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Webster Financial receives USD115m from Warburg Pincus

Private equity firm Warburg Pincus has agreed to invest USD115m in Webster Financial through a direct purchase of newly issued common stock at USD10 per share, junior non-voting preferr

Private equity firm Warburg Pincus has agreed to invest USD115m in Webster Financial through a direct purchase of newly issued common stock at USD10 per share, junior non-voting preferred stock and warrants.

Warburg Pincus is acquiring 11.5 million common shares from Webster at USD10.00 per share (a 12.1 per cent premium to Webster’s trailing 10-day average closing price) for an aggregate investment of USD115m, upon receipt of all necessary approvals.

Warburg Pincus will currently fund approximately USD40.2m of its investment and will be issued approximately four million shares of common stock and three million warrants. It will fund the remaining USD74.8m and be issued the remaining common stock, junior non-voting preferred stock, and warrants, following receipt of necessary antitrust and federal bank regulatory approvals.

A portion of Warburg Pincus’ investment that is funded following the receipt of regulatory approvals will initially be held in the form of junior non-voting preferred stock but will automatically convert into Webster common stock upon receiving the requisite approval of Webster’s shareholders. The preferred stock initially will have a dividend that mirrors any dividend payable on the common stock. If the requisite shareholder approval is not received, and the preferred shares are therefore still outstanding after 28 February 2010, the preferred stock’s annual non-cumulative dividend will increase to eight per cent per annum. The preferred stock is expected to qualify for Tier I capital treatment.

As part of the transaction, Warburg Pincus will receive 8.6 million seven-year class A warrants. The class A warrants will initially have a strike price of USD10.00 per share, with the strike price increasing to USD11.50 per share 24 months after this transaction and to USD13.00 per share 48 months after this transaction. Warburg Pincus also will receive 5.5 million seven-year class B warrants with a strike price of USD2.50 per share which will only become exercisable and transferable if, following the receipt of necessary regulatory approvals, shareholder approval is not received by 28 February 2010. The class B warrants will expire immediately upon receiving shareholder approval.

Following the receipt of regulatory approvals and the funding of the remainder of the investment, Webster plans to call a special meeting of its shareholders asking to eliminate a provision in its corporate charter prohibiting any third party from owning more than 9.9 per cent of Webster’s common stock without shareholder approval, and to approve Warburg’s investment under NY Stock Exchange shareholder approval requirements.

Pro Forma for its investment, Warburg Pincus will own 5.9 percent of Webster’s common stock outstanding prior to the bank regulatory and shareholder approvals and 15.2 percent of common stock outstanding following all required approvals.

James C. Smith, Webster chairman and chief executive officer, says: "Warburg Pincus’ investment further strengthens Webster’s capital base which already significantly exceeded regulatory requirements for well-capitalized banks. The additional capital will enable us to capitalize on the extraordinary banking opportunities in the market as we pursue our vision to be New England’s bank.

"This investment represents another important step in our capital planning, and coupled with our recently completed and highly successful exchange offer, increases Webster’s tangible common equity by more than USD285m on a pro forma basis with minimal tangible book value dilution. Webster’s ability to attract a long-term value investor of Warburg Pincus’ caliber and experience in the banking sector underscores the inherent strength of our core business and long-term strategy. We also are delighted to welcome Dave Coulter, a well-known senior banking executive whom we respect, to our board."

Coulter, a Warburg Pincus managing director who co-leads the firm’s financial services investment activities, brings to Webster’s board over 30 years of banking industry experience and is the former chairman and chief executive of BankAmerica and vice chairman of JP Morgan Chase.

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