Stites & Harbison, PLLC

The deadline for applying to the Treasury's Private Capital Purchase Program is December 8, 2008.  Financial institutions that previously applied for TARP funds are encouraged to re-apply for the Private CPP program.  However, the deadline is quickly approaching, and most institutions will need to move quickly in order to apply.

So who is eligible?  The Treasury's terms sheet may be found at http://www.treasury.gov/initiatives/eesa/docs/Term Sheet - Private C Corporations.pdf.  At first glance, it appears that any financial institution, other than S-corporations and Mutual Organizations, is eligible to apply for these funds.  The Treasury will be publishing guidelines separately for those organizations, and the December 8, 2008 deadlines does not expressly apply to them.  If a private institution has any questions about whether or not it should apply by the December 8, 2008 deadline, we highly recommend that the financial institution apply by December 8, 2008 and then withdraw the application at a later time, if appropriate.

There are costs and risks associated with this program, however.  The institutions chosen to participate in the program will issue shares which, after being  purchased by the Treasury, will pay a 5% dividend for the first five years that the shares are held by the Treasury and then a 9% dividend thereafter.  The shares are non-voting preferred shares, and the participating financial institutions will be required to adopt specific rules restricting executive compensation, along with other guidelines that have not been expressly announced by the Treasury.  Moreover, unless the financial institution is a community development financial institution, the Treasury will require a warrant for the purchase of additional shares, which will carry a 9% dividend.  Additional information about becoming a CDFI can be found at http://www.cdfifund.gov.

In this market, there are a number of compelling reasons to apply for TARP funds and also compelling reasons to avoid applying for the funds.  Instructions on how to apply for the funds are available at http://www.treasury.gov/initiatives/eesa/application-documents.shtml.  Before you do so, however, we strongly urge you to discuss the pros and cons with your in-house counsel and with your shareholders.  If a financial institution decides not to apply for the funds, that decision should be announced quickly and publically so that your company’s shares are not tainted by a rumor that your financial institution applied for the funds and was turned down.  We also strongly encourage you to continue to check the Treasury's website (http://www.treasury.gov/initiatives/eesa) on a regular basis for the most up-to-date information regarding TARP, the Private Capital Purchase Program, and other aspects of the government's implementation of the EESA.

If you have any questions regarding the Private Capital Purchase Program, the application process, or the pros and cons of applying for the funds, please contact a member of Stites & Harbison's Financial Institutions Practice Team.