In October the U.S. Treasury announced its Capital Purchase Program (CPP), pursuant to which participating financial institutions would sell shares of preferred stock to the United States Department of the Treasury (DOT). In addition, the entity would issue a warrant to the DOT which would entitle the Department to purchase the entity's common stock with a value equal to 15% of the amount of the preferred stock sold to the DOT. The warrant-exercise price will be based on the 20-day trailing average of the entity's common stock ending on the day that the DOT accepts the application.
Applications for public companies are due this Friday, November 14, 2008.
Although nonpublic companies (e.g., sub S corporations, mutuals, etc.) may participate in the CPP, the DOT has not issued guidance as to how they might do so. We would urge such entities to contact the primary federal regulator for their subsidiary bank to discuss this matter. Consideration should be given to filing an application by this Friday, November 14, 2008 even though the CPP may not currently apply to your company.
A client alert discussing the CPP’s terms and conditions as well as the limits placed on executive compensation for Program participants may be accessed by clicking on the links October 15, 2008 and October 17, 2008, respectively.
The DOT has posted the documents that must be executed in connection with the preferred stock and the warrants at its website.
Please note that the securities purchase agreement contains a provision that allows the DOT to unilaterally amend the securities purchase agreement to the extent required to comply with any changes (after the date of the execution of the Letter Agreement between the entity and the Department) and the in applicable federal statutes.
For further information, please contact Brian L. Goins, Michael D. Morehead, Timothy M. Sullivan or your regular Hinshaw attorney.
This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. |