust company during such period;
(8) to the extent known to the trust company after reasonable inquiry, any transaction in the class of shares subject to the proposed reverse stock split that was effected during the past 60 days by the trust company or by an officer, director, principal shareholder, or subsidiary of the trust company, including the identity of the person who effected the transaction, the date of the transaction, the amount of shares involved, the price per share, and where and how the transaction was effected;
(9) to the extent known to the trust company after reasonable inquiry, a description and/or a copy of any contract, arrangement, understanding, or relationship (whether or not legally enforceable) in connection with the reverse stock split between the trust company (or an officer, director, principal shareholder, or subsidiary of the trust company) and any person with respect to any shares of the trust company (including a contract, arrangement, understanding, or relationship concerning the transfer or the voting of any such shares, joint ventures, loan, or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents, or authorizations), naming the persons with whom such contracts, arrangements, understandings, or relationships have been entered into and giving the material provisions thereof, including such information for any of such shares that are pledged or otherwise subject to a contingency, the occurrence of which would give another person the power to direct the voting or disposition of such shares, except that disclosure of standard default and similar provisions contained in loan agreements need not be included;
(10) to the extent known to the trust company after reasonable inquiry, whether or not any officer, director, principal shareholder, or subsidiary of the trust company has made a recommendation in support of or opposed to the reverse stock split and, if so, the reasons for such recommendation;
(11) whether or not appraisal rights are being voluntarily accorded by the trust company to shareholders in connection with the reverse stock split and whether or not any provision has been or will be made to allow unaffiliated shareholders to obtain counsel or appraisal services at the voluntary expense of the trust company and, if so, a detailed description of such appraisal rights or counsel or appraisal services;
(12) a reasonably itemized statement of all expenses incurred or estimated to be incurred in connection with the reverse stock split, including filing fees, legal, accounting, and appraisal fees, solicitation expenses, and printing costs, and disclosure of the person who has paid or will be responsible for paying such expenses;
(13) the proxy statement furnished to shareholders of the trust company in connection with obtaining shareholder approval for the reverse stock split, or a draft of the proxy statement to be furnished to shareholders in the event approval of the banking commissioner is sought prior to a shareholder vote; and
(14) such other information that the banking commissioner requires to be included in the particular application as considered necessary to an informed decision to approve or reject the proposed amendment effectuating a reverse stock split.
(d) Standards for approval.
(1) The banking commissioner shall process the proposed reverse stock split in accordance with Finance Code, §182.101(d). The banking commissioner shall require that the reverse stock split be for a valid business purpose of the trust company, viewed as an entity distinct from its affiliates, and be accomplished through fair dealing with and a fair price to unaffiliated shareholders. The banking commissioner may impose conditions on approval, including a condition that an independent appraisal report be obtained regarding the value of the unaffiliated shareholders’ shares, exclusive of any element of value arising from the accomplishment or expectation of the proposed transaction, and without minority discount. Share value determined by an independent and properly prepared appraisal report that is fully disclosed to trust company shareholders or by the market price of publicly traded shares will be presumed to be a fair value unless extenuating circumstances to the contrary are specifically noted.
(2) In the event approval of the banking commissioner is obtained prior to approval by shareholders, the trust company shall file a statement with the banking commissioner certifying that any future event or condition upon which the approval of the transaction was conditioned has been satisfied and the date that each such condition was satisfied. Upon receipt of such statement, the banking commissioner shall file the approved amendment to the certificate of formation in accordance with Finance Code, §182.101(e).
(3) An issuer’s purchase of its own shares is a transaction subject to the antifraud provisions of federal securities law, see 15 United States Code, §78j, 17 Code of Federal Regulations (CFR), §240.10b-5, and Spector v. L Q Motor Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. denied, 423 U.S. 1055 (1976). Such a transaction is also subject to the antifraud provisions of state securities law, see Texas Civil Statutes, Article 581-33(B). Potential liability of the trust company to the selling shareholder can therefore arise if the trust company withholds or misrepresents material facts that the seller would have considered important in making the decision to sell. Consequently, a trust company must disclose to the shareholders in writing, prior to or simultaneously with the written notice of the shareholders meeting, all material information necessary to an informed decision regarding the proposed reverse stock split. If the reverse stock split involves publicly traded shares and is subject to 15 CFR, §240.13e-3, the registration statement required by federal law is considered to satisfy this disclosure obligation. Approval of an application under this section by the banking commissioner does not constitute a determination that the trust company has complied with applicable securities law.
(1) This section does not apply to a reverse stock split that:
(A) will not result in fractional shares;
(B) permits each shareholder to choose to cash in the resulting fractional share by selling it to the trust company or to round up to the next highest whole share by purchasing fractional interests, provided that:
(i) the specified sale and purchase prices are equivalent and reasonable; and
(ii) no fractional share resulting from the reverse stock split is less than 10% of a full share;
(C) is adopted by means of a unanimous written consent of shareholders; or
(D) the banking commissioner expressly exempts after written application as not within the purposes of this section.
(2) An amendment to the certificate of formation that implements a reverse stock split exempt from this section is filed and processed in accordance with Finance Code, §182.101.
(3) The availability of an exemption from the requirements of this section does not relieve a trust company from its obligation to comply with applicable securities law.
Effective date: November 7, 2013, 38 TexReg 7690.