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November 5, 2008

U.S Treasury Securities Purchase Agreement and Other Information On Capital Purchase Program

On October 14, 2008, the United States Treasury announced a voluntary program for the purchase by Treasury of senior preferred stock from qualifying U.S. controlled banks, savings associations and certain bank and savings and loan holding companies. Open for participation by healthy financial institutions, the stated objectives of the Program include stabilizing the financial system and increasing inter-bank lending and lending to U.S. consumers and businesses.

Eligible U.S. controlled financial institutions must elect to participate by filing an application with the appropriate Federal banking agency no later than 5 p.m. on November 14, 2008. The Federal banking agencies (FDIC, OCC, OTS and Federal Reserve System) are using the same application form and it is available on their respective websites as well as at Institutions must consult with their appropriate Federal banking agency prior to submitting an application.

On October 31, 2008, Treasury announced additional information about the Capital Purchase Program for publicly traded eligible institutions including a term sheet, form of Warrant and form of Securities Purchase Agreement between a participating financial institution and Treasury.

The terms of the Capital Purchase Program include:

Eligible Financial Institutions: (i) Any U.S. bank or U.S. savings association not controlled by a Bank Holding Company ("BHC") or Savings and Loan Company ("SLHC"); (ii) any top tier U.S. BHC (i.e., the ultimate parent); (iii) any top tier U.S. SLHC (i.e., the ultimate parent) which engages solely or predominately in activities that are permitted for financial holding companies under relevant law; and (iv) any U.S. bank or U.S. savings association controlled by a U.S. SLHC that does not engage solely or predominately in activities that are permitted for financial holding companies under relevant law. Institutions controlled by a foreign bank or company are not eligible to participate in the Program. Participants must have Tier 1 regulatory capital status.

Senior Preferred Shares: Senior Preferred with liquidation preference which in the event of voluntary or involuntary liquidation or dissolution of the participating financial institution provides for Treasury to receive $1,000 per share out of assets of the participating financial institution or proceeds thereof, subject to the rights of other creditors but before distributions to holders of common shares or junior preferred shares. Senior to common stock and pari passu with existing preferred shares other than preferred shares which by their terms rank junior to any existing preferred shares. Quarterly dividends at rate of 5% per year for first five years. No redemption during first 3 years. Restrictions on dividends on junior preferred shares, pari passu preferred shares and common shares. Non-voting and transferable.

Warrants: Warrants for the purchase of a number of shares of participating financial institution's common stock having an aggregate market price equal to 15% of the Senior Preferred amount on the date of investment, subject to reduction. The initial exercise price for the warrants, and the market price for determining the number of shares of common stock subject to the warrants, shall be the market price for the common stock on the date of the Senior Preferred investment (calculated on a 20-trading day trailing average), subject to customary anti-dilution adjustments. The exercise price shall be reduced by 15% of the original exercise price on each six-month anniversary of the issue date of the warrants if the consent of certain participating financial institution's stockholders has not been received, subject to a maximum reduction of 45% of the original exercise price. 10-year term; non-voting; substitution rights.

Certain Covenants: Participating financial institutions agree to file shelf registration statements covering the Senior Preferred Shares and Warrants as soon practicable after the date of investment. Participating financial institutions agree to comply with executive compensation and corporate governance requirements of Section 111 of the Emergency Economic Stabilization Act, including: (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the participating financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate; (3) prohibition from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.

The term sheet, form of Warrant and form of Securities Purchase Agreement are available on the U.S. Treasury website listed above.

If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact any of the members of the Practice Area.


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