AL 2000-4
OCC ADVISORY LETTER
Subject: Reverse Stock Split Procedures
Date:  May 9, 2000


TO:  Chief Executive Officers of All National Banks, Department 
     and Division Heads, and All Examining Personnel

PURPOSE: This guidance describes expedited review procedures for national
banks to effect reverse stock splits.

BACKGROUND:

A reverse stock split is a restructuring of ownership interests through
which a bank reduces the number of its outstanding shares and, frequently,
the number of its shareholders.  To reduce the number of shares, a bank
exchanges one share of a new stock issuance for a predetermined number of
existing shares, and pays cash to shareholders who would have held
fractional shares after the exchange.

National banks typically employ the following process to effect a reverse
stock split.

1. The bank adopts a corporate governance system that permits reverse
   stock splits. [Note 1:  See 12 CFR 2000(b) (permitting national banks
   to adopt various corporate governance procedures).]

2. The bank sets an exchange ratio for the transaction and obtains
   shareholder approval for the proposal (through an affirmative vote of
   the holders of two-thirds of the outstanding shares).

3. The bank reduces the par value of its outstanding shares so that it
   does not exceed the $100 statutory maximum par value at any time. [Note
   2: See 12 USC 52.]

4. The bank places the amount in excess of the new par value into a
   temporary "capital over par" account.  By separating the old common
   stock account into a capital over par account and a reduced common
   stock account, capital does not fall below the statutory minimum [Note
   3: See 12 USC 51.] at any time.

5. The bank effects the reverse stock split at the established ratio and
   pays cash for fractional shares. [Note 4:   The arrangements a national
   bank may use to avoid issuing fractional shares are found at 12 CFR
   5.67.  If the bank wishes to pay the cash equivalent of fractional
   shares, the cash equivalent must be based on the market value of the
   stock.  When no established market for the bank's stock exists, the
   cash equivalent must be based on a reliable and disinterested
   determination as to the fair market value of the stock.  The bank may
   also sell full shares representing all fractional shares at public
   auction or to the highest bidder after having solicited and received
   sealed bids from at least three licensed stockbrokers.]

6. The bank eliminates the "capital over par" account by returning it to
   the common stock account, typically through an increase in par value, a
   stock split, or a combination of both.

7. Upon completion, the bank's capital accounts differ from those prior to
   the reverse stock split only by the amount paid to minority
   shareholders.

OCC APPROVAL:

Because a reverse stock split involves a reduction in capital by a
national bank, the OCC must provide prior approval of a reverse stock
split.  Shareholders owning two-thirds of the capital stock of the bank
must also approve the reduction in capital. [Note 5: See 12 USC 59.]

In approving reverse stock splits, the OCC considers whether the national
bank:

.  will perform each step of the reverse stock split process in 
   compliance with legal requirements governing its capital structure.

.  has adopted corporate governance provisions that authorize 
   reverse stock splits under 12 CFR 7.2000(b).

.  has a legitimate corporate purpose for undertaking the reverse 
   stock split.

.  provides to its shareholders adequate dissenters' rights.

APPLICATION REQUIREMENTS:

The OCC will approve an application for a reverse stock split on an
expedited review basis where the bank makes certain certifications.  To
obtain approval under expedited review procedures, the bank must include
the following information and certifications in the application:

1. The bank has adopted corporate governance provisions under 12 CFR
   7.2000(b) that permit reverse stock splits.  This statement should
   identify the authority and the specific language permitting the reverse
   stock split.  If the bank is relying on a corporate governance scheme
   that the OCC has not previously reviewed, [Note 6: The OCC has approved
   reverse stock splits conducted under the corporate governance
   procedures of the following states: Arkansas, California, Colorado,
   Iowa, Kansas, Michigan, Missouri, New Mexico, Oklahoma, and
   Pennsylvania.  New York, Texas, and Minnesota were added in December
   2000.  The Internet version of this Advisory will be updated as others
   are added.] the application should include a thorough legal analysis
   describing the source of authority for the reverse stock split.

2. The specific corporate purpose(s) for the reverse stock split.
   Applicants may find a list of corporate purposes the OCC considers to
   be legitimate corporate purposes at 12 CFR 7.2023.  If the bank
   identifies a corporate purpose not described in the interpretive
   ruling, it should describe the reason(s) for that choice.

3. Certification that the above corporate governance procedures provide
   minority shareholders with dissenters' rights that contain, at a
   minimum, the elements listed below.  This certification should
   reference the authority and specific language governing dissenters'
   rights.  If the corporate governance provisions do not provide for
   dissenters' rights, or do not provide for each of the following
   elements in reverse stock splits, the bank must certify that it will
   provide such rights and elements.

   . Advance notice of dissenters' rights to shareholders before the 
     shareholder meeting.

   . An independent third party appraisal of the shares if the bank and 
     any dissenting shareholders are unable to agree on the value of the 
     dissenting shares.

   . Payment by the bank of the cost of appraising dissenting shares.
     [Note 7: However, the bank need not pay the cost of other expenses of
     the appraisal proceeding, e.g. attorney's fees of dissenting
     shareholders, unless required by state law or the appropriate court.]

   . Binding arbitration by an independent third party, to be paid for 
     by the bank, if the court that would ordinarily hear an appraisal 
     action under the corporate governance procedures refuses jurisdiction 
     to appraise the shares of a national bank.  Conduct of the 
     arbitration must be consistent with the rules and procedures of the 
     American Arbitration Association or other organization with expertise 
     in alternative dispute resolution. 

4. A capital reconciliation showing the bank's capital structure after
   each step of the reverse stock split, with an explanation of the
   accounting entries.  The bank also must demonstrate compliance with the
   minimum capital requirements for a national bank based on the
   population of the bank's main office location (12 USC 51).

5. A certification that the bank will comply with other relevant
   provisions of federal banking law.  These requirements include the
   limitation on the par value of a national bank's common stock (12 USC
   52), shareholder approval of a reduction in capital (12 USC 59), and
   how the bank determined, or will determine, the price to be paid to
   minority shareholders (12 CFR 5.67).

6. The bank's PCA-related capital category following the proposed reverse
   stock split.

CONTACTS:

An application to conduct a reverse stock split, including the fee for an
expedited reduction in permanent capital, should be submitted to the
licensing manager in the appropriate district office.

Questions related to reverse stock splits should be directed to the
appropriate licensing manager, the Licensing Policy and Systems Division
at (202) 874-5060, or the Securities and Corporate Practices Division at
(202) 874-5210.


__________________________
Julie L. Williams
First Senior Deputy Comptroller and Chief Counsel