November 17, 2008
Authored by: Robert Klingler
The public company Securities Purchase Agreement (the “Agreement”) provides the standard terms for the TARP Capital investment for public companies. We address some of the most important sections of the Agreement, especially those that we believe are of particular interest to community banks or that significantly clarify the term sheet.
The recitals to the Agreement contain two provisions that not only highlight the intent of the TARP Capital Program but also make clear what the Treasury expects from a company that receives TARP Capital.
WHEREAS, the Company agrees to expand the flow of credit to U.S. consumers and businesses on competitive terms to promote the sustained growth and vitality of the U.S. economy;
WHEREAS, the Company agrees to work diligently, under existing programs, to modify the terms of residential mortgages as appropriate to strengthen the health of the U.S. housing market;
The recitals do not form binding obligations on participating companies, and these provisions are not repeated in the binding terms contained later in the Agreement. Moreover, subsequent guidance from the Treasury and the federal banking regulators makes clear that all banks are expected to undertake these actions, not just those that receive TARP Capital.