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TARP Capital Purchase Program 

(Subchapter S Corporations) 

Senior Securities 

Summary of Terms

(January 14, 2009) 

 

Issuer: Qualifying Financial Institution (“QFI”) means a corporation that has 

made a valid election to be taxed under Subchapter S of Chapter 1 of the 

U.S. Internal Revenue Code (a “S-Corp”) and is also one of the following: 

(i) a top-tier Bank Holding Company (“BHC”), or top-tier 

Savings and Loan Holding Company (“SLHC”) that 

engages solely or predominately in activities permissible 

for financial holding companies under relevant law, 

(ii) a U.S. bank or U.S. savings association that is not 

controlled by a BHC or SLHC, or 

(iii) a U.S. bank or U.S. savings association that is a qualifying 

S-Corp subsidiary which is controlled by a BHC or SLHC 

which itself is an S-Corp and which does not engage solely 

or predominately in activities that are permitted for 

financial holding companies under relevant law. 

 

The term QFI shall not mean any institution that is foreign controlled as 

defined by the institution’s appropriate Federal banking agency. For 

purposes of this program, “U.S. bank”, “U.S. savings association”, “BHC” 

and “SLHC” means a bank, savings association, BHC or SLHC organized 

under the laws of the United States or any State of the United States or the 

District of Columbia. BHCs and SLHCs are collectively referred to herein 

as “HCs” and each individually as an “HC”. The United States 

Department of the Treasury will determine the eligibility and 

allocation for QFIs after consultation with the appropriate Federal 

banking agency. 

Initial Holder: United States Department of the Treasury (the “UST”). 

Size: QFIs may sell Senior Securities (defined below) to the UST subject to the 

limits and terms described below. 

 Each QFI may issue Senior Securities with an aggregate principal amount 

equal to not less than 1% of its risk-weighted assets and not more than the 

lesser of (i) $25 billion and (ii) 3% of its risk-weighted assets. 

Security: Subordinated Debentures (“Senior Securities”); it being understood that 

the Senior Securities do not constitute a second class of stock. Each note 

representing a Senior Security shall be in the principal amount of $1,000. 
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Ranking: Senior to the QFI’s common stock (and any other class of equity, as 

applicable, such as if the QFI converted to a C corporation). Senior 

Securities issued by a bank or savings association must be expressly 

subordinated to claims of depositors and to the QFI’s other debt 

obligations to its general and secured creditors, unless such debt 

obligations are explicitly made pari passu or subordinated to the Senior 

Securities. Senior Securities issued by an HC must be subordinated to 

senior indebtedness of the QFI, in accordance with applicable HC 

regulation, unless such debt obligations are explicitly made pari passu or 

subordinated to the Senior Securities. 

Regulatory 

Capital 

Status: Tier 2 at a bank or savings association; Tier 1 at an HC, it being 

understood that prior to the UST investing in Senior Securities issued by 

an HC, it will be necessary for the appropriate Federal banking agency to 

issue an interim final rule designating the Senior Securities as Tier 1 

capital for HCs. 

Maturity: 30 years

Interest Rate: The Senior Securities will pay interest at a rate of 7.7% per annum until 

the fifth anniversary of the date of this investment and thereafter at a rate 

of 13.8% per annum.1

 Interest will be payable quarterly in arrears on 

February 15, May 15, August 15 and November 15 of each year (each, an 

“Interest Payment Date”). 

Interest Deferral 

For Bank Holding 

Companies: For a QFI that is an HC, interest may be deferred on the Senior Securities 

for up to 20 quarters; however any unpaid interest shall cumulate and 

compound at the then applicable interest rate in effect. For so long as any 

interest deferral is in effect, no dividends may be paid on shares of equity 

or trust preferred securities of the QFI. 

Redemption: Senior Securities may not be redeemed for a period of three years from the 

date of this investment, except with and to the extent of the net proceeds 

from a Qualified Securities Offering (as defined below), which results in 

aggregate gross proceeds to the QFI of not less than 25% of the issue price 

of the Senior Securities. After the third anniversary of the date of this 

investment, the Senior Securities may be redeemed, in whole or in part, at 

any time and from time to time, at the option of the QFI. All redemptions 

of the Senior Securities shall be at 100% of their issue price, plus any 

accrued and unpaid Interest. All redemptions shall be subject to the 

approval of the QFI’s appropriate federal banking agency. 

 

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 S-corp Senior Securities have 7.7% and 13.8% interest rates which equate to after-tax effective rates (assuming a 

35% tax rate) of 5% and 9%, respectively, the same rates applied to securities issued by other classes of institutions 

participating in the CPP. 
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 “Qualified Securities Offering” shall mean the sale by the QFI after the 

date of this investment of capital which qualifies for at least the same tier 

or higher of regulatory capital as the Senior Securities (Tier 1 in the case 

of an HC and Tier 1 or 2 in the case of a bank or savings association) for 

cash (other than any sales made pursuant to agreements or arrangements 

entered into, or pursuant to financing plans which were approved by the 

QFI’s board of directors or, if applicable, publicly announced, on or prior 

to January 15, 2009). 

Restrictions 

on Dividends: Subject to certain exceptions, for as long as any Senior Securities are 

outstanding, no dividends may be declared or paid on any shares of equity 

or trust preferred securities nor may the QFI repurchase or redeem any 

shares of equity or trust preferred securities unless all accrued and unpaid 

Interest for all past interest periods on the Securities is fully paid. 

Further Restrictions 

on Dividend 

Increases: Subject to the exception below, UST’s consent shall be required for any 

increase in regularly paid common dividends per share until the third 

anniversary of the date of this investment. After the third anniversary and 

prior to the tenth anniversary, the UST’s consent shall be required for any 

increase in aggregate common dividends per share where the resulting 

aggregate common dividend per share is greater than 103% of the prior 

year’s dividend rate per annum; provided that no increase in common 

dividends may be made as a result of any dividend paid in common shares, 

any stock split or similar transaction. The restrictions in this paragraph no 

longer apply if the Senior Securities and Warrant Securities (as defined 

below) have been redeemed in whole or the UST has transferred all of the 

Senior Securities and Warrant Securities to unaffiliated third parties, 

which for this purpose does not include a securitization vehicle or 

investment pool in which the UST is an initial sponsor or participant so 

long as UST has an economic interest in such vehicle or pool (“Third 

Parties”). Notwithstanding the foregoing, UST consent shall not be 

required for any increase in dividends where such increase is solely 

proportionate to the increase in taxable income of the QFI and such 

increased dividends are distributed to shareholders in order to fund their 

individual tax payments on such allocable taxable income (“Tax 

Distribution”). UST (and subsequent investors who purchase the Senior 

Securities) shall have the right to challenge the amount of the proposed 

Tax Distributions to the extent it believes they exceed the amount 

necessary for the QFI shareholders to pay their allocable share of income 

taxes. 
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Restriction on 

Acceleration: Principal and accrued interest may only become immediately due and 

payable (i.e., accelerate) (i) in the case of an HC, upon the bankruptcy or 

liquidation of the HC, the receivership of a major bank subsidiary of the 

HC, or deferral of interest on the Senior Securities for more than 20 

quarters or (ii) in the case of a bank or savings association, upon the 

receivership of the bank or savings association. 

Repurchases: The UST’s consent shall be required for any repurchases of equity 

securities or trust preferred securities (other than repurchases of common 

shares in connection with any benefit plan in the ordinary course of 

business consistent with past practice or relevant income tax laws) until 

the tenth anniversary of the date of this investment unless prior to such 

tenth anniversary the Senior Securities and Warrant Securities are 

redeemed in whole or the UST has transferred all of the Senior Securities 

and Warrant Securities to Third Parties. In addition, there shall be no share 

repurchases of equity if prohibited as described above under “Restrictions 

on Dividends”. 

Other Dividend and 

Repurchase 

Restrictions: From and after the tenth anniversary of the date of this investment, the 

QFI shall be prohibited from paying common dividends or repurchasing 

any equity securities or trust preferred securities until all Senior Securities 

and Warrant Securities are redeemed or repurchased in whole. 

Voting Rights: Senior Securities shall be non-voting, other than class voting rights on (i) 

any authorization or issuance of any equity securities which purport to 

rank senior to the Senior Securities, (ii) any amendment to the rights of 

Senior Securities, or (iii) any merger, exchange or similar transaction 

which would adversely affect the rights of the Senior Securities. 

 

 Notwithstanding any interest deferral, if Interest on the Senior Securities is 

not paid in full for six Interest periods, whether or not consecutive, the 

Senior Securities holders will have the right to elect 2 directors. The right 

to elect directors will end when full Interest has been paid for all prior 

interest periods.

 

Transferability: Senior Securities will not be subject to any contractual restrictions on 

transfer or the restrictions of any stockholders’ agreement or similar 

arrangement that may be in effect among the QFI and its stockholders at 

the time of the Senior Security investment or thereafter; provided that the 

UST and its transferees shall use its commercially reasonable efforts not to 

effect any transfer of the Senior Securities which would require the QFI to 

become subject to the periodic reporting requirements of Section 13 or 

15(d) of the Exchange Act. 
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If the QFI otherwise becomes subject to such reporting requirements (e.g. 

to the extent it no longer elects to be treated as an S Corp), the QFI will 

file a shelf registration statement covering the Senior Securities as 

promptly as practicable and, if necessary, shall take all action required to 

cause such shelf registration statement to be declared effective as soon as 

possible. In addition, the UST and its transferees shall have piggyback 

registration rights for the Senior Securities. Subject to the above, the QFI 

shall take all steps as may be reasonably requested to facilitate the transfer 

of the Senior Securities. 

Executive 

Compensation: As a condition to the closing of this investment, the QFI and its senior 

executive officers covered by the EESA shall modify or terminate all 

benefit plans, arrangements and agreements (including golden parachute 

agreements) to the extent necessary to be in compliance with, and 

following the closing and for so long as UST holds any equity or debt 

securities (including the Senior Securities) of the QFI, the QFI shall agree 

to be bound by, the executive compensation and corporate governance 

requirements of Section 111 of the EESA and any guidance or regulations 

issued by the Secretary of the Treasury on or prior to the date of this 

investment to carry out the provisions of such subsection. As an 

additional condition to closing, the QFI and its senior executive officers 

covered by the EESA shall grant to the UST a waiver releasing the UST 

from any claims that the QFI and such senior executive officers may 

otherwise have as a result of the issuance of any regulations which modify 

the terms of benefits plans, arrangements and agreements to eliminate any 

provisions that would not be in compliance with the executive 

compensation and corporate governance requirements of Section 111 of 

the EESA and any guidance or regulations issued by the Secretary of the 

Treasury on or prior to the date of this investment to carry out the 

provisions of such subsection. 

Affiliate 

Transactions: For as long as the UST holds any debt or equity securities (including the 

Senior Securities) of the QFI, the QFI and its subsidiaries will not enter 

into a transaction with related persons (within the meaning of Item 404 

under the SEC’s Regulation S-K) unless such transaction is (i) on terms no 

less favorable to the QFI and its subsidiaries than could be obtained from 

an unaffiliated third party, and (ii) has been approved by the audit 

committee or a comparable body of independent directors of the QFI, or if 

there are no “independent directors,” the board of directors of the QFI but 

only if the board of directors maintains written documentation supporting 

its determination that the transaction meets the requirements of (i) of this 

paragraph. 
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Summary of Warrant Terms

Warrant: In consideration of the investment in Senior Securities and other 

consideration in connection with its investment, UST will receive warrants 

to purchase, upon net settlement, a number of additional Senior Securities 

(the “Warrant Securities”) in an amount equal to 5% of the amount of 

Senior Securities purchased on the date of investment. The UST intends 

to immediately exercise the warrants. The exercise price for the warrants 

shall be $0.01 per note representing a Warrant Security. 

Term: 10 years (it being understood the Warrant Securities themselves will have 

a maturity of 30 years). 

Exercisability: Immediately exercisable, in whole or in part. 

Warrant Securities: The Warrant Securities shall have the same rights, preferences, privileges, 

voting rights and other terms as the Senior Securities, except that (1) the 

Warrant Securities will pay Interest at a rate of 13.8% per annum and (2) 

the Warrant Securities may not be redeemed until all the Senior Securities 

have been redeemed. 

Transferability: The warrants will not be subject to any contractual restrictions on transfer 

or the restrictions of any stockholders’ agreement or similar arrangement 

that may be in effect among the QFI and its stockholders at the time of this 

investment or thereafter; provided that the UST shall not effect any 

transfer of the warrants or underlying Warrant Securities which would 

require the QFI to become subject to the periodic reporting requirements 

of Section 13 or 15(d) of the Exchange Act. 

 

 If the QFI otherwise becomes subject to the periodic reporting 

requirements of Section 13 or 15(d) of the Exchange Act, the QFI will file 

a shelf registration statement covering the warrants and the Warrant 

Securities underlying the warrants as promptly as practicable and, if 

necessary, shall take all action required to cause such shelf registration 

statement to be declared effective as soon as possible. In addition, the 

UST and its transferees shall have piggyback registration rights for the 

warrants and the Warrant Securities underlying the warrants. Subject to 

the above, the QFI shall take all steps as may be reasonably requested to 

facilitate the transfer of the warrants or the Warrant Securities.