7 Tex. Admin. Code § 21.92 - Amendment of Certificate to Effect a Reverse Stock Split

(a) Definitions. The following words and terms when used in this section shall have the following meanings, unless the context clearly indicates otherwise.

(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, § RSA 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, § RSA 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 § RSA 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, § RSA 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, § RSA 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, § RSA 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 RSA 78j, RSA 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, RSA 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 RSA 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.

(e) Exemptions.

(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, § RSA 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.

Notes

7 Tex. Admin. Code § 21.92

The provisions of this §21.92 adopted to be effective December 31, 1998, 23 TexReg 13039; amended to be effective September 5, 2002, 27 TexReg 8203; amended to be effective November 7, 2013, 38 TexReg 7690