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4000 - Advisory Opinions

Determinations Regarding Share Acquisition Affecting Bank Control


August 13, 1982

Katharine H. Haygood, Senior Attorney

Your letter of July 12, 1982 requests an interpretive letter from the FDIC staff that it will not recommend enforcement action against the parties involved in the acquisition of shares of ***. (This response is based on the information contained in or with that letter and the previous letters of May 24, 1982 and June 14, 1982 and also on the telephone conversations with you and ***; this information will not be repeated in complete form but will usually be referred to in a summary fashion.)

There are several preliminary points which should be made. As I thought I had made clear in our telephone conversation, if the Change in Bank Control Act (the Act) and regulations issued pursuant to it are violated by any "person," as defined in the Act and the regulations, then the FDIC must consider that person's violation. As I believe I also pointed out, the acquiring parties are the focal point of the Act, and the difficulty in making definitive statements about the *** acquisitions is that complete information concerning the acquirers is not known. In your letter of July 12, 1982, you ask for assurance that no action by the FDIC will be taken against "the Bank, the Right Holders, the Investors, the Directors of the Bank or any seller of the Shares or any affiliate of the seller of the Shares" as the capitalized terms are defined in your letter of May 24, 1982, if there is no prior notice of acquisition to the FDIC. I have been under the impression that you represent the Right Holders (and possibly also the Directors) so that the aspect of this series of transactions which is of concern to you is the acquisition of any right in the shares by the Right Holders and the subsequent transferring of that right. Since I know very little about the Sellers or the Bank, I will not comment on whether or not there might be Change in Bank Control Act considerations in regard to those parties. Instead, the focus here will be on the Right Holders and the Investors.

It is my understanding that the Right Holders (who are Directors of the Bank) will acquire an option in the shares which they will assign to the Investors (those who accept the offering by the Right Holders and who may themselves be Directors and/or Right Holders). Several points may be made in regard to the Right Holders and Directors. First, a simple option with no present rights to control the stock in any way other than having the mere right to purchase has not been considered by the FDIC staff to cause a change in control for purposes of the Act. Second, even if the Directors do purchase, based on your representation that the aggregate shareholdings of the Directors and all of their affiliates will not exceed ten percent of the Bank's stock, the Directors per se would not be within the Act or regulations. Third, although the restrictions on the Investors' shares are of concern, as I told you, the restrictions do not appear sufficient to constitute a change of control.

The question of whether the Investors must file is more complicated. The Investors, who are in effect the ultimate purchasers, are to be restricted by the terms of the agreement to those who, together with "Affiliates" as defined in the Share Acquisition Agreement, do not own five percent or more of the outstanding bank stock. The term "Affiliate" covers persons or entities controlled by or acting on behalf of the Investor and includes those affiliated through common ownership or family relationship, or those acting in concert with the Investor. As you have pointed out, the Investor must represent that his acquisition is within the terms just outlined. Thus, on the surface, none of the acquisitions should be subject to the Act. As I told you, however, if, in spite of the safeguards which you are incorporating into the agreement, Investors are in fact at any time in violation of the Act, then the FDIC must effect its remedies independently of those which the Right Holders may have. If the Investors adhere to the terms of the Agreement, however, there should be no violation of the Act or its regulations. In your letter of July 12, you point out that the Offering Memorandum will advise Investors of the provisions of the Act and its regulations; that notification should provide a further safeguard.

If you have further questions, please let me know.

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