6-426

6-426. Shares of guaranty capital; rights of
existing shareholders

When an association already in operation amends its articles of incorporation to
authorize the issuance of shares of guaranty capital, or when an association already in
operation with provision in its original articles of incorporation for the issuance of
guaranty shares but which has not issued any guaranty shares, proposes to issue such
shares:

A. The association shall mail notice to each shareholder who was entitled to vote
at the meeting at which the amendment was adopted, or, in the case of an association
which is authorized by its original articles of incorporation to issue guaranty shares
but has not issued any such shares, to each stockholder of the association on the date of
the adoption of the resolution of the board of directors proposing to issue such shares,
giving him the prior right for at least sixty days after the date of such notice, to
subscribe to the initial issue of shares of guaranty capital, in the same proportion
which the withdrawal value of such holder's account bears to the aggregate withdrawal
value of all accounts in the association. Such rights to subscribe shall be
transferable. No fraction of an original share of guaranty capital need be issued, but
in such case fractional subscription rights may be combined to authorize the subscription
to one or more whole share of guaranty capital. Fractional subscription rights need not
be issued for an account the withdrawal value of which is less than ten dollars.

B. The board of directors shall determine, as of the day prior to the effective
date of the amendment, or as of the date of the adoption of the resolution authorizing
the issuance of such shares in case the original articles of incorporation provide for
such shares, the total amount of loss reserves, undivided profits, and unallocated
reserves after making allowances for accrued dividends and expenses, losses not provided
for, and such similar items as are chargeable against the income of the association since
the last previous apportionment date. The amount so fixed shall constitute a segregated
surplus of the association and may be retained in, or allocated to, such reserve
accounts, undivided profits accounts, or surplus accounts as may be lawful; and other
earnings of the association accruing after the effective date may be allocated to said
segregated surplus and an equal amount then may be transferred to any other unsegregated
account.

C. Such segregated surplus shall be available for losses from the depreciation of
securities or otherwise, except that any loss resulting from operations, including loans
and investments made or purchased after the effective date of the amendment, or the date
of the adoption of the resolution authorizing the issuance of such shares in case the
original articles of incorporation so provide, shall be charged first to loss reserves
and undivided profits created after such date until the same are exhausted.

D. If the association merges with another as provided in this chapter the balance
of such segregated surplus shall continue to be held in a segregated account or accounts
for the same use and disposition as though no merger had occurred.

E. If the association liquidates or effects a sale of all or substantially all of
its assets within fifteen years from the effective date of the amendment authorizing the
initial issuance of shares of guaranty capital, or from the date of the adoption of the
resolution in case the original articles of incorporation provide for such shares, and
each holder of the account on the day prior to such effective date who has continued to
remain such a holder without interruption, or who has transferred his account from one
type or class of account to another, or whose account has been retired by enforced
retirement, shall be entitled to an amount, in addition to the withdrawal value of his
account, in such proportion of the unused balance of the segregated surplus as he would
have been entitled to had the association liquidated on the effective date of such
amendment, or the date of the adoption of the resolution, as the case may be.