Item 1.01 Entry into a Material Definitive Agreement.
On October 7, 2020, Financial Institutions, Inc. (the “Company”), entered into a Subordinated Note Purchase Agreement (the “Purchase Agreement”) with certain qualified institutional buyers and accredited investors, (the “Purchasers”) pursuant to which the Company sold and issued $35 million in aggregate principal of its 4.375% Fixed-to-Floating Rate Subordinated Notes due October 15, 2030 (the “Notes”). The Notes were offered and sold by the Company in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and the provisions of Rule 506(b) of Regulation D promulgated thereunder (the “Private Placement”). The Company intends to use the net proceeds from the offering for general corporate purposes, organic growth and to support Five Star Bank’s regulatory capital ratios.
The Notes have a ten-year term and, from and including the date of issuance to but excluding October 15, 2025, will bear interest at a fixed annual rate of 4.375%, payable semi-annually in arrears, for the first five years of the term. From and including October 15, 2025 to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate plus 426.5 basis points, payable quarterly in arrears. The benchmark rate is expected to be the three-month Secured Overnight Financing Rate (“SOFR”), the rate that is expected to replace LIBOR. As provided in the Notes, under specified conditions the interest rate on the Notes during the applicable floating rate period may be determined based on a rate other than three-month SOFR.
The Notes are redeemable, in whole or in part, on October 15, 2025 or on any interest payment date thereafter at the Company’s option. The Notes are also redeemable in whole but not in part upon the occurrence of certain events as described in the Notes, subject to the approval of the Federal Reserve, if required. The Purchase Agreement contains certain customary representations, warranties and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand.
On October 7, 2020, in connection with the sale and issuance of the Notes, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Purchasers. Under the terms of the Registration Rights Agreement, the Company has agreed to take certain actions to provide for the exchange of the Notes for subordinated notes that will be registered under the Securities Act and have substantially the same terms as the Notes (the “Exchange Notes”). Under certain circumstances, if the Company fails to meet its obligations under the Registration Rights Agreement, it would be required to pay up to 50 additional basis points in interest to the holders of the Notes.
The Notes were issued under a Subordinated Indenture, dated October 7, 2020 (the “Indenture”), by and between the Company and Wilmington Trust, National Association, as trustee. The Notes are not subject to any sinking fund and are not convertible into or, other than with respect to the Exchange Notes, exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Notes are not subject to redemption at the option of the holder. The Notes are unsecured, subordinated obligations of the Company only and are not obligations of, and are not guaranteed by, any subsidiary of the Company. The Notes rank equal in right of payment and in the event of the Company’s liquidation with the Company’s existing 6.00% fixed-to-floating rate subordinated debentures due April 15, 2030 and junior in right to payment to the Company’s current and future senior indebtedness. The Notes are intended to qualify as Tier 2 capital for regulatory capital purposes.
The forms of Purchase Agreement, Registration Rights Agreement, Indenture, and Note are attached as Exhibits 10.1, 10.2, 4.1, and 4.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference. The foregoing descriptions of the Purchase Agreement, Registration Rights Agreement, Indenture, and Notes are summaries and are qualified in their entirety by reference to the relevant exhibits to this Current Report on Form 8-K.