The OCC granted Conditional Approval Letter No. 940 (“Letter #940”) allowing a national bank to elect to use New York law with respect to corporate governance procedures, provided that such law is not inconsistent with applicable Federal banking law and regulations. In Letter #940, the OCC also granted conditional approval allowing the national bank to conduct a reverse stock split in accordance with the laws of New York.
12 C.F.R. § 7.2000 expressly allows national banks to elect to follow the corporate governance procedures of the law of the state in which the main office of the bank is located, the law of the state in which the holding company of the bank is incorporated, the Delaware General Corporation Law or the Model Business Corporation Act. In this case, the national bank was able to select New York law for corporate governance purposes because its main office was located in New York.
The OCC, however, had never addressed whether national banks could elect to use the provisions of any state law’s corporate governance procedures to effect a reverse stock split. The OCC had previously promulgated 12 C.F.R. § 7.2023, which authorizes national banks to conduct reverse stock splits so long as the reverse stock split is undertaken for a legitimate corporate purpose and provides adequate dissenting shareholders’ rights. In Letter #940, the OCC conditionally found that the proposed reverse stock split was legally authorized and met the other statutory criteria for approval. The OCC concluded that the use of New York law was acceptable because New York law included reverse stock split procedures and provided adequate rights to dissenting shareholders. The OCC approved the use of New York law to conduct a reverse stock split with four conditions: (i) the national bank elect the corporate governance provisions of New York law, (ii) the national bank must provide for dissenters’ rights comparable to those found in the applicable federal regulations, (iii) the national bank must pay the cost of any appraisal that may occur if any shareholders dissent from the reverse stock split, but not the costs of attorneys’ fees incurred by and costs of experts retained by dissenting shareholders, and (iv) if the appropriate court declines to accept jurisdiction of an appraisal action, the national bank will pay the cost of binding arbitration by an independent third party to appraise the stock, but not the costs of attorneys’ fees incurred by and costs of experts retained by dissenting shareholders.