This excerpt taken from the WSBC 10-Q filed Nov 6, 2008.
CAPITAL PURCHASE PROGRAM
Wesbanco has received approval from the United States Treasury Department (Treasury Department) to participate in the Capital Purchase Program (CPP) developed by the Treasury Department under the Troubled Asset Relief Program (TARP) authorized by the Emergency Economic Stabilization Act of 2008 (the EESA). It is anticipated that Wesbanco will issue $75,000,000 in cumulative, perpetual, non-voting senior preferred stock (Preferred Stock) to the Treasury Department, which represents approximately 2% of risk weighted assets.
The Preferred Stock will have the following terms which are essentially standard terms under the CPP. First of all, it will have a dividend rate of 5% of annual dividends, payable quarterly, for the first five years after issuance, and 9% thereafter, until redeemed.
Secondly, dividends on Wesbancos common stock may not be increased prior to three years after the Preferred Stock has been issued, without prior Treasury consent, unless all the Preferred Stock has been redeemed or transferred by the Treasury. In addition, should dividends on the Preferred Stock not have been paid in full, Wesbanco will not be able to redeem or repurchase, or pay dividends on, shares of its capital stock that are pari passu or junior to the Preferred Stock.
Third, the Preferred Stock will be non-voting, except for authorizations of capital stock senior to the Preferred Stock or any proposed changes in the rights of the Preferred Stock, including changes upon any merger, exchange or similar transaction that would adversely affect the rights of the Preferred Stock holder. In addition, the Preferred Stock will entitle the holder to elect two directors when dividends are not paid for six periods, whether or not consecutive.
Fourth, the Preferred Stock is redeemable at Wesbancos election, subject to applicable regulatory approval, in the first three years following issuance only with proceeds from an offering of Tier 1 Preferred Stock or common stock by Wesbanco (Qualified Equity Offering), subject to a minimum redemption of 25% of the amount of Preferred Stock originally issued. Thereafter, Preferred Stock is redeemable at Wesbancos election, subject to any required regulatory approval, in whole or in part. The redemption price is the Preferred Stocks issue price, plus accrued but unpaid dividends.
Fifth, no contract restrictions are permitted on the Preferred Stock. Wesbanco will have to file a shelf Registration Statement promptly for resale of the Preferred Stock and provide the Treasury Department with piggyback registration rights. Finally, the Treasury Department may request that the Preferred Stock be listed on a national securities exchange.
In connection with the purchase of any Preferred Stock, the Treasury Department will require Wesbanco to issue warrants (Warrants) to purchase shares of Wesbancos common stock equal to 15% of the amount of Preferred Stock purchased. The initial exercise price and the market price for determining the amount of the Warrants will be the average trading price of such common stock on the 20 trading days preceding the approval of the application. Under the current approval, warrants would be issued for approximately 439,000 shares of common stock with an exercise price of approximately $25.61 per share.
The exercise price of the Warrants shall be reduced by 15% of the original exercise price on each six month anniversary of issuance, if any required shareholder approvals have not been received, subject to a maximum reduction of 45% of the original exercise price. The Warrants will also include certain standard terms under the CPP. These terms include that the Warrants will be issued for a term of 10 years. The Warrants will be exercisable by the Treasury Department immediately, in whole or in part. There will be no contractual restrictions on transfer of the Warrants. The Treasury Department may transfer or exercise up to an aggregate of 50% of the Warrants prior to the earlier of (i) the date Wesbanco has received aggregate proceeds of not less than 100% of the issue price of the Preferred Stock from one or more Qualified Equity Offering and (ii) December 31, 2009. Wesbanco is required to file a shelf Registration Statement covering the resale of the Warrants and the underlying common stock and to grant the Treasury
Department piggyback registration rights for the Warrants in the underlying common stock. Wesbanco will apply for listing of the common stock issuable upon exercise of the Warrants. Upon exercise of the Warrants, the Treasury Department will not exercise voting rights with respect to such shares of common stock. If Wesbanco has received aggregate gross proceeds from one or more Qualified Equity Offerings on or prior to December 31, 2009, the number of Warrants will be reduced by 50%.
Under Wesbancos Articles of Incorporation, shareholder approval is not necessary for the issuance of the Preferred Stock or the Warrants exercisable for common stock.
A condition to any Preferred Stock investment by the Treasury Department is that Wesbanco and its Senior Executive Officers covered by EESA modify or terminate all benefit plans, arrangements and agreements (including Golden Parachute Agreements) to the extent necessary to be in compliance with and agree, for as long as the Treasury Department holds any equity or debt securities of Wesbanco, to be bound by the executive compensation and corporate governance requirements of Section 111 of EESA and Treasury Department guidance or regulations thereunder. Wesbanco is taking such steps to meet the executive compensation restrictions of the CPP.