CDCI S Corp Term Sheet

Community Development
Capital Initiative
CDFI Subchapter S Corporation
Senior Securities
Summary of Terms of CDCI Senior Securities
Issuer:

A qualifying financial institution (“QFI”) 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”) that is also (i) any U.S. bank or U.S. savings
association not controlled by a Bank Holding Company (“BHC”) or
Savings and Loan Holding Company (“SLHC”); (ii) any top-tier U.S.
BHC that engages predominately in activities that are permitted for
financial holding companies under relevant law, (iii) any top-tier U.S.
SLHC which engages solely or predominately in activities that are
permitted for financial holding companies under relevant law; or (iv) any
U.S. bank or U.S. savings association that is a qualifying S-Corp
subsidiary that is controlled by a BHC or SLHC that itself is a S-Corp
and that does not engage solely or predominately in activities that are
permitted for financial holding companies under relevant law; provided,
that, in each case, (i) the QFI collectively with all of its affiliates satisfies
the requirements of 12 C.F.R. 1805.200(b); (ii) the QFI or an affiliate
thereof is a regulated community development financial institution
(“CDFI”) currently certified by the Community Development Financial
Institution Fund (the “Fund”) of the United States Department of the
Treasury (“UST”) pursuant to 12 C.F.R. 1805.201(a) as having met the
eligibility requirements of the Fund’s Community Development
Financial Institutions Program (the QFI or, if the QFI itself is not
currently certified by the Fund as a CDFI, any affiliate that is currently
certified by the Fund as a CDFI, each, a “Certified Entity”); and (iii) shall
not be any BHC, SLHC, bank or savings association controlled (within
the meaning of 12 U.S.C. 1841(a)(2) and 12 C.F.R. 225(a)(i) in the case
of BHCs and banks; and 12 U.S.C. 1467a (a)(2) and 12 C.F.R. 583.7 in
the case of SLHCs and savings associations) by a foreign bank or
company. For purposes of this program, “U.S. bank”, “U.S. savings
association,” “U.S. BHC” and “U.S. SLHC” means a bank, savings
association, BHC or SLHC organized under the laws of the United States
or any State of the United States, the District of Columbia, any territory
or possession of the United States, Puerto Rico, Northern Mariana
Islands, Guam, American Samoa, or the Virgin Islands. UST will
determine the eligibility and allocation of funds for each QFI after
consultation with the appropriate federal banking agency.

Initial Holder:

UST.

USActive 18647918.10

Security:

Unsecured subordinated debentures (“CDCI Senior Securities”) that do
not constitute a class of stock or represent equity ownership in the issuing
QFI. Each debenture representing a CDCI Senior Security shall be in the
principal amount of $1,000.

Size of Offering:

Each QFI may issue CDCI Senior Securities with an aggregate principal
amount (the “Maximum Investment Amount”) equal to not more than
five percent (5%) of (i), if the QFI is a Certified Entity the risk-weighted
assets (“RWA”) of the QFI, or (ii), if the QFI is not a Certified Entity, the
sum of the RWAs of each of the Certified Entities, in each case less the
aggregate capital or, as the case may be, principal amount of any
outstanding TARP assistance of the QFI.
Any QFI that, in applying to qualify for this program, is determined by
its primary regulators to require additional capital in order to be a
“viable” financial institution, shall be required to receive capital (“Private
Capital”) from one or more private, non-government investors prior to or
concurrently with any purchase of CDCI Senior Securities by UST, such
that the sum of the Private Capital and the amount of CDCI Senior
Securities issued by such QFI under this program shall be sufficient to
establish the QFI’s “viability” on a pro-forma basis. Such QFI receiving
Private Capital shall only be eligible to issue CDCI Senior Securities in
an aggregate amount equal to, on a dollar-for-dollar basis, the amount of
Private Capital it received; provided that the amount of CDCI Senior
Securities issued shall not be greater than the Maximum Investment
Amount; provided further that any Private Capital shall be subordinate to
the CDCI Senior Securities, on terms satisfactory to UST.
QFIs currently participating in the UST Capital Purchase Program
(“CPP”) that issued subordinated debentures to UST may apply to
exchange the entirety of their existing CPP subordinated debentures for
CDCI Senior Securities as set forth herein.1 Additionally, such QFIs
may, but shall not be required to, apply to issue CDCI Senior Securities
to UST in an aggregate principal amount up to the positive difference, if
any, between (i) (x), if the QFI is a Certified Entity, five percent (5%) of
the RWA of the QFI or (y), if the QFI is not a Certified Entity, five
percent (5%) of the sum of the RWAs of each of the Certified Entities
and (ii) the aggregate of any outstanding (x) principal amount of
subordinated debentures issued under CPP and (y) principal amount of
CDCI Senior Securities; provided, however, with respect to either an
exchange or new issuance, (i) the QFI has not breached any

1

Applications for exchanges of CPP subordinated debentures for CDCI Senior Securities shall be made on a
different application form than applications for new issuances of CDCI Senior Securities. Applications solely to
exchange CPP subordinated debentures for CDCI Senior Securities shall not be required to be reviewed by the
primary regulators of the applying QFI.

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representation, warranty or covenant set forth in the documents
governing the CPP subordinated debentures or its sale to UST; and (ii)
the QFI has paid to UST all accrued and unpaid interest then due on the
CPP subordinated debentures.
RWA, for purposes hereunder, shall be as of the most recent fiscal
quarter ended.
Ranking:

Regulatory Capital
Status:

Senior to the QFI’s common stock (and any other class of equity, as
applicable if a change in corporate form, relevant law or tax election
permits other classes of equity). CDCI Senior Securities shall be
expressly subordinated to (i), if issued by a bank or savings association,
claims of depositors and the QFI’s other debt obligations to its general
and secured creditors and (ii), if issued by a BHC or SLHC, senior
indebtedness of the QFI, in accordance with applicable BHC or SLHC
regulations, unless, in the case of either (i) or (ii), such debt obligations
are expressly made pari passu or subordinate to the CDCI Senior
Securities.
Tier 2 for a bank or savings association and Tier 1 for BHCs.

Maturity:

The date (the “Maturity Date”) that is (i), for a bank or savings
association, thirteen (13) years from the date of the investment or (y), for
a BHC or SLHC, thirty (30) years from the date of investment. On the
Maturity Date, the QFI shall repay to UST the principal amount, together
with all accrued and unpaid interest.

Interest Rate:

CDCI Senior Securities will pay cumulative interest at a rate of three and
one-tenth percent (3.1%) per annum until the eighth (8th) anniversary of
the closing date of this investment and thereafter at a rate of thirteen and
eight-tenths percent (13.8%) per annum.2
Interest shall be payable quarterly in arrears on February 15, May 15,
August 15 and November 15 of each year. Interest on the CDCI Senior
Securities shall be computed on the basis of a 360-day year consisting of
twelve 30-day months.

Interest Deferral
For Bank Holding
Companies and
Savings and Loan
Holding

For a QFI that is a BHC or SLHC, interest on the CDCI Senior Securities
may be deferred (the “Deferred Interest”) for one or more periods of up
to 20 consecutive quarters each (each, an “Interest Deferral Period”);
provided, interest shall accrue on any Deferred Interest at the interest rate
then in effect with respect to the CDCI Senior Securities. During any

2

CDCI Senior Securities have 3.1% and 13.8% interest rates which equate to after-tax effective rates (assuming a
35% tax rate) of 2% and 9%, respectively, the same rates applied to securities issued by other classes of institutions
participating in the CDCI.

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Companies:

Interest Deferral Period, no dividends may be paid by the QFI on shares
of equity, trust preferred securities or other capital instruments authorized
under applicable law.

Redemption:

The CDCI Senior Securities shall be redeemable at 100% of the issue
price, plus any accrued and unpaid interest. All redemptions shall be
subject to the approval of the QFI’s primary federal bank regulator.

Restrictions on
Dividends and
Redemptions:

For as long as any CDCI Senior Securities are outstanding, no dividends
may be declared or paid by the QFI on any shares of equity, trust
preferred securities or any other capital instruments it is authorized to
issue under applicable law, nor may the QFI repurchase or redeem any
shares of equity, trust preferred securities or other capital instruments
authorized under applicable law (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),
unless all accrued and unpaid interest for all past interest periods on the
CDCI Senior Securities is paid in full.

Further
Restrictions on
Dividend Increases: For so long as any CDCI Senior Securities are outstanding, no increase in
regularly paid common dividends per share shall be permitted; 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.
Notwithstanding the foregoing, an increase in dividends shall be
permitted 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 CDCI 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.
Additional
Restrictions on
Dividends and
Repurchases:

From and after the eighth (8th) anniversary of the closing date of this
investment, the QFI shall be prohibited from paying common dividends
or repurchasing any equity securities or trust preferred securities without
UST’s consent, unless the CDCI Senior Securities are (x) redeemed in
whole or (y) no longer held by UST or any of its affiliates. These
restrictions are in addition to the restrictions on repurchases of equity set
forth above under “Restrictions on Dividends and Repurchases.”
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Remedies Upon
Event of Default:
Voting Rights:

Principal and accrued interest may only become immediately due and
payable (i.e., accelerated) upon the occurrence of an Event of Default.
The CDCI Senior Securities shall be non-voting, other than class voting
rights on (i) any authorization or issuance of any equity securities, mutual
capital certificates, or other capital instruments authorized under state law
which purport to rank senior to the CDCI Senior Securities, (ii) any
amendment or waiver to the rights of CDCI Senior Securities, or (iii) any
merger, exchange or similar transaction which would adversely affect the
rights of the CDCI Senior Securities.
If interest on the CDCI Senior Securities is not paid in full for eight (8)
interest periods, whether or not consecutive, the holders of the CDCI
Senior Securities will have the right to elect two (2) directors. The right
to elect directors will end when all accrued and unpaid interest has been
paid in full for four (4) consecutive interest periods.

Closing Conditions: The obligation of UST to purchase or otherwise acquire any CDCI Senior
Securities shall be subject to the satisfaction of customary closing
conditions, including, among other things, (i) the QFI having not
breached any representation, warranty or covenant set forth in the
documents governing any obligations of such QFI then outstanding under
the Troubled Asset Relief Program (“TARP Obligations”), including any
CPP subordinated debentures, as determined by UST; (ii) all amounts
then due and payable under any of the QFI’s TARP Obligations have
been paid in full; and (iii) with respect to any CDCI Senior Securities not
acquired through the exchange of outstanding CPP subordinated
debentures, (x) receipt of approval from the QFI’s appropriate federal
banking agency for the issuance of the CDCI Senior Securities and (y)
the satisfaction of any conditions for such issuance imposed by such
appropriate federal banking agency in connection with granting such
approval.
Transfer of
Proceeds to
Certified Entities:

CDFI Covenants:

Each QFI that is not a Certified Entity shall be required to immediately
transfer any proceeds it receives in connection with the sale of the CDCI
Senior Securities to its related Certified Entities as capital contributions.3
Each QFI shall covenant that (i) the Fund has not withdrawn or qualified
its certification that the Certified Entities meet the requirements of 12
C.F.R. 1805.200(b) and 12 C.F.R. 1805.201(b)(1)-(6), (ii) it and all of its

3

QFIs shall not be required to transfer any funds to any Certified Entity in connection with an exchange
of CPP subordinated debentures for CDCI Senior Securities.

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affiliates collectively meet the eligibility requirements of 12 C.F.R. 1805,
(iii) each Certified Entity’s primary mission is promoting community
development, as may be determined by UST from time to time based on
the criteria set forth in 12 C.F.R. 1805.201(b)(1), (iv) each Certified
Entity’s predominant business activity is the provision, in arms-length
transactions, of “Financial Products”, “Development Services” and/or
other similar financing, (v) each Certified Entity serves a “Target
Market” by serving one or more “Investment Areas” and/or “Targeted
Populations” as may be determined by UST from time to time
substantially in the manner set forth in 12 C.F.R. 1805.201(b)(3), (vi)
each Certified Entity directly, through an affiliate, or through a contract
with another provider, provides “Development Services” in conjunction
with its “Financial Products”, (vii) each Certified Entity maintains
accountability to residents of its “Investment Area(s)” or “Targeted
Population(s)” through representation on its governing board or directors
or otherwise and (viii) each Certified Entity is not an agency or
instrumentality of the United States, or any State or political subdivision
thereof, as described in 12 C.F.R. 1805.201(b)(6). The terms “Financial
Products”, “Development Services”, “Target Market”, “Investment
Areas” and “Targeted Populations” are used herein in the same manner
as such terms are used in 12 C.F.R. 105.201(b).
Each QFI shall also deliver to UST (x) on the date that is 180 days after
the closing date of this investment, and (y) annually at the end of each
fiscal year of such QFI (i) reports and other documents sufficient to
evidence each Certified Entity’s status as a CDFI including
documentation evidencing its ongoing compliance with the Fund’s
requirements for CDFIs and (ii) a certification that such QFI and each
Certified Entity remains in compliance with the foregoing covenants.
Additionally, each QFI shall be required to notify UST immediately of
any breach of the foregoing covenants.
Remedies for breaches of the foregoing covenants shall be set forth in the
definitive documentation for the CDCI Senior Securities.
Access and
Information:

So long as UST or any of its affiliates holds CDCI Senior Securities
having a face amount of at least ten percent (10%) of its initial
investment, each QFI shall permit UST and its agents, consultants,
contractors and advisors (x), acting through the QFI’s appropriate federal
banking agency, or otherwise to the extent necessary to manage, evaluate
or transfer UST’s investment, to examine its corporate books and make
copies thereof and to discuss the affairs, finances and accounts of such
QFI with the principal officers of such QFI, upon reasonable notice and
at such reasonable times and as often as UST may reasonably request and
(y) to review any information material to UST’s investment provided by
such QFI to its appropriate federal banking agency.
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At any time that any CDCI Senior Securities are outstanding, each QFI
shall deliver to UST (i) annually at the end of each fiscal year of such
QFI, an audited (to the extent available) consolidated balance sheet of
such QFI as of such fiscal year, and audited consolidated statements of
income, retained earnings and cash flows of such QFI for such year,
prepared in accordance with GAAP and setting forth in each case in
comparative form the figures for the previous fiscal year; and (ii) copies
of any quarterly reports provided to other equity holders of such QFI or
the QFI’s management. Additionally, to the extent a QFI receives an
assessment on its internal controls from its auditors at any time during
any period in which UST or any of its affiliates holds CDCI Senior
Securities, a copy of such assessment shall also be delivered to UST.
On an annual basis during any period in which UST or any of its
affiliates holds CDCI Senior Securities, each QFI shall be required to
complete and deliver to UST a survey, in a form specified by UST,
describing, among other things, how it has utilized the capital it received
in connection with the issuance of the CDCI Senior Securities and the
effects of such capital on the operations and status of the QFI.
Events of Default:

For a QFI that is a BHC or SLHC, the bankruptcy of the QFI, the
receivership of a major bank subsidiary of the QFI or, to the extent any
Interest Deferral Period has occurred, the failure by the QFI to pay any
related Deferred Interest (and any interest thereon) on or before the first
day immediately following the last day of such Interest Deferral Period.
For a QFI that is a bank or savings association, placement of the QFI into
receivership or conservatorship.

Transparency,
Executive
Compensation and
Employ American
Workers Act:

Affiliate
Transactions:

Each QFI and its subsidiaries shall take all necessary action to ensure that
it and its executive officers, respectively, are in compliance with (i) all
UST guidelines regarding transparency, reporting and monitoring; (ii)
Section 111 of the EESA, as implemented by the TARP Standards for
Compensation and Corporate Governance set forth in 31 C.F.R. Part 30,
all rules, regulations and guidance issued thereunder; (iii) the provisions
of the Employ American Workers Act (Section 1611 of Division A, Title
XVI of the American Recovery and Reinvestment Act of 2009), Public
Law No. 111-5, effective as of February 17, 2009; and (iv) in the case of
(ii) and (iii), all rules, regulations and guidance issued thereunder.
For as long as UST or any of its affiliates holds any debt or equity
securities (including the CDCI Senior Securities) of the QFI, the QFI and
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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 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.
Warrant:

Subject to the requirements of Section 113(d)(3)(A) of the Emergency
Economic Stabilization Act, QFIs participating in this program shall not
be required to issue warrants to UST.

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