N.Y. Comp. Codes R. & Regs. tit. 3 § 86.5

Current through Register Vol. 46, No. 51, December 18, 2024

Section 86.5 - Public offering of capital stock in connection with the conversion of mutual thrift institutions to stock-form

(a) A plan of conversion (except to the extent governed by inconsistent provisions of section 86.6 or by section 86.12 of this Part) shall, in addition to the requirements of section 86.4 of this Part, contain provisions to the effect that:

(1)

(i) Each eligible account holder shall receive, without payment, nontransferable subscription rights to purchase capital stock of the converting institution in an amount no less than the maximum purchase limitation established for the public offering under paragraph (3) of this subdivision. In the event of an oversubscription for such shares, after shares have been allocated among subscribing eligible account holders so as to permit each such account holder, to the extent possible, to purchase 100 shares, shares shall be allocated among subscribing eligible account holders on such equitable basis, related to the amounts of their respective accounts, as may be provided in the plan of conversion.

(ii) Subscription rights to purchase capital stock received by officers, directors, trustees, and their associates, of the converting institution based on their increased deposits or shares in the converting institution in the one-year period preceding the eligibility record date shall be subordinated to all other subscription rights to purchase shares of capital stock granted pursuant to this Part.

(iii) The provisions of subparagraph (i) of this paragraph notwithstanding, a plan of conversion may contain a provision that gives the tax-qualified employee stock benefit plans of the converting institution (and, where applicable, a holding company formed in connection with its conversion to stock form) subscription rights to purchase up to 10 percent of the shares to be issued by the converting institution, and which subordinates the subscription rights of eligible account holders to those of such tax-qualified employee stock benefit plans.

(2) Management of the converting institution collectively shall not be entitled to purchase more than 25 percent of the capital stock issued by the converting institution in a public offering of such stock, and no person (alone, or acting together with any other person or in concert with any group of persons) shall be entitled to purchase more than five percent of such stock in such public offering. Any shares of capital stock purchased pursuant to the exercise of subscription rights shall be included with the shares purchased in a public offering for purposes of determining if the above-described 25 percent and 5 percent limitations have been violated. As used in this section, the term management shall refer to directors or trustees and executive officers; provided, however, that such persons shall not be deemed to be acting together or in concert solely as a result of their board membership or employment.

(3) Any shares of the converting institution not sold to depositors or shareholders with subscription rights shall be sold in a public offering through an underwriter, or otherwise in whole or in part to the public without an underwriter, subject to the converting institution demonstrating to the superintendent the feasibility of the method of sale and to such conditions as may be provided in the plan of conversion. Such conditions shall include, but not be limited to:

(i) a condition limiting purchases in the public offering by any person together with any associate or group of persons acting in concert to an aggregate of no more than five percent of the total amount of shares offered;

(ii) a condition requiring the stock to be offered and sold in the public offering to be offered and sold in a manner that will achieve a reasonably wide distribution of such stock.

(4) The converting institution shall:

(i) promptly following the conversion register the capital stock issued in connection therewith pursuant to the Securities Exchange Act of 1934 and undertake not to deregister such capital stock for a period of three years after such registration;

(ii) use its best efforts to encourage and assist a market maker to establish and maintain a market for the capital stock issued in connection with the conversion; and

(iii) use its best efforts to list the shares of capital stock issued in connection with the conversion on a national or regional securities exchange or on the NASDAQ quotation system.

(5) The notice of meeting, proxy card, and proxy statement or short-form proxy statement sent to each eligible account holder as required by section 86.4(a)(3) of this Part shall be accompanied by a subscription offering circular and subscription order form. Separate and readily distinguishable postage-paid envelopes shall be provided for the return of proxy cards and subscription order forms.

(b) A plan of conversion providing for the public offering of the capital stock of a converting institution may contain provisions to the effect that:

(1) Shares of the converting institution not sold in the subscription offering or in a public offering pursuant to this section not exceeding one percent of the aggregate shares issued, may be sold in such other manner as provided in the plan of conversion.

(2) Any person exercising subscription rights to purchase capital stock shall be required to purchase a minimum of 25 shares to the extent such shares are available for purchase. In no event shall the aggregate price for any minimum purchase of shares exceed $500.

(3) Instead of a separate subscription offering, all subscription rights issued in connection with the conversion shall be exercisable by delivery of properly completed and executed order forms to the underwriters or selling group for the public offering. Orders for stock in the public offering shall not be filled until after orders of persons exercising subscription rights have been filled.

(4) The converting institution shall not be required to issue subscription rights to, or accept orders for the purchase of shares of capital stock from, persons who are residents of a foreign country.

(c) Pricing and sale of capital stock.

(1) No offer to sell capital stock of a converting institution pursuant to a plan of conversion providing for a public offering may be made prior to approval by the superintendent of the application for conversion and until the preliminary offering circular has been authorized for use by the superintendent. No sale of capital stock may be made except by means of a final offering circular which has been approved by the superintendent. The provisions of this paragraph shall not apply to preliminary negotiations or agreements between a converting institution and any underwriter or among underwriters who are to be in privity of contract with the converting institution.

(2) Any preliminary offering circular which has been authorized for use by the superintendent may be distributed in connection with the offering at the same time as, or after, the proxy statement is mailed to depositors or shareholders pursuant to this Part. No final offering circular shall be distributed until it has been approved by the superintendent. The approval of the final offering circular by the superintendent shall not extend beyond the maximum time period specified for the completion of the sale of all the capital stock in subdivision (e) of this section, or beyond such period of time as the superintendent shall establish upon a subsequent approval in the event of the granting of an extension of time under subdivision (g) of this section.

(3) If the subscription offering is to commence prior to the meeting of the depositors or shareholders held to vote on the plan of conversion, the proxy statement authorized for use by the superintendent shall set forth the estimated price range. Any preliminary offering circular shall set forth the estimated price range. The maximum of such price range should normally be no more than 15 percent above the average of the minimum and maximum of such price range and the minimum should normally be no more than 15 percent below such average. The maximum price used in the price range should be no more than $40 per share and the minimum no less than $5 per share.

(4) The materials relating to the pricing of the capital stock referred to in paragraph (6) of this subdivision shall be delivered to the superintendent before he approves the plan of conversion. The superintendent will review the price information in determining whether to approve an application for conversion when the offering is to commence prior to the meeting of depositors or shareholders, and will review such information in determining whether to approve the final offering circular.

(5) Underwriting commissions shall not exceed an amount or percentage per share acceptable to the superintendent. No underwriting commissions shall be allowed or paid with respect to shares of capital stock sold in the subscription offering, unless the plan of conversion contains the provision permitted by paragraph (b)(4) of this section; provided, however, that an underwriter may be reimbursed for reasonable expenses actually incurred in connection with the subscription offering where the public offering is so small that reasonable underwriting commissions thereon would not be sufficient to cover total expenses reasonably incurred by the underwriter.

(6) The pricing information required under paragraph (4) of this subdivision shall comply with the following guidelines:

(i) The materials shall be prepared by persons independent of the converting institution, experienced and expert in the area of corporate appraisal, and acceptable to the superintendent.

(ii) The materials shall contain a full appraisal, including a complete and detailed description of the elements that make up an appraisal report, justification for the methodology employed and sufficient support for the conclusions reached therein.

(iii) To the extent that the appraisal is based on a capitalization of the pro forma income of the converted institution, the materials must indicate the basis for determination of the income to be derived from the proceeds of the sale of stock and demonstrate the appropriateness of the earnings-multiple used, including assumptions made as to future earnings growth. To the extent that the appraisal is based on comparison of the capital stock of the converting institution with outstanding capital stock of existing stock-form thrift institutions, such existing stock institutions must be reasonably comparable to the converting institution in terms of such factors as size, market area, competitive conditions, profit history, and expected future earnings.

(7) In addition to the information required in paragraph (6) of this subdivision, the converting institution shall submit information demonstrating to the satisfaction of the superintendent the independence and expertise of any person preparing materials under this paragraph. However, a person will not be considered as lacking independence for the reason that such person will participate in effecting a sale of capital stock under the plan of conversion or will receive a fee from the converting institution for services rendered in connection with such appraisal.

(8) In addition to the information required in paragraphs (6) and (7) of this subdivision, the converting institution shall file with the superintendent such additional information with respect to the pricing of the capital stock of the institution as the superintendent may request, including, without limitation, a full appraisal.

(d) Order forms for subscriptions.

(1) After receiving the approval of the superintendent of its plan for conversion, a converting thrift shall submit said plan to its eligible account holders as provided in section 86.4 of this Part by mailing to each eligible account holder a notice, proxy card and proxy statement or short-form proxy statement conforming to the requirements of section 86.14 of this Part.

(2) Except as provided in paragraph (a)(5) of this section, subscriptions for shares shall be accepted from eligible account holders only to the extent that such holders have (i) executed and delivered in person or by mail a purchase order in such form as the converting institution shall prescribe, and (ii) accompanied such order with payment (either direct or by authorizing withdrawal from a share or deposit account). In the event that subscriptions are cancelled by the converting institution for any lawful reason, payments for the same shall be promptly refunded.

(3) Each order form shall be accompanied or preceded by an offering circular for the subscription offering or the public offering, as the case may be, and a set of detailed instructions explaining how to properly complete such order forms.

(4) The maximum subscription price stated on each order form shall be the amount to be paid when the order form is returned. The maximum subscription price and the actual subscription price shall be within the subscription price range stated in the offering circular. If either the maximum subscription price or the actual subscription price is not within the subscription price range stated in the offering circular, the converting institution must obtain specific approval as to such price from the superintendent. If appropriate, the superintendent will condition his approval by requiring a resolicitation of proxies and/or order forms. If the actual public offering price is less than the maximum subscription price stated on the order form, the actual subscription price shall be correspondingly reduced and the difference shall be refunded to those who have paid the maximum subscription price unless the subscribers affirmatively elect to have the difference applied to the purchase of additional shares of capital stock.

(5) Each order form shall be prepared so as to indicate to the person receiving it, in as simple, clear and intelligible a manner as possible, the actions which are required or available to him with respect to the form and the capital stock offered for purchase thereby. Specifically, each order form shall:

(i) indicate the maximum number of shares that may be purchased pursuant to the subscription rights;

(ii) indicate the period of time within which the subscription rights must be exercised, which period of time shall be no less than 20 days and no more than 45 days following the mailing of the subscription order form;

(iii) state the maximum subscription price per share of capital stock;

(iv) indicate any requirements as to the minimum number of shares of capital stock which may be purchased;

(v) provide a specifically designated blank space or spaces for indicating the number of shares of capital stock which the eligible account holder wishes to purchase;

(vi) indicate the manner of required payment and, if such payment may be made by withdrawal from a certificate of deposit, indicate whether such withdrawal may be made without penalty. If payment is to be made by withdrawal from an account or certificate of deposit, a box to check should be provided;

(vii) provide specifically designated blank spaces for dating and signing the order form;

(viii) contain an acknowledgment by the eligible account holder or other person signing the order form that he has received an offering circular prior to so signing; and

(ix) indicate the consequences of failing to properly complete and return the order form, including a statement that the subscription rights are nontransferable and will become void at the end of the subscription period. The order form may, and the instructions thereto shall, indicate the place or places to which the order forms are to be returned and when the order forms shall be deemed to be received by the converting institution.

(6) The order form may provide that it may not be modified without the converting institution's consent after its receipt as set forth in the order form. If payment is to be made by withdrawal from an account or certificate of deposit, the converting institution may, but need not, cause such withdrawal to be made upon receipt of the order form. If such withdrawal is made at any time prior to the closing date of the public offering, the converting institution shall pay interest to the eligible account holder on the amount withdrawn as if such amount had remained in the account from which it was withdrawn until such closing date.

(e) Period for completion of sale. The sale of all shares of capital stock of the converting insured institution to be made under the plan of conversion shall be completed as promptly as possible and within 45 calendar days after the last day of the subscription period unless extended by the superintendent.

(f) Interest on subscriptions. The converting institution shall pay interest at not less than the passbook rate on the amounts paid to the institution to purchase shares of capital stock in the subscription offering from the date payment is received by the institution until the conversion is completed or terminated.

(g) Extension of time to complete public offering.

(1) The superintendent may grant one or more extensions of the time required to complete the sale of all shares of capital stock under subdivision (e) of this section, provided that no single extension of time shall exceed 60 days.

(2) Immediately upon granting of an extension of time pursuant to paragraph (1) of this subdivision, the converting institution shall distribute to each subscriber in the offering a notice of the extension of time, and of the right of each subscriber to increase, decrease or rescind the subscription at any time prior to 20 days before the end of the extension period or at any time prior to the date of the commencement of the public offering.

(3) After the expiration of the subscription period, the converting institution shall file with the superintendent, for his approval, a notice to be delivered to subscribers upon the occurrence of any event, circumstance, or change of circumstance which would be material to the investment decision of a subscriber. Any such notice distributed to subscribers shall grant to each subscriber the right to increase, decrease or rescind his subscription for a period which shall be no less than the greater of 10 days from the date of the mailing of such notice or the period remaining in an extension of time granted by the superintendent pursuant to and subject to the provisions of this subdivision.

N.Y. Comp. Codes R. & Regs. Tit. 3 § 86.5