Stock Benefit Plans in Mutual-to-Stock Conversions and Mutual Holding Company Structures, 35145-35151 [E7-12168]

Agencies

• DEPARTMENT OF THE TREASURY
• Office of Thrift Supervision
• Thrift Supervision Office

[Federal Register Volume 72, Number 123 (Wednesday, June 27, 2007)]
[Rules and Regulations]
[Pages 35145-35151]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-12168]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 563b and 575

[No. OTS-2007-0014]
RIN 1550-AC07


Stock Benefit Plans in Mutual-to-Stock Conversions and Mutual 
Holding Company Structures

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is clarifying its 
regulations regarding stock benefit plans established after mutual-to-
stock

[[Page 35146]]

conversions or in mutual holding company structures. In addition, OTS 
is modifying the voting requirements for the adoption of certain stock 
benefit plans in mutual holding company structures by providing that 
the plans must be approved by a majority of the minority shares voting 
on the plan. Also, OTS is making several minor changes to the 
regulations governing mutual-to-stock conversions and minority stock 
issuances.

DATES: This rule is effective on October 1, 2007.

FOR FURTHER INFORMATION CONTACT: Donald W. Dwyer, (202) 906-6414, 
Director, Applications, Examinations and Supervision--Operations; Aaron 
B. Kahn, (202) 906-6263, Assistant Chief Counsel, Business Transactions 
Division or David A. Permut, (202) 906-7505, Senior Attorney, Business 
Transactions Division, Office of Chief Counsel, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Introduction

    On July 20, 2006, OTS published a notice of proposed rulemaking 
(NPR) that proposed changes to the OTS mutual-to-stock conversion 
regulations, 12 CFR Part 563b (Conversion Regulations), and the OTS 
mutual holding company regulations, 12 CFR Part 575 (MHC Regulations) 
regarding stock benefit plans established after mutual-to-stock 
conversions or in mutual holding company (MHC) structures.\1\
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    \1\ See 71 FR 41179 (Jul. 20, 2006). Savings associations that 
propose to convert to stock form are subject to the Conversion 
Regulations. Subsidiary mutual holding companies and savings 
associations (collectively, Subsidiary Companies) in MHC structures 
that propose to issue common stock in a minority stock issuance 
(Minority Stock Issuance) (that is, a stock offering in which the 
Subsidiary Company issues stock to entities other than the parent 
MHC) are subject to both the Conversion Regulations and the MHC 
Regulations, including the provisions therein pertaining to stock 
benefit plans.
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    For several years, the MHC Regulations have required that a 
majority of the outstanding minority shares approve stock benefit 
plans. In the NPR, OTS proposed to reduce the voting requirements for 
the establishment of stock benefit plans in MHC structures, by: (1) 
Eliminating the requirement for a separate minority shareholder vote 
when more than a year has passed after a Minority Stock Issuance that 
was conducted in accordance with the stock purchase priorities set 
forth in Part 563b; and (2) during the first year after a Minority 
Stock Issuance conducted in accordance with the Part 563b conversion 
priorities, requiring that a majority of the minority shares that 
actually vote on the matter, as opposed to a majority of outstanding 
minority shares, approve the stock benefit plans.
    In addition, OTS proposed a number of other changes to its 
regulations. OTS proposed, among other things, to: (i) Clarify the 
Conversion Regulations and the MHC Regulations by referring to the 
specific type of plan addressed, rather than referring to plans in 
terms of their tax-qualified or non-tax qualified nature; (ii) 
eliminate 12 CFR 575.7(b)(3), which requires stock offering materials 
to disclose the amount of any discount on minority stock; (iii) add 
certain provisions to the plan size limits in sections 575.8(a)(3) and 
575.8(a)(4) that parallel the restrictions in the Conversion 
Regulations; (iv) amend 12 CFR 575.8 to state that the quantitative 
limits on the size of plans in section 575.8 supersede related 
quantitative limits in the Conversion Regulations; (v) amend section 
575.8 to state that plan restrictions in proposed sections 
563b.500(a)(4) through 563b.500(a)(14) apply in the context of a 
Minority Stock Issuance for only one year after the Subsidiary Company 
engages in a Minority Stock Issuance that is conducted in accordance 
with the purchase priorities set forth in the Conversion Regulations; 
and (vi) amend the Conversion Regulations to permit converting savings 
associations to set smaller maximum purchase limitations in conversion 
stock offerings. Also, OTS proposed to move or delete several 
provisions in order to organize the regulations more effectively and to 
clarify the regulations.

II. Description of Comments

    OTS received 84 comments, from 78 commenters, regarding the NPR. Of 
these comment letters, 19 were submitted by individual investors, 47 
were submitted by savings associations, savings banks, or holding 
companies, or insiders thereof, two were submitted by legal counsel for 
savings associations or holding companies, eight were submitted by 
investment advisors and related entities, two were submitted by counsel 
for investment advisors, and six were submitted by trade associations.
    All of the comment letters except one (that is, 83 comments) 
addressed, either solely, or among other issues, the issue of the 
elimination of the minority vote more than one year after completion of 
a Minority Stock Issuance.
    Of these 83 comments, 53 were in favor of the proposed elimination 
of the vote requirement, and 30 objected to the elimination of the 
requirement. The comments were, without exception, divided based on the 
type of commenter. All of the comments in favor of the proposal were 
submitted by savings associations or savings banks, holding companies, 
insiders of such entities, counsel that routinely represents such 
entities, or trade associations that include such entities. All of the 
comments from individual investors, investment advisors, counsel for 
investment advisors, and one trade association that does not have 
savings associations as members, opposed the elimination of the voting 
requirement.
    Of the 53 comments in favor of the proposed change, 45 indicated 
that the minority voting requirement enables minority shareholders to 
obtain leverage in the affairs of the Subsidiary Company beyond the 
confines of the establishment of a plan, and to engage in hostile 
activities. Certain of the comments claimed that activist shareholders' 
concerns are not with the plans themselves, but that activist 
shareholders use the leverage that the vote on such plans provides, in 
order to pursue other goals. Forty comments claimed that the minority 
vote ``disenfranchises'' the MHC. Eight comments claimed that a 
minority vote is contrary to the concept of MHC control over the 
Subsidiary Company, and three comments claimed that the proposal 
``preserves the full benefits of the MHC charter.'' Four comments 
claimed that the minority vote ignores the interests of depositors.
    Also, 41 comments asserted that minority voting requirements are 
unnecessary because OTS imposes restrictions on the size of plans, and 
39 comments claimed that market forces will limit plans to reasonable 
levels. One comment noted that the staff of the Federal Deposit 
Insurance Corporation (FDIC) has provided advice that the lack of a 
minority vote after one year is acceptable.\2\ One comment noted that 
there is no ``majority of the minority'' voting requirement under state 
law. Another comment observed that nothing in stock exchange rules or 
the NASDAQ rules requires a majority of the minority vote when there is 
a majority shareholder.
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    \2\ See, letter from John P. Henrie, Section Chief, Risk 
Management and Applications Section, FDIC, to Mr. Raymond A. 
Tiernan, Esquire (July 6, 2005) (FDIC Letter). See also, letter from 
the Board of Governors of the Federal Reserve System to Raymond A. 
Tiernan, Esq. (Sept. 22, 2006).
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    Three comments claimed that the minority vote requirement was 
unduly burdensome. One comment claimed that the minority vote might 
hamper the ability of an institution to attract management. One comment 
claimed that a minority vote was unnecessary

[[Page 35147]]

because directors have fiduciary duties, and must comply with them. 
Finally, two comments stated that investors who object to the lack of a 
minority vote simply should not purchase the stock.
    Of the 30 comments that objected to the proposal, 26 stated that 
the elimination of the voting requirement presented conflict of 
interest concerns. Eight comments stated that the proposal was contrary 
to good corporate governance. Two comments claimed that the lack of a 
voting requirement amounts to an exemption from OTS' Conflicts of 
Interest Regulation (Conflict Regulation).\3\ In addition, two comments 
claimed that the proposal would harm shareholders.
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    \3\ 12 CFR 563.200 (2006).
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    Three comments asserted that plans are ``excessive'' or 
``significant'' already. Four comments stated that, in light of recent 
concerns regarding options, or recent corporate problems, this was not 
an optimal time to make the proposed changes. Three comments stated 
that the requirement for a minority vote is not unduly restrictive, 
either because the minority vote adds little actual expense, or because 
the benefits are worth the expense. Three commenters claimed that the 
proposal, if adopted, will have an unfavorable effect on the cost of 
capital, or will not help the market for the securities. One comment 
stated that, to the extent the regulation would cause Subsidiary 
Companies to wait until a year has passed to enact stock benefit plans, 
the plans would be more expensive, because it is likely the stock price 
would rise over time.
    Four of the comments that objected to the proposal claimed that 
depositors of the MHC have no real voice in the selection of the MHC's 
directors. Two comments suggested that benefit plans should be put to a 
depositor vote.
    Two comments objected to the applicability of the rule to existing 
MHC structures, and indicated that the regulation, if adopted, should 
apply only to MHC structures established after promulgation of the 
proposed regulation. Finally, seven comments claimed that OTS did not 
provide a sufficient explanation for the proposed rule change. Forty-
six comments addressed other aspects of the NPR. Of these comments, 37 
were form letters from savings associations and savings banks that 
generally praised the proposed regulations for clarifying the 
regulations. Two comments objected to the change to the majority of the 
minority vote requirement from a majority of outstanding shares to a 
majority of shares actually voting. Four comments stated that the 
regulations would reduce regulatory burden. Two comments supported the 
reduction in the maximum purchase limitations for stock offerings. One 
comment expressed support for the proposed changes to several specific 
provisions of Sec.  575.8.
    One comment questioned the need to eliminate the requirement to 
disclose the reasons for the discount on minority stock in a Minority 
Stock Issuance. Finally, six other comments suggested certain specific 
changes to the regulation, which are discussed separately below.

III. Discussion of the Final Regulation

A. Requirement of a majority of the minority vote

    OTS, in issuing the NPR, stated that it believed the minority vote 
requirement after one year was unduly restrictive. In full conversions, 
the Conversion Regulations require a vote for only one year after the 
mutual-to-stock conversion. While Minority Stock Issuances are 
distinguishable from full conversions because Subsidiary Companies that 
issue stock have a continuing mutual interest, and entities that 
complete a full conversion do not have such an interest, stock benefit 
plans established more than one year after a Minority Stock Issuance do 
not affect the mutual interest if the plans are funded with stock 
repurchases. Under such circumstances, plans do not reduce the 
percentage of stock held by minority shareholders below the percentage 
that they held upon completion of the Minority Stock Issuance.
    Also, although the ``majority of the minority'' voting requirement 
has existed for over ten years, it is our understanding that a stock 
benefit plan put to a shareholder vote has never failed to receive the 
requisite vote. Under these circumstances, and given the regulatory 
burdens to which depository institutions are subjected, it is 
appropriate to inquire whether the cost of obtaining a vote exceeds the 
benefits.
    Further, the FDIC has not required a ``majority of the minority'' 
vote more than one year after a minority stock issuance.\4\ Therefore, 
under existing regulations, OTS has been subjecting MHC structures that 
are under its jurisdiction to requirements that are more onerous than 
MHC structures that are regulated by the FDIC.
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    \4\ See FDIC Letter.
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    OTS has carefully considered the comments received in response to 
the NPR. Most of the comments that opposed the proposed elimination of 
the majority of the minority vote requirement after one year following 
a Minority Stock Issuance asserted that the proposal created an 
unacceptable conflict of interest. Without the requirement of a 
separate minority vote, conflicts of interest exist in the context of 
stock benefit plans in an MHC structure, because individuals who direct 
the voting of the MHC's stock also participate in the plan.
    The commenters who noted that stock exchange rules and state 
authorities do not require a separate minority vote where there is a 
majority shareholder are correct. However, it is not the mere existence 
of a majority shareholder that may raise conflict of interest concerns. 
Instead, it is the fact that in MHC structures, the individuals who 
direct the vote of the MHC's shares have participants in the stock 
benefit plans that the MHC votes to authorize.
    Several commenters claimed that, notwithstanding any potential 
conflict of interest, a minority vote was unnecessary because directors 
already have fiduciary duties, OTS regulates the size of plans, or 
market forces will control the size of plans. OTS does not believe, 
however, that the existence of fiduciary duties guarantees that parties 
with such duties will always act appropriately. For example, the 
Conflict Regulation states that directors and other parties have 
fiduciary duties, but imposes certain requirements to ensure that the 
relevant parties comply with their fiduciary duties. Also, although OTS 
regulations provide some limitations on the size of stock benefit 
plans, OTS believes that, within such limitations (absent supervisory 
concerns), the size of plans is a shareholder decision. Further, while 
accounting and disclosure requirements exist with respect to stock 
benefit plans, such requirements do not necessarily eliminate conflict 
of interest issues.
    The essence of several comments that supported the proposal was 
that the MHC should always have the sole ability to control the 
operations of the Subsidiary Company. Historically, however, OTS has 
required a majority of the minority vote when a Subsidiary Company 
proposes to engage in certain actions that would have a significant 
direct effect on minority shareholders.\5\

[[Page 35148]]

Although the relevant statutes and regulations generally preserve the 
continuing control of the mutual, majority interest, OTS has long 
recognized that it is appropriate to consider minority interests 
separately in certain situations.\6\
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    \5\ In addition to requiring a majority of the minority vote for 
stock benefit plans, OTS regulations require a separate minority 
shareholder vote for the establishment of a charitable foundation in 
connection with a Minority Stock Issuance, and for any second-step 
stock conversion. See 12 CFR 575.11(i) and 575.12(a)(3). In 
addition, minority shareholders must vote separately with respect to 
any charitable foundation established in connection with a second-
step conversion. See 12 CFR 563b.555.
    \6\ See, e.g., the discussion regarding the imposition of the 
majority of the minority voting requirement regarding stock benefit 
plans, 59 FR 22725 at 22729 (May 3, 1994), and the discussion 
regarding the imposition of a majority of the minority vote 
requirement in the context of second-step conversions, 67 FR 52010, 
at 52015 (Aug. 9, 2002).
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    Several commenters who supported the proposal asserted that 
activist shareholders often have used the minority vote requirement for 
stock benefit plans as leverage to influence management to take actions 
the activist shareholders sought on other matters. Even if certain 
minority shareholders have used the minority vote requirement as a 
means of pursuing other interests, however, it does not mean that the 
purpose of the minority voting requirements is invalid.
    Having considered the public comments, and considering the conflict 
of interest issues involved, OTS concludes that it is appropriate to 
continue to impose the separate minority shareholder vote requirement 
for stock benefit plans in MHC structures, regardless of the amount of 
time that has passed since the most recent Minority Stock Issuance.

B. Minority Vote Required for Approval of Stock Benefit Plans

    In the NPR, OTS proposed to change the minority vote required for 
approval of a stock benefit plan, from a majority of all outstanding 
minority shares to a majority of minority shares actually voting. OTS 
believes this change is appropriate because a simple majority 
shareholder vote is the standard for approval of most corporate 
measures. While the OTS stock charter requires that a majority of all 
shareholders vote on plans, the charter itself does not require a 
majority of the minority vote on any issue. OTS believes that in 
instances where a stock benefit plan is presented for a shareholder 
vote, it is reasonable to consider only the votes of the minority 
shareholders voting on the plan issue, particularly given that all 
minority shareholders are given notice of the vote, and such notice 
will be required to set forth the applicable vote requirement.

C. Definitions in Sec.  563b.500(a) of Types of Stock Benefit Plans

    In the NPR, OTS proposed to clarify 12 CFR 563b.500(a) by referring 
to the specific type of plan addressed (that is, an Employee Stock 
Ownership Plan (ESOP), Stock Option Plan (Option Plan), or Management 
Recognition Plan (MRP)), rather than referring to plans in terms of 
their tax-qualified or non-tax-qualified nature. One commenter objected 
to this proposed change as it related to tax-qualified plans, noting 
that converting savings associations do implement tax-qualified plans 
other than ESOPs.
    OTS believes that the proposed regulation adequately addressed the 
possibility that tax-qualified plans would not necessarily be ESOPs. 
Proposed section 563b.500(a) defined the term ``ESOP'' as an employee 
stock ownership plan or other tax-qualified employee stock benefit 
plan. Accordingly, OTS is not revising this provision in the final 
regulations. OTS is, however, revising the definition of the term 
``ESOP'' in section 575.8(a)(3) to conform to the section 563b.500(a) 
definition.

D. Plan Requirements in Section 563b.500(a)

    One commenter claimed that sections 563b.500(a)(4) and 
563b.500(a)(5), as proposed, were ambiguous. The commenter claimed that 
section 563b.500(a)(4) could be read either as limiting an individual 
to receiving 25 percent or less of the shares of each type of plan, or 
as applying to 25 percent of all of the shares issued under the various 
plans. Proposed section 563b.500(a)(4) required that ``[n]o individual 
receives more than 25 percent of the shares under your ESOP, MRP, or 
Option Plan.'' In order to make it clear that the 25 percent limitation 
will be applied to each plan separately, OTS is revising the regulation 
to require that no individual receive more than 25 percent of the 
shares under ``any plan.''
    Proposed section 563b.500(a)(5) required that ``[y]our directors 
who are not your officers do not receive more than five percent of the 
shares of your MRP or Option Plan individually, or 30 percent of any 
such plan in the aggregate.'' Although the proposal did not revise the 
language of the previous regulatory requirement, and parties engaging 
in conversions or Minority Stock Issuances have not claimed the 
language is unclear, OTS is revising the section to provide greater 
clarity. The final regulation provides that ``Each of your directors 
who is not an officer does not receive more than five percent of the 
shares of your MRP or Option Plan, and all of your directors who are 
not officers do not receive, in the aggregate, more than 30 percent of 
the shares of your MRP or Option Plan.''

E. Disclosure of Discounts on Minority Stock in Minority Stock 
Issuances

    In the NPR, OTS proposed to rescind 12 CFR 575.7(b)(3), which 
requires stock offering materials to disclose the amount of any 
discount on minority stock due to the minority status of the stock to 
be offered, and how the amount of the discount was determined. OTS 
explained that the general securities offering disclosure requirements, 
which require disclosure of material information, are sufficient to 
address the issue of disclosure of the amount and reasons for any such 
discount.
    One commenter believed that more explanation regarding this 
proposed change was appropriate, including an explanation of why OTS 
did not consider generally applicable securities disclosure 
requirements to provide a basis for sufficient disclosure when the 
regulation was initially promulgated.
    Information regarding the amount and derivation of the discount on 
Minority Stock Issuances due to the minority nature of the stock is 
included in the appraisal for the securities offering, which is an 
exhibit to the offering materials. Accordingly, information regarding 
the discount is available to any potential purchaser in the Minority 
Stock Issuance.
    Where OTS determines that one of its regulatory requirements is 
redundant, OTS believes it is appropriate to remove the redundant 
requirement. Accordingly, OTS is rescinding section 575.7(b)(3) as 
proposed.

F. Plan Size Restrictions in Sec.  575.8

    The restrictions on the size of stock benefit plans set forth at 12 
CFR 575.8(a)(3) through 575.8(a)(7) are set forth both in terms of the 
percentage of the savings association's outstanding common stock and in 
terms of the percentage of the savings association's stockholders' 
equity. One commenter suggested that all limits based on the equity of 
a savings association should be eliminated, and stated that such limits 
penalize holding companies that leverage their capital to generate 
better returns for stockholders.
    The NPR did not propose any substantive change in the limitations 
in section 575.8(a) pertaining to stockholders' equity. These 
limitations have been in place since the MHC Regulations were initially 
promulgated in 1993. OTS is not aware of any situations in which the 
stockholders' equity provisions placed an additional burden on MHCs. 
Moreover, OTS believes it is appropriate to include a limitation based 
on the equity of a Subsidiary Company, given that stock

[[Page 35149]]

benefit plans award management a share of the equity of the Subsidiary 
Company.

G. Proposed Changes to Sec.  575.8(a)(9)

    In the NPR, OTS proposed to retain the existing aggregate 
limitation on the size of the Option Plans and MRPs set forth at 
section 575.8(a)(9) of the MHC Regulations, and to clarify that the 
limitation therein is a separate limitation on Option Plans and MRPs 
that applies to each Minority Stock Issuance. One commenter suggested 
that the section be revised to provide that existing benefit plans 
would not have to be reduced if those plans exceeded the 25 percent 
limitation as a result of stock repurchases. OTS does not intend to 
require a reduction in the size of preexisting plans in the situation 
where the common stock encompassed by those plans exceeds 25 percent of 
the outstanding stock as a result of stock becoming treasury stock 
through repurchases prior to a new stock issuance. However, because OTS 
believes that it would be highly unlikely for preexisting plans to 
continue to exceed the 25 percent limitation after the close of a 
subsequent stock issuance, even where such plans would exceed the 25 
percent limitation prior to the issuance, OTS is not adding language to 
the regulation that would explicitly except that situation from the 
regulatory limitation.

IV. Regulatory Findings

A. Paperwork Reduction Act

    OTS has determined that this rule does not involve a change to 
collections of information previously approved under the Paperwork 
Reduction Act (44 U.S.C. 3501 et seq.).

B. Executive Order 12866

    The Director of OTS has determined that this rule does not 
constitute a ``significant regulatory action'' for purposes of 
Executive Order 12866.

C. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA) 
(5 U.S.C. 601), the Director certifies that this rule will not have a 
significant economic impact on a substantial number of small entities. 
The rule makes certain changes that should reduce burdens on all 
savings associations, including small institutions. First, the rule 
clarifies the regulations regarding stock benefit plans in connection 
with mutual-to-stock conversions and Minority Stock Issuances. These 
clarifications will reduce the burden of complying with the OTS 
regulations on stock benefit plans. Second, OTS has reduced the voting 
requirement to adopt stock benefit plans in MHC structures, which 
reduces burden on institutions establishing stock benefit plans. 
Finally, the rule will reduce burden by broadening the purchase 
limitations, thereby promoting a wider distribution of stock in a 
Conversion Offering or Minority Stock Issuance. All of the changes are 
minor and should not have a significant impact on small institutions. 
Accordingly, OTS has determined that a Regulatory Flexibility Analysis 
is not required.

D. Unfunded Mandates Reform Act of 1995

    OTS has determined that the rule will not result in expenditures by 
state, local, or tribal governments or by the private sector of $100 
million or more and that a budgetary impact statement is not required 
under Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act). The rule would make certain changes that 
should reduce burdens on savings associations. First, the rule 
clarifies OTS regulations regarding stock benefit plans in connection 
with mutual-to-stock conversions and Minority Stock Issuances, which 
should reduce the burden of complying with the OTS regulations on stock 
benefit plans. Second, OTS has reduced the voting requirement to adopt 
stock benefit plans in MHC structures, which reduces burden on 
institutions establishing stock benefit plans. Finally, the rule will 
reduce burden by broadening the purchase limitations, to promote a 
wider distribution of stock in a Conversion Offering or Minority Stock 
Issuance. All of the changes are minor and should not have a 
significant impact on small institutions. Accordingly, a budgetary 
impact statement is not required under section 202 of the Unfunded 
Mandates Act.

List of Subjects

12 CFR Part 563b

    Reporting and recordkeeping requirements, Savings associations, 
Securities.

12 CFR Part 575

    Administrative practice and procedure, Capital, Holding companies, 
Reporting and recordkeeping requirements, Savings Associations, 
Securities.

0
Accordingly, the Office of Thrift Supervision amends Chapter V of title 
12 of the Code of Federal Regulations, as set forth below.

PART 563b--CONVERSIONS FROM MUTUAL TO STOCK FORM

0
1. The authority citation for part 563b continues to read as follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15 
U.S.C. 78c, 78l, 78m, 78n, 78w.


Sec.  563b.385  [Amended]

0
2. Amend Sec.  563b.385(a) by removing the phrase ``between one percent 
and'' and adding the words ``up to'' in its place.

0
3. Revise Sec.  563b.500 to read as follows:


Sec.  563b.500.  What management stock benefit plans may I implement?

    (a) During the 12 months after your conversion, you may implement a 
stock option plan (Option Plan), an employee stock ownership plan or 
other tax-qualified employee stock benefit plan (collectively, ESOP), 
and a management recognition plan (MRP), provided you meet all of the 
following requirements.
    (1) You disclose the plans in your proxy statement and offering 
circular and indicate in your offering circular that there will be a 
separate shareholder vote on the Option Plan and the MRP at least six 
months after the conversion. No shareholder vote is required to 
implement the ESOP. Your ESOP must be tax-qualified.
    (2) Your Option Plan does not encompass more than ten percent of 
the number of shares that you issued in the conversion.
    (3)(i) Your ESOP and MRP do not encompass, in the aggregate, more 
than ten percent of the number of shares that you issued in the 
conversion. If you have tangible capital of ten percent or more 
following the conversion, OTS may permit your ESOP and MRP to 
encompass, in the aggregate, up to 12 percent of the number of shares 
issued in the conversion; and
    (ii) Your MRP does not encompass more than three percent of the 
number of shares that you issued in the conversion. If you have 
tangible capital of ten percent or more after the conversion, OTS may 
permit your MRP to encompass up to four percent of the number of shares 
that you issued in the conversion.
    (4) No individual receives more than 25 percent of the shares under 
any plan.
    (5) Your directors who are not your officers do not receive more 
than five percent of the shares of your MRP or Option Plan 
individually, or 30 percent of any such plan in the aggregate.
    (6) Your shareholders approve each of the Option Plan and the MRP 
by a majority of the total votes eligible to be

[[Page 35150]]

cast at a duly called meeting before you establish or implement the 
plan. You may not hold this meeting until six months after your 
conversion.
    (7) When you distribute proxies or related material to shareholders 
in connection with the vote on a plan, you state that the plan complies 
with OTS regulations and that OTS does not endorse or approve the plan 
in any way. You may not make any written or oral representations to the 
contrary.
    (8) You do not grant stock options at less than the market price at 
the time of grant.
    (9) You do not fund the Option Plan or the MRP at the time of the 
conversion.
    (10) Your plan does not begin to vest earlier than one year after 
shareholders approve the plan, and does not vest at a rate exceeding 20 
percent per year.
    (11) Your plan permits accelerated vesting only for disability or 
death, or if you undergo a change of control.
    (12) Your plan provides that your executive officers or directors 
must exercise or forfeit their options in the event the institution 
becomes critically undercapitalized (as defined in Sec.  565.4 of this 
chapter), is subject to OTS enforcement action, or receives a capital 
directive under Sec.  565.7 of this chapter.
    (13) You file a copy of the proposed Option Plan or MRP with OTS 
and certify to OTS that the plan approved by the shareholders is the 
same plan that you filed with, and disclosed in, the proxy materials 
distributed to shareholders in connection with the vote on the plan.
    (14) You file the plan and the certification with OTS within five 
calendar days after your shareholders approve the plan.
    (b) You may provide dividend equivalent rights or dividend 
adjustment rights to allow for stock splits or other adjustments to 
your stock in your ESOP, MRP, and Option Plan.
    (c) The restrictions in paragraph (a) of this section do not apply 
to plans implemented more than 12 months after the conversion, provided 
that materials pertaining to any shareholder vote regarding such plans 
are not distributed within the 12 months after the conversion. If a 
plan adopted in conformity with paragraph (a) of this section is 
amended more than 12 months following your conversion, your 
shareholders must ratify any material deviations to the requirements in 
paragraph (a).

PART 575--MUTUAL HOLDING COMPANIES

0
4. The authority citation for part 575 continues to read as follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828, 2901.


0
5. Amend Sec.  575.7 by:
0
a. Removing the first sentence of paragraph (a);
0
b. Removing paragraphs (b)(1) and (3);
0
c. Removing the word ``not'' from paragraph (b)(2);
0
d. Redesignating paragraph (b)(2) as paragraph (a)(9);
0
e. Redesignating paragraphs (c), (d), and (e) as (b), (c), and (d) 
respectively; and
0
f. Revising newly designated paragraph (d).
    The revision reads as follows:


Sec.  575.7  Issuances of stock by savings association subsidiaries of 
mutual holding companies.

* * * * *
    (d) Procedural and substantive requirements. The procedural and 
substantive requirements of 12 CFR part 563b shall apply to all mutual 
holding company stock issuances under this section, unless clearly 
inapplicable, as determined by OTS. For purposes of this paragraph (d), 
the term conversion as it appears in the provisions of Part 563b of 
this chapter shall refer to the stock issuance, and the term converted 
or converting savings association shall refer to the savings 
association undertaking the stock issuance.

0
6. In Sec.  575.8, revise paragraphs (a)(3) through (a)(9) and add 
paragraph (c) to read as follows:


Sec.  575.8  Contents of Stock Issuance Plans.

    (a) Mandatory provisions. * * *
* * * * *
    (3) Provide that all employee stock ownership plans or other tax-
qualified employee stock benefit plans (collectively, ESOPs) must not 
encompass, in the aggregate, more than either 4.9 percent of the 
outstanding shares of the savings association's common stock or 4.9 
percent of the savings association's stockholders' equity at the close 
of the proposed issuance.
    (4) Provide that all ESOPs and management recognition plans (MRPs) 
must not encompass, in the aggregate, more than either 4.9 percent of 
the outstanding shares of the savings association's common stock or 4.9 
percent of the savings association's stockholders' equity at the close 
of the proposed issuance. However, if the savings association's 
tangible capital equals at least ten percent at the time of 
implementation of the plan, OTS may permit such ESOPs and MRPs to 
encompass, in the aggregate, up to 5.88 percent of the outstanding 
common stock or stockholders' equity at the close of the proposed 
issuance.
    (5) Provide that all MRPs must not encompass, in the aggregate, 
more than either 1.47 percent of the common stock of the savings 
association or 1.47 percent of the savings association's stockholders' 
equity at the close of the proposed issuance. However, if the savings 
association's tangible capital is at least ten percent at the time of 
implementation of the plan, OTS may permit MRPs to encompass, in the 
aggregate, up to 1.96 percent of the outstanding shares of the savings 
association's common stock or 1.96 percent of the savings association's 
stockholders' equity at the close of the proposed issuance.
    (6) Provide that all stock option plans (Option Plans) must not 
encompass, in the aggregate, more than either 4.9 percent of the 
savings association's outstanding common stock at the close of the 
proposed issuance or 4.9 percent of the savings association's 
stockholders' equity at the close of the proposed issuance.
    (7) Provide that an ESOP, a MRP or an Option Plan modified or 
adopted no earlier than one year after the close of: the proposed 
issuance, or any subsequent issuance that is made in substantial 
conformity with the purchase priorities set forth in part 563b, may 
exceed the percentage limitations contained in paragraphs (a)(3) 
through (6) of this section (plan expansion), subject to the following 
two requirements. First, all common stock awarded in connection with 
any plan expansion must be acquired for such awards in the secondary 
market. Second, such acquisitions must begin no earlier than when such 
plan expansion is permitted to be made.
    (8)(i) Provide that the aggregate amount of common stock that may 
be encompassed under all Option Plans and MRPs, or acquired by all 
insiders of the association and associates of insiders of the 
association, must not exceed the following percentages of common stock 
or stockholders' equity of the savings association, held by persons 
other than the savings association's mutual holding company parent at 
the close of the proposed issuance:

[[Page 35151]]



------------------------------------------------------------------------
                                                            Officer and
                                                             director
                    Institution size                         purchases
                                                             (percent)
------------------------------------------------------------------------
$ 50,000,000 or less....................................              35
$ 50,000,001-100,000,000................................              34
$100,000,001-150,000,000................................              33
$150,000,001-200,000,000................................              32
$200,000,001-250,000,000................................              31
$250,000,001-300,000,000................................              30
$300,000,001-350,000,000................................              29
$350,000,001-400,000,000................................              28
$400,000,001-450,000,000................................              27
$450,000,001-500,000,000................................              26
Over $500,000,000.......................................              25
------------------------------------------------------------------------

    (ii) The percentage limitations contained in paragraph 8(i) may be 
exceeded provided that all stock acquired by insiders and associates of 
insiders or awarded under all MRPs and Option Plans in excess of those 
limitations is acquired in the secondary market. If acquired for such 
awards on the secondary market, such acquisitions must begin no earlier 
than one year after the close of the proposed issuance or any 
subsequent issuance that is made in substantial conformity with the 
purchase priorities set forth in Part 563b.
    (iii) In calculating the number of shares held by insiders and 
their associates under this provision, shares awarded but not delivered 
under an ESOP, MRP, or Option Plan that are attributable to such 
persons shall not be counted as being acquired by such persons.
    (9) Provide that the amount of common stock that may be encompassed 
under all Option Plans and MRPs must not exceed, in the aggregate, 25 
percent of the outstanding common stock held by persons other than the 
savings association's mutual holding company parent at the close of the 
proposed issuance.
* * * * *
    (c) Applicability of provisions of Sec.  563b.500(a) to minority 
stock issuances. Notwithstanding Sec.  575.7(d) of this section, Sec.  
563b.500(a)(2) and (3) do not apply to minority stock issuances, 
because the permissible sizes of ESOPs, MRPs, and Option Plans in 
minority stock issuances are subject to each of the requirements set 
forth at paragraphs (a)(3) through (a)(9) of this section. Section 
563b.500, paragraphs (a)(4) through (14), apply for one year after the 
savings association engages in a minority stock issuance that is 
conducted in accordance with the purchase priorities set forth in part 
563b. In addition to the shareholder vote requirement for Option Plans 
and MRPs set forth at Sec.  563b.500(a)(6), any Option Plans and MRPs 
put to a shareholder vote after a minority stock issuance that is 
conducted in accordance with the purchase priorities set forth in part 
563b must be approved by a majority of the votes cast by stockholders 
other than the mutual holding company.

    Dated: June 18, 2007.

    By the Office of Thrift Supervision.
John M. Reich,
Director
[FR Doc. E7-12168 Filed 6-26-07; 8:45 am]
BILLING CODE 6720-01-P