Docstoc

Clifford Chance

Document Sample
Clifford Chance Powered By Docstoc
					  ________________________________________________________________________


                  GUIDANCE NOTES TO THE

GLOBAL MASTER SECURITIES LENDING AGREEMENT
  ________________________________________________________________________




                        CLIFFORD CHANCE
                                                             CONTENTS

                                                                                                                                       Page

Introduction ................................................................................................................................ 2
Section 1: Quick Reference Guide ............................................................................................. 2
Section 2: Summary of Provisions ............................................................................................ 3
Section 3: Comparison with Overseas Securities Lending Agreement (December 1995) . 15




London-2/650448/02                                                                                                               I0713/NEW
INTRODUCTION

The International Securities Lenders Association (ISLA) on 7 May 2000 published its revised
stocklending agreement, the Global Master Securities Lending Agreement (the "Agreement")
to replace the:

(i)        Overseas Securities Lender's Agreement (December 1995) (the "OSLA");

(ii)       Master Gilt Edged Stock Lending Agreement (1996); and

(iii)      Master Equity and Fixed Interest Stock Lending Agreement (1996).

The Agreement was developed with the following aims:

       to produce a document which encompassed stocklending transactions relating to all types of
        securities (including gilts) and equities under one agreement;

       to internationalise the agreement to reflect the increased use of the OSLA by non-UK
        parties;

       to take account of changes in market practices and to expand its scope to reflect rules and
        practices of organisations relevant to stocklending including clearing and settlement
        systems;

       to address issues raised by the increased use of the OSLA in new jurisdictions; and

       to produce a more user friendly agreement particularly for users outside the UK.

This agreement has been approved by the London Stock Exchange for the purposes of its
default rules.

A separate UK tax addendum is available for use where one of the parties is resident in the UK
for tax purposes.

An English law netting opinion, given by Clifford Chance is also available.

The Agreement, the UK tax addendum and the English law netting opinion can be found on
ISLA's website at Isla.co.uk.




London-2/650448/02                                -1-                                         I0713/NEW
    SECTION 1: QUICK REFERENCE GUIDE

                                                  Securities (paragraph 4.1)
                                                                                              Borrower
Commencement
                         Lender
of Loan
                                                  Collateral (paragraph 5.1)



                                            (1) Interest on Cash Collateral (paragraph 7.2)
                                            (2) Income on Collateral (paragraph 6.1)
                                                                                               Borrower
 During term of           Lender
 Loan                                       (1) Securities lending fee (paragraph 7.1)
                                            (2) Income on Securities (paragraph 6.1)



                                        Equivalent Collateral (paragraphs 8.4 and 8.5)
                                                                                              Borrower
 Maturity of Loan        Lender
                                              Equivalent Securities (paragraph 8.1)


    Parties' rights to vary loan

    (i)     Lender's right to terminate a Loan (paragraph 8.2).
    (ii)    Borrower's right to terminate a Loan (paragraph 8.3).
    (iii)   Borrower's right to substitute Collateral for Alternative Collateral (paragraph 5.3).
    (iv)    Lender's right to require substitution of Letter of Credit provided by Borrower for other
            Collateral (paragraph 5.9).

    Parties' remedies

    (i)     Right to withhold payments/deliveries (paragraph 8.6).
    (ii)    Failure to deliver Equivalent Securities by Borrower, Lender may:
            (a)      continue Loan;
            (b)      terminate Loan;
            (c)      serve notice of Event of Default (paragraph 9.1).
    (iii)   Failure to deliver Equivalent Collateral by Lender, Borrower may:
            (a)      terminate Loan;
            (b)      serve notice of Event of Default (paragraph 9.2).
    (iv)    Pursuant to occurrence of Event of Default (paragraph 14), set-off (paragraph 10)
            together with Non-Defaulting Party's right to reimbursement of costs and expenses.
    (v)     In the event of a failure to deliver Equivalent Securities or Equivalent Collateral, right to
            reimbursement of:
            (a)      costs and expenses incurred resulting from such failure to deliver (paragraph
                     9.3); and
            (b)      costs of any buy-in against Transferee (paragraph 9.4).
    (vi)    Right to interest on outstanding payments (paragraph 15).




    London-2/650448/02                                -2-                                        I0713/NEW
SECTION 2: SUMMARY OF PROVISIONS

Paragraph

1.      APPLICABILITY

        The Agreement is a master agreement intended to govern securities' lending transactions
        entered into between parties in respect of UK and overseas securities (including UK
        gilts) and equities.

        The Agreement is a standard form agreement which may be amended by parties by way
        of additional terms and conditions contained in either the Schedule or addenda or
        annexures to the Agreement.

2.      INTERPRETATION

2.1     Definitions

        This paragraph contains various defined terms used throughout the Agreement. Terms
        used within a specific paragraph only are defined within that paragraph.

        One of the key definitions is that of "Market Value" which is important for determining
        the value of collateral to be provided and the marking to market requirements for
        collateral during the currency of a loan. "Market Value" is generally determined by the
        lender on a bid price basis by reference to a reputable pricing service chosen reasonably
        by the Lender in good faith. Any accrued income is added to the valuation to the extent
        not included in the price. Normally, the previous day's closing prices will be used but
        either party may choose the latest available price where in its opinion an exceptional
        price movement has occurred since the closing price on the previous business day.

        Suspended securities are valued at zero for margining purposes and at close of business
        on the day of suspension (unless otherwise agreed) for other purposes.

        Different valuation provisions apply for the purposes of applying set-off after an event of
        default (see paragraph 10 below).

2.4     Currency conversions

        This paragraph provides for the rate of exchange at which conversions into the Base
        Currency are to be made. (The Base Currency, which is used for determining all prices,
        sums or values under the Agreement, is required to be specified in the Schedule).

2.5     This paragraph deals with the effects of the introduction of a new currency as the lawful
        currency of a country in respect of parties' payment and delivery obligations under the
        Agreement.

3.      LOANS OF SECURITIES

        This paragraph sets out the framework provisions whereby the lender will lend securities
        to the borrower in accordance with the terms of the Agreement. (A party may act as
        lender in respect of a transaction but as borrower in respect of another). The paragraph
        also deals with the status of any confirmation produced by a party (purporting to set out


London-2/650448/02                             -3-                                       I0713/NEW
        the terms of any specific loan of securities) providing that any such confirmation shall
        not affect the prior communication between the parties by which the terms of the
        relevant loan of securities were agreed.

4.      DELIVERY

4.1     Delivery of Securities on commencement of Loan

        This paragraph sets out the mechanism for the obligation of the lender to deliver
        securities to the borrower in respect of any specific loan. Delivery is deemed to have
        been made unless otherwise agreed, on delivery of the necessary instruments of transfer
        or effective instructions to the operator of the clearing system in which the securities are
        held.

4.2     Requirements to effect delivery

        This paragraph provides for the outright transfer of any securities borrowed and any
        collateral delivered. Accordingly, the borrower has an obligation to deliver securities
        equivalent to those borrowed and the lender has an obligation to deliver collateral
        equivalent to that provided to it by the borrower. Any equivalent securities and
        equivalent collateral must also be provided by way of outright transfer. The securities,
        equivalent securities, collateral and equivalent collateral must be provided free of any
        encumbrances.

4.3     Deliveries to be simultaneous unless otherwise agreed

        Where the Agreement provides for deliveries to be made simultaneously by the parties,
        this paragraph expressly permits a party to waive its right to a corresponding payment or
        delivery from the other party to be made simultaneously whether due to market practice
        or practical difficulties.

4.4     Deliveries of Income

        This paragraph provides for the mechanism for the delivery of income payments. The
        obligation to make such payments is set out in paragraph 6.1 (see below). With regard to
        a distribution in the form of securities made in respect of any loaned securities or
        collateral, please refer to paragraph 6.2 (see below).

5.      COLLATERAL

5.1     Delivery of Collateral on commencement of Loan

        This paragraph contains the obligation of the borrower to provide collateral to the lender
        simultaneously with the delivery of the loaned securities to it by the lender. Where the
        parties agree that a party acting in the capacity of lender is to be pre-collateralised, the
        parties may wish to insert the following provision:

        "Unless otherwise agreed in respect of any particular Loan, notwithstanding anything to
        the contrary in this Agreement (i) any obligation of Lender to deliver Securities in
        respect of any Loan to Borrower is conditional upon Lender having received the
        Collateral agreed to be provided in respect of such Loan and (ii) any obligation of


London-2/650448/02                              -4-                                       I0713/NEW
        Lender to repay or redeliver (as the case may be) Equivalent Collateral upon the
        termination of a Loan or upon the substitution of Alternative Collateral is conditional
        upon Lender verifying receipt of Equivalent Securities.".

        Delivery of collateral is deemed to have been made, unless otherwise agreed, on delivery
        of the necessary instruments of transfer or effective instructions to the operator of the
        clearing system in which the collateral is held.

5.2     Deliveries through payment systems generating automatic payments

        In the case of a settlement system that does not allow a transfer of securities to be made
        without a corresponding delivery or payment transfer (for example, the Central Gilts
        Office), this paragraph, in summary, provides that the automatically generated payment
        or delivery may be used to discharge an existing obligation. Otherwise, it will be
        deemed to be collateral or equivalent collateral, as the case may be, until it is substituted
        for alternative collateral or equivalent collateral, if an obligation to deliver collateral or
        equivalent collateral existed. If no such obligation existed, or if such obligation existed,
        upon the delivery of the alternative collateral or equivalent collateral, the recipient of the
        automatically generated payment or delivery is required to make an equivalent payment
        or delivery to the other party.

5.3     Substitutions of Collateral

        This paragraph sets out the ability of a borrower to substitute collateral (without the
        consent of the lender) it has provided to the lender for alternative collateral acceptable to
        the lender.

5.4     Marking to Market of Collateral during the currency of a Loan on aggregated basis

        This paragraph sets out the margin maintenance provisions, that is, the market value of
        the collateral (provided in respect of all loans) is to equal the market value of all loaned
        securities together with an additional amount known as the "Margin" (as specified in the
        Schedule in relation to each type of acceptable collateral under the Agreement as a
        percentage of the market value of each form of acceptable collateral). The borrower has
        the right to call for excess collateral provided to the lender and the lender has the right to
        demand further collateral if a collateral deficiency exists.

5.5     Marking to Market of Collateral during the currency of a Loan on a Loan by Loan
        basis

        Paragraph 5.5 sets out margin maintenance provisions where the parties have elected (in
        the Schedule) to margin on a loan by loan basis as opposed to a global basis as provided
        for by paragraph 5.4.

5.6     Requirements to redeliver excess Collateral

        Where aggregated margining applies (pursuant to paragraph 5.4), unless the parties have
        elected otherwise (in the Schedule) this paragraph nets the obligations of:

        (i)          in respect of transactions where a party ("X") is acting in the capacity of lender
                     and the other party ("Y") is acting in the capacity of borrower:


London-2/650448/02                                 -5-                                       I0713/NEW
                     (a)   X being required to deliver equivalent collateral to Y; or

                     (b)   Y being required to provide further collateral to X;

                     as the case may be, and

        (ii)         in respect of transactions where X is acting in the capacity of borrower and Y is
                     acting in the capacity of lender:

                     (a)   X being required to provide further collateral to Y; or

                     (b)   Y being required to deliver equivalent collateral to X,

                     as the case may be.

5.7     Where parties margin on an aggregated basis and a party is required to deliver further
        collateral or redeliver equivalent collateral to the other party in respect of all loans
        entered into, this paragraph provides for the allocation of such delivery or redelivery to
        individual loans, so that at the maturity of each loan, the equivalent collateral to be
        delivered by the lender to the borrower is ascertainable.

5.8     Timing of repayments of excess Collateral or deliveries of further Collateral

        This paragraph provides that any transfers of collateral or equivalent collateral required
        during the course of a loan shall be made (unless otherwise agreed) on the same business
        day as the relevant demand for transfer. Delivery takes effect on delivery of the
        necessary instruments of transfer or effective instructions to the operator of the clearing
        system in which the collateral is held.

5.9     Substitutions and extensions of Letters of Credit

        This paragraph sets out the lender's right to require a letter of credit provided to it by the
        borrower by way of collateral to be substituted for alternative collateral acceptable to the
        lender. Prior to the expiry of a letter of credit, the borrower is obliged to obtain an
        extension or replacement.

6.      DISTRIBUTIONS AND CORPORATE ACTIONS

6.1     Manufactured Payments

        This paragraph provides for the borrower to provide to the lender a sum (or property)
        equivalent to any income that the lender would have been entitled to receive if it had not
        loaned the relevant securities to the borrower. (The tax treatment of (i) the income if it
        had been paid to the lender; (ii) if the borrower is holding the securities at the relevant
        time, the income paid to the borrower; and (iii) the payment from the borrower to the
        lender of equivalent income are, therefore, relevant). The lender has a corresponding
        obligation with regard to any income paid in respect of collateral. In each case, the
        obligation is not dependent upon the borrower holding the loaned securities or the lender
        holding the relevant collateral at the time the income is paid and thereby actually
        receiving such income.

6.2     Income in the form of Securities


London-2/650448/02                                 -6-                                      I0713/NEW
        Where a distribution comprising securities is made in respect of any loaned securities or
        collateral, this paragraph provides for such securities to be added to the loaned securities
        or collateral, as the case may be (instead of an obligation to deliver equivalent securities
        at the time of the distribution) provided that the margin maintenance provisions are
        complied with.

6.3     Exercise of voting rights

        This paragraph provides that the borrower, in respect of loaned securities and the lender,
        in respect of collateral, has no obligation to arrange for any voting rights arising in
        respect of any such loaned securities or collateral to be exercised in accordance with the
        instructions of the other party.

6.4     Corporate actions

        If a corporate action (such as a rights issue or a takeover offer) arises in respect of any
        loaned securities or collateral, this paragraph permits the lender, in the case of loaned
        securities and the borrower, in the case of collateral, to require that equivalent securities
        or collateral, as the case may be, to be redelivered take the form resulting from the
        exercise of the right constituting the corporate action being exercised in accordance with
        the instructions of the lender or borrower, as the case may be, provided that the relevant
        party gives notice in good time to the other party prior to the right constituting the
        corporate action becoming exercisable.

7.      RATES APPLICABLE TO LOANED SECURITIES AND CASH COLLATERAL

7.1     Rates in respect of Loaned Securities

        This paragraph contains the obligation of the borrower to pay a fee to the lender based
        upon the value of the securities borrowed. It is envisaged that these fees will be set out
        in a separate document agreed between the parties.

7.2     Rates in respect of Cash Collateral

        This paragraph provides for the lender to pay the borrower interest on any cash collateral
        delivered to it by the borrower as agreed between the parties. The paragraph permits any
        such interest payment to be set-off against any securities lending fee due under paragraph
        7.1.

7.3     Payment of rates

        This paragraph sets out the periods by which securities lending fees and interest on cash
        collateral is to be calculated. It also sets out the time when such sums are payable.
        Payments accrue from the date of delivery of securities up to the day prior to redelivery.
        Unless otherwise agreed, payments are due one week after the end of the month to which
        they relate.

8.      REDELIVERY OF EQUIVALENT SECURITIES

8.1     Delivery of Equivalent Securities on termination of a Loan




London-2/650448/02                              -7-                                        I0713/NEW
        This paragraph contains the obligation of the borrower to deliver securities equivalent to
        those borrowed by it to the lender upon the termination of the relevant loan. Such
        securities are deemed to have been delivered, unless otherwise agreed, on delivery of the
        necessary instruments of transfer or effective instructions to the operator of the clearing
        system in which the securities are held.

8.2     Lender's right to terminate a Loan

        This paragraph sets out the lender's right to terminate a loan of securities. Subject to any
        terms of the relevant loan (for example, where a fixed period has been agreed the lender
        may terminate on giving notice equal to the standard settlement time for the securities
        concerned and the borrower must redeliver by the end of such period.

8.3     Borrower's right to terminate a Loan

        This paragraph sets out the borrower's right to terminate a loan of securities. Subject to
        the terms of the relevant loan, the borrower may terminate and redeliver at any time.

8.4     Redelivery of Equivalent Collateral on termination of a Loan

        This paragraph contains the obligation of the lender to deliver collateral equivalent to
        that provided to it by the borrower simultaneously with the delivery of equivalent
        securities to it by the borrower on termination of a loan.

8.5     Redelivery of Letters of Credit

        This paragraph sets out how the obligation to deliver equivalent collateral where that
        collateral is in the form of a letter of credit is to be effected. Either the letter of credit is
        delivered for cancellation or the lender is to consent to a reduction in its value.

8.6     Redelivery obligations to be reciprocal

        This paragraph permits a party that is obliged to make a delivery or payment to withhold
        such delivery or payment if arrangements have not been made by the other party to
        ensure that a corresponding delivery or payment due from the other party will be made.

9.      FAILURE TO REDELIVER

9.1     Borrower's failure to redeliver Equivalent Securities

        This paragraph sets out the lender's remedies if the borrower fails to deliver equivalent
        securities upon the termination of a loan. The lender may elect to:

        (i)          continue the loan; or

        (ii)         terminate only the affected loan; or

        (iii)        serve notice of an Event of Default thereby closing out all outstanding loans.

        In the case of (ii) above, the parties' payment and delivery obligations in respect of such
        loan are terminated and replaced by an obligation to pay the difference between the
        market value of the relevant equivalent securities and relevant equivalent collateral. In



London-2/650448/02                                 -8-                                         I0713/NEW
        addition, the borrower is liable for certain costs and expenses of the lender (as provided
        for by paragraphs 9.3 and 9.4).

9.2     Lender's failure to redeliver Equivalent Collateral

        This paragraph sets out the borrower's remedies if the lender fails to deliver equivalent
        collateral upon the termination of a loan. The borrower may:

        (i)          terminate only the affected loan; or

        (ii)         serve notice of an Event of Default thereby closing out all outstanding loans.

        Termination of the affected loan has the same consequences as a termination of a loan
        pursuant to paragraph 9.1, except that the lender is liable for certain costs and expenses
        of the borrower (as provided for by paragraphs 9.3 and 9.4).

9.3     Failure by either Party to redeliver

        This paragraph provides an additional remedy in the event of a failure to deliver
        equivalent securities or equivalent collateral within the specified time. The party that has
        failed to deliver (the "Transferor") is liable to the other party (the "Transferee") for any
        interest, overdraft or similar costs and expenses incurred by the Transferee arising from
        the Transferor's failure to deliver (i) including costs incurred by the Transferee in respect
        of any failure by the Transferee to fulfil an onward sale or delivery obligation with a
        third party in respect of the securities the Transferor was to have delivered to it; but (ii)
        excluding indirect or consequential loss (the costs set out in (i) are considered to be a
        direct cost).

9.4     Exercise of buy-in on failure to redeliver

        In addition to the remedies set out in paragraphs 9.1 - 9.3, the Transferor is also liable for
        any costs of a buy-in exercised against the Transferee. A "buy-in" is where:

        (i)          the Transferee was due to deliver to a third party the securities that were failed
                     to be delivered by the Transferor;

        (ii)         as a result of the failure by the Transferor to deliver the securities, the
                     Transferee fails to meet the delivery obligation to the third party;

        (iii)        the third party goes into the market and buys-in the relevant securities.

        The Transferee is liable to the Transferor for the costs of such buy-in. The Transferor
        would therefore be liable to the Transferee for the excess of the value assigned to the
        loaned securities as agreed by the Transferee and the third party and the price paid by the
        third party together with any associated expenses of the third party in respect of its
        purchase.

10.     SET-OFF ETC

        If an Event of Default (see paragraph 14 below) occurs, both parties' payment and
        delivery obligations are accelerated. Such obligations are replaced by an obligation of
        one party to pay a single cash sum to the other, determined on the following basis:


London-2/650448/02                                  -9-                                          I0713/NEW
        (i)          the non-defaulting party makes the following calculations as of the business day
                     following the date of the Event of Default (or if the Event of Default occurred
                     outside normal working hours, on the second business day following the date of
                     the Event of Default):

                     (a)   the value of the securities that were to have been delivered to it by the
                           defaulting party being the hypothetical cost of buying such securities
                           (together with associated fees and expenses), less any payments of
                           equivalent income due (in accordance with paragraph 6.1) in respect of
                           such securities but unpaid;

                     (b)   the value of the securities that it was to have delivered to the defaulting
                           party being the hypothetical cost of selling such securities (less all
                           associated costs and expenses), less any payments of equivalent income
                           due in respect of such securities but unpaid;

        (ii)         if the amount calculated under (a), together with any cash payments due from
                     the defaulting party is greater than the amount calculated under (b) together
                     with any cash payments due to the defaulting party, then the defaulting party
                     shall pay the difference to the non-defaulting party; and

        (iii)        if the amount calculated under (a) together with any cash payments due from
                     the defaulting party is less than the amount calculated under (b) together with
                     any cash payments due to the defaulting party, then the non-defaulting party
                     shall pay the difference to the defaulting party.

10.5    However, if between the date of the Event of Default and the fifth business day
        thereafter, the non-defaulting party actually purchases securities to have been delivered
        by the defaulting party or sells securities to have been delivered to the defaulting party,
        then the costs of any such purchase or proceeds of sale (in ease case, taking into account
        any associated expenses and payments of equivalent income due but unpaid) shall be
        substituted for the amounts calculated as set out in (a) and/or (b) above, as the case may
        be (adjustments to be made depending upon the number of securities bought or sold and
        the number of securities to have been delivered).

10.7    Other costs, expenses and interest payable in consequence of an Event of Default

        The defaulting party is liable to the non-defaulting party for legal and other professional
        expenses incurred by the non-defaulting party as a result of the Event of Default,
        together with interest thereon, calculated at one month LIBOR, unless otherwise agreed.

11.     TRANSFER TAXES

        Borrower is liable to pay all transfer taxes (such as stamp duties on transfers of securities
        and collateral) and indemnifies the lender against any liability arising from its failure to
        pay any such tax.

12.     LENDER'S WARRANTIES




London-2/650448/02                                - 10 -                                    I0713/NEW
        A party acting as lender warrants to the other on a continuing basis as regard its authority
        and capacity to perform its obligations under the Agreement, its ability to make an
        outright transfer of securities; and that it is acting as principal, or where it is acting as
        agent, that it is in compliance with the relevant conditions (set out in paragraph 16.2).

13.     BORROWER'S WARRANTIES

        A party acting as borrower warrants to the other on a continuing basis that it has all
        necessary approvals, is authorised and has capacity to perform its obligations under the
        Agreement, its ability to make an outright transfer of collateral and that it is acting as
        principal. (A borrower may not act as agent under the Agreement).

14.     EVENTS OF DEFAULT

        The events that may constitute an Event of Default (after service of a default notice,
        except in respect of certain events that may constitute an Act of Insolvency) include:

        (i)          a lender failing to deliver securities;

        (ii)         a borrower failing to pay cash collateral or deliver collateral or lender failing to
                     repay cash collateral or deliver equivalent collateral;

        (iii)        a party failing to comply with its collateral obligations during the currency of a
                     loan under paragraph 5;

        (iv)         a party failing to make payments of equivalent income;

        (v)          a borrower failing to deliver equivalent securities;

        (vi)         the occurrence of an Act of Insolvency in respect of a party;

        (vii)        misrepresentation or breach of warranty;

        (viii)       admission of non-performance by a party;

        (ix)         action taken by securities exchange or regulatory authority;

        (x)          transfer of assets to a trustee;

        (xi)         breach of any other obligation (with a thirty day grace period).

14.2    Each party is obliged to notify the other of the occurrence of an Event of Default or
        potential Event of Default in respect of itself.

14.3    No remedies, except those set out in the Agreement, may be sought by a party pursuant
        to the occurrence of an Event of Default.

14.4    Neither party is liable for consequential loss.

15.     INTEREST ON OUTSTANDING PAYMENTS

        This paragraph provides for interest to be paid on amounts due but unpaid. The rate is
        one month LIBOR unless otherwise agreed.



London-2/650448/02                                      - 11 -                                 I0713/NEW
16.     TRANSACTIONS ENTERED INTO AS AGENT

        This paragraph sets out the provisions relating to a transaction where a party is acting as
        an agent lender on behalf of a third party.

16.1    Power for Lender to enter into Loans as agent

        This paragraph permits a party acting in the capacity of lender to act as agent (if such
        party so indicates in the Schedule).

16.2    Conditions for agency loan

        The Agreement does not allow transactions to be entered into on an undisclosed principal
        basis. Accordingly, the fact that securities are being lent by a party as agent on behalf of
        a third party (the "Principal") and the identity of the Principal must be disclosed at the
        time the loan is entered into.

        Further, a party is prohibited from acting as an agent lender unless it has been authorised
        by a Principal to perform on behalf of the Principal the Principal's obligations under the
        Agreement (see commentary on paragraph 16.4 below).

16.3    Notification by Lender of certain events affecting the principal

        An agent lender is required to inform the other party of: (i) an event which would
        constitute an Act of Insolvency with respect to any Principal; and (ii) if the agent lender
        is, at any time, not duly authorised by the Principal to act on its behalf.

16.4    Status of agency transaction

        In effect, there is deemed to be a separate securities' lending agreement (on the same
        terms as those entered into between the agent lender and borrower) between each
        Principal and borrower. However, in respect of each such separate securities' lending
        agreement, an event of default in respect of the agent lender is deemed to be an event of
        default with respect to the Principal.

16.5    Warranty of authority by Lender acting as agent

        Each time a transaction is entered into by a party acting as agent lender, it is required to
        warrant to the other party that it has been duly authorised by the Principal in respect of
        which it is purporting to act.

17.     TERMINATION OF THIS AGREEMENT

        Each party has the right to terminate the Agreement on fifteen business days notice in
        writing. Any such termination will not, however, affect the parties' existing obligations
        in respect of any outstanding loans of securities.

18.     SINGLE AGREEMENT

        This paragraph provides that all loans entered into form part of a single contractual
        relationship. This is intended to prevent "cherry picking" by a liquidator, that is, a
        liquidator of an insolvent party only affirming those loans that it considers to be


London-2/650448/02                             - 12 -                                     I0713/NEW
        profitable and disaffirming the rest. It is also intended to reinforce the close-out netting
        provisions by demonstrating contractual interdependence between the loans.

19.-27. The Agreement also contains provisions relating to the following:

        (i)          severance of void/unenforceable provisions (paragraph 19);

        (ii)         neither party to seek specific performance, which is designed to reinforce the
                     close out and netting provisions (paragraph 20);

        (iii)        how notices may be delivered and when they take effect (paragraph 21);

        (iv)         non-assignment of rights or obligations (paragraph 22);

        (v)          exercise or non-exercise of right not to constitute waiver of any other right
                     (paragraph 23);

        (vi)         governing law (English law) and submission to exclusive jurisdiction of English
                     courts (paragraph 24);

        (vii)        significance of time stipulations in the Agreement (paragraph 25);

        (viii)       permissibility of recording of telephone conversations between the parties
                     (paragraph 26); and

        (ix)         waiver of sovereign or any other immunity (paragraph 27).

28.     MISCELLANEOUS

        This paragraph contains various provisions, including:

        (i)          an entire agreement clause, that is, the Agreement (and no other prior
                     correspondence) sets out the entire understanding of the parties;

        (ii)         a warranty from the party who has prepared the Agreement (as defined in the
                     Schedule) that it conforms to the standard form Agreement unless otherwise
                     notified;

        (iii)        no amendment to be effective unless in writing;

        (iv)         survival of warranties post termination of the Agreement for so long as
                     obligations remain outstanding;

        (v)          execution of Agreement in counterparts; and

        (vi)         exclusion of third party rights.

SCHEDULE

1.       Parties are required to specify the acceptable forms of collateral to be provided under
         the Agreement and the applicable Margin in respect of each such form. If parties wish
         margining to occur on a loan by loan basis, then the parties are required to mark the
         appropriate box accordingly.



London-2/650448/02                                  - 13 -                                 I0713/NEW
2.       Parties are required to specify the Base Currency.

3.       The definition of "Business Day" is in part based upon days on which banks and
         securities markets are open for business in certain places. The parties are required to
         specify the places by reference to which the definition of Business Day is to be
         construed.

4.       Parties are required to specify the office through which they are acting for the purposes
         of the Agreement and also notice details.

5.       Parties are required to specify details of their process agent, if appropriate.

6.       If a party contemplates acting in the capacity of an agent lender, it is required to mark
         the appropriate box accordingly.

7.       For the purposes of paragraph 28.2 of the Agreement, the identity of the party preparing
         the Agreement is required to be stated by marking the appropriate box.




London-2/650448/02                              - 14 -                                     I0713/NEW
SECTION 3: COMPARISON OF OVERSEAS SECURITIES LENDING AGREEMENT
(DECEMBER 1995) ("OSLA") AND GLOBAL MASTER SECURITIES LENDING
AGREEMENT (THE "AGREEMENT")

(A)     GENERAL POINTS TO NOTE

1.      The Agreement has been drafted to be less UK specific than the OSLA. For example,
        the Agreement contains no provisions corresponding to the UK tax provisions and
        provisions relating to the CGO (Central Gilts Office) contained in the OSLA.

2.      The Agreement has been drafted to be more user-friendly and accordingly, certain
        provisions contained in the OSLA have been re-ordered and/or consolidated so that, for
        example, provisions relating to the same subject matter are contained in the same clause.

3.      Provisions in the Agreement are referred to as "paragraphs" as opposed to the OSLA that
        refers to "Clauses" (and references to "paragraphs" and "Clauses" in this section shall be
        to provisions of the Agreement and OSLA respectively).

4.      The definition of a term is set out within a paragraph (as opposed to being set out in
        paragraph 2 (Interpretation) at the beginning of the Agreement) if such defined term is
        used only within that paragraph.

(B)     SPECIFIC CHANGES TO NOTE

5.      Description of parties: Parties to the Agreement may specify in the Schedule a
        particular branch or office (a "Designated Office") through which they are acting for the
        purposes of the Agreement. The Agreement does not provide for a party to act through
        multiple branches or offices.

6.      Paragraph 2 Interpretation:

        (i)          The definition of "Business Day" has been amended such that it is a day, other
                     than a Saturday or Sunday, on which banks and securities markets are open for
                     business generally in such places as the parties to the Agreement specify in the
                     Schedule and, in relation to a delivery obligation, in the places where the
                     relevant Securities, Equivalent Securities, Collateral or Equivalent Collateral are
                     to be delivered.

        (ii)         The forms of "Collateral" acceptable under the Agreement are to be set out by
                     the Parties in a table in the Schedule (in contrast to the pre-printed list of
                     instruments that may constitute Collateral under the OSLA).

        (iii)        A "Letter of Credit" must be issued by a bank and be irrevocable and non-
                     negotiable, and in a form acceptable to Lender.

        (iv)         The term "Reference Price" contained in the OSLA has been replaced with the
                     term "Market Value" in the Agreement. The definitions of such terms differ in
                     that:




London-2/650448/02                                 - 15 -                                     I0713/NEW
                     (a)   the definition of "Market Value" refers to the "market quotation for the
                           bid price" of securities (the definition of "Reference Price" refers to "such
                           price as is equal to the mid market quotation" of securities);

                     (b)   the Market Value of any Collateral is to be determined on the basis of the
                           "market quotation for the bid price" (the OSLA sets out different
                           valuation criteria dependent upon the type of Collateral);

                     (c)   the definition of "Market Value" provides that if, in the reasonable
                           opinion of a party, there has been an exceptional movement in price since
                           the time of the market quotation or price bid by a dealer, as the case may
                           be, then the Market Value shall be the latest available price;

                     (d)   the definition of "Market Value" takes account of accrued but unpaid
                           Income to the extent that it is not included in the price obtained;

                     (e)   the definition of "Market Value" provides that in the event of suspension
                           of securities, their Market Value for Collateral purposes shall be nil and
                           for all other purposes "the price … as of Close of Business on the dealing
                           day in the relevant market last preceding the date of suspension or a
                           commercially reasonable price agreed between the Parties.".

7.      Paragraph 2.4 Currency conversions: Conversions into the Base Currency shall take
        place at "… the latest available spot rate of exchange quoted by a bank selected by
        Lender (or if an Event of Default has occurred in relation to Lender, by Borrower)…".

8.      Paragraph 2.5 Introduction of new currency: The Agreement provides that the
        introduction of and/or substitution of a currency shall not affect a party's obligations
        under the agreement.

9.      Paragraph 3 Loan of Securities: The term "Borrowing Request" is not used in the
        Agreement. However, paragraph 3 provides that the terms of each Loan shall be agreed
        prior to the commencement of the relevant Loan. It also provides that any confirmation
        produced by a party shall not supersede the prior communication agreeing the terms.

10.     Paragraph 5.2 Deliveries through payment systems generating automatic payments:
        The Agreement provides that where a transfer of securities is made through a settlement
        system which automatically generates a payment or delivery obligation against the
        transfer of securities, then the party receiving the payment or delivery pursuant to the
        automatically generated obligation shall make a corresponding payment or delivery to
        the other party.

11.     Paragraph 5.8 Timing of repayments of excess Collateral or deliveries of further
        Collateral: Collateral and Equivalent Collateral are to be repaid or redelivered, as the
        case may be, on the same Business Day as the relevant demand. (Note that in the case of
        securities being held by an agent or within a clearing or settlement system, delivery is
        deemed to take place upon the effective instructions to such agent or operator of such
        system). The OSLA provides for the delivery period to be specified in the Schedule, and
        if none is specified, it is "… the standard settlement time for delivery of the relevant type
        of Equivalent Collateral".


London-2/650448/02                                 - 16 -                                     I0713/NEW
12.     Paragraph 5.9 Substitutions and extensions of Letters of Credit: A new provision
        has been introduced allowing a Lender to require a Borrower to deliver a Letter of Credit
        in place of existing Collateral. Further, a Borrower is required to obtain an extension of
        a Letter of Credit or provide a substitute Letter of Credit, no later than 10.30 am UK time
        on the second Business Day prior to the date of expiry of an existing Letter of Credit.

13.     Paragraph 6.1 Manufactured Payments: The provisions relating to Income on
        Loaned Securities and Collateral have been consolidated into one paragraph. The
        corresponding provisions in the OSLA have been replaced with an obligation by the
        party receiving the Income "… to pay and deliver a sum of money or property equivalent
        to the type and amount of such Income" that the Lender, in the case of Securities, and
        Borrower, in the case of Collateral, would have been entitled to receive had they retained
        the Securities or Collateral, as the case may be.

14.     Paragraph 6.2 Income in the Form of Securities: A new provision has been added to
        the Agreement dealing with Income in the form of securities. Such securities are added
        to the Loaned Securities or Collateral, as the case may be, and are not expressed to be
        deliverable until the end of the relevant Loan, provided margining requirements are met.

15.     Paragraph 6.3 Exercise of Voting rights: Neither party is required to arrange for any
        voting rights to be exercised in accordance with the instructions of the other party. (This
        is contrary to the best endeavours obligation to arrange for voting rights to be exercised
        in accordance with the other party's instructions contained in the OSLA.)

16.     Paragraph 7.2 Rates in respect of Cash Collateral: Lender is required to pay
        Borrower interest on Cash Collateral "… applying such rates as shall be agreed between
        the Parties from time to time …". The corresponding provision in the OSLA provides
        for interest to be paid "… where: (i) interest is earned by the Lender in respect of such
        Cash Collateral and that interest is paid … without deduction of tax" or where this does
        not apply, "… sums calculated by applying such rates as shall be agreed between the
        Parties from time to time …".

17.     Paragraph 8.3 Borrower's right to terminate a Loan: The Borrower is given a right
        to terminate a Loan prior to its scheduled maturity corresponding to the Lender's right to
        terminate in paragraph 8.2 (which corresponds to Clause 7(B) of the OSLA).

18.     Paragraph 9.1 Borrower's failure to redeliver Equivalent Securities: This provision
        consolidates the remedies to be found in Clauses 6(E) and 7(C) of the OSLA. However,
        a Lender has the additional remedy in the Agreement of serving notice of an Event of
        Default. Please note that in the event the Lender terminates the relevant Loan, the
        Parties' obligations are valued by referenced to their "Market Value" and not "Bid Value"
        and "Offer Value".

19.     Paragraph 9.2 Lender's Failure to Redeliver Equivalent Collateral: The Agreement
        gives the Borrower remedies (corresponding to those given to Lender in paragraph 9.1)
        in respect of a failure by Lender to redeliver Equivalent Collateral.

20.     Paragraph 9.3 Failure by either Party to redeliver: This paragraph provides that a
        Party may claim "… interest, overdraft or similar costs and expenses …" from the other



London-2/650448/02                             - 17 -                                    I0713/NEW
        Party in respect of failure to meet a redelivery obligation by such other Party. Although
        indirect or consequential losses are excluded "It is agreed by the Parties that any costs
        reasonably and properly incurred by a Party arising in respect of the failure of a Party to
        meet its obligations under a transaction to sell or deliver securities resulting from the
        failure of the Transferor to fulfil its redelivery obligations is to be treated as a direct cost
        or expense …".

21.     Paragraph 9.4 Exercise of buy-in on failure to redeliver: Clause 7(D) of the OSLA
        providing that Borrower is liable for the costs and expenses incurred by Lender in
        relation to a buy-in exercised against it due to Borrower's failure to redeliver Equivalent
        Securities has been (i) expanded to refer to a failure in respect of any redelivery
        obligation; and (ii) made mutual in the Agreement such that Lender is also liable for any
        such costs and expenses incurred by Borrower due to Lender's failure to meet its
        redelivery obligations. However, the provision in the Agreement does not require any
        notice of the likelihood of a buy-in to be given.

22.     Paragraph 10.1 Definitions for paragraph 10:

        (i)          The Bid Value and Offer Value of a Letter of Credit are expressed to be zero.
                     This should be read in conjunction with the final three paragraphs of paragraph
                     10.2 (Termination of delivery obligations upon Event of Default).

        (ii)         The definition of "Offer Value" has been further amended to take account of
                     Income received by a Party but in respect of which equivalent amounts have not
                     been transferred to the other Party.

23.     Paragraph 10.2 Termination of delivery obligations upon Event of Default: New
        wording has been introduced to clarify that upon the acceleration of the Parties' delivery
        and payment obligations pursuant to an Event of Default, such accelerated obligations
        are to be performed only in the manner set out in paragraph 10.2, that is, the Parties'
        obligations are to be valued and set-off, resulting in a net sum payable by one Party to
        the other.

24.     Paragraph 10.4: The OSLA states that the Bid Value and Offer Value are to be
        calculated "in the most appropriate market… on the first Business Day following the
        Performance Date…". The Agreement makes no reference to "the most appropriate
        market" and provides that the values are to be determined "…as of the first Business
        Day following the Termination Date….". (The term "Termination Date" in the
        Agreement corresponds to the term "Performance Date" in the OSLA).

25.     Paragraph 10.5: Clause 8(E)(i) of the OSLA provides that following an Event of
        Default but prior to the Default Valuation Time, if the Non-Defaulting Party has
        purchased securities identical to those to have been delivered to it or sold securities
        identical to those it would have delivered, then the costs of purchase or sale proceeds, as
        the case may be, are to be the Bid Value and Offer Value, as the case may be. The
        Agreement replicates this position except than it extends the time prior to which a sale or
        purchase may be made to "close of business on the fifth Business Day following the
        Termination Date" and also provides for the addition of untransferred Income to the costs




London-2/650448/02                               - 18 -                                       I0713/NEW
        of purchase or the sale proceeds, as the case may be, in constituting the Bid Value and
        Offer Value.

        The basis upon which the sale proceeds or costs of purchase are adjusted to reflect any
        difference between the amount of securities to have been delivered and the amount of
        securities actually purchased or sold has been changed in the Agreement.

26.     Clause 8(G): Clause 8(G) of the OSLA provides that if Borrower or Lender fail to
        redeliver or repay Equivalent Collateral pursuant to Clauses 6(F) (Borrower's right to
        substitute Collateral) and 6(G) (Income on Collateral), then such failures would be an
        Event of Default, without service of any notice. The Agreement provides that such
        events will constitute an Event of Default but only upon service of notice by the Non-
        Defaulting Party on the Defaulting Party.

27.     Paragraph 10.7 Other costs, expenses and interest payable in consequence of an
        Event of Default: A new provision has been introduced into the Agreement providing
        for the Defaulting Party to be liable for the Non-Defaulting Party's "…reasonable legal
        and other professional expenses…" incurred as a consequence of an Event of Default,
        together with interest at a rate of LIBOR (as defined in the Agreement) or "… where the
        parties have previously agreed a rate of interest for the transaction, that rate of interest if
        it is greater than LIBOR…".

28.     Paragraph 12 Lender's Warranties: The Agreement introduces a new warranty to be
        given by Lender to the effect that it is acting as principal or if it has indicated in the
        Schedule that it may act as agent, that the conditions referred to in the agency provisions
        will be fulfilled in respect of any Loan which it makes as agent.

29.     Paragraph 14 Events of Default:

        (i)          new events have been introduced dealing with a Lender's failure to deliver
                     Securities and a Borrower's failure to deliver Equivalent Securities;

        (ii)         a Party is required to notify the other of "… an event which, with the passage of
                     time and/or upon the serving of a written notice… would be an Event of
                     Default…"; and

        (iii)        a provision has been introduced to the effect that, subject to the other provisions
                     of the agreement, neither Party may claim any sum by way of consequential
                     loss.

30.     Paragraph 15 Interest on Outstanding Payments: The rate of interest has been
        changed from the OSLA position of "1% above the Barclays Bank PLC base rate" to the
        rate referred to in paragraph 10.7 (please see above).

31.     Paragraph 16.1 Power for Lender to enter into Loans as agent: As mentioned
        earlier, a Party is required to indicate in the Schedule as to whether it may act as an agent
        in its capacity as Lender.




London-2/650448/02                                 - 19 -                                     I0713/NEW
32.     Clause 16 Governing Practices: The Agreement contains no corresponding provision
        to Clause 16 of the OSLA which places a best endeavours obligation on the Borrower to
        advise the Lender of any changes in relevant legislation or practices.

33.     Clause 17 Observance of Procedures: The Agreement contains no corresponding
        provision to Clause 17 of the OSLA. Further, the Agreement makes no direct reference
        to the rules of any stock exchange.

34.     Paragraph 18 Single Agreement: This provision merely provides that the Parties enter
        into each Loan on the basis that all Loans constitute a single contractual relationship.

35.     Paragraph 21 Notices: The Agreement contains revised notice provisions.

36.     Paragraph 24 Governing Law and Jurisdiction: The arbitration procedure contained
        in the OSLA has been replaced with submission of disputes to the exclusive jurisdiction
        of the English courts. Parties may specify details of their process agents in the Schedule.

37.     Paragraph 27 Waiver of Immunity: Each Party is expressed to waive any immunity to
        which it may otherwise be entitled in respect of any action or proceeding relating to the
        agreement.

38.     Paragraph 28 Miscellaneous: This is a new provision containing, inter alia, an entire
        agreement clause, a provision dealing with amendments to the agreement, a warranty
        from the party that has prepared the agreement (as indicated in the Schedule) that the text
        of the agreement conforms exactly to the text of the standard form Agreement except as
        otherwise notified and a provision excluding third party rights.

39.     Schedule: Unless indicated otherwise, it is assumed that the global margining and
        netting of margining obligations provisions apply.




London-2/650448/02                             - 20 -                                    I0713/NEW

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:4
posted:9/4/2011
language:English
pages:22