November 11, 2008
Authored by: Robert Klingler
The Treasury has again updated its TARP Capital FAQ. The Treasury first repeats its recent announcements regarding the November 14th deadline.
The deadline for public companies is November 14, 2008. The Department of Treasury will provide a separate deadline for private companies when the term sheet for private companies is made available. Both the term sheet for private companies and the applicable deadline will be posted on the Department of Treasury’s website.
The Treasury then attempts to clarify what constitutes a “public” company for deadline purposes.
A “public” bank, savings association, bank holding company, or savings and loan holding company is a company (1) whose securities are traded on a national securities exchange and (2) required to file, under the federal securities laws, periodic reports such as the annual (Form 10- K) and quarterly (Form 10-Q) reports with either the Securities and Exchange Commission or their primary federal bank regulator. A company may be required to do so by virtue of having securities registered under Section 12 of the Securities Exchange Act (Exchange Act) which applies to all companies that are traded on an exchange or that have $10 million in assets and 500 shareholders or Section 15(d) of the Exchange Act which requires companies that have filed a Securities Act registration statement and have 300 or more shareholders to file reports required under Section 13 of the Exchange Act, e.g., periodic reports.
Unfortunately, this explanation does not clarify whether a “public” institution must satisfy both conditions or either condition. The question remains whether a company that does not have securities traded on a national securities exchange but is required to file periodic reports is a “public” institution under the Treasury’s interpretation. The plain language of Treasury’s explanation suggests that both conditions must be met, as the answer uses “and” to describe the two tests. However, the second prong (as noted in the second sentence of the answer) will always be true if the first prong is satisfied. As a result, if both prongs must be satisfied, then only the first prong matters, but if either prong is sufficient to constitute a “public” company, then only the second prong matters.
We will try to followup again with all federal agencies for further clarification. Until and unless further clarification is made, our earlier advice on how to proceed remains applicable.
The updated FAQs also provide guidance on the following:
- new bank holding companies (okay so long as completed before December 31, 2008);
- new banks (okay only if the bank is in existence as of November 14, 2008);
- making applications amendments permissible rather than mandatory if the investment agreements are modified subsequent to application submission; and
- clarification that the warrant exercise price is calculated based on the average of the closing prices of the applicant’s common stock on the 20 trading days ending on the last trading day prior to the date the applicant’s application for participation in the Capital Purchase Program was preliminarily approved by the Department of the Treasury.