Item 1.01 Entry into a Material Definitive Agreement.
Entry into Purchase Agreement and Side Letter Agreement
On February 20, 2009, Royal Bancshares of Pennsylvania, Inc. (the "Company")
entered into a Letter Agreement (the "Purchase Agreement") with the United
States Department of the Treasury ("Treasury"), pursuant to which the Company
agreed to issue and sell (i) 30,407 shares of the Company's Fixed Rate
Cumulative Perpetual Preferred Stock, Series A, without par value per share (the
"Series A Preferred Stock"), and (ii) a warrant (the "Warrant") to purchase
1,104,370 shares of the Company's Class A common stock, par value $2.00 per
share (the "Common Stock"), for an aggregate purchase price of $30,407,000 in
cash. Also on February 20, 2009, the Company entered into a side letter
agreement (the "Side Letter Agreement") with Treasury, which, among other
things, clarified that to the extent the terms of any of the Purchase Agreement,
the Warrant or the Certificate of Designations (defined below) are inconsistent
with the American Recovery and Reinvestment Act of 2009, as it may be amended
from time to time (the "ARRA"), or any rule or regulation promulgated
thereunder, the ARRA and such rules and regulations shall control.
The Series A Preferred Stock will qualify as Tier 1 capital and will pay
cumulative dividends at a rate of 5% per annum for the first five years, and 9%
per annum thereafter. The Series A Preferred Stock may be redeemed by the
Company at any time as permitted by the ARRA and any rules or regulations
promulgated thereunder. The restrictions on redemption are set forth in the
Certificate of Designations described in Item 5.03 below.
The Warrant has a 10-year term and is immediately exercisable upon its
issuance, with an exercise price, subject to anti-dilution adjustments, equal to
$4.13 per share of the.
If the Company receives aggregate gross cash proceeds of not less than
$30,407,000 from the sale of qualifying equity securities in one or more
offerings on or prior to December 31, 2009, the number of shares of Common Stock
issuable pursuant to Treasury's exercise of the Warrant will be reduced by one
half of the original number of shares, taking into account all adjustments,
underlying the Warrant. Pursuant to the Purchase Agreement, Treasury has agreed
not to exercise voting power with respect to any shares of Common Stock issued
upon exercise of the Warrant.
The Series A Preferred Stock and the Warrant were issued in a private
placement exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended. Upon the request of Treasury at any time, the Company
has agreed to promptly register the Series A Preferred Stock, the Warrant, and
the shares of Common Stock underlying the Warrant (the "Warrant Shares").
Neither the Series A Preferred Stock nor the Warrant will be subject to any
contractual restrictions on transfer, except that Treasury may only transfer or
exercise an aggregate of one-half of the Warrant Shares prior to the earlier of
the redemption of 100% of the shares of Series A Preferred Stock and
December 31, 2009.
In the Purchase Agreement and the Side Letter Agreement, the Company agreed
that, until such time as Treasury ceases to own any debt or preferred equity
securities of the Company acquired pursuant to the Purchase Agreement, the
Company will take all necessary action to ensure that its benefit plans with
respect to its senior executive officers comply with Section 111(b) of the
Emergency Economic Stabilization Act of 2008, as it may be amended from time to
time (the "EESA"), and any rules or regulations promulgated thereunder, and has
agreed to not adopt any benefit plans with respect to, or which covers, its
senior executive officers that do not comply with the EESA any rules or
regulations promulgated thereunder, and the applicable executives have consented
to the foregoing.
The foregoing description of the Purchase Agreement, the Side Letter
Agreement and the Warrant and the transactions contemplated thereunder does not
purport to be complete and is qualified in its entirety by reference to the
Purchase Agreement, the Side Letter Agreement and the Warrant, which are
attached hereto as Exhibits 10.1, 10.2 and 4.1, respectively, and are
incorporated herein by reference.
Please note that the representations and warranties of each party set forth
in the Purchase Agreement have been made solely for the benefit of the other
party to the Purchase Agreement. In addition, such representations and
warranties (i) have been qualified by confidential disclosures made to the other
party in connection with the Purchase Agreement, (ii) are subject to materiality
qualifications contained in the Purchase Agreement which may differ from what
may be viewed as material by investors, (iii) were made only as of the date of
the Purchase Agreement or such other date as is specified in the Purchase
Agreement, and (iv) may have been included in the Purchase Agreement for the
purpose of allocating risk between the Company and Treasury rather than
establishing matters as facts. Accordingly, the Purchase Agreement is included
with this filing only to provide investors with information regarding the terms
of the Purchase Agreement, and not to provide investors with any other factual
information regarding the parties or their respective businesses. The Purchase
Agreement should not be read alone, but should instead be read in conjunction
with the other information regarding the Company, as well as in the public
disclosure documents that the Company files with the Securities and Exchange
Commission from time to time.
Item 3.02 Unregistered Sales of Equity Securities.
The information set forth under "Item 1.01 Entry into a Material Definitive
Agreement" of this Current Report on Form 8-K is incorporated by reference into
this Item 3.02.
Item 3.03 Material Modification to Rights of Security Holders.
Upon issuance of the Series A Preferred Stock on February 20, 2009, the
ability of the Company to declare or pay dividends or distributions on, or
purchase, redeem or otherwise acquire for consideration, shares of its Junior
Stock (as defined below) and Parity Stock (as defined below) will be subject to
restrictions, including the Company's restriction against increasing dividends
from the last quarterly cash dividend per share ($0.15) declared on the Common
Stock prior to October 14, 2008. The redemption, purchase or other acquisition
of trust preferred securities of the Company or its affiliates also will be
restricted. These restrictions will terminate on the earlier of (a) the third
anniversary of the date of issuance of the Series A Preferred Stock and (b) the
date on which the Series A Preferred Stock has been redeemed in whole or
Treasury has transferred all of the Series A Preferred Stock to third parties.
The restrictions described in this paragraph are set forth in the Purchase
Agreement.
In addition, pursuant to the Certificate of Designations, the ability of the
Company to declare or pay dividends or distributions on, or repurchase, redeem
or otherwise acquire for consideration, shares of its Junior Stock and Parity
Stock will be subject to restrictions in the event that the Company fails to
declare and pay full dividends (or declare and set aside a sum sufficient for
payment thereof) on its Series A Preferred Stock. These restrictions are set
forth in the Certificate of Designations described in Item 5.03.
"Junior Stock" means the Common Stock and any other class or series of stock
of the Company the terms of which expressly provide that it ranks junior to the
Series A Preferred Stock as to dividend rights and/or rights on liquidation,
dissolution or winding up of the Company. "Parity Stock" means any class or
series of stock of the Company the terms of which do not expressly provide that
such class or series will rank senior or junior to the Series A Preferred Stock
as to dividend rights and/or rights on liquidation, dissolution or winding up of
the Company (in each case without regard to whether dividends accrue
cumulatively or non-cumulatively).
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
The information concerning executive compensation set forth under "Item 1.01
Entry into a Material Definitive Agreement" is incorporated by reference into
this Item 5.02.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
On February 18, 2009, the Company filed a Statement with Respect to Shares
(the "Certificate of Designations") with the Secretary of State of the
Commonwealth of Pennsylvania for the purpose of amending its articles of
incorporation to fix the designations, preferences, limitations and relative
rights of the Series A Preferred Stock. The Series A Preferred Stock has a
liquidation preference of $1,000 per share. The Certificate of Designations is
attached hereto as Exhibit 3.1 and is incorporated by reference herein. The
above summary is qualified in its entirety by reference to the full text of the
Certificate of Designations filed as Exhibit 3.1.
Item 8.01 Other Events.
On February 20, 2009, the Company issued a press release announcing that it
had completed the sale to Treasury of 30,407 shares of the Company's Series A
Preferred Stock and the Warrant for an aggregate purchase price of $30,407,000
in cash. A copy of the press release is attached hereto as Exhibit 99.1 and is
incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits:
3.1 Statement with Respect to Shares for the Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, without par value per share, of Royal Bancshares
of Pennsylvania, Inc.
4.1 Warrant, dated February 20, 2009, to purchase 1,104,370 shares of Class A
common stock, par value $2.00 per share, of
Royal Bancshares of Pennsylvania, Inc.
10.1 Letter Agreement, dated February 20, 2009, between Royal Bancshares of
Pennsylvania, Inc. and the United States Department of the Treasury, with
respect to the issuance and sale of the Series A Preferred Stock and the
Warrant.
10.2 Side Letter Agreement, dated February 20, 2009, between Royal Bancshares of
Pennsylvania, Inc. and the United States Department of the Treasury.
99.1 Press release, dated February 20, 2009, of Royal Bancshares of
Pennsylvania, Inc.
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