Technical Standards on Issuance, Deposit, Placement and Subscription of Treasury Shares

CNBCR-02/2014
NRP-09
TECHNICAL STANDARDS ON ISSUANCE, DEPOSIT, PLACEMENT AND SUBSCRIPTION OF TREASURY SHARES Approval: 30/01/2014 Validity: 03/03/2014

THE COMMITTEE OF STANDARDS OF THE CENTRAL RESERVE BANK OF EL SALVADOR

CONSIDERING:

I. That in accordance with the Law on Supervision and Regulation of the Financial System, the Financial Supervision and Regulation System is created, which is constituted by the Central Reserve Bank of El Salvador and the Financial System Superintendence.

II. That according to Article 101 of the aforementioned Law, the powers to approve, modify, and repeal the technical standards that must be complied with by the members of the financial system and other supervised entities have been transferred to the Central Reserve Bank.

III. That the Board of Directors of the Financial System Superintendence, in Session CD 49/2000 of September 21, 2000, approved the "Standards on Issuance, Deposit, Placement and Subscription of Treasury Shares" (NPB4-24) which responded to the legal framework in force at that date.

IV. That Articles 7, 78, 81, 86 and 93 of the Banks Law authorize the use of treasury shares once contemplated in the corporate deed of the entities that they will be issued at nominal value, for the number necessary so that the total value of said shares is equivalent to the equity fund or the required equity fund, whichever is greater, as of December 31 of each year.

V. That the Banks Law establishes that, having provided for the restructuring of a banking entity, the Financial System Superintendence may establish as a measure, granting a deadline for the bank to resolve a social capital increase to meet the established requirements, for which treasury shares may be used.

VI. That Article 155 of the Law on Cooperative Banks and Savings and Credit Societies establishes that savings and credit societies shall be subject to the provisions of the Banks Law, except for those cases dictated by Book Four of the Cooperative Banks Law.

VII. That it is important to have the technical regulatory framework that operationalizes the issuance, deposit, placement and subscription of treasury shares, so that there is clarity on the procedures to be followed in case it is necessary to use them as a mechanism to increase social capital, cover equity fund deficiencies or to amortize losses, with prior authorization from the Superintendence.

THEREFORE,

in virtue of the regulatory powers conferred by Article 99 of the Law on Supervision and Regulation of the Financial System,

CNBCR-02/2014
NRP-09
TECHNICAL STANDARDS ON ISSUANCE, DEPOSIT, PLACEMENT AND SUBSCRIPTION OF TREASURY SHARES Approval: 30/01/2014 Validity: 03/03/2014

AGREES to issue the following:

TECHNICAL STANDARDS ON ISSUANCE, DEPOSIT, PLACEMENT AND SUBSCRIPTION OF TREASURY SHARES

CHAPTER I
OBJECT, SUBJECTS AND TERMS

Object

Art. 1.- The object of these Standards is to uniform the procedures for the issuance, deposit, placement and subscription of the treasury share certificates provided for by the Banks Law, with the aim that the use of the figure is carried out in compliance with legal formalities and with the promptness and functionality required.

Subjects

Art. 2.- The subjects obliged to comply with these Standards are:
a) Banks constituted in El Salvador, in accordance with the Banks Law; b) Savings and credit societies constituted in accordance with the Law on Cooperative Banks and Savings and Credit Societies; and c) Natural or legal persons who intend to acquire or acquire treasury shares.

Terms

Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Shareholder(s): the subjects obliged referred to in letter c) of the preceding Article; b) Central Bank: Central Reserve Bank of El Salvador; c) Entity/entities: the subjects obliged referred to in letters a) and b) of the preceding Article; d) Law: Banks Law; and e) Superintendence: Financial System Superintendence.

CHAPTER II
ISSUANCE OF TREASURY SHARES

Form

Art. 4.- The entities will issue the treasury shares indicated by the Law, which will be represented in a single provisional certificate, according to the attached model, with the following minimum content:
a) Name, address and term of the society; b) Date of the current social pact containing the bylaws of the society, the name of the notary who authorized it and the data of the registration in the Commerce Registry; c) Nominal value of the certificate which will be equivalent to the equity fund of the entity or the required equity fund, whichever is greater, as of December 31 of each year; d) Space to note the subscription, payment and names of the corresponding shareholders; e) Amount of social capital, the total number of common shares and their nominal value; f) Special series for treasury shares, relating that this series is unique for this class of shares, which will be called "Series AT"; g) Indication of being a unique provisional certificate of treasury shares; h) Mention that the certificate will remain in deposit at the Central Bank, until it is subscribed and paid; i) Expression that the shares covered by this certificate will be subscribed to increase social capital, to cover equity fund deficiencies or to amortize losses, with prior authorization from the Superintendence; j) A reason expressing that once the treasury shares are subscribed and paid, they will become common shares; k) Indication that, once the shares are subscribed and paid, the social capital is increased by the amount thereof, without the need for an Extraordinary General Meeting of Shareholders, being sufficient only with a certification from the External Auditor stating that the shares have been subscribed and paid to register in the social capital account the value of the respective increase; l) Main rights and obligations of the holder of the shares; m) Space to record the data required by the Stock Exchange where the entity's share issuance is registered and the data required by the Public Registry of the Superintendence, to incorporate them in case it is necessary. These spaces must be filled in by each of the mentioned entities, once they know them; and n) Signatures of the president and the secretary of the Board of Directors or equivalent administrative body of the entity. In their absence, by any other member of this same body.

Art. 5.- Once signed by the president and the secretary of the Board of Directors of the issuing entity and the data completed, the provisional certificate of treasury shares, with prior authorization from the Superintendence, must be deposited at the Central Reserve Bank, where the issuing entity will be delivered a receipt of which a copy will be sent to the Superintendence, within the two days following its receipt.

Substitution of the provisional certificate by modifications to the content

Art. 6.- The entities will substitute the provisional certificate of treasury shares issued, when any of the requirements indicated in Article 4 of these Standards changes.
The new certificate, which will contain the value of the equity fund as of December 31 of the previous year, must be presented to the Superintendence within the first fifteen days of the month of February of each year.

Issuance of new certificate in substitution of the existing one

Art. 7.- The entity that, having exhausted the placement options for the treasury shares provided for in the current legal framework, does not place them in their entirety, must issue a new certificate to replace the previous one, having a deadline of sixty days for this purpose. Said certificate must also be deposited at the Central Bank, in accordance with these Standards.

CHAPTER III
DEPOSIT AND CUSTODY OF THE TREASURY SHARE CERTIFICATE

Deposit

Art. 8.- Once the treasury share certificate is issued and signed by the corresponding administrators, it will be sent in original to the Superintendence, to verify compliance with the applicable requirements. The certificate must be sent together with the certification of the point of the Minutes of the Board of Directors of the entity in which the agreement to register the treasury shares was taken. The Superintendence, once it has verified that the certificate meets the requirements established in the applicable legislation and in these Standards, will authorize it. After authorization, it must be introduced into a sealed envelope, indicating on the same the approval by the Superintendence; which will also extend a separate authorization for the envelope to be presented to the Central Bank for the corresponding custody.

Withdrawal of the certificate

Art. 9.- The provisional certificate maintained in deposit at the Central Bank may be withdrawn until the Superintendence authorizes the number of treasury shares to be placed; but also, in any of the following cases:
a) When any of the requirements that the certificate must contain, indicated in Article 4 of these Standards, is changed; b) Dissolution and liquidation of the entity; c) When the entity is absorbed in a merger process; and d) When, without solvency problems, the Superintendence resolves the closure of operations of the entity.

Admission of deposit or withdrawal

Art. 10.- The Central Bank will only admit the deposit or withdrawal of the certificate when the entities have been authorized by the Superintendence.

CHAPTER IV
PLACEMENT AND SUBSCRIPTION OF TREASURY SHARES

Placement request

Art. 11.- When the placement of the treasury shares is required, the entity must request the respective authorization from the Superintendence, indicating the number of shares to be placed.
If the placement of the shares is authorized in a general manner in a regularization plan authorized by the Superintendence, specific authorization on the number of shares to be placed will also be required, at the time of executing the measure.

Publications and placement price

Art. 12.- When the Superintendence has authorized the number of treasury shares to be placed, the entity must send a written notice to its shareholders and must publish two notices in two newspapers of national circulation for two consecutive days, offering them the new shares in proportion to those they possess. The price of these shares will be equal to the book value resulting from the last audited balance; but if it were different, it must be authorized by the Superintendence.

Subscription and payment of shares

Art. 13.- If the treasury shares are subscribed by the shareholders in exercise of the preferential subscription right, they will be obliged to deliver the respective contributions entirely in cash within fifteen days from the day following the last publication indicated by the Law. In any case, the entity must deliver a receipt of the contribution to the subscriber and must keep formal control of the number of shares subscribed by each shareholder. If said shares are subscribed by third parties, they will be obliged to deliver to the entity entirely and in cash the respective contributions within fifteen days following the subscription.

Placement in special auction or on the stock exchange

Art. 14.- The day following the expiration of the fifteen-day deadline for shareholders to exercise their preferential subscription right, without having exercised it, the administration of the entity will sell the authorized treasury shares that were not subscribed, in a special auction or through a stock exchange.

Special auction

Art. 15.- When opting for the special auction for the placement of shares, it will be carried out according to the following procedure:
a) The entity will publish for two consecutive days, in two newspapers of national circulation, the notice of the special auction, indicating the day, place and time in which it will be held, the base value, as well as the quantity of shares to be placed and will specify that buyers must meet the necessary requirements to acquire shares of the entity. The last publication must be made at least three days in advance of the date of the auction, not including within that period the day of the last publication nor the day of the auction. In the same publication, it must be indicated that the shares subscribed must be paid entirely in cash. b) At the end of the auction, a minutes will be drawn up before a notary in which the place, day, hour and other aspects related to it are recorded. The minutes will be signed by the delegates of the entity. In case there are no bidders, this circumstance will also be recorded in the minutes for the purpose of eventually carrying out the placement by direct management. The Superintendence will appoint a delegate to supervise the special auction, who will render a report to it attaching a copy of the minutes that the notary must deliver to him.

Irregularities in the special auction

Art. 16.- If the Superintendence detects irregularities in the special auction process, it may require the repetition of said process, expressing what the irregularities consist of, provided that the subscription of the shares has not been perfected, without prejudice to informing the Attorney General's Office of the Republic about the facts observed that it considers are within its competence.

Placement on the stock exchange

Art. 17.- When the placement is carried out on the stock exchange, the entity may do so immediately after the deadline for the exercise of the preferential subscription right of the shareholders has expired, without having exercised it, the public offer of securities must be published with the due advance according to the applicable regulations to the respective stock exchange.

Placement by direct management

Art. 18.- The treasury shares that have not been subscribed in the special auction or on the stock exchange may be placed through direct management. In this case, the entity will request the approval of the Superintendence for the placement, indicating the probable subscribers and the necessary information to identify them as well as a certification of the minutes of the special auction and a receipt from the stock exchange in which reference is made to the offer made and not subscribed, as the case may be.

Placement for capitalization of debt of another bank

Art. 19.- In case the treasury shares are intended to be used to capitalize debt in favor of another entity, in accordance with Article 86 of the Law, the Superintendence must grant authorization, provided that in its opinion such operation does not affect the solvency of the subscribing entity. In no case, the value of the subscribed shares may represent more than forty percent of the Primary Capital of the subscribing entity.

Base value for placement of shares

Art. 20.- The value that will serve as the basis to start the auction for the public offer on the stock exchange or for the offer by direct management, as the case may be, will be the book value mentioned in the second paragraph of Article 12 of these Standards.

Placement for equity fund deficiencies

Art. 21.- When there are deficiencies related to the Equity Fund mentioned in Article 78 of the Law, the Superintendent will require the entity in question, among other measures and commitments, the capitalization through the use of treasury shares with the object of remedying the irregularity presented. For such purposes, the procedures indicated in these Standards must be followed.

Placement for amortization of losses

Art. 22.- When it concerns the amortization of losses that do not absorb the entire social capital of the entity, in accordance with Article 81 of the Law, the treasury shares that are capitalized must be offered to the shareholders of the entity respecting their preferential subscription right, which they must exercise within a period of three days, counted from the date of the publication of the notice, which must be made in two newspapers of largest circulation, or to other investors, immediately after the losses have been amortized according to the order provided in Article 40 of the Law and in accordance with what is mentioned in Roman I of Article 35 of the Commercial Code, when the losses, in addition to having been amortized with profits and reserves, have also been amortized charged to the social capital of the entity. If as a result of the amortization of the losses, the capital of the entity is reduced to a level lower than that required by Article 36 of the Law, the entity will have a maximum deadline of sixty days to reintegrate it, if the decrease has been made by reduction of the nominal value, and thirty days, if it has been done by amortization of shares. In the case of amortization of losses, the ownership of shares of an entity is prohibited to those persons who have been holders of more than one percent of the shares of the entities that have been cancelled in their entirety to absorb losses.

Unsubscribed shares

Art. 23.- If the placement efforts for the treasury shares referred to in Article 7 of the Law are exhausted, without the entire authorized treasury shares having been subscribed, the remaining ones must be rendered useless by the entity in the presence of a delegate of the Superintendence, of which a minutes will be drawn up signed by the participants. As a result of the modification of the value of the certificate, the entity must request authorization from the Superintendence for the issuance of a new certificate, as established in Article 7 of these Standards.

Substitution of the provisional certificate by common shares

Art. 24.- The entity will extend the common share certificates in substitution of the treasury shares that have been placed, within a period of sixty days from having been subscribed, incorporating the data of the new certificate or certificates in the Shareholder Register Book, on the corresponding date of that same period. Within the same period, the public deed of modification of the social pact must also be formalized, where it is recorded that the capital is increased up to the sum that has been effectively placed; for this purpose, the holding of an extraordinary general meeting of shareholders is not required. The modification of the social pact by the increase made will be carried out within a period not exceeding sixty days by the legal representative of the entity and must be registered in the Commerce Registry. If the placement of the treasury shares has been carried out in the order of precedence mentioned in these Standards, the period of sixty days will count from the last placement date.

Authorization for share ownership

Art. 25.- If as a result of a transfer or subscription of treasury shares, a shareholder reaches ownership of more than one, or ten percent or more of the capital of an entity, as established in Articles 11 and 12 of the Law, it must obtain authorization from the Superintendence prior to registration.

CHAPTER V
OTHER PROVISIONS AND VALIDITY

Sanctions

Art. 26.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.

Transitory

Art. 27.- The certificates issued prior to the entry into force of these Standards and that are custodied at the Central Bank will maintain their validity. Their withdrawal will proceed when it is necessary to make any change according to what is established in these Standards. The procedures, processes and resources promoted that are pending on the date of entry into force of these Standards, will continue to be processed according to the "Standards on Issuance, Deposit, Placement and Subscription of Treasury Shares" (NPB4-24).

Unforeseen aspects

Art. 28.- The aspects not provided for in terms of regulation in these Standards will be resolved by the Committee of Standards of the Central Reserve Bank.

Repeal

Art. 29.- These Standards repeal the "Standards on Issuance, Deposit, Placement and Subscription of Treasury Shares" (NPB4-24) and its modifications, approved in Session CD 49/2000 of September 21, 2000, by the Board of Directors of the Financial System Superintendence, whose Organic Law was repealed by Legislative Decree number 592 which contains the Law on Supervision and Regulation of the Financial System, published in the Official Diary number 23, Volume 30, dated February 2, 2011.

Validity

Art. 30.- These Standards will enter into force on March 3, 2014.

CNBCR-02/2014
NRP-09
TECHNICAL STANDARDS ON ISSUANCE, DEPOSIT, PLACEMENT AND SUBSCRIPTION OF TREASURY SHARES Approval: 01/30/2014 Validity: 03/03/2014
Annex No. 1
PROVISIONAL UNIFIED CERTIFICATE OF TREASURY SHARES THIS SECURITY MAY BE TRADED ON THE STOCK EXCHANGE Name of the issuance ______________ TREASURY SHARES SERIES “AT” (ENTITY)_________________, S.A. with domicile at _________________, Republic of El Salvador.
____________________, ANONYMOUS COMPANY; of Salvadoran nationality, with domicile at _______________ and for term _______________, was constituted by public deed celebrated in this city, at the ____________________ hours and _______________ minutes of the _______________ of __________________________ of _______________, in the offices of notary _______________, registered in the Commerce Registry with number _______________ in the Book _______________ of the Societies Registry, on date _______________ of _______________ of _______________. The issuance of treasury shares of _________________, S.A. has the following authorizations: (i) Board of Directors Agreement of (ENTITY) _________________-, S.A. taken in session _______________ held on _______________ of _______________ of _______________, in which it was resolved to register the treasury shares that would form the social capital of the same in the Stock Exchange of El Salvador Variable Capital Anonymous Company, (ii) Agreement of the Board of Directors of the Stock Exchange of El Salvador, S.A. de C.V. taken in session number _______________ of date _______________ of _______________ of _______________. (iii) Authorization of entry in the Public Registry, taken by the Board of Directors of the Superintendence of the Financial System, in session number _______________ of date _______________ of _______________ of _______________. "The Securities subject to this offering are recorded in the Public Registry of the Superintendence. Its registration does not imply certification of the quality of the security or the solvency of the issuer." "The Registration of the issuance in the Stock Exchange does not imply certification of the quality of the security or the solvency of the issuer." SPECIAL RULE FOR REPLACEMENT OF CERTIFICATES In the event that the holder of a title requests its replacement from the issuer, the latter must send to the Stock Exchange, no later than the next business day after receipt of the replacement request, a notification of said situation indicating the characteristics of the title, the date on which it was placed, its validity, and other necessary characteristics for its identification, for the corresponding legal effects.

THE SOCIAL CAPITAL OF (ENTITY) IS ______________ AND IS DIVIDED INTO A SERIES ____________ COMPOSED OF ___________ COMMON AND REGISTERED SHARES WITH A NOMINAL VALUE OF __________________ EACH AND A SERIES “AT” OF TREASURY SHARES REPRESENTED BY THIS CERTIFICATE.
HEREBY WE CERTIFY THAT THE PRESENT SECURITY HAS A NOMINAL VALUE OF _________________________.
The nominal value of the treasury shares covered by this Certificate is equivalent to the equity fund as of December 31 of 20 San Salvador, __________________ of __________________ of __________________.
_________________________ ____________________________ President of the Board of Directors Secretary of the Board of Directors

CNBCR-02/2014
NRP-09
TECHNICAL STANDARDS ON ISSUANCE, DEPOSIT, PLACEMENT AND SUBSCRIPTION OF TREASURY SHARES Approval: 01/30/2014 Validity: 03/03/2014
Annex No. 1
MAIN PROVISIONS OF THE LEGAL REGIME APPLICABLE TO TREASURY SHARES:

• This Certificate will remain deposited at the Central Reserve Bank of El Salvador, until it is subscribed and paid.
• Treasury shares will be subscribed to increase social capital, when it is necessary to remedy solvency problems, and their placement requires prior authorization from the Superintendence of the Financial System.
• The Treasury Shares covered by this Certificate will convert into ordinary shares within a period not exceeding sixty days counted from the date of subscription; the company must replace them with the respective definitive certificates within the same period. Once subscribed, the entity will fractionate this certificate delivering to the subscribers the certificates of common shares that correspond.
• Once the treasury shares are subscribed and paid, the social capital of the entity is increased in equal proportion without the need to hold a General Shareholders' Meeting, requiring only a certification by the external auditor stating that the treasury shares have been subscribed and paid to register the respective increase in the social capital account.
• While the treasury shares are not subscribed and paid, they do not confer voting rights nor generate dividends.
• When the Superintendence authorizes the number of treasury shares to be placed, the entity must send a written notice to its shareholders and publish two notices in two newspapers of national circulation, for two consecutive days, offering them the shares, who may subscribe to them in proportion to the shares they hold, except in the case where losses are amortized against the entire capital. In said notices, the advantages of subscribing to the referred shares and the disadvantages of not doing so must be explained. From the day following the last publication, shareholders will have fifteen days to subscribe and pay in full in cash the corresponding shares. The placement price of these shares will be the book value resulting from the last audited balance sheet. In the event that said price is different from the mentioned one, it must be authorized by the Superintendence of the Financial System. The administration of the entity will sell the treasury shares authorized by the Superintendence that were not subscribed, in a special auction or through a stock exchange; and if this is not possible, by direct management with the approval of the Superintendence, and the base price will be the aforementioned book value.
• When it concerns the amortization of losses that do not absorb the entire social capital of the entity, in accordance with Article 81 of the Law, the treasury shares that are capitalized must be offered to the shareholders of the entity respecting their preferential subscription right, which they must exercise within a period of three days counted from the date of publication of the notice, which must be made in two newspapers of greater circulation, or to other investors, immediately after the losses have been amortized according to the order provided in Article 40 of the Law and in accordance with what is mentioned in Roman I of Article 35 of the Commercial Code, when the losses, in addition to having been amortized with profits and reserves, have also been amortized against the social capital of the entity.
  If as a result of the amortization of losses, the capital of the entity remains reduced to a level lower than that required by Article 36 of the Law, the entity will have a maximum period of sixty days to reintegrate it, if the decrease has been effected by reduction of the nominal value and thirty days, if it has been carried out by amortization of shares. In the case of amortization of losses, the ownership of shares of an entity is prohibited to those persons who have been holders of more than one percent of the shares of entities that had been cancelled in their entirety to absorb losses. Financial entities must present this Certificate on a single sheet (front and back).