Financial Markets in Crisis: The Capital Assistance Program Unveiled

Issuer

Qualifying Financial Institutions ("QFI"):

• any U.S. bank or U.S. savings association not controlled by a Bank Holding Company or Savings and Loan Company;
• any top-tier U.S. Bank Holding Company; and
• any top-tier U.S. Savings and Loan Company which engages solely or predominately in activities that are permitted for financial holding companies.

Application Process

CAP is available to publicly traded[2] QFIs that meet eligibility requirements similar to those used for the Capital Purchase Program ("CPP").

Relation to CPP

The issuance will be a "Qualified Equity Offering" under the CPP to the extent the proceeds of the sale are used to redeem Preferred Shares sold to the Treasury under the CPP.

Size

Each QFI may issue an amount of Convertible Preferred equal to more than 1% and less than 2% of its risk-weighted assets.  Additional Convertible Preferred may be issued to redeem CPP Preferred Shares or if the QFI is deemed to need exceptional assistance.

Security

Liquidation preference of $1,000 per share.

Term

Mandatorily converts to common stock after 7 years.

Optional Conversion

Convertible in whole or in part at the option of the QFI at any time, subject to the approval of the Federal banking agency.

Conversion Price

90% of the average closing price for the common stock for the 20 day trading period ending February 9, 2009, subject to customary anti-dilution adjustments.

Ranking

Senior to common stock and pari passu with existing preferred shares other than preferred shares which by their terms rank junior to any existing preferred shares.

Regulatory Capital
Status

Tier 1, for holding companies.

Dividend

Cumulative dividends at a rate of 9% per annum, compounding quarterly.

Redemption

May be redeemed at any time, subject to Federal banking agency approval, in whole or in part solely with the proceeds of one or more issuances of common stock for cash which result in aggregate gross proceeds of not less than 25% of the issue price of the Convertible Preferred.

If redeemed within the first two years, redeemable at par, plus any accrued and unpaid dividends.

If redeemed after two years, redeemable at the greater of (i) par plus accrued and unpaid dividends, and (ii) the as-converted value.

Following redemption in whole, the QFI shall have the right to repurchase the warrant and any common stock then held by the Treasury at fair market value.

Dividend Stopper

As long as any Convertible Preferred is outstanding, no dividends may be declared or paid on junior preferred shares, common shares, or preferred shares ranking pari passu with the Convertible Preferred.

Dividend Limit

As long as any Convertible Preferred or common stock is outstanding and owned by the Treasury, no dividend in excess of $0.01 per quarter may be paid on common stock without Treasury permission.

Restrictions on
Repurchases

As long as any Convertible Preferred is outstanding, the Treasury’s consent will be required for any repurchases of equity securities or trust preferred securities, subject to certain exceptions.

Voting Rights

No voting rights prior to conversion, other than class voting on (i) authorization or issuance of shares ranking senior to the Convertible Preferred, (ii) any amendment to the rights of the Convertible Preferred, or (iii) any merger, exchange or other transaction that would adversely affect the rights of the Convertible Preferred.

Transferability

No restrictions on transfer.  The QFI must file a shelf registration statement covering the Convertible Preferred and underlying common stock.

Mandatory Sale

After the mandatory conversion date, the Treasury shall make reasonable efforts to sell on an annual basis an amount of common stock equal to at least 20% of the total common stock owned by it.

Executive Compensation, Transparency, Accountability, Monitoring

The QFI and its covered officers and employees shall agree to comply with the rules, regulations and guidance of the Treasury with respect to executive compensation, transparency, accountability and monitoring.

Warrant

The Treasury will receive warrants to purchase a number of shares of common stock of the QFI having an aggregate market value of 20% of the Convertible Preferred on the date of the investment.

The initial exercise price shall be the Conversion Price subject to customary anti-dilution adjustments.

Term

10 years.

Exercisability

Immediately exercisable, in whole or in part.

Transferability

No restrictions on transfer.  The QFI will file a shelf registration statement covering the warrants and underlying common stock.

Voting

The Treasury will agree not to exercise voting power with respect to any shares of common stock of the QFI issued upon exercise of the warrants.

Substitution

In the event the common stock of the QFI is no longer listed or traded on a national exchange, the warrants will be exchangeable for senior term debt or another economic instrument.