| Eligible Assets: |
A pool of financial instruments consisting of securities
backed by residential and commercial real estate loans and
corporate debt, derivative transactions that reference such
securities, loans, and associated hedges, as agreed, and
such other financial instruments as the U.S. government
(USG) has agreed to guarantee or lend against (the Pool).
Each specific financial instrument in the Pool must be
identified on signing of the guarantee agreement. Financial
instruments in the Pool will remain on the books of
institution but will be appropriately "ring-fenced."
The following financial instruments will be excluded from
the Pool: (i) foreign assets (definition to be provided by
USG); (ii) assets originated or issued on or after March 14,
2008; (iii) equity securities; and (iv) any other assets that
USG deems necessary to exclude.
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| Size: |
The Pool contains up to $118 billion of financial
instruments. More specifically, the Pool includes cash
assets with a current book (i.e., carrying) value of up to
$37 billion and a derivatives portfolio with maximum
potential future losses of up to $81 billion (based on
valuations agreed between institution and USG).
|
| Term and Coverage of Guarantee: |
Guarantee is in place for 10 years for residential assets and
5 years for non-residential assets. Residential assets will
include loans secured solely by 1-4 family residential real
estate, securities predominately collateralized by such
loans, and derivatives that predominately reference such
securities. Institution has the right to terminate the
guarantee at any time (with the consent of USG), and the
parties will negotiate in good faith as to an appropriate fee
or rebate in connection with any permitted termination. If
institution terminates the guarantee, it must prepay any
outstanding Federal Reserve loan (described below) in full.
Guarantee covers Eligible Losses on the Pool. Eligible
Losses are the aggregate incurred credit losses (net of any
gains and recoveries) on the Pool during the term of the
guarantee, beyond the January 15, 2009, marks and credit
valuation adjustments for the Pool (as agreed between
institution and USG). Eligible Losses do not include
unrealized mark-to-market losses but do include realized
losses from a sale permitted under the asset management
template (described below).
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| Deductible: |
Institution absorbs all Eligible Losses in the Pool up to
$10 billion.
USG (UST/FDIC) will share Eligible Losses in the Pool in
excess of that amount, up to $10 billion. All Eligible Losses
beyond the institution’s deductible will be shared USG
(90%) and institution (10%).
|
| Financing: |
Federal Reserve will provide a non-recourse loan facility to
institution, subject to institution’s 10% loss sharing.
Federal Reserve loan commitment will terminate (and any
loans thereunder will mature) on the termination dates of
USG guarantee. Institution has the right to terminate the
Federal Reserve loan commitment and prepay any Federal
Reserve loans at any time (with consent of Federal
Reserve).
Federal Reserve will charge a fee on undrawn amounts of
20 bp per annum and a floating interest rate on drawn
amounts of OIS plus 300 bp per annum. Interest and fee
payments will be with recourse to the institution.
Institution may draw on Federal Reserve loan facility if and
when additional mark-to-market and incurred credit losses
on the Pool reach $18 billion.
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| Fee for Guarantee – Preferred Stock and Warrants: |
Institution will issue to USG (UST/FDIC) (i) $4 billion of
preferred stock with an 8% dividend rate (under terms
described below); and (ii) warrants with an aggregate
exercise value of 10% of the total amount of preferred
issued. The fee may be adjusted, as necessary, based on
the results of an actuarial analysis of the final composition
of the Pool, as required under section 102(c) of the
Emergency Economic Stabilization Act of 2008.
|
| Management of Assets: |
Institution generally will manage the financial instruments
in the Pool in accordance with its ordinary business
practices, but will be required to comply with an asset
management template provided by USG. This template will
require institution, among other things, to obtain USG
approval (not to be unreasonably withheld) before any
Material Disposition. A Material Disposition is a disposition
of financial instruments in the Pool that creates an Eligible
Loss that, combined with other dispositions of Pool
instruments in the same year, exceeds 1% of the Pool size
at the beginning of the year. This template also will
include, among other things, a foreclosure mitigation policy
acceptable to USG.
|
| Revenues and Risk Weighting: |
Institution will retain the income stream from the Pool.
Risk weighting for the financial instruments in the Pool will
be 20%.
|
| Dividends: |
Institution is prohibited from paying common stock
dividends in excess of $.01 per share per quarter for three
years without USG consent. A factor taken into account for
consideration of USG consent is the ability to complete a
common stock offering of appropriate size.
|
| Executive Compensation: |
An executive compensation plan, including bonuses, that
rewards long-term performance and profitability, with
appropriate limitations, must be submitted to, and
approved by, USG. Executive compensation requirements
will be consistent with the terms of the preferred stock
purchase agreement between USG and institution.
|
| Corporate Governance: |
Other matters as specified, consistent with the terms of the
preferred stock purchase agreement between USG and
institution.
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