On October 28, representatives of the American Bankers Association (the "ABA") met with senior U.S. Treasury Department ("Treasury") officials to discuss Treasury's voluntary Capital Purchase Program ("CPP"). The meeting focused on the program's requirements for participation by non-exchange traded reporting corporations, private corporations, subchapter S corporations and mutual institutions and the expected specific guidance to be given by Treasury regarding these entities.

Based on the meeting, the ABA understands that additional guidance for private companies, mutual institutions and subchapter S corporations may take Treasury additional time to release and that Treasury intends to extend the time period in which these institutions may submit applications to participate in the CPP.

According to the ABA, the following significant points were raised during the meeting:

  • Treasury officials indicated that the November 14, 2008 application deadline and the existing public term sheet for the CPP applies solely to publicly traded entities.

  • Treasury officials indicated that non-public institutions will receive their own term sheets and separate application deadlines in stages.

  • Treasury officials added that while publicly traded banks and bank holding companies should apply for the program by November 14, 2008 there is no need for these institutions to decide whether to comply with all program requirements or to accept any capital awarded under the program until some later date.

  • Sometime today Treasury expects to address the problem posed by the federal securities laws that prevents publicly traded banks and bank holding companies that are not exchange-traded from filing shelf registrations for both the senior preferred stock and warrants to be sold under the terms of the CPP.

  • Publicly traded banks and bank holding companies that are not authorized to issue preferred stock but still want to apply for the program should do so by November 14, 2008. Subsequent to that date, they should quickly obtain the required shareholder approval to issue preferred shares. Treasury anticipates that all required documentation will be submitted 30 days after the institution has received preliminary acceptance into the CPP.

  • The Securities and Exchange Commission ("SEC") will consider the warrants issued under the CPP as permanent equity and an SEC letter confirming that fact soon will be made public.

  • Treasury does not intend to alter a privately held corporations' status under the federal securities laws, and Treasury pledged to resolve the concerns about the transferability of warrants. Specifically, Treasury is expected to address the potential that the exercise of warrants and the sale of underlying stock may cause privately held institutions to become publicly traded because they would have more than 500 shareholders of record.

Specific additional formal guidance regarding the CPP is expected to be released by Treasury and the SEC in the coming days. We will continue to monitor additional information regarding the CPP and the further developments affecting the financial industry.

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