5000 - Statements of Policy
STATEMENT OF POLICY REGARDING USE OF OFFERING CIRCULARS IN CONNECTION WITH PUBLIC DISTRIBUTION OF BANK SECURITIES
This statement of policy concerns the use of offering circulars in connection with the public distribution of bank securities by insured state nonmember banks. The FDIC is issuing this statement in view of its statutory duties relating to capital adequacy, the safety and soundness of insured banks, and its review responsibilities with respect to mutual-to-stock conversions of FDIC-regulated financial institutions. The statement of policy also is intended to protect insured state nonmember banks against the risk of serious capital loss or litigation that could result if bank securities are sold in violation of the antifraud provisions of the federal securities laws.1
The issuance of securities by banks is subject to the antifraud provisions of the federal securities laws which require full and adequate disclosure of material facts.2 It is the FDIC's goal to have banks comply with the antifraud provisions of the federal securities laws in a manner which meets the needs of investors, depositors and issuers. It is the responsibility of bank management and the promoters of a bank in organization to understand these requirements and utilize an offering circular in appropriate situations.3
In view of the FDIC's statutory duty to determine capital adequacy when passing upon an application for federal deposit insurance, the FDIC reviews whether public investors have been provided sufficient disclosure of material facts by an insured state nonmember bank in organization. The FDIC also reviews any offering circular used by a bank operating under an administrative order, or used in a mutual-to-stock conversion as part of the application process.
The FDIC believes that every insured state nonmember bank or bank in organization publicly offering its securities, including offerings under preemptive rights, should use an offering circular.
(1) The offering circular should include the following statements in capital letters printed in boldfaced type:
THESE SECURITIES ARE NOT DEPOSITS. THESE SECURITIES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION NOR HAS THE FEDERAL DEPOSIT INSURANCE CORPORATION PASSED ON THE ADEQUACY OR ACCURACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THESE OBLIGATIONS ARE SUBORDINATE TO THE CLAIMS OF DEPOSITORS AND OTHER CREDITORS AS MORE FULLY DESCRIBED IN THE OFFERING CIRCULAR.
(3) The offering circular should identify the offeror and principal business address; state the title, number, aggregate dollar amount and per unit price of securities offered; describe the subscription rights and limitations, risk factors, business of the offeror, use of proceeds and capital structure, management and principal shareholders, compensation and business transactions, material features of the securities offered, dividend policy, the plan of distribution, and legal or administrative proceedings; provide selected financial data for each of the last five fiscal years and interim periods, and a management's discussion and analysis of the results of operation for at least the past two years and the interim periods; and present comparative financial statements, footnotes and schedules of the bank.
The financial statements, footnotes and schedules for each fiscal year and interim period presented should be at least as inclusive as that required by the annual disclosure statement for insured state nonmember banks (12 CFR part 350). Banks that have an annual audit of financial statements by an independent public accountant, which the FDIC strongly encourages, should include the audited financial statements in the offering circular. Banks are encouraged to include an introductory "plain English" summary of the essential information contained in the offering circular, along with a profile of the terms of the offer and the telephone number of the principal executive office of the bank.
Banks in organization should disclose the expected relationship that the institution will have with each promoter, organizer, proposed director and executive officer, including compensation, business transactions and stock option or award plans. A balance sheet and statement of organizational and pre-operating expenses, a pro forma capitalization table and a business plan should be provided as of the latest practicable date for the bank in organization.
(4) The offering circular should be accompanied by a subscription order form that states the maximum subscription price per share of capital stock, the maximum and minimum number of shares that may be purchased pursuant to subscription rights, the time period within which the subscription rights must be exercised, any withdrawal rights, any required method of payment, and the escrow arrangements. The subscription order form should provide specifically designated blank spaces for dating and signing. The order form should contain an acknowledgement by the subscriber that he or she received an offering circular prior to signing.
Sales of securities issued by insured state nonmember banks should be conducted in a segregated area of the depository institutions' offices, whenever possible. Offers and sales should be conducted by authorized personnel, excluding tellers, in places where deposits are not ordinarily received. An insured depository institution should obtain a signed and dated certification from the purchaser confirming that the purchaser has read and understands the disclosures set out in paragraphs (1) and (2) above. The certification should contain a separate place where a purchaser should indicate, by initialing or by comparable method, that the purchaser is aware of the absence of deposit insurance covering the securities being sold.4
Any written advertisement, letter, announcement, film, radio, or television broadcast which refers to a present or proposed public offering of securities covered by this statement of policy should contain: (a) A statement that the announcement is neither an offer to sell nor a solicitation of an offer to buy any of the securities and that the offer may be made only by an offering circular, (b) the names and addresses of the bank and the lead underwriter, (c) the title of the security, the dollar amount and the number of securities being offered, and the per unit offering price to the public, (d) instructions for obtaining an offering circular and (e) a statement that the securities are neither insured nor approved by the FDIC.
The FDIC uses the Office of Thrift Supervision's conversion regulations as a frame of reference in reviewing the form and content of offering circulars used in connection with mutual-to-stock conversions. Banks utilizing an offering circular in connection with a mutual-to-stock conversion should consult 12 CFR 563b.102 (Form OC--Offering Circular).
The disclosure goals of this statement of policy will be met if:
(A) The offer and sale satisfy the information and disclosure requirements of SEC Regulation A--Conditional Small Issues Exemption (17 CFR part 230), or Regulation S-B (Small Business Issuers) (17 CFR part 228), or
(B) The securities are offered and sold in a transaction that satisfies the requirements of SEC Regulation D (17 CFR 230.501--230.506), relating to private offers and/or sales to accredited investors, or
(C) The securities are offered and sold in a transaction that satisfies the informational requirements of SEC Rule 701 (17 CFR 230.701) for certain employee benefit plans, or
(D) The securities are offered and sold in a transaction that satisfies the information and disclosure requirements of OTS's part 563g--Securities Offerings (12 CFR 563g).
Inasmuch as the statement of policy does not impose the burden of filing and awaiting regulatory approval, and allows for certain flexibility, the FDIC believes it will be beneficial to small banks.
Banks or their legal counsel may contact the FDIC's Registration and Disclosure Section, Division of Supervision, for a copy of Suggested Form and Content for Offering Circular (Existing Bank) or Suggested Form and Content for Offering Circular (Bank in Organization). The address is Registration and Disclosure Section, Divison of Supervision, 550 17th Street N.W., Washington, D.C. 20429. (202) 898-8902.
By order of the Board of Directors, dated at Washington, DC, this 13th day of August, 1996.
[Source: 44 Fed. Reg. 39381, July 6, 1979; 61 Fed. Reg. 46808, September 5, 1996]
1 The FDIC recognizes the efforts of certain states in regulating the offering of securities by insured state nonmember banks and encourages the adoption of regulations and review procedures at the state level; however, because of a lack of uniformity among all states, FDIC considers the adoption of this statement of policy which will apply to all insured State nonmember banks appropriate. Go back to Text
2 Section 17(a) of the Securities Act of 1933 (15 U.S.C. § 77q(a)) and Rule 10b-5 (17 CFR § 240.10b-5) of the Securities and Exchange Commission ("SEC") promulgated under section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)). Go back to Text
3 SEC Rule 10b-5 (17 CFR § 240.10b-5) makes it unlawful in
connection with the offer or sale of a security: * * *
4Sales of securities on bank premises are also subject to the guidance contained in the "Interagency Statement on Retail Sales of Nondeposit Investment Products" dated February 15, 1994. Go back to Text