writing. An association may issue such notes, bonds, debentures, or other obligations, or other securities, as are not inconsistent with the terms of paragraph (2) of subsection (b) of section 5 of the Home Owners' Loan Act of 1933, as amended, (a) to the extent that such issuance is in compliance with the provisions of § 563.8-1 of this chapter, (b) to such extent as is otherwise authorized by the Board by advice in writing, or (c), except in the case of subordinated debt securities as that term is defined in § 561.24 of this chapter, to the same extent that it would have authority to do so if said paragraph (2) had not been enacted. To such extent as is authorized by the terms of its charter or by the Board by advice in writing, an association may give security, but an association shall not give security for any of its shares or share accounts or for any of its savings accounts representing share interests in the association.

[38 FR 6057, Mar. 6, 1973]

§ 545.24-1

Issuance of GNMA-guaranteed, mortgage-backed securities. Without regard to any other provision of this part, a Federal association which has a charter in the form of Charter K (rev.) or Charter N may, in accordance with regulations prescribed by the Government National Mortgage Asociation (GNMA) in 24 CFR Part 1665, Subpart A:

(a) Issue and sell trust certificates or other securities (1) based on and backed by a trust or pool composed of mortgages which are insured under the National Housing Act or title V of the Housing Act of 1949, or which are insured or guaranteed under the Servicemen's Readjustment Act of 1944 or chapter 37 of title 38, United States Code and (2) guaranteed as to payment of principal and interest by GNMA pursuant to section 306(g) of the National Housing Act; and

(b) Do all other things necessary and proper for carrying out such issuance and sale.

[35 F.R. 10201, June 23, 1970]

of the United States, including any trust territory; (2) "statute of a State" and "statute of the State" include action by a governmental body which has a charter adopted under the constitution of the State and having provisions respecting the deposit of public moneys of such body; (3) "surety" means surety under suretyship which is personal suretyship or real suretyship or both, and includes guarantor; and (4) terms used in paragraphs (b) (1) and (b) (2) of this section, and "public moneys" as used in this paragraph (a), have the meanings which they respectively have where occurring in pertinent context in statutes of the State. The word "moneys" as used in this paragraph (a) and in paragraph (b) of this section includes the word "monies".

(b) General. A Federal association which is a deposit association within the meaning of that term as used in § 545.12 may, without being limited to the amount of bond or cecurity which is such a requirement or condition, give bond or security where the giving of such bond or security is, by statute of a State, an alternative or other requirement or condition of deposit or investment in such association by or of any of the following:

(1) A governmental unit; (2) Public moneys.

(c) Suretyship. If, in the case of any such deposit or investment, it is by statute of the State a requirement or condition of the deposit or investment that the association or its bond or security, or any combination of any or all thereof, be surety for or with respect to one or more other deposits or investments, whether of that depositor or investor or of any other or others, and whether in that association or in any other institution or institutions having, at the time of the making of such investments or deposits, insurance by the Federal Savings and Loan Insurance Corporation, the same shall, to the extent that the statutory requirement or condition is self-executing, be such surety, and may, to the extent that such requirement or condition is not self-executing, become such surety.

(d) Ancillary provisions. (1) Any bond or security may be given and any substitution or increase thereof may be made under this section before, at, or after the making of deposits or investments, or when no deposit or investment is outstanding.

(2) The provisions of this section shall be applicable notwithstanding and without regard to the prohibition on security in the last sentence of § 545.24 and the extension of that prohibition in § 545.12(c) and in § 545.1-5(i) (1). [39 FR 45255, Dec. 31, 1974]

§ 545.24-3 Suretyship.

(a) Definitions. As used in this section "surety" means surety under suretyship which is personal suretyship or real suretyship, or both, and includes guarantor.

(b) General. A Federal association may be surety (1) to the same extent that it would have authority to be surety if the amendment to section 5(b) of the Home Owners' Loan Act of 1933 which was made by section 101 (e) of Pub. L. 93-495 had not been enacted, (2) to such extent as is in conformity with § 545.242, or (3) to such extent as is otherwise authorized by the Board by advice in writing or by regulation.

[39 FR 45255, Dec. 31, 1974]

INDEMNIFICATION OF ASSOCIATION
PERSONNEL

$545.25 Indemnification of directors, officers, and employees.

(a) General provisions. Subject to the provisions of paragraph (b) of this section, any person against whom any action is brought or threatened by reason of the fact that such person is or was a director, officer, or employee of a Federal association shall be indemnified by such association for:

(1) Reasonable costs and expenses, including reasonable attorney's fees, actually paid or incurred by such person in connection with proceedings related to the defense or settlement of such action;

(2) Any amount for which such person becomes liable by reason of any judgment in such action; and

(3) Reasonable costs and expenses, including reasonable attorney's fees, actually paid or incurred in any action, to enforce his rights under this section, which results in a final judgment in favor of such person.

(b) Requirements. Indemnification provided for in paragraph (a) of this section shall be made to such director, officer, or employee if, but only if, the requirements of this paragraph are met.

(1) Favorable judgment on merits. A Federal association shall make the in

demnification provided by paragraph (a) of this section in connection with any such action which results in a final judgment on the merits in favor of such director, officer, or employee.

(2) Settlement, adverse judgment, or judgment other than on the merits. A Federal association shall make the indemnification provided by paragraph (a) of this section in case of settlement of such action, final judgment against such director, officer, or employee, or final judgment in favor of such director, officer, or employee, other than on the merits, if a majority of the directors of the association determines that such director, officer, or employee was acting in good faith within what he was reasonably entitled to believe under the circumstances was the scope of his employment or authority and for a purpose which he was reasonably entitled to believe under the circumstances was in the best interests of the association or its shareholders. However, no indemnification of a director or of an officer shall be made pursuant to this subparagraph unless such association first gives the Board not less than 60 days' advance notice of its intention to make such indemnification. Such notice shall contain a statement of the facts out of which such action arose, the terms of any settlement, and the disposition of the action by any court. Such notice, together with a certified copy of the resolution of the board of directors containing the determination referred to above, shall be filed with the Board by transmitting the original and one copy to the Supervisory Agent. The 60-day notice period shall begin to run from the date of receipt of such notice by the Supervisory Agent, who shall promptly acknowledge such receipt in writing. No such indemnification shall be made prior to the expiration of such 60-day notice period, and no such indemnification shall be made if the Board, acting through the Supervisory Agent, advises the association in writing, within such 60-day notice period, of its objection to such indemnification.

(c) Insurance. A Federal association may obtain insurance to protect it, its directors, officers, and employees from potential liabilities, expenses, costs, and other losses arising from claims against it, or its directors, officers, or employees made by reason of alleged wrongful acts, or wrongful acts, committed in their

capacity as directors, officers, or employees. Such insurance may protect against any liability, expense, cost, and other loss for which the association may indemnify any person under this section and may protect the association and any person who is or was a director, officer, or employee of the association against liabilities, expenses, costs, and other losses arising from claims made by reason of alleged wrongful acts, or wrongful acts, for which no indemnification may be made under this section. However, no such association may obtain insurance which provides for payment of liabilities, expenses, costs, and other losses of any person incurred as a consequence of his willful or criminal misconduct.

(d) Payment of expenses. If a majority of the directors of a Federal association concludes in connection with any action that any person ultimately may become entitled to indemnification under this section, such directors may authorize the payment of reasonable costs and expenses, including reasonable attorneys' fees, in connection with the defense or settlement of such action. Before making payment of such costs and expenses, the association shall secure an agreement that it will be repaid if such person is ultimately determined not to be entitled to indemnification under this section.

The

(e) Applicability of provisions. provisions of this section shall not be applicable with respect to any action which terminated more than 1 year prior to the effective date of this section.

(f) Exclusiveness of provisions. The provisions of this section shall be exclusive with respect to the duty or authority of a Federal association to indemnify any person referred to in paragraph (a) of this section, except as to the duty or authority of a Federal association which has in effect a bylaw approved by the Board relating to indemnification of association personnel. The duty or authority of a Federal association which has such a bylaw in effect shall be governed solely by such bylaw, but its authority to obtain insurance shall be governed by paragraph (c) of this section.

(g) Definitions and rules of construction. (1) As used in this section:

(i) "Action" means any action, suit, or other judicial or administrative proceeding, or threatened proceeding, whether civil, criminal, or otherwise, in

cluding any appeal or other proceeding for review;

(ii) "Court" includes, without limitation, any court to which or in which any appeal or any proceeding for review is brought;

(iii) "Final judgment" means a judgment, decree, or order which is appealable and as to which the period for appeal has expired and no appeal has been taken;

(iv) "Settlement" includes the entry of a judgment by consent or by confession or upon a plea of guilty or of nolo contendere; and

(v) "Supervisory Agent" means the President of the Federal Home Loan Bank of which a Federal association is a member, or any other officer or employee of such Bank designated by the Board as its agent as provided by § 501.11 of Subchapter A of this chapter.

(2) References in this section to any individual or other person, including any association, shall include legal representatives, successors, and assigns thereof. [34 F.R. 13864, Aug. 29, 1969]

§ 545.25-1 Employment contracts.

(a) General. A Federal association which has bylaws that include the provisions contained in paragraph (k) of § 544.6 of this subchapter may, upon specific approval of its board of directors, enter into employment contracts with officers of the association, in accordance with the provisions of this section.

(b) Limitations as to term. (1) Except as is otherwise provided in this paragraph (b) (1), no such employment contract may be made for a term in excess of one year. Such an employment contract may be for an initial term not in excess of three years if: (i) Such employment contract is made in connection with a conversion of the association pursuant to the provisions of Part 563b of this chapter; (ii) in connection with a merger, purchase of bulk assets or similar transaction, such employment contract is entered into or assumed by the resulting association (as defined in § 546.1 of this subchapter) with a person who, immediately prior to such transaction, was an officer of the association being acquired and who, after such transaction, will be an officer of the resulting association; or (iii) such employment contract is made between a Fed

eral association and a new officer of such association who is not a close relative of an officer or director of such association. A person who has served as a director, officer or employee of the employer-Federal association or its predecessor during any part of the immediately preceding 12-month period shall not be deemed to be a new officer. As used in subdivision (iii) of this paragraph (b) (1), the term "close relative" of a person means a relative by blood, marriage or adoption who is a father, mother, brother, sister, son, daughter or spouse of such person or such a relative of the spouse of such person.

(2) An employment contract may provide for renewal at the option of the association upon expiration of the initial term or any renewal thereof, but no such renewal may be for a term in excess of one year.

(c) Required provisions. Each such employment contract shall provide:

(1) That the employment of the officer may be terminated at any time by the association's board of directors, but any such termination, other than termination for cause, shall be without prejudice to the rights of the officer to receive compensation or other benefits under the contract.

(2) That in the event of termination for cause, the officer shall have no right to receive any compensation or other benefit for any period subsequent to such termination. For the purposes of this section, a termination of employment by the association shall be considered to be a termination for cause if such termination is by reason of the officer's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than a law, rule or regulation as to a traffic violation or similar offense) or final cease-and-desist order, or material breach of any provision of such contract.

(3) (i) That any suspension of the officer from office and/or temporary prohibition from participation in the conduct of the affairs of the association, pursuant to a notice served by the Board under § 550.4 or § 550.5 of this subchapter, or by the Federal Savings and Loan Insurance Corporation under § 566.4 or § 566.5 of this chapter, unless stayed by

appropriate proceedings, shall suspend, as of the date of such service, all obligations of the association under such contract.

(ii) That, in the event the charges specified in a notice served as provided in subdivision (i) of this subparagraph (3) are dismissed, the association may, in its discretion, (a) pay the officer all or any part of the compensation withheld from such officer pursuant to the suspension of the association's obligations as required in said subdivision (i) and (b) reinstate any or all (in whole or in part) of the obligations suspended as required in said subdivision (i).

(4) That any removal of the officer from office and/or permanent prohibition from participation in the conduct of the affairs of the association, pursuant to an order issued by the Board under § 550.3 or § 550.5 of this subchapter, or by the Federal Savings and Loan Insurance Corporation under § 566.3 or § 566.5 of this chapter, shall terminate, as of the effective date of such order, all obligations of the association under such contract, but shall not affect any of the vested rights of the parties to such contract.

(5) That, in the event of default of the association (as the term "default" is defined in section 401(d) of the National Housing Act, as amended), all obligations under such contract shall terminate as of the date of such default, but nothing in this paragraph (c) (5) shall affect any of the vested rights of the parties to such contract.

(d) Contracts with other entities or persons. An officer of a Federal association shall not have any employment contract or any other written or oral agreement concerning such officer's employment as an officer of such association with any entity or person other than such association.

[39 FR 28610, Aug. 9, 1974, as amended at 39 FR 31301, Aug. 28, 1974]

§ 545.26 Advisory boards or committees.

The board of directors of a Federal association may establish one or more advisory boards of directors or advisory committees. Such advisory boards or committees may be established for the purpose of advising an association concerning matters related to the operations of a branch office of the association or for such other purposes as the associa

tion's board of directors may authorize. Such advisory boards or committees shall be subject to the following limitations:

(a) Each member of such an advisory board or committee shall be appointed by the association's board of directors on a year-to-year basis; and

(b) Members of such an advisory board or committee may be permitted to attend meetings of the association's board of directors, but shall have no vote at such meeting on any matter acted upon by the association's board of directors. [39 FR 42341, Dec. 5, 1974]

NOTE: The amendment at 39 FR 42341, Dec. 5, 1974 becomes effective January 6, 1975. ANNUAL MEETINGS OF MEMBERS

As used in §§ 546.2 and 546.3, the fullowing terms have the following meanings:

(a) "Association” means a Federal association and any building and loan association, savings and loan association, cooperative bank, or homestead association organized under the laws of any of the States or Territories of the United States or of the District of Columbia which, under the laws of the jurisdiction of its creation, is empowered to merge or consolidate with a Federal association;

(b) "Merging association" means any association absorbed by merger; and

(c) "Resulting association" means the association which continues its corporate existence after absorbing one or more merging associations in a merger effected under the provisions of the rules and regulations in this subchapter. [31 F.R. 15235, Dec. 6, 1966]

126 F.R. 11208, Nov. 28, 1961.

§ 546.2 Procedure; effective date.

(a) Two or more associations, at least one of which is a Federal association, may merge in the manner set forth in this part: Provided, That any association which is not a Federal association shall first (1) have its accounts insured by the Federal Savings and Loan Insurance Corporation; and (2) comply in all respects with the requirements of law of the jurisdiction of its creation in effecting the merger.

(b) Each association, by a two-thirds vote of its board of directors, shall approve a plan of merger evidenced by a merger agreement. The merger agreement shall state that it shall not be effective unless and until approved by the Board and shall specify (1) which of the associations is to be the resulting association; (2) the name to be used by the resulting association; (3) the location of the home office and any branch offices of the resulting association; (4) the basis upon which the savings accounts of the resulting association shall be issued; and (5) the number of directors, and the names and residence addresses of all persons chosen to serve as directors of the resulting association, together with the term for which each such director shall serve.

(c) Application for approval by the Board of the merger as provided by the said merger agreement shall be made by filing with the Federal home loan bank of which the resulting association is a member two copies of the merger agreement, properly executed in the name of the respective associations and two certified copies of such portions of the minutes of the meetings of the respective boards of directors as relate to the consideration and approval of the plan of merger by such boards. Upon receipt of such application, the Board will (1) disapprove the merger; (2) approve the merger; or (3) withhold final action but recommend modifications of the plan of merger as submitted; if the modifications recommended by the Board are accepted by the directors of each of the associations, they shall thereupon amend such merger agreement accordingly and shall submit the amended merger agreement in the same manner as herein above provided.

(d) Notwithstanding any other provision of this part, the Board may, where