(a) Forming a charitable organization as part of a conversion. When
a mutual holding company converts to the stock form, it may form a
charitable organization. Its contributions to the charitable organization
are governed by the requirements of paragraphs (b) through (f) of
this section.
(b) Donating
conversion shares or conversion proceeds to a charitable organization. Some of the conversion shares or proceeds may be contributed to
a charitable organization if:
(1) The plan of conversion provides for
the proposed contribution;
(2) The members approve the proposed contribution;
and
(3) The IRS either
has approved, or approves within two years after formation, the charitable
organization as a tax-exempt charitable organization under the Internal
Revenue Code.
(c) Member approval of charitable contributions. At the meeting to consider conversion of the mutual holding company,
the members must separately approve by at least a majority of the
total eligible votes, a contribution of conversion shares or proceeds.
If the mutual holding company has a subsidiary holding company with
minority shareholders, or if the subsidiary savings association has
minority shareholders, and the mutual holding company is adding a
charitable contribution as part of a second step stock conversion,
it must also have the minority shareholders separately approve the
charitable contribution by a majority of their total eligible votes.
(d) Charitable organization
contribution limits. A reasonable amount of conversion shares
or proceeds may be contributed to a charitable organization, if the
contribution will not exceed limits for charitable deductions under
the Internal Revenue Code and the Board does not object on supervisory
grounds. If the mutual holding company or resulting stock holding
company is well-capitalized pursuant to section 238.62 of this chapter,
the Board generally will not object if it contributes an aggregate
amount of eight percent or less of the conversion shares or proceeds.
(e) Charitable organization
requirements. The charitable organization’s charter (or trust
agreement) and gift instrument must provide that:
(1) The charitable organization’s primary
purpose is to serve and make grants in the local community;
(2) As long as the charitable
organization controls shares, it must vote those shares in the same
ratio as all other shares voted on each proposal considered by the
shareholders;
(3) For
at least five years after its organization, one seat on the charitable
organization’s board of directors (or board of trustees) is reserved
for an independent director (or trustee) from the local community.
This director may not be the officer, director, or employee, or the
affiliate’s officer, director, or employee, and should have experience
with local community charitable organizations and grant making; and
(4) For at least five
years after its organization, one seat on the charitable organization’s
board of directors (or board of trustees) is reserved for a director
from the board of directors or the board of directors of an acquiror
or resulting institution in the event of a merger or acquisition of
the organization.
(5)
The Board may examine the charitable organization at the charitable
organization’s expense;
(6) The charitable organization must comply with all supervisory
directives that the Board imposes;
(7) The charitable organization must annually
provide the Board with a copy of the annual report that the charitable
organization submitted to the IRS;
(8) The charitable organization must operate
according to written policies adopted by its board of directors (or
board of trustees), including a conflict of interest policy; and
(9) The charitable organization
may not engage in self-dealing, and must comply with all laws necessary
to maintain its tax-exempt status under the Internal Revenue Code.
(f) Conflicts
of interest involving the directors of the mutual holding company
or resulting stock holding company.
(1) An individual who is the director,
officer, or employee, or a person who has the power to direct the
management or policies, or otherwise owes a fiduciary duty to the
mutual holding company or resulting stock holding company and who
will serve as an officer, director, or employee of the charitable
organization, is subject to the following obligations:
(i) The
individual must not advance their own personal or business interests,
or those of others with whom the individual has a personal or business
relationship, at the expense of the mutual holding company or resulting
stock holding company;
(ii) If the individual has an interest in a matter or transaction
before the board of directors, the individual must:
(A) Disclose to
the board all material nonprivileged information relevant to the board’s
decision on the matter or transaction, including the existence, nature
and extent of the individual’s interests, and the facts known to the
individual as to the matter or transaction under consideration;
(B) Refrain from participating
in the board’s discussion of the matter or transaction; and
(C) Recuse themselves from voting
on the matter or transaction (if the individual is a director). See
Form AC, which provides further information or operating plans and
conflict of interest plans. The mutual holding company may obtain
Form AC from the appropriate Reserve Bank and the Board’s Web site
at http://www.federalreserve. gov.
(2) Before the board of
directors may adopt a plan of conversion that includes a charitable
organization, the mutual holding company must identify the directors
that will serve on the charitable organization’s board. These directors
may not participate in the board’s discussions concerning contributions
to the charitable organization, and may not vote on the matter.
(3) The stock certificates
of shares contributed to the charitable organization or that the charitable
organization otherwise acquires must bear the following legend: “The
board of directors must consider the shares that this stock certificate
represents as voted in the same ratio as all other shares voted on
each proposal considered by the shareholders, as long as the shares
are controlled by the charitable organization.”
(4) As long as the charitable organization
controls shares, the resulting stock holding company must consider
those shares as voted in the same ratio as all of the shares voted
on each proposal considered by the shareholders.
(5) After the stock offering is complete,
the resulting stock holding company must submit an executed copy of
the following documents to the appropriate Reserve Bank: the charitable
organization’s charter and bylaws (or trust agreement), operating
plan (within six months after the stock offering), conflict of interest
policy, and the gift instrument for the contributions of either stock
or cash to the charitable organization.
