On October 31, 2008, the Treasury Department issued a press release with updated information about the TARP Capital program. Specifically, the Treasury Department provided additional documents for publicly traded financial institutions applying for TARP Capital. These documents include:
- Securities Purchase Agreement. This document describes the terms of the financial institution’s agreement to issue shares and fulfill other requirements in exchange for Treasury’s investment.
- Form of Letter Agreement. This contractual agreement describes the firm-specific information necessary to implement the securities purchase agreement and represents the financial institution’s commitment to the terms of the Securities Purchase Agreement.
- Certificate of Designations. This document creates the preferred shares.
- Form of Warrant – Stockholder Approval Not Required. This document describes the terms of the warrants Treasury receives when stockholder approval is not required.
- Form of Warrant – Stockholder Approval Required. This document describes the terms of the warrants Treasury receives when stockholder approval is required.
- Term Sheet
- SEC, FASB Letter on Warrant Accounting
More analysis to follow this weekend, but we did want to highlight two points of information.
1. Update for Privately Held Banks. The Treasury’s press release specifically states that the Treasury will post an application form and term sheet for privately held eligible institutions at a later date and establish a reasonable deadline for private institutions to apply.
2. Redemption Right on Warrants. The Securities Purchase Agreement gives the right (Section 4.9) for the Company to repurchase the warrants (or the common stock underlying the warrants) from the Government at their then current market value once the Government no longer holds the preferred stock. This provides participating institutions with the ability to know that the Government’s investment, and the resulting limitations on executive compensation, can be terminated by the participant no later than 3 years after the initial investment (assuming sufficient capital to support the redemption of the preferred and warrants).