On October 26, 2008, the first nine qualifying financial institutions ("QFIs")¹ entered into letter agreements styled "Major Financial Institution Commitments" (each a "Letter Agreement") with the Treasury Department ("UST") documenting the terms of UST's investment in these institutions pursuant to the Capital Purchase Program ("CPP") of the Troubled Asset Relief Program ("TARP") under the Emergency Economic Stabilization Act of 2008 ("EESA" or "Act"). Through the Letter Agreement memorializing institution-specific information, such as jurisdiction of organization and capitalization, each of the initial nine QFIs entered into a substantively identical Securities Purchase Agreement-Standard Terms (the "Standard Terms"), which includes forms of a preferred stock certificate of designations and warrant. Eight of the nine investments closed and funded on October 28, 2008.²

It appears that the Treasury Department intends to take a "one size fits all" approach to CPP documentation for QFIs that are bank holding companies which file periodic reports with the Securities and Exchange Commission ("SEC").³ Future participating QFIs that are both bank holding companies and SEC reporting companies will be asked to enter into substantively identical agreements to those entered into by the initial participants.

This newsletter update summarizes the principal terms of the CPP investment documents.

Securities Purchase Agreement--Standard Terms

The Standard Terms govern the basic terms of UST's CPP investment in each QFI. Specifically, the Standard Terms set forth the conditions to UST's funding the CPP investment, a number of representations and warranties from the QFI to UST, registration rights applicable to the securities acquired by UST and various covenants of the QFI.

Conditions to Funding

The Standard Terms contain a number of standard conditions to funding, including accuracy of the QFI's representations and warranties, delivery of an opinion of counsel and an officer's certificate, filing of the certificate of designations for the preferred shares and delivery of a stock certificate and the warrant. In addition, prior to closing and funding, the QFI must have effected all changes to employee benefit plans and compensation arrangements required by Section 111(b) of EESA and UST's rules, and the QFI's senior executive officers must have delivered to UST waivers of any claims they may have on account of such changes. The Standard Terms attach as an annex the required form of waiver.

Representations and Warranties

The Standard Terms include representations and warranties that are fairly typical of those found in securities purchase agreements. These include representations regarding: the QFI's organization, authority and significant subsidiaries; capitalization; authorization of the preferred shares; authorization of the warrant and the warrant exercise shares; authorization and enforceability of the CPP investment documents; anti-takeover provisions and any rights plan the QFI has; the absence of a "Company Material Adverse Effect"; the QFI's financial statements; the QFI's SEC reports, disclosure controls and procedures and internal controls over financial reporting; other offerings; litigation and other proceedings; compliance with laws; employee benefit matters; taxes; properties and leases; environmental liability; risk management instruments; agreements with regulatory agencies; insurance; intellectual property; and the absence of broker's or finder's fees. All are qualified by reference to information available in the QFI's previous SEC filings, and many are further qualified by reference to a "Company Material Adverse Effect".⁴

The QFI is permitted to include a limited number of schedules to the Letter Agreement to provide information regarding its capitalization and any required stockholder approvals, as well as about litigation, regulatory issues and certain regulatory agreements that may be material to the QFI but that have not yet been publicly disclosed in its SEC reports. At least for QFIs who are SEC reporting companies, we understand that UST expects the disclosure schedules to address gaps in the public disclosure due to timing but not to immunize the QFI from claims based on litigation or compliance issues that the QFI previously determined were not sufficiently material to warrant public disclosure.

Registration Rights

The Standard Terms contain extensive registration rights provisions that cover the preferred shares, the warrant and the shares of common stock for which the warrant is exercisable. The QFI will bear all registration expenses, and selling holder(s) will bear all selling expenses incurred in connection with any registrations on a pro rata basis. Failure to comply with these registration rights provisions will result in a breach of the Standard Terms, but the Standard Terms do not provide for liquidated damages in the event of a registration default.

Shelf Registration Rights. Within 30 days following closing of the CPP investment, if the QFI is eligible to file a registration statement on Form S-3, the QFI must file with the SEC a shelf registration statement registering the resale of all of the preferred shares, the warrant and the warrant exercise shares. If the QFI has an effective shelf registration statement that would cover such resales, then it may designate such effective shelf registration statement to satisfy this obligation. The QFI must use reasonable best efforts to cause the registration statement to be continuously effective until there are no "Registrable Securities" (as defined in the Standard Terms) remaining. If the QFI is not eligible to file a shelf registration statement on Form S-3, then the QFI has no obligation to file a resale registration statement until and unless UST so requests.

Piggyback Registration Rights. To the extent that a shelf registration statement is not available and the QFI proposes to file a registration statement for an offering,⁵ holders of the preferred shares, warrant and warrant exercise shares will have piggyback rights to include their securities in a registration. The Standard Terms contain various limitations and cutback provisions for exercise of piggyback rights.

Demand Right. Holders of Registrable Securities have the right to require the QFI to register and facilitate underwritten offerings of their preferred shares, warrant and warrant exercise shares, subject to a minimum offering size equal to (i) 2% of the initial aggregate liquidation amount of the preferred shares if UST's initial purchase price was less than $2 billion or (ii) $200 million if the initial aggregate liquidation amount of the preferred shares was $2 billion or more. Holders of a majority of the Registrable Securities are entitled to select the lead underwriter, and where the QFI has a broker-dealer affiliate, the holders must take into consideration the qualification of that affiliate in selecting the lead underwriter. After the preferred shares, warrant and warrant exercise shares cease to be Registrable Securities by virtue of expiration of the six-month holding period in Rule 144, then UST (but no other holder of the securities) will continue to have demand registration rights with respect to securities it owns. In an underwritten offering, the QFI must agree not to effect any other registration during the period 10 days before and 60 days following the effective date of such offering or such longer period up to 90 days as the managing underwriter may request. In addition, the QFI must cause its executive officers and directors to agree to execute and deliver customary lock-up agreements for a period of up to 90 days after the offering as the managing underwriter may request.

Deferral and Black-out Rights. In the case of either a shelf registration statement or a demand for an underwritten offering, the QFI may defer the registration for up to 45 days after receipt of a registration request if the QFI determines that the registration would be materially detrimental to the QFI or its securityholders and the QFI has generally exercised black-out rights against all other securityholders that have registration rights. The QFI may not invoke this deferral right more than three times in any 12-month period or for more than 90 days in the aggregate in any 12-month period.

Furthermore, following effectiveness of a registration statement, the QFI must notify the selling securityholders if the prospectus contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. If the QFI is required to make changes in any effective registration statement or the prospectus in order to make any statements therein not misleading, then each selling securityholder and any underwriters must suspend using the prospectus until the requisite changes have been made, unless notified otherwise by the QFI. The QFI may invoke this "blackout" right for no more than 90 days in any 12-month period.

The registration rights provisions also contain customary covenants regarding notices, filings, blue sky qualifications, underwriting agreements, availability of public information, use of free writing prospectuses, agreement not to grant conflicting registration rights and indemnification.

Covenants

Each QFI will be subject to the following covenants:

Stockholder Approvals. If the QFI needs stockholder approval, for example, where more than 20% of an exchange-listed QFI's common stock could be issuable upon exercise of the warrant, then the QFI must call a special meeting of stockholders as promptly as practicable following closing to vote on the proposals and must file a proxy statement relating to the proposal with the SEC. If the proposal is not approved, the QFI must re-present the proposals at least once every six months until the approvals are obtained.

Listing and Reservation of Warrant Exercise Shares and Listing of Preferred Shares. Until the warrant has been fully exercised, the QFI must reserve sufficient shares of authorized common stock for issuance upon such exercise. The QFI also must list the warrant exercise shares on its national securities exchange as promptly as reasonably practicable after closing. Additionally, upon request by UST, the QFI must seek listing of the preferred shares, which would require registration of the preferred shares under the Securities Exchange Act of 1934, as amended.

Information Rights. Until the date that UST holds preferred shares having an aggregate liquidation value of less than 10% of UST's initial purchase price, the QFI must permit UST, acting through the QFI's principal banking regulator to examine its books and review information material to UST's investment in the QFI. The QFI does not have to disclose information if doing so would violate applicable law or regulation, would reasonably be expected to cause a violation of a contractual agreement or would risk loss of a privilege, as long as the QFI uses commercially reasonable efforts to make appropriate substitute disclosure. In turn, UST has agreed, subject to certain exceptions, to keep this information confidential.

Certain Transactions. The QFI cannot allow itself to be acquired unless the acquirer of, or successor to the QFI expressly assumes the obligations under the Standard Terms.

Transfers of Preferred Shares and Warrant Exercise Shares. UST is permitted to sell any or all of the preferred shares or warrant exercise shares at any time. However, prior to December 31, 2009, UST agrees not to transfer the warrant for more than half of the initial warrant exercise shares unless the QFI has received gross proceeds at least equal to 100% of UST's initial purchase price of the preferred shares and warrant in one or more "Qualified Equity Offerings." Qualified Equity Offerings are discussed below under "Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock-Redemption." Furthermore, also as discussed below, if the QFI completes one or more Qualified Equity Offerings before December 31, 2009, and receives aggregate gross proceeds equal to at least 100% of the aggregate liquidation amount of the preferred shares, then to the number of shares issuable upon exercise of the warrant will be reduced by 50%.

No Voting of Warrant Exercise Shares. UST agrees not to exercise any voting rights with respect to the warrant exercise shares. Transferees of the warrant or the warrant exercise shares would not be bound by this agreement.

Dividend and Repurchase Restrictions. Prior to the third anniversary of the closing of the CPP investment, the QFI and its subsidiaries may not engage in any of the following activities unless either the QFI has redeemed all of the preferred shares or UST has transferred all the preferred shares to a non-affiliate of UST: (i) declare or pay any dividend or make any distribution on its common stock (other than regular quarterly cash dividends of not more than the amount of the last quarterly cash dividend per share declared (or if the QFI had publicly announced a lower amount prior to October 14, 2008, that lower amount); or (ii) redeem, purchase or acquire any shares of common stock, other capital stock, other equity securities of any kind of the QFI or any trust preferred securities of the QFI or an affiliate of the QFI. The repurchase covenant contains a number of exceptions, including (A) certain redemptions, purchases or other acquisitions of shares of common stock or other junior stock in connection with the administration of any employee benefit plan in the ordinary course of business pursuant to a publicly announced repurchase plan up to the increase in diluted shares outstanding resulting from the grant, vesting or exercise of equity-based compensation; (B) purchases by broker-dealer subsidiaries of the QFI solely for the purpose of market-making, stabilization or customer facilitation transactions in junior stock or parity stock⁶ in the ordinary course of its business or for resale pursuant to an offering by the QFI of its stock that is underwritten by the broker-dealer subsidiary; (C) acquisition of record ownership of junior stock or parity stock for the beneficial ownership of any other person who is not the QFI or a subsidiary of the QFI, including as trustee or custodian; and (D) the exchange or conversion of junior stock for or into other junior stock or of parity stock for or into other parity stock or junior stock but only to the extent that such acquisition is required pursuant to binding contractual agreements entered into before signing the Letter Agreement or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for common stock. If the QFI repurchases preferred shares from a holder other than UST it must offer to repurchase a ratable portion of the preferred shares then held by UST.

Repurchase of Equity Securities Held by UST. After having redeemed all of the preferred shares held by UST or after UST has transferred all of the preferred shares to one or more non-affiliates of UST, the QFI will have the right to repurchase any other equity securities of the QFI purchased by UST pursuant to the Letter Agreement and warrant that are then held by UST for their fair market value, determined in accordance with the procedures set forth in the Standard Terms.

Executive Compensation. Until UST no longer owns any debt or equity securities of the QFI, the QFI must take all necessary action to ensure that its employee benefit plans and other executive compensation arrangements with respect to its senior executive officers continue to comply in all respects with Section 111(b) of EESA and the UST's rules.

Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock (the "Designation")

The form of the Designation is an annex to the Standard Terms. Like the Letter Agreement and its annex, the Standard Terms, the Designation permits the QFI to adopt certain institution-specific terms along with an annex of "Standard Provisions" that set forth the terms of the preferred stock, which will be identical for all participating QFIs.

Liquidation Preference

Unless the QFI has existing contractual arrangements that require otherwise, the liquidation amount per share of preferred stock will be $1,000. QFIs who require a higher per share liquidation amount will be required (under the provisions of the Standard Terms) to enter into a depositary arrangement upon UST's request that will allow for depositary receipts with lower liquidation preferences. In the event of a liquidation of the QFI, the preferred shares are entitled to receive their full liquidation amount plus accrued and unpaid dividends before any distribution to holders of common stock or another class of stock of the QFI ranking junior to the preferred shares.

Dividends

The preferred shares pay dividends quarterly in arrears equal to 5% per annum until the fifth anniversary of issuance of the preferred shares, and 9% thereafter. Dividend payment dates will be February 15, May 15, August 15 and November 15 beginning with the first dividend payment date to occur at least 20 calendar days after issuance of the preferred shares. UST may agree to alternative quarterly dividend payment dates in its discretion, for example, if the QFI has existing contractual arrangements that require other payment dates. The QFI may not pay dividends on or make any distributions on the QFI's common stock or any other junior stock (other than dividends payable solely in shares of common stock) and the QFI cannot purchase, redeem or otherwise acquire any such securities, unless all accrued and unpaid dividends on the preferred shares have been paid in full. There are a limited number of exceptions to this dividend priority that track the exceptions described above under "Securities Purchase Agreement--Standard Terms--Covenants--Dividend and Repurchase Restrictions."

Redemption

The preferred shares may not be redeemed prior to the first dividend payment date occurring after the third anniversary of issuance of the preferred shares unless the QFI has received aggregate gross proceeds from one or more Qualified Equity Offerings equal to 25% of the aggregate liquidation amount of the preferred shares on the date of their issuance. In such a case, the QFI may redeem the preferred shares, subject to the approval of the QFI's principal banking regulator, in whole or in part, upon notice as described in the Designation up to a maximum amount equal to the aggregate net cash proceeds received by the QFI from such Qualified Equity Offerings. A "Qualified Equity Offering" is a sale and issuance for cash by the QFI, to persons other than the QFI or its subsidiaries after the preferred shares have been issued, of shares of perpetual preferred stock, common stock or a combination thereof, that in each case qualify as Tier 1 capital of the QFI at the time of issuance under the applicable risk-based capital guidelines of the QFI's principal banking regulator. Qualified Equity Offerings exclude issuances made in connection with acquisitions, issuances of trust preferred securities and issuances of common stock and/or perpetual preferred stock made pursuant to agreements or arrangements entered into, or pursuant to financing plans that were publicly announced, on or prior to October 13, 2008.

After the first dividend payment date occurring after the third anniversary of issuance, the preferred shares may be redeemed at any time, subject to the approval of the QFI's principal banking regulator, in whole or in part, subject to notice as described in the Designation.

In any redemption, the redemption price is an amount equal to the per share liquidation amount plus accrued and unpaid dividends to but excluding the date of redemption.

Voting Rights

The preferred shares do not have voting rights other than the right to approve as a class (i) the authorization of any class or series of capital stock ranking senior to the preferred stock with respect to dividends and/or liquidation rights; (ii) amendments to the Designation that would adversely affect the rights, preferences, privileges or voting powers of the preferred shares; and (iii) certain share exchange, reclassification or merger transactions.

If, however, dividends on the preferred shares have not been paid for an aggregate of six quarterly dividend periods or more, whether consecutive or not, the authorized number of directors of the QFI shall be automatically increased by two and the holders of the preferred stock, voting together with holders of any then outstanding voting parity stock,⁷ have the right to elect those directors at the QFI's next annual meeting of stockholders or at a special meeting of stockholders called for that purpose. The preferred share directors shall be elected annually and shall serve until all accrued and unpaid dividends on all preferred shares have been paid.

Warrant

General Terms

Pursuant to the Letter Agreement, QFIs will issue UST a warrant to purchase shares of common stock with a market value equal to 15% of the UST's initial purchase price. Market value is determined by reference to the average of the QFI's common stock closing price for each of the 20 trading days ending on the day before the QFI agrees to participate in the CPP. The exercise price per share of common stock covered by the warrant is market value, determined using the same formula. The warrant will have a ten-year term and is exercisable in whole or in part at any time prior to expiration. The exercise price of the warrant will be paid, upon notice of exercise from the holder, by the QFI withholding from the warrant exercise shares that number of shares issuable upon exercise of the warrant with a market value (determined in accordance with the terms of the warrant) equal to the aggregate exercise price unless the QFI consents to the holder's tendering the exercise price in cash. This net exercise feature allows the holder to take advantage of the six-month holding period under Rule 144.

Anti-dilution Adjustments

The warrant contains anti-dilution adjustment provisions. In addition to standard adjustments upon stock dividends, stock splits and reclassification, until the earlier of the third anniversary of the issue date of the warrant or the date UST no longer holds the warrant and other than in certain permitted transactions, if the QFI issues any shares of common stock (or securities convertible or exercisable into common stock) for less than 90% of the market price of the common stock on the last trading day prior to pricing such shares, then the number of warrant exercise shares and the exercise will be adjusted. These permitted transactions include public or broadly marketed offerings and sales of common stock or convertible securities for cash conducted by the QFI or its affiliates pursuant to registration under the Securities Act or Rule 144A thereunder on a basis consistent with capital-raising transactions by comparable financial institutions, but do not include other private transactions. Additionally, if the QFI declares any dividends or distributions other than its historical, ordinary cash dividends, the exercise price of the warrant will be adjusted to reflect such distribution, and if the QFI effects a pro rata repurchase of common stock both the number of warrant exercise shares and the exercise price shall be adjusted. Following a business combination transaction, the holder of the warrant will be entitled to receive upon exercise the consideration the holder would have received had the holder exercised the warrant immediately prior to the business combination.

Reduction in Number of Warrant Exercise Shares

As discussed above under "Transfers of Preferred Shares and Warrant Exercise Shares," if, on or prior to December 31, 2009, the QFI completes one or more Qualified Equity Offerings that result in the QFI receiving aggregate gross proceeds equal to at least 100% of the aggregate liquidation preference of the preferred shares, then the number of warrant exercise shares underlying the warrant shall be reduced to 50% of the original number of warrant exercise shares.

¹ Bank of America, BONY/Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, State Street Corporation and Wells Fargo.

² Settlement of Merrill Lynch's transaction was deferred pending merger.

³ We understand that UST will be preparing three or four sets of additional standardized documentation for QFIs who are not SEC reporting companies and/or bank holding companies to address different mechanics that may be necessary, for example to address registration rights for non-reporting companies. We expect, however, that the investment terms for all types of QFIs should be substantively the same.

⁴ A "Company Material Adverse Effect" is a material adverse effect on (i) the business, results of operation or financial condition of the QFI and its consolidated subsidiaries taken as a whole; provided that a Company Material Adverse Effect shall not be deemed to include the effects of (A) changes after the signing date of the Letter Agreement in general business, economic or market conditions (including changes generally in prevailing interest rates, credit availability and liquidity, currency exchange rates and price levels or trading volumes in the United States or foreign securities or credit markets), or any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, in each case generally affecting the industries in the which the QFI and its subsidiaries operate; (B) changes or proposed changes after the signing date of the Letter Agreement in US GAAP or regulatory accounting requirements, or authoritative interpretations thereof; (C) changes or proposed changes after the signing date in securities, banking and other laws of general applicability or related policies or interpretations of governmental entities (other than changes in the case of each of (A), (B) and (C), other than changes or occurrences to the extent that such changes or occurrences have or would reasonably be expected to have a materially disproportionate adverse effect on the QFI and its consolidated subsidiaries taken as a whole relative to comparable US banking or financial services organizations); or (D) changes in the market price or trading volume of the QFI's common stock or any other equity, equity-related or debt securities of the QFI or its consolidated subsidiaries (it being understood and agreed that the exception in (D) does not apply to the underlying reason giving rise to or contributing to any such change); or (ii) the ability of the QFI to consummate the purchase of the securities and the other transactions contemplated by the CPP investment documents and perform its obligations thereunder on a timely basis.

⁵ Piggyback rights do not apply to offerings of equity securities registered on Form S-8 or Form S-4 or to offerings of equity securities to directors, employees, consultants, customers, lenders or vendors of the QFI or a QFI subsidiaries or dividend reinvestment plans.

⁶ See footnote 7 infra.

⁷ Voting parity stock means with regard to any matter as to which the holders of the preferred shares are entitled to vote as specified in the Designation any and all series of parity stock upon which like voting rights have been conferred and are exercisable with respect to such matter. Parity stock means any class or series of stock of the QFI the terms of which do not expressly provide that such class or series will rank senior or junior to the preferred shares as to dividend rights and/or as to right on liquidation, dissolution or winding up of the QFI without regard to whether dividends accrue cumulatively or non-cumulatively.