Registration No. 333-40015
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As filed with the Securities and Exchange Commission on December 17, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CAREMATRIX CORPORATION
(Exact name of registrant as specified in charter)
Delaware 04-3069586
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
197 First Avenue
Needham, MA 02194
(781) 433-1000
(Address, including zip code, and telephone number,
including area code of registrant's principal
executive offices)
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Robert M. Kaufman Copies to:
Chief Executive Officer Michael J. Bohnen, Esq.
CareMatrix Corporation Nutter, McClennen & Fish, LLP
197 First Avenue One International Place
Needham, MA 02194 Boston, MA 02110-2699
(781) 433-1000 (617) 439-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Approximate date of commencement of proposed sale to public: From time
to time after the effective date of this Registration Statement, as determined
by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is a post-effective amendment filed pursuant to Rule
426(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Each Class of Maximum Maximum Amount of
Securities to be Amount to be Offering Price Aggregate Registration
Registered Registered Per Share(1) Offering Price(1) Fee
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<S> <C> <C> <C> <C>
Shares of Common
Stock, $.05 par value 1,150,000 shares $26.0625 $29,971,875.00 $9,082.39(2)
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(1) Determined pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, based upon the average of the high and low prices per share
of Common Stock reported on the American Stock Exchange on November 11,
1997.
(2) Previously paid.
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
[RED HERRING]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
[/RED HERRING]
PROSPECTUS
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 17, 1997
1,150,000 Shares
CareMatrix Corporation
Common Stock, $.05 par value
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This Prospectus relates to 1,150,000 shares (the "Loaned Shares"), of
Common Stock, $.05 par value per share (the "Common Stock"), of CareMatrix
Corporation, a Delaware corporation (the "Company"), which Loaned Shares are
owned by certain of the Company's executive officers and other individuals
(collectively, the "Lenders") and which may be loaned to and offered and sold
from time to time by BancAmerica Robertson Stephens ("BARS"), or by certain
transferees of BARS, in connection with ordinary trading or market-making
activities by BARS in securities of the Company. See "Plan of Distribution." The
Lenders have entered into a Custody Services Agreement with Union Bank of
California, National Association ("Union Bank"), pursuant to which the Common
Stock owned by the Lenders will be deposited with Union Bank. Union Bank may
lend such Loaned Shares to BARS pursuant to securities loan arrangements with
BARS. The number of Loaned Shares that will be deposited pursuant to the Custody
Services Agreement and subsequently lent to BARS at any time may not exceed
1,150,000.
In August and October of 1997, the Company issued $115,000,000
aggregate principal amount of the Company's 6 1/4% Convertible Subordinated
Notes due 2004 (the "Notes") which are convertible, at any time, into 3,982,684
shares of the Company's Common Stock. These arrangements are intended to
facilitate market making activity in the Common Stock by BARS.
BARS, or certain transferees of BARS, may from time to time offer the
Loaned Shares directly to one or more purchasers at negotiated prices, at market
prices prevailing at the time of sale or at prices related to such market
prices. See "Plan of Distribution." The Company's Common Stock is currently
listed and traded on the American Stock Exchange ("AMEX") under the symbol
"CMD." On December 16, 1997, the closing price reported for such shares on AMEX
was $28.75.
The Company will not receive any proceeds from the sale of the Common
Stock. The Company is bearing certain expenses in connection with the
registration of the shares being offered and sold by BARS, or certain
transferees of BARS.
See "Risk Factors" beginning on Page 3 for a discussion of certain
factors that should be considered by prospective purchasers of the securities
offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Date of this Prospectus is _________________, 1997
<PAGE>
No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus, and, if given or made, such information and representations
must not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer to sell or a solicitation of any offer
to buy the securities described herein by anyone in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person making the
offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation. Under no circumstances shall the
delivery of this Prospectus or any sale made pursuant to this Prospectus create
any implication that the information contained in this Prospectus is correct as
of any time subsequent to the date of this Prospectus.
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TABLE OF CONTENTS
Page
Available Information....................................................... 2
Documents Incorporated by Reference......................................... 3
Risk Factors................................................................ 3
The Company................................................................. 9
Use of Proceeds............................................................. 9
Plan of Distribution........................................................ 9
Legal Matters...............................................................10
Experts.....................................................................10
AVAILABLE INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-3 (together
with all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Securities Act covering the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, and the exhibits and schedules thereto. For further
information, with respect to the Company and the Common Stock, reference is made
to the Registration Statement, and the exhibits and schedules thereto, which can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained at prescribed rates from the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Reports, proxy statements and information statements and
other information filed electronically by the Company with the Commission are
available at the Commission's worldwide web site at http://www.sec.gov. The
Company is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and information statements and other information
with the Commission. Such reports, proxy statements and information statements
and other information may be inspected and copied at the public reference
facilities maintained by the Commission referenced above.
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DOCUMENTS INCORPORATED BY REFERENCE
The Company hereby incorporates by reference (i) its Annual Report on Form
10-K for the fiscal year ended December 31, 1996, as amended by the Company's
Annual Report on Form 10-K/A filed with the Commission on April 14, 1997
(including those portions of the Company's definitive proxy statement for the
Annual Meeting of Stockholders held on June 16, 1997 incorporated by reference
therein), (ii) the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997, as amended by the Company's Quarterly Report on
Form 10-Q/A filed with the Commission on August 12, 1997, (iii) the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997, (iv)
the Company's Current Report on Form 8-K filed August 5, 1997, (v) the Company's
current report on Form 8-K filed August 19, 1997, (vi) the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1997, and (vii)
the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A, declared effective October 23, 1996.
All reports filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to any
termination of the offering of the shares of Common Stock covered by this
Prospectus are deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the respective dates of filing. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document that is also incorporated herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Copies of all documents incorporated herein by reference (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents) will be provided without charge to each person
who receives a copy of this Prospectus on written or oral request to Investor
Relations, CareMatrix Corporation, 197 First Avenue, Needham, MA 02194, or by
telephone at (781) 433-1000.
RISK FACTORS
In addition to the other information contained in this Prospectus, before
purchasing the shares of Common Stock offered hereby, prospective purchasers
should carefully consider the factors set forth below. Such factors could cause
the Company's actual results or other events to differ materially from the
results or events anticipated in certain forward-looking statements contained or
incorporated by reference herein. Such forward-looking statements involve risks
and uncertainties.
History of Losses From Operations; Accumulated Deficit. Although the
Company recorded net earnings for the nine months ended September 30, 1997 of
$3,978,095, from its inception on June 24, 1994 through December 31, 1996, the
Company experienced significant losses from operations. Through December 31,
1996, the Company's accumulated deficit was $16.4 million. For the year ended
December 31, 1996, the Company incurred losses from operations of $6.0 million.
As of September 30, 1997, the Company's accumulated deficit was $12.4 million.
There can be no assurance that the Company will be able to continue to generate
income from operations or net income at any time, whether from its existing
operations or from any facilities that are operated in the future. Failure of
the Company to achieve profitability could have a material adverse effect on the
future viability of the Company.
Dependence by the Company on Related Party Agreements. The Company has
entered and expects to continue to enter into agreements with related parties in
connection with a significant number of transactions, including development,
management and lease agreements. Generally, the Company will enter into
development agreements whereby construction financing is obtained by the related
or third parties. The Company expects that risks related to construction and the
initial operation of the facilities it develops will be borne primarily by such
related
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or third parties. The Company has not, and expects in the future that it will
not, enter into agreements with these parties until six months prior to
completion of the construction of such facilities or upon acquisition of
completed facilities. These management agreements would generally be for a
ten-year period, with annual fees approximating 5% of gross revenues (less
contractual adjustments for uncollectible accounts). The Company has and expects
in the future to have the option to convert such management agreements into fair
market value leases (which will be a negotiated percentage of total project
costs) for a 15-year initial term with three to four five-year fair market value
renewal options. Abraham D. Gosman is the principal owner, and certain members
of the Company's senior management and stockholders also have an ownership
interest in, Chancellor Senior Housing Group, Inc. and certain like entities
(collectively referred to herein as "Chancellor"), with which the Company has
entered and expects to enter into most such agreements. Failure of the Company
to continue to enter into such agreements with Chancellor or other such related
parties, or the inability of Chancellor to secure all necessary financing at
acceptable terms, could have a material adverse effect on the Company.
Need for Additional Financing. The Company's development and acquisition
strategy will require substantial capital resources. The estimated cumulative
cost to complete approximately 60 new facilities, with an aggregate capacity of
approximately 7,200 residents, targeted for completion over the next three years
is between $700 million and $800 million, which substantially exceeds the
financial resources of the Company and Chancellor. The Company's future growth
will depend primarily on the ability of related parties, such as Chancellor, for
whom the Company develops facilities to obtain financing on acceptable terms. To
finance its capital needs, the Company plans both to incur indebtedness and to
issue, from time to time, additional debt or equity securities, including Common
Stock or convertible notes, in connection with its acquisitions and
affiliations. If additional funds are raised through the issuance of equity
securities, dilution to the Company's stockholders may result, and if additional
funds are raised through the incurrence of debt, the Company would likely become
subject to certain covenants that impose restrictions on its operations and
finances. There can be no assurance that the Company or such related parties
will be able to raise additional capital when needed, on satisfactory terms or
at all. Prior to its secondary offering in October 1996, the Company had relied
upon equity and loans provided primarily by Abraham D. Gosman, the Company's
Chairman of the Board and principal stockholder, or companies affiliated with
him. There can be no assurance that any additional financing from Mr. Gosman,
Chancellor or any other sources will be available in the future. Any limitation
on the Company's ability to obtain additional financing could have a material
adverse effect on the Company.
Substantial Debt and Lease Obligations; Increased Leverage. At September
30, 1997, the Company's debt was $102.4 million. Debt service and annual
operating lease payment obligations are expected to increase significantly as
the Company pursues its growth strategy. There can be no assurance that the
Company will generate sufficient cash flow to meet its obligations. Any payment
default or other default with respect to such obligations could cause a lender
to foreclose upon any collateral securing the indebtedness or, in the case of an
operating lease, could terminate the lease, with a consequent loss of income and
asset value to the Company. Moreover, because certain of the Company's
mortgages, debt instruments and leases may contain cross-default and
cross-collateralization provisions, a default by the Company on one of its
payment obligations could result in acceleration of other obligations and
adversely affect a significant number of the Company's other facilities.
In connection with the issuance in August and October 1997 of the
Company's 6 1/4% Convertible Subordinated Debentures due 2004, the Company
incurred $115 million in additional indebtedness which increased the ratio of
its long-term debt to its total capitalization from 8.9% at December 31, 1996,
to $54.3%, on a pro forma basis, at September 30, 1997. As a result of this
increased leverage, the Company's principal and interest obligations increased
substantially. The degree to which the Company is leveraged could adversely
affect the Company's ability to obtain additional financing for working capital,
acquisitions or other purposes and could make it more vulnerable to economic
downturns and competitive pressures. The Company's increased leverage could also
adversely affect its liquidity, as a substantial portion of available cash from
operations may have to be applied to meet debt service requirements and, in the
event of a cash shortfall, the Company could be forced to reduce other
expenditures and forego potential acquisitions to be able to meet such
requirements.
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Development and Construction Risks. During the next three years, the
Company plans to develop approximately 60 new facilities with a resident
capacity of approximately 7,200 residents. The Company's ability to achieve its
development goals will depend upon a variety of factors, many of which are
beyond the Company's control. There can be no assurance that the Company will
not suffer delays in its development program. The successful development of
additional facilities will involve a number of risks, including the possibility
that the Company may be unable to locate suitable sites at acceptable prices or
may be unable to obtain, or may experience delays in obtaining, necessary
certificates of need, zoning, land use, building, occupancy, licensing and other
required governmental permits and authorizations. The Company may also incur
construction costs that exceed original estimates or even so-called guaranteed
maximum cost construction contracts, and may not complete construction projects
on schedule. The Company will rely on third-party general contractors to
construct its new facilities. There can be no assurance that the Company will
not experience difficulties in working with general contractors and
subcontractors, which could result in increased construction costs and delays.
Further, facility development is subject to a number of contingencies over which
the Company will have little control and that could have a material adverse
effect on project cost and completion time, including shortages of, or the
inability to obtain, labor or materials, the inability of the general contractor
or subcontractors to perform under their contracts, strikes, adverse weather
conditions and changes in applicable laws or regulations or in the method of
applying such laws and regulations. Failure of the Company to achieve its
development goals could have a material adverse effect on the Company.
Accordingly, there can be no assurance that the Company's facilities in
development or under construction will ultimately be completed.
Risks Related to Acquisition Strategy. The Company's strategy includes
growth through acquisition. The Company is subject to various risks associated
with its acquisition growth strategy, including the risk that the Company will
be unable to identify or acquire suitable acquisition candidates or to integrate
the acquired companies into the Company's operations. Any failure of the Company
to identify and consummate economically feasible acquisitions could have a
material adverse effect on the Company. There can be no assurance that the
Company will be able to achieve and manage its planned acquisition growth, that
the liabilities assumed by the Company in any acquisition will not have a
material adverse effect on the Company or that the addition of facilities will
be profitable for the Company.
Dependence on Attracting Seniors with Sufficient Resources to Pay. The
Company expects to rely primarily on the ability of its residents to pay for
services from their own and their families' financial resources. Generally, only
seniors with income or assets meeting or exceeding the comparable median in the
regions where the Company's assisted living facilities are located can afford
the applicable fees for its facilities for an extended period of time. Any
difficulty in attracting seniors with adequate resources to pay for the
Company's services could have a material adverse effect on the Company.
Inflation or other circumstances which adversely affect the ability of the
Company's residents and potential residents to pay for assisted living services
could also have a material adverse effect on the Company.
Dependence Upon Key Personnel. The Company is dependent upon the ability
and experience of its executive officers, including its Chairman, and there can
be no assurance that the Company will be able to retain all of such officers.
The failure of such officers to remain active in the Company's management could
have a material adverse effect on the Company. There can be no assurance that
the anticipated contributions of senior management will be realized, and the
failure of such contributions to be realized could have a material adverse
effect on the Company.
Risks Related to Goodwill. At September 30, 1997, the Company's total
assets were approximately $210.3 million, of which approximately $27.2 million,
or approximately 12.9% of total assets, was goodwill. Goodwill is the excess of
cost over the fair value of the net assets of businesses acquired. There can be
no assurance that the value of such goodwill will ever be realized by the
Company. This goodwill is being amortized on a straight-line basis over 25
years. The Company evaluates on a regular basis whether events and circumstances
have occurred that indicate all or a portion of the carrying amount of goodwill
may no longer be recoverable, in which case an additional charge to earnings
would become necessary. Although at September 30, 1997 the net unamortized
balance of goodwill is not
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considered to be impaired, any such future determination requiring the write-off
of a significant portion of unamortized goodwill could have a material adverse
effect on the Company.
Competition. The assisted living industry is highly competitive and, given
the relatively low barriers to entry and continuing healthcare cost containment
pressures, the Company expects that it will become increasingly competitive in
the future. The Company competes with other companies providing assisted living
services as well as numerous other companies providing similar service and care
alternatives, such as home health care agencies, congregate care facilities,
retirement communities and skilled nursing facilities. While the Company
believes there is a need for additional assisted living residences in the
markets where it intends to develop facilities, the Company expects that, as
assisted living facilities receive increased attention, competition will
increase from new market entrants. Moreover, in implementing its growth
strategy, the Company expects to face competition for development and
acquisition opportunities from local developers and regional and national
assisted living companies. Some of the Company's present and potential
competitors have, or may have access to, greater financial resources than those
of the Company. Consequently, increased competition in the future could limit
the Company's ability to attract and retain residents, to maintain or increase
resident service fees or to expand its business. As a result, any increased
competition could have a material adverse effect on the Company.
Limited Experience with New Service Models and Facility Designs. The
Company's success is dependent, in part, on its ability to develop and offer new
service models and facility designs to prospective residents of its facilities.
Currently, the Company does not have extensive operating experience with these
new service models and facility designs, and the failure of the Company to
successfully implement and integrate these new service models and facility
designs could have a material adverse effect on the Company.
Potential Conflicts of Interest. Abraham D. Gosman, the Company's
principal stockholder and Chairman, and certain members of the Company's senior
management, have a controlling ownership interest in Chancellor with which the
Company has entered and expects to enter into development, management and lease
agreements. These agreements are and will be on terms that the Company believes
will be fair and no less favorable to the Company than those which the Company
could have obtained from unaffiliated third parties. Such ownership interests in
Chancellor and other healthcare entities that compete with the Company, however,
may create actual or potential conflicts of interest on the part of these
members of the Company's management. In the case of such related party
transactions, it is the Company's policy to require that any such transactions
be approved by a majority of the disinterested members of the Executive
Committee of the Board of Directors.
Control by Management. As of September 30, 1997, members of the Board of
Directors and management are the beneficial owners of approximately 48.2% of the
outstanding Common Stock of the Company. As of September 30, 1997, Abraham D.
Gosman, together with his sons, Andrew D. Gosman and Michael M. Gosman, all of
whom are members of the Board of Directors and executive officers of the
Company, are the beneficial owners of approximately 44.9% of the outstanding
Common Stock. Accordingly, management and the Gosmans may have the ability, by
voting shares of Common Stock, to determine (i) the election of the Company's
Board of Directors and, thus, the direction and future operations of the
Company, and (ii) the outcome of all other matters submitted to the Company's
stockholders, including mergers, consolidations and the sale of all or
substantially all of the Company's assets.
Residence Staffing and Labor Costs. The Company competes with other
providers of assisted living services with respect to attracting and retaining
qualified and skilled personnel. The Company is dependent upon its ability to
attract and retain management personnel responsible for the day-to-day
operations of each of the Company's facilities. In addition, a possible shortage
of nurses or other trained personnel may require the Company to enhance its wage
and benefits package in order to compete in the hiring and retention of such
personnel or to hire more expensive temporary personnel. The Company will also
be dependent upon the available labor pool of semi-skilled and unskilled
employees in each of the markets in which it will operate. Any significant
failure by the Company to
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attract and retain qualified management and staff personnel, to control its
labor costs or to pass on any increased labor costs to residents through rate
increases could have a material adverse effect on the Company.
Government Regulation. Health care is an area of extensive and frequent
regulatory change. The assisted living industry is relatively new, and,
accordingly, the manner and extent to which it is regulated at the federal and
state levels are evolving. Changes in the laws or new interpretations of
existing laws may have a significant impact on the Company's methods and costs
of doing business. The Company is subject to varying degrees of regulation and
licensing by health or social service agencies and other regulatory authorities
in the various states and localities where it operates or intends to operate.
The Company's success will depend in part upon its ability to satisfy
applicable regulations and requirements and to procure and maintain required
licenses in rapidly changing regulatory environments. Any failure to satisfy
applicable regulations or to procure or maintain a required license could have a
material adverse effect on the Company. Furthermore, certain regulatory
developments such as revisions in building code requirements for assisted living
facilities, mandatory increases in the scope and quality of care to be offered
to residents and revisions in licensing and certification standards could have a
material adverse effect on the Company. There can be no assurance that federal,
state or local laws or regulations will not be imposed or expanded which would
have a material adverse effect on the Company. The Company's operations are also
subject to health and other state and local government regulations.
In addition, in most states in which the Company participates in
government reimbursement programs, the Company's operations are subject to
federal and/or state requirements or provisions which prohibit certain business
practices and relationships that might affect the provision and cost of health
care services reimbursable under Medicaid. The Company's failure to comply with
the regulations and requirements applicable to a facility could result in the
imposition of significant fines and increased costs, a revocation of the
Company's license to operate that facility, and, if sufficiently serious in
nature, the inability of the Company to maintain or obtain licenses to operate
other facilities. Any such event could have a material adverse effect on the
Company.
Federal and state anti-remuneration laws, such as the Medicare/Medicaid
anti-kickback law, govern certain financial arrangements among health care
providers and others who may be in a position to refer or recommend patients to
such providers. These laws prohibit, among other things, certain direct and
indirect payments that are intended to induce the referral of patients to, the
arranging for services by, or the recommending of, a particular provider of
healthcare items or services. The Medicare/Medicaid anti-kickback law has been
broadly interpreted to apply to certain contractual relationships between
healthcare providers and sources of patient referral. Similar state laws vary
from state to state, are sometimes vague and seldom have been interpreted by
courts or regulatory agencies. Violation of these laws can result in loss of
licensure, civil and criminal penalties, and exclusion of healthcare providers
or suppliers from participation in (i.e., furnishing covered items or services
to beneficiaries of) the Medicare and Medicaid programs. It is expected that the
Company will be subject to these laws. There can be no assurance that such laws
will be interpreted in a manner consistent with the practices of the Company,
and any interpretation inconsistent with the practices of the Company could have
a material adverse effect on the Company.
Environmental Risks. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be held liable for the cost of removal or remediation of
certain hazardous or toxic substances, including, without limitation,
asbestos-containing materials, that could be located on, in or under such
property. As a result, the presence, with or without the Company's knowledge, of
hazardous or toxic substances at any property held or operated by the Company,
or acquired or operated by the Company in the future, could have a material
adverse effect on the Company. Environmental audits performed on properties
leased or managed by the Company have not revealed any significant environmental
liability that management believes would have a material adverse effect on the
Company; however, there can be no assurance that existing environmental audits
with respect to any of the properties leased or managed by the Company have
revealed all environmental liabilities.
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Liability and Insurance. The Company's business entails an inherent risk
of liability. In recent years, participants in the assisted living and long-term
care industry, including the Company, have become subject to an increasing
number of lawsuits alleging negligence or related legal theories, many of which
involve large claims and significant legal costs. The Company is from time to
time subject to such suits as a result of the nature of its business. The
Company currently maintains insurance policies in amounts and with such coverage
and deductibles as it believes are adequate, based on the nature and risks of
its business, historical experience and industry standards. The Company
currently maintains professional liability insurance and general liability
insurance. There can be no assurance that claims will not arise which are in
excess of the Company's insurance coverage or are not covered by the Company's
insurance. Any successful claim against the Company not covered by, or in excess
of, the Company's insurance could have a material adverse effect on the Company.
Claims against the Company, regardless of their merit or eventual outcome, may
also have a material adverse effect on the Company's ability to attract
residents or expand its business and would require management to devote time to
matters unrelated to the operation of the Company's business. In addition, the
Company's insurance policies must be renewed annually, and there can be no
assurance that the Company will be able to continue to obtain liability
insurance coverage in the future or, if available, that such coverage will be
available on acceptable terms. Any failure of the Company to retain liability
insurance coverage or to obtain such coverage on acceptable terms could have a
material adverse effect on the Company.
Dependence on Reimbursement by Third-Party Payors. The Company's revenues
from the services it provides for skilled nursing facilities are dependent upon
reimbursement from third-party payors, including Medicare, state Medicaid
programs and private insurers. There can be no assurance that such revenues will
fully pay the cost of providing services to residents covered by Medicare and
Medicaid. Although in 1996 a substantial portion of the Company's revenue was
derived from Medicare and Medicaid payments, the Company anticipates that in
1997 and going forward, revenue from sources other than Medicare and Medicaid
will constitute a substantially greater portion of overall revenue. The revenues
and profitability of the Company will be affected by the continuing efforts of
governmental and private third-party payors to contain or reduce the costs of
health care by attempting to lower reimbursement rates, increasing case
management review of services and negotiating reduced contract pricing. In an
attempt to reduce the federal and certain state budget deficits, there have
been, and management expects that there will continue to be, a number of
proposals to limit Medicare and Medicaid reimbursement in general. Adoption of
any such proposals at either the federal or the state level could have a
material adverse effect on the Company.
Certain Anti-takeover Provisions. Certain provisions of the Company's
Restated Certificate of Incorporation and By-laws and of Delaware General
Corporation Law could, together or separately, discourage potential acquisition
proposals, delay or prevent a change in control of the Company and limit the
price that certain investors might be willing to pay in the future for shares of
the Common Stock. Certain of these provisions provide for the issuance, without
further stockholder approval, of preferred stock with rights and privileges
which could be senior to the Common Stock, the payment of a "fair" price (or
Board approval by continuing directors) in connection with certain business
combinations with interested stockholders, no right of the stockholders to call
a special meeting of stockholders, restrictions on the ability of stockholders
to nominate directors and submit proposals to be considered at stockholders'
meetings, and a super-majority voting requirement in connection with the removal
of directors and the adoption of stockholders' amendments to the By-laws. The
Company also is subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any of a broad range of business combinations with any "interested"
stockholder for a period of three years following the date that such stockholder
became an interested stockholder.
Possible Volatility Stock Price. Economic or other external factors may
have a significant impact on the Company's business and on the market price of
the Common Stock. Fluctuations in financial performance from period to period
also may have a significant impact on the market price of the Common Stock.
-8-
<PAGE>
THE COMPANY
The Company is a provider of assisted living services, and owns, leases or
manages its facilities. The Company's strategy is to provide a full range of
assisted living and related services across a range of pricing options. The
Company expects its assisted-living facilities to serve as the foundation from
which it will provide a continuum of care for its residents. When its assisted
living facilities are integrated with supportive independent living facilities,
skilled nursing/rehabilitation facilities and Alzheimer's care programs, the
Company believes that it will have the ability to provide to those of its
residents who need a higher degree of care a less stressful transition to more
supportive environments either within the same facility, in a campus setting or
in a nearby facility.
The Company's principal place of business is 197 First Avenue, Needham,
Massachusetts 02194; and its telephone number at that address is (781) 433-1000.
Unless otherwise indicated or required by the context, references to the
"Company" include its consolidated subsidiaries.
USE OF PROCEEDS
None of the proceeds from the sale of the Loaned Shares pursuant to this
Prospectus will be received by the Company.
PLAN OF DISTRIBUTION
Certain of the Company's executive officers and other individuals (the
"Lenders") have entered into a Custody Services Agreement with Union Bank
pursuant to which 1,150,000 shares of Common Stock (the "Loaned Shares") owned
by the Lenders will be deposited with Union Bank. Union Bank may lend such
Loaned Shares to BARS pursuant to securities loan arrangements with BARS. In
connection with ordinary trading or market-making activities in securities of
the Company, BARS may from time to time borrow, return and reborrow all or a
portion of Loaned Shares pursuant to securities loan arrangements with Union
Bank; provided, however, that (i) the number of shares borrowed under such
arrangements at any time may not exceed 1,150,000, and (ii) shares may be
borrowed only for the purposes permitted by Regulation T of the Board of
Governors of the Federal Reserve System (which are to make delivery of shares in
the case of short sales, failure to receive shares required to be delivered, or
other similar situations). Pursuant to the securities loan arrangements with
Union Bank, BARS will deposit collateral securing such loan, the Lenders will be
entitled to receive a portion of the investment income from such collateral and
BARS may receive a portion of such income.
Subject to the foregoing, BARS may from time to time offer for sale the
Loaned Shares directly to one or more purchasers at negotiated prices, at market
prices prevailing at the time of sale or at prices related to such market prices
or through the facilities of a national securities exchange. In addition, in the
course of ordinary trading or market-making activities, BARS may lend to third
parties the Loaned Shares. Such third parties may offer for sale such shares
under this Prospectus directly to one or more purchasers at negotiated prices,
at market prices prevailing at the time or sale or at prices related to such
market prices or through the facilities of a national market exchange. Because
BARS, and/or the parties to whom BARS may loan the Loaned Shares, engage or will
engage in market making activities with respect to the securities of the
Company, in that capacity, from time to time each, as applicable, will hold
fluctuating quantities of shares of the Company's Common Stock and Notes which
are convertible into shares of Common Stock. Because BARS or such third parties
may offer all or some of the Loaned Shares pursuant to the offering contemplated
by this Prospectus, and because to the Company's knowledge there are currently
no agreements, arrangements or understandings, other than the aforementioned
securities loan arrangement, with respect to the sale of any of the Company's
securities, no estimate can be given as to the Common Stock and Common Stock
equivalents that will be held by BARS or such third parties during or after
completion of this offering.
To the extent required, the aggregate principal amount of the Loaned
Shares to be sold hereby, the purchase price, the name of any such agent, dealer
or underwriter and any applicable commissions, discounts or other terms
constituting compensation with respect to a particular offer will be set forth
in any accompanying Prospectus Supplement. The aggregate proceeds to BARS from
the sale of the Loaned Shares offered by them hereby will be the purchase price
of such Loaned Shares less discounts and commissions, if any.
The Company is paying all expenses incident to the offer and sale of the
Loaned Shares offered hereby by BARS to the public, other than selling
commissions and fees.
The Lenders and the Company have agreed to indemnify BARS against certain
liabilities, including liabilities under the Securities Act.
BARS may from time to time acquire shares of the Company's Common Stock,
the Notes or other securities of the Company or any of its affiliates in the
ordinary course of its market-making or trading activities. In the past, in
-9-
<PAGE>
addition to acting as underwriter of the Notes, BARS has acted as underwriter or
purchaser of securities of, and has provided investment banking and other
services to, the Company and its affiliates.
The names of the third parties, if any, to whom BARS has loaned certain of
the Loaned Shares, the number of shares of Common Stock which may be offered
from time to time by them under this Prospectus and information concerning any
material relationships between the Company and such third parties will be set
forth as required in Supplements to this Prospectus or amendments to the
Registration Statement.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock of Common Stock
being offered hereby will be passed upon by Nutter, McClennen & Fish, LLP,
Boston, MA 02110. Michael J. Bohnen, a partner of Nutter, McClennen & Fish,
LLP, is the Assistant Secretary of the Company.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and for the year then ended, and the combined financial statements of the
Company as of December 31, 1995 and for the year ended December 31, 1995 and the
period from June 24, 1994 (inception) to December 31, 1994, incorporated by
reference in this Prospectus, have been incorporated herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of said firm as experts in accounting and auditing.
-10-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses in connection with the offering to which this Registration
Statement relates, other than commissions, are to be borne by the Company. All
amounts shown are estimated except the Securities and Exchange commission
registration fee.
Securities and Exchange Commission Registration Fee $ 9,083
Accounting Fees 5,000
Legal Fees 10,000
Printing Expenses 3,000
Miscellaneous Expense 417
-------
Total $27,500
Item 15. Indemnification of Directors and Officers.
The Company is a Delaware corporation. Reference is made to Section 145
of the Delaware General Corporation Law, as amended, which provides that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Delaware Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite an adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Article 11 of the Company's Third Restated Certificate of Incorporation
eliminates the personal liability of directors to the Company or its
Stockholders for monetary damages for breach of fiduciary duty to the full
extent permitted by Delaware law. Article VII of the Company's By-Laws provides
that the Company indemnify its officers and directors to the full extent
permitted by the Delaware General Corporation Law.
The Company has entered into indemnification agreements with each of
its directors. The Company may also enter into similar agreements with certain
of its officers who are not also directors. Generally, the Company's By-Laws and
the indemnification agreements attempt to provide the maximum protection
permitted by Delaware law with respect to indemnification of directors and
officers.
II-1
<PAGE>
The indemnification agreements provide that the Company will pay
certain amounts incurred by a director or officer in connection with any civil
or criminal action or proceeding, and specifically including actions by or in
the name of the Company (derivative suits), where the individual's involvement
is by reason of the fact that he is or was a director or officer of the Company.
Such amounts include, to the maximum extent permitted by law, attorney's fees,
judgments, civil or criminal fines, settlement amounts, and other expenses
customarily incurred in connection with legal proceedings. Under the
indemnification agreements and the Company's By-Laws, a director or officer will
not receive indemnification if he is found not to have acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company.
The Company maintains an indemnification insurance policy covering all
directors and officers of the Company and its subsidiaries.
Item 16. List of Exhibits.
Exhibit No.
* 5.1 Opinion of Nutter, McClennen & Fish, LLP
*10.1 Registration Rights Agreement dated as of October 23, 1997 by and
between the Company and BancAmerica Robertson Stephens.
+23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Nutter, McClennen & Fish, LLP (included in
Exhibit 5.1)
*24.1 Power of Attorney (contained in Page II-4)
+99.1 Form of Domestic Custody Agreement between a Lender and Union Bank of
California, National Association.
+99.2 Form of Securities Lending Agreement among Union Bank of California,
National Association, BancAmerica Robertson Stephens and the Lenders.
- -------------------
+ Filed herewith.
* Previously filed.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering; and
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Needham, Commonwealth of Massachusetts on this
17th day of December 1997.
CAREMATRIX CORPORATION
By: /s/ Robert M. Kaufman
------------------------------
Robert M. Kaufman
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
/s/ Abraham D. Gosman* December 17, 1997
- -----------------------------------
Abraham D. Gosman,
Chairman of the Board of Directors
/s/ Robert M. Kaufman December 17, 1997
- ------------------------------------
Robert M. Kaufman
Chief Executive Officer and
Principal Accounting Officer
/s/ Andrew D. Gosman* December 17, 1997
- ------------------------------------
Andrew D. Gosman,
Director and President
II-4
<PAGE>
/s/ Michael M. Gosman* December 17, 1997
- ------------------------------------
Michael M. Gosman,
Director, Executive Vice President
and Vice Chairman of the Board
of Directors.
/s/ Robert Cataldo* December 17, 1997
- ------------------------------------
Robert Cataldo,
Director
/s/ Donald J. Amaral* December 17, 1997
- ------------------------------------
Donald J. Amaral,
Director
/s/ H. Loy Anderson, Jr.* December 17, 1997
- ------------------------------------
H. Loy Anderson, Jr.,
Director
/s/ Bedros Baharian* December 17, 1997
- ------------------------------------
Bedros Baharian,
Director
/s/ Stephen E. Ronai* December 17, 1997
- ------------------------------------
Stephen E. Ronai,
Director
* By: /s/ Robert M. Kaufman
---------------------
Robert M. Kaufman
Attorney-in-Fact
Powers of Attorney have been filed with this Registration Statement
II-5
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
CareMatrix Corporation on Form S-3 of our report dated February 7, 1997, on our
audits of the consolidated financial statements of CareMatrix Corporation as of
December 31, 1996 and for the year then ended, and the combined financial
statements of CareMatrix Corporation as of December 31, 1995 and for the year
ended December 31, 1995 and the period from June 24, 1994 (inception) to
December 31, 1994. We also consent to the reference to our firm under the
caption "Experts."
/s/ Coopers & Lybrand L.L.P.
- ------------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 17, 1997
UNION BANK OF CALIFORNIA
DOMESTIC CUSTODY SERVICES
Personal
Custody
Agreement
Account Number: _____________________________________________________________
Investment Counselor Firm______________________________________________________
_____________________________________________________________________ "ADVISOR"
ACCOUNT INFORMATION
Account Name: _________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________"CLIENT"
[_] Joint Tenants with Rights of Survivorship
[_] Community Property [_] Tenants in Common
[_] Separate Property [_] Other
Account Address:________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Tax ID or Social Security Number: ______________________
Tax Status: [_] U.S. Citizen [_] Non-Resident Alien
[_] U.S. Corporation [_] U.S. Partnership [_] Other
SHAREHOLDER INFORMATION
1. Power to vote proxies [_] Client [_] Advisor
2. Bank [_] IS authorized [_] IS NOT authorized to disclose upon request to
companies whose securities are held in the Account (a) Client's and/or Agent's
name and address and (b) holdings in the Account of securities issued by such
companies. If Client does not object to such disclosure above, Bank is required
by law to provide such information upon request.
SCHEDULE A
Bank Accounts Government Bonds
Bankers Acceptances Insurance Contracts
Certificates of Deposit Publicly Traded Limited
Collateralized Mortgage Obligations Partnership Units
Commercial Paper Municipal Bonds
Common Stocks Mutual Fund
Convertible Stocks Options
Corporate Bonds Preferred Stocks
Foreign Securities Private Placements
Futures Repurchase Agreements
Government Agency Issues Reverse Repurchase
Agreements
<PAGE>
UNION BANK OF CALIFORNIA
DOMESTIC CUSTODY SERVICES
Personal
Custody
Agreement
1. Appointment as Agent
Client hereby appoints Union Bank of California, National Association, "Bank" as
agent to act as custodian of the cash, marketable securities described on
Schedule A "Property" attached hereto, and other Property which may be deposited
by Client or by the advisor whom Client has employed as investment counselor
("Advisor") on Client's behalf, with Bank from time to time to be held in the
account established by this Agreement ("Account"). Bank agrees to act as
Client's agent for such Property according to the terms and conditions of this
agreement; provided however, that Bank shall have no duties or responsibilities
with respect to any assets other than cash or marketable securities that may be
held in this Account from time to time, unless specifically set forth in an
Addendum to this agreement.
2. Investment of Property
2.1 Investment Authority. Advisor shall have sole responsibility for the
investment, review, and management of all Property held in this Account. Bank
shall make or settle all purchases, sales, exchanges, investments and
reinvestments of the Property held in this Account only upon receipt of, and
pursuant to, Advisor's instructions. Bank shall have no duty or obligation to
review, or to make recommendations for, the investment and reinvestment of any
of the Property held in this Account, including uninvested cash.
2.2 Corporate Actions. Bank shall notify Advisor of the receipt of notices of
redemptions, conversions, exchanges, calls, puts, subscription rights, and scrip
certificates ("Corporate Action(s)"). Bank need not monitor financial
publications for notices of Corporate Actions and shall not be obligated to take
any action unless actual notice has been received by Bank. Advisor shall have
full responsibility for all monitoring, notices, and other actions necessary in
connection with Corporate Actions and Bank shall have no duty to provide
notification to Client.
2.3 Use of Nominees. Bank shall have the right to hold all registered securities
in the name of its nominee.
2.4 Use of Securities Depository. Bank may, in its discretion, deposit in a
securities depository any securities which, under applicable law, are eligible
to be so deposited.
2.5 Use of Institutional Delivery System.. Notwithstanding any other language in
this Agreement, Bank may settle all securities transactions effected by Advisor
through the use of an institutional delivery system. Bank may deliver or receive
securities in accordance with appropriate trade reports or statements received
through an institutional delivery system without having received written
direction directly from Advisor.
3. Handling of Income and Principal Income
3.1 Income. Bank shall collect the income when paid on said Property and invest
it in that cash management vehicle as designated from time to time by Advisor
upon receipt of instructions to that effect.
3.2 Principal. Bank shall collect principal of Property when paid on maturity,
redemption, sale or otherwise and invest it in that cash management vehicle
designated from time to time by Advisor upon receipt of instructions to that
effect.
3.3 Collection Obligations. Bank shall diligently collect income and principal
of which the Bank has received actual notice in accordance with normal industry
practices. However, Bank shall be under no
<PAGE>
UNION BANK OF CALIFORNIA
DOMESTIC CUSTODY SERVICES
Personal
Custody
Agreement
obligation or duty to take any action to effect collection of any amount if
securities or other property upon which such amount is payable is in default, or
if payment is refused after due demand. Bank shall notify Advisor promptly of
such default or refusal to pay.
3.4 Additions to and Withdrawals from Account. Bank shall make all additions and
withdrawals of Property to and from this Account only upon receipt of and
pursuant to written instructions from Client.
4. Proxies and Corporate Literature
4.1 Proxies. Bank shall forward all proxies and accompanying material issued by
any company whose securities are held in the Account to Advisor or Client as
directed.
4.2 Corporate Literature. Bank shall have no duty to forward or to retain any
other corporate material received by the Account unless required to do so by
law.
5. Statements and Confirmations
5.1 Statements. Each month Bank shall send client and Advisor a cash statement
showing all income and principal transactions and cash positions, and a list of
assets, showing market values, if such values are readily available from a
nationally recognized pricing service; otherwise assets will be listed as such
nominal value as Bank shall determine. Bank shall have the right to rely on the
prices quoted by its pricing services, and shall have no obligation to question
the accuracy of the valuation provided by any such service, Client may approve
or disapprove any such statement within sixty (60) days of its receipt, and, if
no written objections are received within the sixty (60) day period, such
statement of Account shall be deemed approved.
5.2 Confirmations. Bank shall have no responsibility to send the confirmations
of security transactions occurring in this Account to Client or to Investment
Counselor; however, Client or Investment Counselor may request confirmations for
security transactions at any time at no additional cost to Client, and such
confirmations shall be sent to Client or to Investment Counselor within the time
prescribed by law.
6. Use of Other Bank Services
Client or advisor may direct Bank to utilize for this Account other services or
facilities provided by Bank, its subsidiaries or affiliates. Such services shall
include, but not be limited to (1) the purchase or sale of securities as
principal to or from, or, (2) the placing of orders for the purchase, sale,
exchange, investment or reinvestment of securities through any brokerage service
conducted by, or, (3) the placing of orders for the purchase or sale of units of
any investment company managed or advised by Bank, UnionBanCal Corporation, or
their subsidiaries or affiliates, and for which Bank, UnionBanCal Corporation,
or their subsidiaries or affiliates act as custodian or provide other services.
Client hereby acknowledges that Bank will receive additional fees for such
services in accordance with Bank's standard fee schedules, which shall be
delivered to Client or Advisor from time to time. Notwithstanding the above,
Client or Advisor may direct Bank to utilize for this Account for cash
management purposes the HighMark Group of mutual funds advised by Bank, and for
which Bank may also act as custodian and provide other services. Client or
<PAGE>
UNION BANK OF CALIFORNIA
DOMESTIC CUSTODY SERVICES
Personal
Custody
Agreement
Advisor shall designate the particular HighMark Fund that Client or Advisor
deems appropriate for the account. Client hereby acknowledges that Bank will
receive fees for such services, which shall be in addition to those fees charged
by Bank as agent for the Client's Custody Account.
7. Instructions
All instructions from Client, and all instructions from Advisor except those
described in Section 2.5 shall be in writing, and shall continue in force until
changed by subsequent instructions. Pending receipt of written authority, Bank
may in its absolute discretion at any time, accept oral, wired or electronically
transmitted instructions from Advisor or Client provided Bank believes in good
faith that the instructions are genuine. Client or Advisor shall confirm such
instructions in writing immediately thereafter.
8. Compensation and Other Charges
8.1 Compensation. Bank's annual fee as agent shall be based on the standard fee
schedule of the Bank as it exists from time to time. Fees shall be taken
quarter-annually in arrears, and charged to the account unless otherwise
instructed.
8.2 Charging the Account. Bank is authorized to charge the Account incidental
expenses as well as for the funds necessary for Bank to based on complete any
purchase or expense, to make any directed disbursement or to take any other
action regarding the Account. Bank shall have no duty to make any purchases,
exchanges, or disbursements or to incur any expenses, unless the funds necessary
to cover the amount of expense are available in the Account. Client will pay
back any fees or costs incurred directly if funds in the account are
insufficient.
8.3 Advisor's Fees. Unless otherwise instructed, Custodian is authorized to
charge the fees of Advisor to Client's custodial account and to pay the same to
Advisor.
9. Limited Power of Attorney
Bank is hereby granted a limited power of attorney by Client to execute on
Client's behalf any declarations, endorsements, assignments, stock or bond
powers, affidavits, certificates of ownership or other documents required (1) to
effect the sale, transfer, or other disposition of Property held in the Account,
(2) to obtain payment with respect to Property held in the Account, or (3) to
take any other action required with respect to the Property held in the Account,
and in the Bank's own name to guarantee as Client's signature any signature so
affixed.
10. Indemnification
As additional consideration for the Bank's acceptance of this Account and its
agreement to act as agent, Advisor and Client agree to indemnify, and hold Bank,
its officers, directors, employees, agents, successors and assigns harmless from
and against any and all losses, liabilities, demands, claims, and expenses,
attorney's fees and taxes (other than those based on for the Bank's net income)
arising out of or in connection with this Agreement, or out of any actions of
Advisor, Client or Client's agents which are not caused by Bank's gross
negligence or willful misconduct. This provision shall survive the termination
of this Agreement and shall be binding upon each party's successors,
<PAGE>
UNION BANK OF CALIFORNIA
DOMESTIC CUSTODY SERVICES
Personal
Custody
Agreement
assigns, heirs and personal representatives.
11. Amendment and Termination of Agreement
11.1 Amendment. This Agreement may be amended only by a written agreement
executed by Bank and Client.
11.2 Termination. This Agreement may be terminated at any time by written notice
from one party to the other. Such termination shall be effective immediately.
Upon termination, Bank shall have a reasonable amount of time to transfer the
Property held in the Account in accordance with the written instructions of
Advisor. Client, or the person or entity legally entitled to receive such
Property. Bank's fees and costs related to termination, including without
limitations, costs for shipping securities and other Property held in the
Account and costs of reregistering securities, generating reports and accounting
for disposition of cash shall be charged to the Account.
12. Entire Agreement
This Agreement constitutes the entire Agreement among the parties. All previous
agreements, and instructions whether written or oral, between the Bank and
Client are hereby superseded.
13. Governing Law
This Agreement shall be governed by, and construed under, the laws of the State
of California.
14. Taxation of Account
Client is responsible for filing any and all tax returns and for paying the
taxes on all property and income of this account.
15. Notices
15.1 Mailing of Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed as having been duly
given on the date of service, if served personally on the party to whom notice
is to be given, or on the fifth day after mailing, if mailed to the party to
whom notice is to be given and properly addressed as indicated below.
15.2 Change of Address. Any party may change the address at which notice may be
given by giving ten (10) days prior written notice of such change to the other
party.
16. Effective Date
This Agreement shall be effective upon the date of receipt by the Bank of the
Property.
<PAGE>
UNION BANK OF CALIFORNIA
DOMESTIC CUSTODY SERVICES
Sale of Partial Positions: [_] FIFO [_] LIFO [_] HIFO [_] LOFO
Custodian Fees: (Calculation begins on the date the account is funded.)
[_] Charge Account [_] Bill Client
Statements:
Client [_] Monthly [_] Quarterly
Investment Advisor [_] Monthly [_] Quarterly
Other(Please supply address) [_] Monthly [_] Quarterly
Addendum: [_] Yes [_] No
Client's Signature Date
_____________________________ _____________________
_____________________________ _____________________
_____________________________ _____________________
_____________________________ _____________________
Accepted:
Union Bank of California, N.A.
By: _________________________ _____________________
Relationship Manager Date
By: _________________________ _____________________
Vice President Date
<PAGE>
SECURITIES LENDING AGREEMENT
DATED:
TO:
GENTLEMEN:
This Agreement sets forth general terms applicable to all loans of securities
made by Union Bank of California, National Association (the "Bank"), acting
solely as agent on behalf of certain accounts identified on Exhibit A as amended
from time to time upon notice to Borrower (as defined hereinafter), such
accounts referred to herein as, "Accounts" ("Accounts"), administered through
its Custody Unit (such Accounts referred to collectively herein as "Lender"), to
_______________________________________________________ ("Borrower").
The parties hereto agree as follows;
1. Definitions. In this Agreement, unless the context otherwise requires.
(a) "Business Day" shall mean any day on which regular trading occurs in
the principal market for the Loaned Securities (as defined below) subject
to a Loan (as defined below) hereunder, provided, however, that for
purposes of Section 1(k) such term shall mean a day on which regular
trading occurs in the principal market for the securities whose value is
being determined. Notwithstanding the foregoing, (e) for purposes of
Section 4, "Business Day" shall mean any day on which regular trading
occurs in the principal market for any Loaned Securities or for any
Securities Collateral (as defined below) under any outstanding Loan
hereunder and "next Business Day" shall mean the next day on which a
transfer of Collateral (as defined below) may be effected in accordance
with Section 5; and (ii) in no event shall a Saturday or Sunday be
considered a Business Day.
(b) "Cash Collateral" means, with respect to each type of Loaned Security
(as defined below), cash in such currency as mutually agreed upon by the
Borrower and the Lender and shall include irrevocable depository credits,
and other irrevocable transfers of funds contemplated by this Agreement and
checks.
(c) "Clearing Organization" shall mean a securities depository, book-entry
system, clearing house, or network which is acceptable to Lender.
(d) "Close of Business", in relation to delivery or return of Loaned
Securities or Securities Collateral under this Agreement, shall mean the
final time on a Business Day at which settlement of such Loaned Securities
or Securities Collateral may take place for trades settling on that day in
the primary market in which such Loaned Securities or Securities Collateral
are traded in order to constitute good delivery that day, or if the
settlement is not to take place in such primary market, then at the final
time for settlement in the Clearing Organization at which such Loaned
Securities or Securities Collateral are to be delivered; and, in relation
to the delivery or return of Cash Collateral, shall mean the
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<PAGE>
last time on a Business Day at which banks in the business center in which
delivery or return of such Cash Collateral is to be made will give the
recipient value that day.
(e) "Collateral" means Cash Collateral, Securities Collateral, Letters of
Credit, any Substituted Collateral (as defined below), and the proceeds of
all of the foregoing and any other property delivered by Borrower to Lender
as such or held by Lender as such.
(f) "Collateral Value" means (i) in the case of Cash Collateral, the amount
thereof, (ii) in the case of Securities Collateral, the Market Value
thereof and (iii) in the case of any Letters of Credit, the Maximum
Permitted Amount thereunder.
(g) "Default Rate of Interest" means, as of any date of determination, the
rate, determined in good faith, by the party to whom such interest is to be
paid, to be, (i) with respect to any amount payable in U.S. Dollars, a per
annum rate of 2% in excess of the prime rate, as quoted in the Wall Street
Journal for the immediately preceding Business Day (ii) with respect to any
amount payable in currency other than U.S. Dollars that is freely available
in the form of deposits in such an amount in the London inter-bank market
on an overnight basis, a per annum rate of 2% in excess of the rate of
interest at which overnight deposits in the relevant currency amount would
be offered to Bank by major banks in the London interbank market: (iii)
with respect to any amount payable in any currency not described in
subparagraphs (i) or (ii) above, a comparable rate per annum to be
determined based on generally available market information.
(h) "Equivalent Securities" means with respect to any Loaned Securities or
Securities Collateral, as applicable, securities of an equivalent nominal
amount and of the same issue, class and series as such Loaned Securities or
Securities Collateral as applicable or the equivalent (in the judgment of
Lender) in the event of any reorganization, merger or other action by the
issuer in respect of such Loaned Securities or Securities Collateral, as
applicable.
(i) "Letter of Credit" means an irrevocable letter of credit payable as
specified by Lender that is to Lender's satisfaction substantially in the
form of Exhibit B hereto and that is issued by a bank satisfactory to
Lender.
(j) "Margin Amount" means with respect to each Loan (as defined below),
unless otherwise agreed (i) 105% of the aggregate Market Value (as defined
below) of Loaned Securities which are Non U.S. Securities (as defined
below); and (ii) 102% of the aggregate Market Value (as defined below) of
Loaned Securities which are U.S. Securities (as defined below).
(k) "Market Value" means, with respect to Loaned Securities or Securities
Collateral, as of any date of determination, the amount determined by
Lender in good faith based on (i) the last reported sale price of such
securities on the principal exchange or market on which they are traded on
the Business Day immediately preceding the day of valuation; or (ii) with
respect to government securities as such securities are defined in Section
3(a)(42) of the Securities Exchange Act of 1934, the current market price
as of the time of such pricing; or (iii) if no such price is available, a
price determined by Lender in good faith, to be equal to the mean between
the closing bid and asked prices of the Loaned Securities or Securities
Collateral in question on such preceding Business Day or a price provided
by a pricing service selected by Lender in good faith in each case, if
applicable, together with any accrued but unpaid distributions thereon.
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<PAGE>
Unless Lender specifies otherwise, the Market Value of any Loaned Security
or Collateral denominated in a currency other than United States dollars
("foreign currency") or whose value is determined as aforesaid in any
foreign currency will be converted into United States dollars by Lender in
good faith by applying to the amount expressed in foreign currency the
commercial spot rate for the purchase of United States dollars determined
from such generally recognized source as Lender may specify from time to
time, and such value, as so converted, less the amount, estimated in good
faith by Lender, of any transaction costs or other expenses of any kind
likely to be incurred by Lender in converting such currency into United
States dollars, shall constitute the value of such Loaned Securities or
Collateral, as the case may be.
(1) "Maximum Permitted Amount" means, with respect to any Letter of Credit
at any time, the amount available to be drawn at such time by Lender under
such Letter of Credit.
(m) "Non U.S. Securities" means (i) securities issued by an issuer
organized or whose principal place of business is in a jurisdiction outside
of the United States and (ii) securities denominated in any currency other
than U.S. dollars. Any security traded on the New York or American Stock
Exchange (or any other security to which the parties agree) shall not
constitute a Non U.S. Security.
(n) "Securities Collateral" means securities issued by the United States,
or in respect of which the principal and interest are guaranteed by the
United States, or other securities acceptable to Lender.
(o) "U.S. Securities" means securities issued by an issuer organized or
whose principal place of business is in a jurisdiction within the United
States.
(p) "Cutoff Time" shall mean a time on a Business Day by which a transfer
of cash, securities or other property must be made by Borrower or Lender to
the other as shall be agreed by Borrower and Lender in writing, or in the
absence of any such agreement, as shall be determined in accordance with
market practice.
2. Loan of Securities. Lender in its sole discretion may, from time to time,
lend securities (the "Loaned Securities") (which term shall include any
securities into which any Loaned Securities may at any time be converted or for
which they may be exchanged, any additional securities distributed with respect
to Loaned Securities as contemplated by Section 8 and any securities issued
otherwise in respect thereof on a sub-division, consolidation, or exchange or
otherwise) to Borrower at Borrower's request. The parties shall agree orally on
the terms of each such loan (each, a "Loan"), including the issuer; class; and
quantity of securities to be lent; the terms of compensation (including the
amount of the Loan Fee and/or the Cash Collateral Fee); the duration of the Loan
(or whether the Loan shall be terminable on demand); and the amount, which shall
be at least equal to the Margin Amount, and type of Collateral to be delivered
by Borrower, which terms may be amended by mutual agreement during the term of
the Loan. If Lender agrees to make such a Loan, it shall deliver the Loaned
Securities to Borrower as contemplated by this Agreement. Lender and Borrower
contemplate that delivery by Lender of the Loaned Securities to Borrower shall
be made against the simultaneous delivery of the Collateral by Borrower to
Lender, unless otherwise agreed, provided, however, that in no event will Lender
be required to deliver Loaned Security prior to its receipt of the related
Collateral.
3. Collateral and Letters of Credit
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(a) Borrower shall, at or before the time Lender is to lend any Securities
to Borrower, deliver to Lender Cash Collateral, Securities Collateral or
Letter of Credit having an aggregate Collateral Value at least equal to the
Margin Amount.
Borrower hereby grants to Lender a security interest in (i) all Collateral
from time to time delivered, provided, or designated to Lender, (ii) all
after-acquired Collateral, and (iii) all present and future proceeds and
products of any such Collateral, including without limitation any property
in which any Cash Collateral may be invested by Lender, in each case to
secure all present and future obligations of Borrower to Lender under this
Agreement. Such security interest shall cease upon the return of the Loaned
Securities to Lender. Notwithstanding any other provision of this
Agreement, any Collateral delivered to or held by Lender in connection with
any Loan shall nonetheless be considered for all purposes to serve as
Collateral for all of the obligations of Borrower under any Loan or
otherwise under this Agreement. In the event that any Collateral is likely
to mature while it is being used as Collateral, then, prior to the maturity
of such Collateral, Borrower shall, unless Lender specifies otherwise,
replace such Collateral with other Collateral acceptable to Lender and of
at least equal value.
It is understood that Lender may use or invest the Cash Collateral at its
own risk, but that Lender shall, during the term of any Loan hereunder,
segregate all Collateral from all securities or other assets in its
possession. Lender may pledge, repledge, hypothecate, rehypothecate, lend,
relend, sell or otherwise transfer the Securities Collateral, or reregister
Securities Collateral evidenced by physical certificates in any name other
than Borrower's only in the event of a Default by Borrower. Segregation of
Collateral may be accomplished by appropriate identification on the books
and records of Lender or its agent if Lender or its agent is a "financial
intermediary" or a "clearing corporation" within the meaning of the New
York Uniform Commercial Code.
Except as otherwise provided herein, upon transfer to Lender of the Loaned
Securities on the day a Loan is terminated pursuant to Section 7, Lender
shall be obligated to transfer the Collateral to Borrower no later than the
Close of Business on such day, or if such day is not a day on which a
transfer of such Collateral may be effected under Section 5, the next day
on which such a transfer may be effected.
It Borrower transfers Collateral to Lender and Lender does not transfer the
Loaned Securities to Borrower, Borrower shall have the absolute right to
the return of the Collateral; and if Lender transfers the Loaned Securities
to Borrower and Borrower does not transfer the Collateral to Lender, Lender
shall have the absolute right to the return of the Loaned Securities.
Lender's sole obligation to Borrower in respect of Collateral shall be to
return the Collateral (or, in the case of Securities Collateral, Equivalent
Securities) to Borrower as contemplated by this Agreement, subject to any
deduction or withholding contemplated by this Agreement.
Any Collateral provided in making mark-to-market adjustments pursuant to
this Agreement shall be Collateral for all purposes of this Agreement. Any
converted form of Collateral and any proceeds of Collateral, including
without limitation any distributions or payments by any person with respect
to such Collateral, shall similarly be Collateral for all purposes.
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<PAGE>
In addition to the rights given Lender under this Agreement, Lender shall
have the rights and remedies of a secured party under the New York Uniform
Commercial Code. Borrower shall not create or permit to exist any security
interest, lien, or other encumbrance with respect to any Collateral, except
any security interest, lien or encumbrance created under this Agreement.
(b) Lender is authorized to invest and reinvest, for its own account and at
its own risk, part or all of any Collateral in the form of cash or a
depository credit or the cash proceeds of any Collateral in any deposit,
security or other investment, as determined in Lender's sole discretion.
Lender shall be entitled to retain and appropriate to its sole use and
ownership all interest and other income and distributions received by it as
a result of investing and reinvesting any such Collateral and all net gains
realized upon the sale, retirement or other disposition of such investment
and reinvestment of such Collateral, none of which shall or shall be
deemed, notwithstanding any other provision of this Agreement, to increase
the amount of the Collateral held by Lender. Nothing contained herein shall
limit Lender's right to invest any Collateral in the form of a depository
credit as provided in the Section 3(b) hereof and to receive funds at any
time for any depository credit.
(c) Borrower may, upon reasonable notice to Lender (taking into account all
relevant factors, including industry practice, the type of Collateral to be
substituted and the applicable method of transfer), substitute Collateral
which is acceptable to Lender (the "Substituted Collateral") for any
Collateral previously delivered to Lender, provided that, immediately after
such substitution, the Collateral Value of the Collateral held by Lender is
at least equal to the Margin Amount as of such time.
(d) Lender acknowledges that, in connection with Loans of Government
Securities and as otherwise permitted by applicable law, some securities
provided by Borrower as Collateral under this Agreement may not be
guaranteed by the United States. As used in this Agreement, "Government
Securities" shall mean government securities as defined in Section
3(a)(42)(A)-(C) of the Securities Exchange Act of 1934, as amended.
4. Marking to Market
(a) Lender and Borrower shall daily mark to market the Loaned Securities
and the Securities Collateral hereunder based on a determination of Market
Value as defined in Paragraph 1(k) above.
(b) Unless otherwise agreed in writing, if on any Business Day the
Collateral Value of all Collateral in respect of all outstanding Loans is
less than the Margin Amount of all outstanding Loans Borrower shall deliver
additional Collateral which, together with Collateral in the possession of
Lender, has a Collateral Value at least equal to the Margin Amount, such
additional Collateral to be delivered to Lender (i) by the Close of
Business on the same Business Day, if notice is received by Borrower by the
Cutoff Time that day, and (n) by the Close of Business the next Business
Day, if such notice is received by Borrower after the Cutoff Time that day,
or, in either case, by such other time to which the parties may agree.
(c) Unless otherwise agreed in writing, if on any Business Day the
Collateral Value of all Collateral in respect of all outstanding Loans
exceeds the Margin Amount, Borrower may require Lender to return Collateral
equal to the amount of the excess (i) in the case of
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Collateral located in the United States, such excess Collateral to be
returned by Lender by the Close of Business on the same Business Day, if
notice is received by Lender by the Cutoff Time that same day and (ii) in
all other cases, such excess Collateral to be returned by Lender by the
Close of Business on the next Business Day, if notice is received by Lender
by the Cutoff Time that day.
5. Deliveries: Schedules of Loaned Securities.
(a) Securities. Deliveries of securities of any type by one party hereto to
the other party shall be by (i) delivering to the recipient or its agent
certificates representing the securities in good deliverable form, (ii)
causing the securities simultaneously to be irrevocably credited to the
recipient's account and debited to the sender's account at a Clearing
Organization, or (iii) by such other means as may be agreed by the parties,
together with such documentation as the party receiving such securities
shall reasonably request.
(b) Cash, Deliveries of Cash Collateral by one party hereto to the other
party shall be by (a) delivery to the party receiving such Cash Collateral
of a certified or bank cashier's check payable as specified by Lender in
next day funds, (b) causing a cash amount simultaneously to be debited to
the sender's account and credited irreversibly to the recipient's account
at a Clearing Organization, or (c) irreversible telegraphic wire transfer
or other irreversible credit in immediately available funds to the account
of such party at such bank or Clearing Organization as shall be designated
by such party.
(c) Letter of Credit Delivery of a Letter of Credit to Lender shall be made
by Borrower causing such Letter of Credit to be issued in the required
Maximum Permitted Amount or by causing the Maximum Permitted Amount under
an outstanding Letter of Credit to be amended to the Maximum Permitted
Amount then required, in either case, in form and substance satisfactory to
Lender, and physically delivered to Lender.
(d) Any delivery under this Agreement may be made to such agent, designee
or nominee as shall be chosen by the party entitled to such delivery, and
such delivery shall be deemed to have been made when received by such
agent, designee or nominee.
(e) Borrower shall deliver to Lender on or before the Business Day after
the day on which any Loan is made hereunder a schedule of the Loaned
Securities, identifying the Loaned Securities in all pertinent respects
(including without limitation a full security description) and
acknowledging that the Loaned Securities are loaned pursuant hereto,
referencing this Agreement. Any identification of Loaned Securities shall
be deemed to include any securities into which any identified Loaned
Securities may at any time be converted or for which they may be exchanged,
any additional securities distributed with respect to Loaned Securities,
and any securities issued otherwise in respect thereof on a sub-division,
consolidation or exchange, unless such identification specifically provides
to the contrary.
6. Cash Collateral Fees and Loan Fees. Unless otherwise agreed, Lender agrees to
pay Borrower a Cash Collateral Fee in the same currency as the related Cash
Collateral computed daily based on the amount of Cash Collateral held by Lender,
and Borrower agrees to pay Lender a Loan Fee computed daily on each Loan secured
by Collateral other than Cash Collateral in U.S. Dollars unless otherwise
agreed, in each case, at such rates as the parties shall agree prior to and from
time to time during each Loan. Unless otherwise agreed, Cash Collateral Fees
shall accrue from and including the first Business Day on which the Cash
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Collateral is available to Lender for investment, to, but excluding, the first
date on which such Cash Collateral is not so available to Lender for investment;
and Loan Fees shall accrue from and including the date on which the Loaned
Securities are delivered to Borrower to, but excluding, the date on which such
Loaned Securities are returned to Lender.
Unless otherwise agreed, any Loan Fee or Cash Collateral Fee payable hereunder
shall be payable:
(a) in the case of any Loan of securities other than Government Securities,
upon the earlier of (i) the fifteenth day of the month following the
calendar month in which such fee was incurred or (ii) the termination of
all Loans hereunder (or, if a transfer of cash in accordance with Section 5
may not be effected on such fifteenth day or the day of such termination,
as the case may be, the next day on which such a transfer may be effected);
and
(b) in the case of any Loan of Government Securities, upon the termination
of such Loan.
Notwithstanding the foregoing, all Fees shall be payable immediately upon
termination of this Agreement or upon the occurrence of an Event of Default
with respect to the party obligated to pay such fees.
7. Termination of a Loan.
(a) Unless otherwise agreed in writing, Borrower may terminate any Loan on
any Business Day, either in whole or in part, by giving notice to Lender by
the Cutoff Time the same day and transferring the Loaned Securities to
Lender by the Close of Business the same day. Unless otherwise agreed in
writing, Lender may terminate any Loan on any Business Day, either in whole
or in part, on any termination date established by notice to Borrower prior
to the Close of Business on a Business Day. The termination date
established by a termination notice given by Lender to Borrower shall be no
earlier than the standard settlement date in the principal market in which
such securities are traded for trades of such Loaned Securities entered
into on the date of such notice. Borrower shall transfer the Loaned
Securities to Lender on or before the Cutoff Time on the termination date
of such Loan.
(b) Unless Borrower is in default under this Agreement, Lender shall,
following its receipt of the Loaned Securities related to such terminated
Loan, deliver to Borrower such Collateral in respect of the terminated Loan
as may be specified by Borrower in a written request, subject to
verification and approval by Lender, demonstrating that the Collateral
remaining immediately after the return of such Collateral will have an
aggregate value of least equal to the Collateralized Amount.
(c) Any amounts not paid when due hereunder shall bear interest at the
Default Rate of Interest from the date due until paid in full.
8. Rights In Loaned Securities.
(a) During the term of any Loan, (i) Borrower shall, without prejudice to
Lender's rights under Section 8(b), have all incidents of ownership with
respect to the related Loaned Securities, including the right to transfer
such Loaned Securities to others, and (ii) unless
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Lender notifies Borrower to the contrary, Lender hereby waives its right to
vote or to provide any consent or take any similar action with respect to,
such Loaned Securities in the event that the record date or deadline for
such vote, consent or other action falls during the term of such Loan,
provided, however, that after termination of the Loan until such securities
are returned to Lender, Borrower agrees to exercise or procure the exercise
of any rights arising with respect to such securities, accordance with the
instructions of Lender. Subject to the foregoing, despite any termination
of a Loan, any securities loaned under this Agreement shall continue to be
Loaned Securities for all other purposes until returned to Lender.
In the event Lender elects to exercise rights arising in respect of any
Loaned Securities, Lender shall notify borrower of such election in
accordance with the Termination of a Loan provisions herein, and Borrower
shall, at its option, either exercise such rights on behalf of Lender in
accordance with Lender's instructions or terminate such Loan in accordance
with the provisions of Section 7 herein, in either case upon notice to
Lender, provided, however that if Borrower elects not to exercise Lender's
rights on behalf of Lender and Borrower fails to (i) return the Loaned
Securities or (ii) notify Lender that it will not return the Loaned
Securities, in either case, in such time as to afford Lender a reasonable
time to take such steps as are necessary to afford Lender the opportunity
to exercise such rights, Borrower shall be liable for the actual, direct
losses resulting from such failures.
(b) Lender shall be entitled to receive all distributions made by the
issuers of the Loaned Securities or otherwise arising in respect thereof
from the time of delivery of the Loaned Securities to Borrower until the
return thereof to Lender, including without limitation cash dividends,
stock dividends and splits, and principal and interest distributions of any
kind declared, granted, or made by the issuer, or any affiliate thereof,
and rights to purchase or to subscribe for additional securities. Unless
Lender shall have otherwise received such distribution Borrower shall, on
the payment date of any such distribution, (i) forthwith pay or transfer to
Lender any distribution in any form other than securities or rights to
receive or acquire securities (such payment or transfer, in the case of a
distribution in the form of cash, to be made in the same currency as that
in which payment of such distribution was payable by the issuer of the
securities) and (ii) in the case of any distribution in the form of
securities or rights, treat the securities or rights distributable as
having been added to the Loaned Securities, in which case such securities
or rights shall be considered Loaned Securities for all purposes of this
Agreement, except that Borrower shall, if so instructed by Lender prior to
the payable date of any such distribution of securities, deliver to Lender
on or after such payable date an equal amount of such distributable
securities or rights in negotiable, deliverable form. Non-cash
distributions received by Borrower and not otherwise paid or transferred to
Lender shall be added to the Loaned Securities on the date of distribution
and shall be considered such for all purposes, except that if the Loan has
terminated, Borrower shall forthwith transfer the same to Lender.
(c) During the term of any Loan secured by Collateral consisting of
securities, Borrower shall be entitled to receive all sums paid in respect
of interest and distributions pertaining to said securities during the term
of the Loan, and Lender shall pay over or deliver to Borrower any such
amounts paid in respect of interest and distributions: provided, however,
that Lender shall be entitled to hold any such interest or distribution to
the extent of. and to offset such interest or distribution against, any
obligation of Borrower to deliver any Collateral to, or to maintain any
Collateral with, Lender or otherwise as Lender may reasonably deem
necessary or advisable in light of any obligation, whether present or
future, of Borrower to Lender. Non-cash distributions received by Lender
and not
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otherwise paid or transferred to Borrower shall be added to the Collateral
and shall be considered such for all purposes, except that if the Loan has
terminated, Lender shall forthwith transfer the same to Borrower, subject
to the provisions of this Agreement.
9. Transfer Taxes and Necessary Costs.
(a) Borrower will pay any stamp or other tax levied or imposed upon it or
in respect of its execution of this Agreement or its performance of its
obligations under this Agreement by any jurisdiction and will indemnify
Lender against any stamp or other tax levied or imposed upon Lender or
Lender's execution of this Agreement or its performance of its obligations
under this Agreement by any jurisdiction other than the United States of
America. All transfer taxes and transfer fees in respect of the delivery
and return of or realization upon the Loaned Securities and Collateral
shall be paid by Borrower. If Lender shall incur any loss or expense by
reason of Borrower's failure to pay all such taxes and costs, Lender shall,
in addition to any rights it might otherwise have, be entitled to retain
Collateral in an amount sufficient to satisfy its claim against Borrower in
respect of such taxes and costs.
(b) Unless otherwise agreed, if (i) Borrower is required to make a payment
(a "Borrower Payment") with respect to cash distributions on Loaned
Securities ("Securities Distribution"), or (ii) Lender is required to make
a payment (a "Lender Payment") with respect to cash distributions on
Collateral ("Collateral Distribution"), and (iii) Borrower or Lender, as
the case may be ("Payer"), shall be required by law to collect any
withholding or other tax, duty, fee, levy or charge required to be deducted
or withheld from such Borrower Payment or Lender Payment ("Tax"), then
Payer shall (subject to subsections (c) and (d) below), pay such additional
amounts as may be necessary in order that the amount of the Borrower
Payment or Lender Payment received by the Lender or Borrower, as the case
may be ("Payee"), after payment of such Tax equals the net amount of
Securities Distribution or Collateral Distribution that would have been
received if such Securities Distribution had been paid directly to the
Payee.
(c) No additional amounts shall be payable to a Payee under subsection (b)
above to the extent that Tax would have been imposed on a Securities
Distribution or Collateral Distribution paid directly to the Payee.
(d) No additional amounts shall be payable to a Payee under subsection (b)
above to the extent that such Payee is entitled to an exemption from, or
reduction in the rate of, Tax on a Borrower Payment or Lender Payment
subject to the provision of a certificate or other documentation, but has
failed timely to provide such certificate or other documentation.
(e) Each party hereto shall be deemed to represent as of the commencement
of any Loan hereunder, that no Tax would be imposed on any cash
distribution paid to it with respect to (i) Loaned Securities subject to
such Loan (if it is acting as Lender) or (ii) Collateral for such Loan (if
it is acting as Borrower), unless such party has given notice to the
contrary to the other party hereto (which notice shall specify the rate at
which such Tax would be imposed). Each party agrees to notify the other of
any change that occurs during the term of a Loan in the rate of any Tax
that would be imposed on any such cash distributions payable to it.
10. Financial Condition. Upon demand by Lender, Borrower shall deliver to Lender
(i) the most recent available audited statement of Borrower's financial
condition, and (ii) the most recent available unaudited statement of its
financial condition (if more recent than the audited
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statement). Borrower represents and warrants that such statements fairly
represent its financial condition and net capital as of the dates of such
statements and have been prepared in accordance with generally accepted
accounting principles of the jurisdiction in which the subject of such financial
statement is organized or located, as the case may be.
11. Confidentiality and Non-Compete. Borrower acknowledges that all information
and documents which come into Borrower's possession or control concerning Bank
or any Lender in respect, or in the course, of any dealings contemplated by this
Agreement constitute a valuable asset of and are proprietary to Lender and Bank,
and also acknowledges that Lender has a responsibility to its clients and
employees to keep its records and information confidential and proprietary.
Therefore, except as may be required by law, rule, legal process, or regulatory
investigation, Borrower agrees not to disclose or use in any manner, either
directly or indirectly, any such information or documents or any other
information of any kind, nature or description concerning matters affecting or
relating to this Agreement, Lender or its clients unless said information is (i)
already in the public domain, (ii) was within Borrower's possession prior to its
disclosure by the Lender to Borrower pursuant hereto. (iii) becomes available to
Borrower on a non-confidential basis after the date hereof from any third party
which is not known by Borrower to be bound by a confidentiality agreement with
the Lender with respect to such information or (iv) Lender has given its prior
consent.
This Section 11 shall survive termination of this Agreement and termination of
any Loan hereunder.
12. Termination Upon Default. The happening of any of the following events as to
a party, or the party specified below, as the case may be (in each such case,
such party being referred to as the "Defaulting Party", and the other party
being referred to as the "Non-Defaulting Party") shall constitute an "Event of
Default" under this Agreement:
(a) if any Loaned Securities shall not be transferred to Lender upon
termination of the Loan as required by Section 7;
(b) if any Collateral shall not be transferred to Borrower upon termination
of the Loan as required by Sections 3(a) and 7;
(c) if either party shall fail to transfer Collateral as required by
Section 4;
(d) if either party (i) shall fail to transfer to the other party amounts
in respect of distributions required to be transferred by Section 8, (ii)
shall have received notice of such failure from the non-defaulting party,
and (iii) shall not have cured such default by the Cutoff Time on the next
day after such notice on which a transfer of cash may be effected in
accordance with Section 5;
(e) if any representation of a party made herein shall prove to have been
incorrect when made or deemed to have been made or becomes untrue in any
material respect at any time thereafter:
(f) if a party or any Affiliate of such party shall be involved in
financial difficulties as evidenced by: (i) its commencement of a voluntary
case under Title 11 of the United States Code as from time to time in
effect, or by its authorizing, by appropriate proceedings of its board of
directors or other governing body, the commencement of such a voluntary
case; (ii) the commencement, in respect of it, of an involuntary case under
said Title 11 and such
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case is not dismissed within 30 days; (iii) its filing an answer or other
pleading admitting or failing to deny the material allegations of a
petition filed against it commencing an involuntary case under said Title
11, or seeking, consenting to or acquiescing in the relief therein sought
or provided, or its failing to controvert timely the material allegations
of any such petition; (iv) the entry of an order for relief in any
involuntary case commenced under said Title 11; (v) its seeking relief as a
debtor under any applicable law, other than said Title 11, of any
jurisdiction, whether within or without the United States of America,
relating to the insolvency, liquidation or reorganization of debtors or the
modification or alteration of the rights of creditors, or by its consenting
to or acquiescing in such relief or any involuntary case or petition filed
or made therefor (including without limitation seeking any order or
arrangement for rehabilitation or for the appointment of any receiver,
administrative receiver, administrator, trustee or person performing
similar functions, or instituting supervisory proceedings or proceedings
for court administration or similar proceedings in any jurisdiction); (vi)
the commencement of any involuntary case or proceeding of the nature
referred to in (v) above and such case is not dismissed within 30 days;
(vii) the passing of any resolution by its members, shareholders, partners
or other controllers to effect, approve or seek its winding up, dissolution
or liquidation; (viii) the entry of any order by a court, tribunal, or
other authority of competent jurisdiction finding it to be bankrupt or
insolvent, ordering or approving its liquidation, winding up, dissolution
or reorganization or any modification or alteration of the rights of its
creditors, or assuming custody of, or appointing a receiver, administrator,
administrative receiver, trustee, custodian or other person performing
similar functions for all, or a substantial part, of its property or
business; (ix) its making an assignment for the benefit of its creditors,
or appointing or consenting to the appointment of a receiver,
administrator, administrative receiver, trustee, custodian or other person
performing similar functions for all or a substantial part of its property
or business; (x) its admission in writing of its inability to pay its debts
as they become due or (xi) any occurrence, activity, order or other event,
in Lender's good faith judgment of a nature generally similar to those
described in (i) through (x) above or having or likely to have the same or
any similar effect, occurring in, under the jurisdiction or auspices of any
person or authority located in, or otherwise happening in or with respect
to any jurisdiction within or without the United States;
(g) if Borrower or any Affiliate of Borrower shall fail to make any payment
when due in respect of any Indebtedness or shall fail to observe or perform
the terms of any instrument or agreement relating to any such Indebtedness
and any such failure shall continue, without having been cured, waived or
otherwise consented to, beyond any applicable period of grace, or any such
Indebtedness shall be accelerated or declared due and payable prior to the
stated maturity thereof or if any security interest in or any lien on any
property of Borrower or any Affiliate thereof securing any such
Indebtedness shall be enforced; for the purposes of this paragraph,
"Indebtedness" includes all obligations related to borrowed money where the
principal amount of the borrowing exceeds $10 million;
(h) if any federal or state agency, court, tribunal or other governmental
entity or regulatory body of any kind of any jurisdiction within or without
the United States or any creditor of a party other than the other party to
this Agreement shall file any petition or seek any appointment specified in
Section 12(f) or under the Securities Investor Protection Act or under any
applicable law or regulation, whether of the United States of America or
any other jurisdiction, providing for the protection of investors, with
respect to such party which petition is not vacated within thirty (30)
days;
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(i) if the Securities and Exchange Commission shall revoke or suspend the
registration, if any, of Borrower as a broker/dealer, or if any license
required for Borrower's entry into this Agreement, entry into any Loan
contemplated hereby or performance of its obligations hereunder or
otherwise required for Borrower to engage in its business as now conducted
shall be revoked or suspended or shall fail to be renewed by any agency,
court, tribunal or other governmental entity or regulatory body of any
political subdivision of any kind in any jurisdiction whether or not of or
located in the United States, or if any such person or entity shall take
any disciplinary action against Borrower, or make any order restricting the
activities of Borrower or its ability to dispose of its assets, which in
the opinion of Lender has or could have material adverse effect on the
ability of Borrower to perform its obligations hereunder;
(j) if any securities exchange, any securities association, any
self-regulatory organization or, in Lender's reasonable judgment, any
comparable entity (whether created or operating under the laws of, or
located in, the United States or any other jurisdiction) shall revoke or
suspend the membership, license, or other comparable relationship of or
with Borrower; or
(k) if Borrower consolidates or amalgamates with, or merges into, or
transfers all or substantially all its assets to, another entity and, at
the time of such consolidation. amalgamation, merger or transfer Borrower
does not notify Lender of the resulting, surviving or transferee entity, or
the resulting, surviving or transferee entity has not assumed all the
obligations of Borrower under this Agreement pursuant to an agreement
reasonably satisfactory to the other party;
(l) if a party shall fail to comply with any material obligation of such
party under this agreement not specifically set forth in subsections
(a)-(k) above, including but not limited to the payment of fees as required
by Section 6, and the payment of transfer taxes as required by Section 9,
(ii) shall have received notice of such failure from the non-defaulting
party and (iii) shall not have cured such failure by the Cutoff Time on the
next day after such notice on which a transfer of cash may be effected
under Section 5.
For the purposes of this Section 12, "Affiliate", in relation to a party, shall
mean any entity controlled, directly or indirectly, by such party, any entity
that controls, directly or indirectly, such party and any entity under common
control with such party. For purposes of this definition, "control" of an entity
means ownership of a majority of the voting power of the entity.
If an Event of Default shall occur and be continuing as to a party, the
Non-Defaulting Party shall be entitled, immediately upon oral or written notice
to the Defaulting Party, to terminate any or all Loans; provided, however, that
upon the happening of any Event of Default specified in (f), or (h) above the
Non-Defaulting Party shall for all purposes be deemed to have given such notice
with respect to all Loans simultaneously with the happening of such Event of
Default.
13. Realization upon Collateral. Without in any way limiting any right Lender
may otherwise have under this Agreement or otherwise, Lender is hereby
authorized at its election, at any time or times after the actual or deemed
giving of the notice specified in the last paragraph of Section 12, without
further demand or notice, to sell or otherwise dispose of all or any of the
Collateral in the principal market for such Collateral in a commercially
reasonable manner as it may deem necessary or desirable under the circumstances,
and Lender may also exercise any and all other rights and remedies of a secured
party under any applicable law, all as Lender may determine.
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Without limiting in any way the generality of the foregoing, in the event that
(i) securities identical to Loaned Securities required to be returned to Lender
in accordance with this Agreement are not returned to Lender when and as
specified in this Agreement, (ii) Lender is obligated to redeliver, or otherwise
deprived of its rights to, any Loaned Securities after their return, or is in
any way required to pay their value or any related sum over, as a result of any
bankruptcy, insolvency, liquidation, reorganization, or other similar proceeding
relating to Borrower or pursuant to any legal requirement, including without
limitation any laws relating to so-called "preferences" or preferential
payments, or (iii) an Event of Default shall have happened with respect to
Borrower, Lender may immediately elect to purchase a like amount of securities
identical to the Loaned Securities in the principal market for such securities
in a commercially reasonable manner. In the event of any such purchases, Lender
may apply the Collateral in the amount required to the payment of the purchase
price and to payment of or reimbursement of Lender for any and all reasonable
expenses and transaction costs related to any such purchases and all other
reasonable enforcement costs of any type incurred by Lender, including without
limitation any brokerage expenses and applicable taxes and duties and attorneys'
fees, and any clearance, custody, or foreign exchange fees or expenses. In
connection with or anticipation of any such application, Lender may sell any
Collateral in the principal market for such Collateral, present or negotiate
checks, present a draft under any Letter of Credit, and/or receive funds for any
depository credit. Lender may similarly apply the Collateral to any other
obligation of Borrower under this Agreement, including without limitation Loan
premiums and distributions.
If, following the occurrence of any Event of Default, the Collateral is not
sufficient to satisfy all obligations of Borrower under this Agreement, Borrower
shall be liable to Lender for the amount of remaining obligations plus interest
at the Default Rate.
If any Collateral remains after all obligations of Borrower under this Agreement
have been satisfied, Lender or its agents shall promptly return to Borrower or
its agent the balance of the Collateral.
14. Rights of Borrower. In the event that (i) any Collateral required to be
returned to Borrower in accordance with this Agreement is not returned to
Borrower when and as specified in this Agreement, (ii) Borrower is obligated to
redeliver, or otherwise deprived of its rights to, any Collateral after its
return, or is in any way required to pay its value or any related sum over, as a
result of any bankruptcy, insolvency, liquidation, reorganization or other
similar proceeding relating to Lender or pursuant to any legal requirement,
including without limitation any laws relating to so-called "preferences" or
preferential payments, or (iii) an Event of Default shall have happened with
respect to Lender, Borrower may immediately sell the Loaned Securities in the
principal market for such securities and apply the proceeds thereof to purchase
any securities identical to those constituting such Collateral or may otherwise
apply any proceeds of such sale to the obligation of Lender to return any
Collateral to Borrower. In such event, Borrower may in addition apply any such
proceeds of any such sales to payment of or reimbursement of Borrower for any
and all reasonable expenses and transaction costs related to any such sales and
all other reasonable enforcement costs of any type incurred by Borrower,
including without limitation any brokerage expenses and applicable taxes and
duties and attorneys' fees, and any clearance, custody, or foreign exchange fees
or expenses. Borrower may similarly apply the proceeds of any such sale to any
other obligation of Lender under this Agreement. Borrower shall notify Lender
immediately prior to any such action. As an alternative to any sale of Loaned
Securities under this Section 14, Borrower may retain the Loaned Securities and
may apply against any and all obligations of Borrower to Lender the
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value of such retained Securities, all as if it had sold such Loaned Securities
as provided in this Section 14.
If, following the occurrence of any Event of Default, the value of the Loaned
Securities is not sufficient to satisfy all obligations of Lender under this
Agreement, Lender shall be liable to Borrower for the amount of remaining
obligations plus interest at the Default Rate.
If any Loaned Securities or proceeds thereof remain after all obligations of
Lender under this Agreement have been satisfied, Borrower or its agents shall
promptly return to Lender or its agent the balance of the Loaned Securities or
proceeds thereof.
15. Representations and Warranties. Each of Lender and Borrower represents and
warrants to the other that (a) it is duly organized and validly existing and in
good standing under the law of the jurisdiction in which it is established and
it has all necessary power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby; (b) this Agreement does not
violate any laws, rules or regulations applicable to it; (c) this Agreement
constitutes a legal, valid and binding obligation enforceable against it
(subject to applicable bankruptcy, reorganization, insolvency, or similar laws
affecting creditors' rights generally); (d) it has not relied on the other for
tax or accounting advice concerning this Agreement or any Loan; and (e) any
Loaned Securities or Collateral delivered by it to the other party will be
delivered free from any lien, charge or other encumbrance.
Borrower represents and warrants that all Loans shall comply with all applicable
laws of any and all jurisdictions as may be in effect from time to time,
including without limitation Regulation T issued by the Board of Governors of
the Federal Reserve System, as amended from time to time ("Regulation T").
Without limiting the generality of the foregoing, if Borrower is a "creditor" as
such term is defined in Section 2(b) of Regulation T, Borrower represents and
warrants that all Loaned Securities shall be used by Borrower solely for the
purposes permitted by Section 16 of Regulation T and that all Collateral shall
at all times constitute permissible collateral for securities borrowing under
Regulation T.
Each of the representations and warranties in this Section shall be deemed
repeated at all times during the term of this Agreement.
16. Indemnification. Any remedy provided to either party by this Agreement,
including any remedy provided by this Section 16, shall not be exclusive, and a
party shall be entitled to exercise all rights and take advantage of all
remedies available to it under applicable law. Without limiting the generality
of the foregoing, a party shall be liable to the other party, in the event of
any breach by such party of any provision of this Agreement or if it is the
Defaulting Party with respect to any of the Events of Default specified in
Section 12, for any and all losses, expenses, transaction costs, or other
amounts incurred by the other party resulting directly therefrom or incurred by
such other party in attempting to relieve or mitigate the effects thereof,
including without limitation any brokerage expenses and applicable taxes and
duties and attorneys' fees, provided that neither party shall be liable to the
other for indirect or consequential damages.
Borrower agrees to indemnify, defend, and hold and save harmless Lender from any
and all losses, damages, claims, actions, demands or lawsuits of any kind
whatsoever arising in any way out of the transactions contemplated by this
Agreement or the use that Borrower makes of the Loaned Securities except such as
may be caused by the gross negligence or willful misfeasance of Lender.
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17. Single Business Relationship. Borrower and Lender acknowledge and agree
that, and have entered hereinto and will enter into each Loan hereunder in
consideration of and in reliance on the fact that, all Loans hereunder
constitute a single business and contractual relationship and have been made in
consideration of each other. Accordingly, each of Borrower and Lender agrees (i)
to perform all of its obligations in respect of each Loan hereunder, and that a
default in the performance of any such obligations shall constitute a default by
it in respect of all Loans hereunder, (ii) that each of them shall be entitled
to set off claims and apply property held by them in respect of any Loan against
obligations owing to them in respect of any other Loans hereunder, and (Hi) that
payments, deliveries, and other transfers made by either of them in respect of
any Loan shall be deemed to have been made in consideration of payments,
deliveries, and other transfers in respect of any other Loans hereunder, and the
obligations to make any such payments, deliveries, and other transfers may be
applied against each other and netted.
18. Assignment; Amendment. This Agreement shall not be assignable by either
party without the prior written consent of the other party, and any such
assignment made without such consent shall be null and void for all purposes.
Subject to the foregoing, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns. This Agreement shall not be amended except by an instrument in writing
signed by each of the parties hereto.
19. Provisional Remedies, Self Help, and Foreclosure. No provision, or the
exercise of any rights hereunder, shall limit the right of any party to exercise
self help remedies such as setoff, to foreclose against any Collateral, or to
obtain provisional or ancillary remedies such as injunctive relief or the
appointment of a receiver from a court having jurisdiction before, during or
after the pendency of any arbitration.
20. Governing Law, Agreements, Severability. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York. In case of
any inconsistency between the terms of this Agreement and the terms of any Loan,
as such terms may be evidenced by a confirmation or otherwise, the terms of this
Agreement shall prevail.
Each party hereby irrevocably waives, to the fullest extent permitted by
applicable law, with respect to itself and its revenues and assets, all immunity
on the grounds of sovereignty or other similar grounds from (a) suit, (b)
jurisdiction of any court, (c) attachment of its assets (whether before or after
judgment) and (d) execution of judgment to which it might otherwise be subject
in any suit, action or proceeding relating to or arising out of in any way this
Agreement or any transaction contemplated hereby in the courts of any
jurisdiction and irrevocably agrees, to the extent permitted by applicable law,
that it will not claim any such immunity in any such suit, action or proceeding.
The invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of any other term or provision hereof.
This Agreement may be executed in counterparts, each of which will be deemed an
original.
21. Intent of Parties; No Exchange Contract. Each party hereto agrees that this
Agreement and the Loans made hereunder shall not be "exchange contracts" as
defined in the Rules of the New York Stock Exchange, Inc. and shall not be
subject to the buy-in provisions of any securities self-regulatory organization
of which the parties are members.
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Borrower and Lender hereto agree and acknowledge that (a) each Loan hereunder is
a securities contract, "as such term is defined in Section 741(7) of Title 11 of
the United States Code (the "Bankruptcy Code"), (b) each and every transfer of
funds, securities and other property under this Agreement and each Loan
hereunder is a "settlement payment" or a "margin payment," as such terms are
used in Sections 362(b)(6) and 546(e) of the Bankruptcy Code, and (c) the
rights given to Borrower and Lender hereunder upon a Default by the other
constitute the right to cause the liquidation of a securities contract and the
right to set off mutual debts and claims in connection with a securities
contract, as such terms are used in Sections 555 and 362(b)(6) of the Bankruptcy
Code. Each party hereto further agrees and acknowledges that if a party hereto
is an "insured depository institution," as such term is defined in the Federal
Deposit Insurance Act, as amended ("FDIA"), then each Loan hereunder is a
"securities contract" and "qualified financial contract," as such terms are
defined in the FDIA and any rules, orders or policy statements thereunder.
22. ERISA Plan Assets. The parties agree that no Loaned Securities shall be
obtained, directly or indirectly, from or using the assets of any Plan (which
term means (1) any "employee benefit plan" as defined in Section 3 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or (2)
any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of
1986), unless Borrower and/or any affiliate of Borrower represents in writing to
Lender that neither Borrower nor any affiliate thereof has any discretionary
authority or control with respect to the assets of such Plan or renders
investment advice within the meaning of 29 C.F.R. Section 2510.3-21(c) with
respect to the investment of the assets of such Plan. If, in connection with any
Loan of Loaned Securities obtained, directly or indirectly, from or using the
assets of a Plan, Lender will so notify Borrower, and the parties will comply
with the requirements of Prohibited Transaction Exemption 81-6, as amended from
time to time by the United States Department of Labor.
23. Waiver. The failure of either party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. All waivers in respect to an
Event of Default must be in writing.
24. Survival of Remedies. All remedies hereunder shall survive the termination
of the relevant Loan, return of Loaned Securities or Collateral and termination
of the Agreement
25. Notices. All notices required to be given to a party hereunder shall be
conveyed in writing by personal delivery, telecopy, telex or other form of
telegraphic communication, or orally (confirmed by such writing), to the
person(s) and at the address and phone number listed below, or to such other
person(s) as shall be specified in such a notice by such party. All notices
shall be effective upon actual receipt.
26. SIPA NOTICE. THE PROVISIONS OF THE SECURITIES INVESTOR PROTECTION ACT OF
1970 MAY NOT PROTECT THE LENDER WITH RESPECT TO LOANS HEREUNDER AND, THEREFORE,
THE COLLATERAL DELIVERED TO THE LENDER MAY CONSTITUTE THE ONLY SOURCE OF
SATISFACTION OF BORROWER'S OBLIGATION IN THE EVENT BORROWER FAILS TO RETURN THE
LOANED SECURITIES.
27. Status of Bank. Bank represents, which representations shall continue during
the term of any Loan that (i) Lender has duly authorized Bank to execute and
deliver this Agreement on its behalf; has the power to so authorize Bank and to
enter into the Loans contemplated by this
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Agreement and perform the obligations of Lender under such Loans: and has taken
all necessary action to authorize such execution and delivery by Bank and such
performance by it; and Bank is authorized to act as agent for and on behalf of
each Account constituting a Lender hereunder, in respect of any and all rights
and obligations of such Lender arising under this Agreement or in respect of any
Loan. Each and every obligation, liability or undertaking with respect to any
Loan shall be solely an obligation, liability or undertaking of, and binding
upon, the Account by or in respect of which such Loan is made (the "Affected
Account"), whether or not any Affected Account is identified to Borrower in
respect of any Loan. Bank shall under no circumstances have any liability
whatsoever as principal in respect of this Agreement or any Loan, and no such
obligation, liability or undertaking shall be binding upon or affect Bank, it
being understood and agreed that Borrower shall have recourse solely to the
Affected Account or Accounts in respect of this Agreement or any Loan.
In witness whereof the parties have executed this Agreement by their duly
authorized representatives effective as of the date first set forth above.
NAME OF BORROWER UNION BANK OF CALIFORNIA, N.A.,
as agent for its CUSTODY CLIENTS
By:___________________________ By:________________________
Name: ________________________ Name: ELLEN KOERNER
Title: _______________________ Title: Vice President
Address for notices: Address for notices:
______________________________ UNION BANK OF CALIFORNIA. NA.
______________________________ Attention: Ellen Koerner
______________________________ 475 Sansome Street
______________________________ San Francisco CA 94111
Phone No. ____________________ Phone No.(415) 296-6529
Facsimile No._________________ Facsimile No. (415) 291-7838
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RE: SECURITIES LENDING AGREEMENT AND
MASTER REPURCHASE AGREEMENT
Exhibit A
Union Bank of California, N.A. - Client Accounts
("Lenders"/"Buyers"/"Sellers")
City of Los Angeles
The Parkstone Group of Funds
John Randolph Haynes & Dora Haynes Foundation
Bank of Tokyo Mitsubishi, Ltd.
The HighMark Funds
Directors Guild of America - Producer Pension Supplemental Plan(1)
Directors Guild of America - Producer Pension Basic Plan(1)
Directors Guild of America - Producer Health Plan(1)
AGREED:
Name of Firm): __________________________
Authorized Signature: __________________________
Printed Name/Title: __________________________
Date: __________________________
- ----------
(1) Union Bank of California, N.A. acknowledges that for this client, it is
acting as fiduciary under the Employee Retirement Income Act of 3974
(ERISA). To the extent that Union Bank of California, N.A. exercises
discretionary authority, it will do so in accordance with the Department of
Labor's PTE 81-6 and 82-63.
<PAGE>
EXHIBIT B
(BY TELEX)
TO: UNION BANK OF CALIFORNIA, N.A.
______________________________
______________________________
______________________________
TELEX NO._____________________
TEST NO. _________________FOR USD __________________
Ladies and Gentlemen,
We hereby establish for the Account of ______________________________ ("Account
Party") this Irrevocable Standby Letter of Credit No. ___________ in your favor
for drawings up to an aggregate amount of_______________________ United States
Dollars (US $ ______) effective immediately and expiring with the close of your
business on _____________, 19__.
We hereby undertake to promptly honor your claims on us indicating our Credit
No. _________ ,for all or any portion of this credit if made on or before the
expiry date or any automatically extended expiry date of this credit. Claims
shall be made by tested telex, or any other written means, and shall state the
following:
1. The amount claimed; and
2. That the amount claimed is owed by the Account Party.
We shall pay the amount of each claim in immediately available United States
Dollar Funds to you promptly upon our receipt of such claim. Additionally you
are authorized to debit any account we have with you or any of your affiliates,
for claims made pursuant to the terms hereof, at the times you make such claims.
It is a condition of this Letter of Credit that it is deemed to be automatically
extended without amendment for one year from the expiry date hereof, or any
future expiration date (with each expiry date being an anniversary of the
original expiry date hereof), unless at least 60 days prior to any expiration
date we notify you by tested telex that we elect not to consider this Letter of
Credit extended for any such additional period.
This telex is the operative instrument. No mail confirmation will follow.
This Letter of Credit is subject to and governed by the 1983 revision of the
Uniform Customs and Practice for Documentary Credits of the International
Chambers of Commerce (Publication 400).
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SECURITIES LENDING AND REVERSE REPURCHASE AGREEMENT SERVICES
CLIENT ADDENDUM
THIS AGREEMENT for securities tending and/or reverse repurchase agreement
services is made, effective as of____________, 19__, by and between
_______________________ ("Principal") and UNION BANK OF CALIFORNIA, NATIONAL
ASSOCIATION ("Bank") and is an addendum to the agreement for custody services
(Custodian Agreement (Foreign and Domestic Securities) or Institutional Custody
Services Agreement) by and between Principal and Bank dated
__________________,19__, (referred to hereinafter as the "Custodian Agreement").
Capitalized terms not otherwise defined herein shall have the same meanings
herein as in the Custodian Agreement.
Principal and Bank agree as follows:
I. APPOINTMENT OF BANK; ELIGIBLE COUNTERPARTIES
1. Appointment of Bank as Agent. Principal hereby authorizes Bank to act as
agent for Principal in securities lending and reverse repurchase agreement
transactions with respect to securities deposited with or held by Bank pursuant
to the Custodian Agreement. Bank's duties and responsibilities shall be only
those set forth in this Addendum and the Custodian Agreement, or as otherwise
agreed to by Bank in writing. Further, Principal authorizes Bank to delegate
Bank's duties as agent hereunder to a sub-agent(s).
2. Eligible Borrowers/Buyers. Bank may lend securities only to such securities
brokers and dealers or other person or entities as are listed in the attached
Exhibit A, as amended from time to time ("Borrowers"), unless and until
otherwise instructed in writing by Principal. Bank may engage in reverse
repurchase agreement transactions on Principal's behalf with only those brokers
and dealers or other persons or entities as are listed on the attached Exhibit
A, as amended from time to time ("Buyers"), unless and until otherwise
instructed in writing by Principal. All securities lending transactions and
reverse repurchase agreement transactions entered into by Bank hereunder shall
be entered into pursuant to related agreements between the Borrowers or Buyers,
as the case may be, and Bank on behalf of Principal. Principal's execution of
Exhibits A, B, and C or any amendment to Exhibits A, B, or C shall constitute
Principal's representation and agreement that it has received, read, and
understood the terms of each such agreement in respect of each Borrower or
Buyer, as the case may be, listed thereon. Principal hereby (i) represents and
warrants to Bank (which representations shall be deemed repeated at and as of
all times when this Addendum is in effect) that Principal has the power and
authority, and has taken all necessary action, to enter into this Addendum and
each such agreement, and to perform the obligations of a lender or seller, as
the case may be, under such transactions, and to authorize Bank to execute and
deliver each such agreement on Principal's behalf and to enter into such
transactions and to perform the obligations of a lender or seller, as the case
may be, under such transactions on behalf of Principal, and (ii) authorizes Bank
to execute and deliver each such agreement on Principal's behalf and to enter
into any transaction of a nature contemplated by any such agreement on behalf of
Principal and to perform the obligations of a lender or seller, as the case may
be, under such transactions on behalf of Principal and (iii) has furnished or
will furnish Bank with evidence satisfactory to Bank that Principal has all
necessary authority to enter into this Addendum and each of the transactions
contemplated hereby.
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Bank shall have full unlimited power and authority to perform each and every act
or thing it may in its discretion deem necessary or appropriate in respect of
any Securities Lending Agreement (as defined below) or Reverse Repurchase
Agreement (as defined below) or any securities loan or any reverse repurchase
agreement transaction. Bank shall be fully protected in engaging in repurchase
agreement and securities lending transactions on behalf of Principal, with
respect to any or all securities deposited with or held by Bank, with any one or
more of such brokers or dealers or other persons or entities until otherwise
instructed in writing by Principal.
II. SECURITIES LENDING TRANSACTIONS
1. Loans: Securities Loan Agreement. Principal hereby authorizes Bank, as agent
for Principal, to lend, from time to time in its discretion, securities of
Principal at any time on deposit with or held by Bank. Principal acknowledges
and agrees that any securities lending agreement (each, a "Securities Lending
Agreement") may take the form of a master agreement covering a series of
securities loan transactions between a Borrower and Bank as lender on behalf of
Principal and other accounts administered through Bank's Trust Department. There
can be no assurance that the activities of any such other account pursuant to
any such agreement, or by Bank in respect of any such other account, will not
have an adverse effect on Principal or on the rights of Principal in respect of
any securities loan.
Bank shall not in any event be liable to Principal or anyone else in respect of
any delay or failure of any other person (including any Borrower or any other
lender) to comply with the provisions of the Securities Lending Agreement.
2. Marking to Market. Bank shall use reasonable efforts to exercise the right to
demand additional Collateral (as defined in the Securities Lending Agreement) in
accordance with the terms of the Securities Lending Agreement. Bank's only
responsibility in this regard is to use such efforts to make such demand.
3. Collateral. Collateral received by Bank in connection with a loan of
securities hereunder shall be held by Bank separate and apart from Bank's own
funds and securities. The amount of Collateral (as such term is defined in the
Securities Lending Agreement) transferred to Bank by any Borrower at any time
may be an amount calculated to meet the obligations of such Borrower in respect
of any or all loans to Borrower by Principal and any one or more other clients
of Bank, whether entered into pursuant to the same loan or Securities Lending
Agreement or more than one such loan or agreement, and may be an amount
calculated net of amounts of Collateral required at the time to be delivered by
Principal and any one or more such other clients to such Borrower pursuant to
any such Securities Lending Agreements. In addition, the amount of Collateral
transferred by Bank to any Borrower at any time may be an amount calculated to
meet the obligations of Principal and any one or more other clients of Bank to
such Borrower in respect of any or all loans to Borrower, whether entered into
pursuant to the same Securities Lending Agreement or more than one such
agreement, and may be an amount calculated net of amounts of Collateral required
at the time to be delivered by such Borrower to Principal or one or more such
other clients pursuant to any such Securities Lending Agreements. Bank shall in
good faith allocate or reallocate (including without limitation in respect of
any return of Collateral to any Borrower) any Collateral held by it or received
by it from any Borrower among Principal and Bank's clients and in respect of any
or all of such loans in such manner and on such bases as Bank in its discretion
may from time to time determine, and shall be fully protected in doing so. As a
result of the foregoing, the nature or amount of Collateral credited to the
account of Principal in respect of any Borrower or any securities loan or loans
will vary and may be different
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from or less than the nature or amount of Collateral which might have been held
by it or credited to its account if it had entered into such loan or loans
directly with such Borrower or if Bank had entered into such loan or loans with
such Borrower as agent solely for Principal.
Bank may, in its discretion, invest and reinvest any Cash Collateral for the
benefit of and at the risk of Principal in investments specified in Exhibit D as
it may be amended from time to time, including, without limitation, The HighMark
Group of Funds for which Bank provides investment advice, custody and other
administrative services. Principal acknowledges that Bank shall receive fees
from The HighMark Group of Funds in addition to the fees earned under this
Addendum. Bank may invest any or all of such Cash Collateral in any one or more
of such investments, including any such HighMark Funds, on any basis Bank
determines appropriate. Bank shall be entitled to pay or retain from any amounts
held by Bank on Principal's account from time to time in respect of any
securities loan (i) all Cash Collateral Fees and other sums required to be paid
in accordance with the Securities Lending Agreement, and (ii) Bank's
compensation or other amounts incurred by it or owed to it in respect of its
services in lending securities hereunder.
4. Distributions on Loaned Securities. Bank shall pay to or for the account of
Principal, in accordance with Principal's instructions, any amounts it receives
from a Borrower which represent interest, dividends, and other distributions
made with respect to any Loaned Securities (as defined in the Securities Lending
Agreement) and which are credited by Bank to Principal's account.
5. Term of Loans: Termination of Loans: Default. Bank shall have full discretion
to determine the term of any securities lending transaction entered into by Bank
on Principal's behalf hereunder subject to any guidelines provided to it in
writing by Principal, and shall in no event incur any liability for entering
into any such transaction on behalf of Principal for a term equal to the maximum
available (or permitted pursuant to such guidelines), regardless of any change
in market conditions or in the financial condition of the Borrower or any other
person. Bank may in its discretion terminate any loan of securities pursuant to
the provisions of the Securities Lending Agreement based on such factors as it
in its discretion deems relevant, but shall in no event have any liability for
its failure to take steps to terminate any transaction on any date or at any
time unless instructed by Principal. Bank shall in no event have any
responsibility for taking steps to terminate any securities lending transaction
before its maturity (unless instructed to do so by Principal), regardless of any
change in market conditions or in the financial condition of the Borrower or any
other person. In the event Bank receives actual notice of an Event of Default
(as defined in the Securities Lending Agreement) by a Borrower under the
Securities Lending Agreement, it shall notify Principal thereof as soon as
reasonably practicable and may in its discretion (but shall in no event be
obligated to) exercise any rights or remedies given the Lender under the
Securities Lending Agreement until instructed by Principal otherwise, provided
that Bank shall in no event incur any liability for its exercise or its failure
to exercise any such rights or remedies under any circumstances.
6. Termination of Lending Authority. Principal may terminate Bank's authority to
lend securities by thirty (30) days' written notice to Bank and may direct Bank
to terminate any outstanding securities loans, which Bank shall do in accordance
with provisions of the Securities Lending Agreement. In the event Principal
terminates Bank's authority to lend securities hereunder, the provisions of this
Addendum relating to securities loans, including provisions relating to Bank's
compensation, shall remain in effect with respect to all securities loans
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outstanding on the effective date of termination, until termination thereof in
accordance with the Securities Lending Agreement.
III. REVERSE REPURCHASE AGREEMENT TRANSACTIONS
1. Reverse Repurchase Agreement Transactions: Reverse Repurchase Agreements.
Principal hereby authorizes Bank, as agent for Principal, to engage from time to
time, in its discretion, in reverse repurchase agreement transactions with
Buyers with respect to securities of Principal at any time on deposit with or
held by Bank. Principal acknowledges and agrees that any reverse repurchase
agreement (each a "Master Repurchase Agreement") may take the form of a master
agreement covering a series of reverse repurchase agreement transactions between
a Buyer and Bank as seller on behalf of Principal and other accounts
administered through Bank's Trust Department. There can be no assurance that the
activities of any other such account pursuant to any such agreement, or by Bank
in respect of any such other account, will not have an adverse effect on
Principal or on the rights of Principal with respect to any such reverse
repurchase agreement transaction.
Bank shall not in any event be liable to Principal or anyone else in respect of
any delay or failure of any other person (including any Buyer or any other
seller) to comply with the provisions of the Master Repurchase Agreement.
2. Marking to Market. Bank shall use all reasonable efforts to exercise
Principal's right to require margin maintenance under the Master Repurchase
Agreement. Bank's only responsibility in this regard is to use such efforts to
make demand for such margin maintenance.
3. Investment of Cash. Cash received by Bank in connection with reverse
repurchase agreement transactions hereunder shall be held by Bank separate and
apart from Bank's own funds and securities.
The amount of the Purchase Price or any amount with respect to a Margin Excess
(as such terms are defined in the Master Repurchase Agreements) transferred to
Bank by any Buyer at any time may be an amount calculated to meet the
obligations of such Buyer in respect of any or all sales to Buyer by Principal
and any one or more other clients of Bank, whether entered into pursuant to the
same reverse repurchase agreement transaction or Master Repurchase Agreement,
and may be an amount calculated net of amounts of the Repurchase Price (as such
term is defined in the Master Repurchase Agreement) required at the time to be
delivered by Principal and any one or more such other clients to such Buyer
pursuant to any such Master Repurchase Agreements. In addition, the amount of
the Repurchase Price or any amount with respect to a Margin Deficit (as such
term is defined in the Master Repurchase Agreement) transferred by Bank to any
Buyer at any time may be an amount calculated to meet the obligations of
Principal and any one or more other clients of Bank to such Buyer in respect of
any or all sales to such Buyer, whether entered into pursuant to the same Master
Repurchase Agreement or more than one such agreement, and may be an amount
calculated net of amounts of the Purchase Price required at the time to be
delivered by such Buyer to Principal or one or more such other clients pursuant
to any such Master Repurchase Agreements. Bank shall in good faith allocate or
reallocate (including without limitation in respect of any payment of any
Repurchase Price to any Buyer) any Purchase Price and any amount with respect to
a Margin Excess held by it or received by it from any Buyer among Principal and
Bank's clients and in respect of any or all of such reverse repurchase agreement
transactions in such manner and on such bases as Bank in its discretion may from
time to time determine, and shall be fully protected
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in doing so. As a result of the foregoing, the nature or amount of the Purchase
Price and any amount with respect to a Margin Excess credited to the account of
Principal in respect of any Buyer or any reverse repurchase agreement
transaction or transactions will vary and may be different from or less than the
nature or amount of the Purchase Price and any amount with respect to a Margin
Excess which might have been held by it or credited to its account if it had
entered into such reverse repurchase transaction or transactions directly with
such Buyer or if Bank had entered into such reverse repurchase agreement
transaction with such Buyer as agent solely for Principal.
Bank may in its discretion invest and reinvest cash received by Bank on behalf
of Principal in connection with reverse repurchase agreement transactions for
the benefit of and at the risk of Principal in investments specified in Exhibit
D, as it may be amended from time to time, including without limitation in any
way, The HighMark Group@ of Funds for which Bank provides investment advice,
custody and other administrative services. Principal acknowledges that Bank
shall receive fees from The HighMark Group of Funds in addition to the fees
earned under this Addendum. Bank may invest any or all of such cash in any one
or more of such investments, including such HighMark Funds, on any basis Bank
determines appropriate. Bank shall be entitled to pay or retain from any amounts
held by Bank for Principal's account from time to time in respect of any reverse
repurchase agreement transaction (i) the Repurchase Price, any amount necessary
to correct a Margin Deficit, and other sums required to be paid in accordance
with the Master Repurchase Agreement, and (ii) Bank's compensation and other
amounts incurred by it or owed to it in respect of its services with respect to
reverse repurchase agreement transactions hereunder.
4. Distributions on Securities Subject to Reverse Agreements. Bank shall pay to
or for the account of Principal, in accordance with Principal's instructions,
any amounts received from a Buyer or its agent which represent interest,
dividends or other distributions on Purchased Securities (as such term is
defined in the Master Repurchase Agreement) and which are credited by Bank to
Principal's account.
5. Term of Reverse Repurchase Agreement Transactions: Termination of Reverse
Repurchase Agreement Transaction: Default. Bank shall have full discretion to
determine the term of any reverse repurchase agreement transaction entered into
by Bank on Principal's behalf hereunder subject to any guidelines provided to it
in writing by Principal, and shall in no event incur any liability for entering
into any such reverse repurchase agreement transaction on behalf of Principal
for a term equal to the maximum available (or permitted pursuant to such
guidelines), regardless of any change in market conditions or in the financial
condition of the Buyer or any other person. Bank may in its discretion terminate
any reverse repurchase agreement transaction pursuant to the provisions of the
Master Repurchase Agreement based on such factors as it in its discretion deems
relevant, but shall in no event have any liability for its failure to terminate
any transaction on any date or at any time unless instructed by Principal. Bank
shall in no event have any responsibility for taking steps to terminate any
reverse repurchase agreement transaction before its maturity (unless instructed
to do so by Principal), regardless of any change in market conditions or in the
financial condition of the Buyer or any other person. In the event Bank receives
actual notice or an event of Default (as defined in the Master Repurchase
Agreement) by a Buyer under the Master Repurchase Agreement, it shall notify
Principal thereof as soon as reasonably practicable and may in its discretion
(but shall in no event be obligated to) exercise any rights or remedies given
the Seller under the Master Repurchase Agreement until instructed by Principal
otherwise, provided that Bank shall in no
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event incur any liability for its failure to exercise any such rights or
remedies under any circumstances.
6. Termination of Authority to Enter into Reverse Repurchase Agreements.
Principal may terminate Bank's authority to enter into reverse repurchase
agreement transactions by thirty (30) days' written notice to Bank and may
direct Bank to terminate any outstanding reverse repurchase agreement
transaction, which Bank shall do in accordance with provisions of the Master
Repurchase Agreement. In the event Principal terminates Bank's authority to
enter into reverse repurchase agreement transactions hereunder, the provisions
of this Addendum relating to reverse repurchase agreements, including,
provisions relating to Bank's compensation, shall remain in effect with respect
to all reverse repurchase agreement transactions outstanding on the effective
date of termination, until termination thereof in accordance with the Master
Repurchase Agreement.
IV. GENERAL
1. Principal's Representations and Warranties. In addition to any other
representation and warranty of Principal hereunder, Principal represents and
warrants (which representations shall be deemed repeated at and as of all times
when this Addendum is in effect) that:
(a) Lending Principal's securities and/or entering into reverse repurchase
agreement transactions as provided in this Addendum, and the appointment of Bank
as Principal's agent as contemplated hereby, shall be in compliance with, and
shall not be in violation of any law, regulation, charter, by-law, or other
restriction applicable to Principal.
(b) Principal will not sell any securities subject to this Addendum unless
and until Principal shall have first obtained confirmation from Bank that the
securities Principal intends to sell are not subject to an outstanding loan or
reverse repurchase agreement transaction. Principal will notify Bank in writing,
or cause written notice to be given to Bank, that Principal intends to sell
securities which are subject to this Addendum, such notice to be provided on or
before the second Business Day immediately prior to the trade date on which
Principal intends to sell such securities.
(c) Principal acknowledges and agrees that there can be no assurance,
during the term of any securities loan or reverse repurchase agreement
transaction, that (notwithstanding any provision of any Securities Lending
Agreement or Master Repurchase Agreement) Principal will be able to participate
in, or receive the full benefit of, any corporate action, dividend or principal
payment, or any other right or privilege accruing in respect of any securities
subject to any such loan or reverse repurchase agreement transaction. Without
limiting the generality of the foregoing, Principal hereby waives the right to
vote or to provide any consent or to take any similar action with respect to any
securities loaned or which are subject to any reverse repurchase agreement
transaction during the term of such loan, and/or reverse repurchase agreement
transaction.
(d) Principal has made such examination, review and investigation of the
facts necessary to evaluate the merits and risks of securities lending
transactions and investments in connection therewith (collectively "securities
lending") as Principal deems appropriate; Principal acknowledges that the Bank
has not given any investment advice or rendered any opinion as to whether
participation in securities lending is prudent and Principal is not relying on
any representation or warranty by the Bank (except with respect to Mitsubishi
Global Custody clients
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as to Bank's status as provided in Paragraph 2(b) of the Custodian Agreement,
Foreign and Domestic Securities); and Principal has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and assuming the risk of securities lending, including the risks of
loss of principal in connection therewith.
By its signature hereunder, Principal acknowledges that it has been apprised of
the fact that:
NOTWITHSTANDING ANY OTHER PROVISION TO THE CONTRARY, IN THE EVENT OF THE
DEFAULT OF A BORROWER AND/OR BUYER, THE PROVISIONS OF THE SECURITIES INVESTOR
PROTECTION ACT OF 1970 MAY NOT PROTECT PRINCIPAL'S ACCOUNT WITH RESPECT TO
SECURITIES LOAN OR REVERSE REPURCHASE AGREEMENT TRANSACTIONS AND IN SUCH EVENT,
THE COLLATERAL DELIVERED TO LENDER IN CONNECTION WITH SUCH LOANS AND REVERSE
REPURCHASE AGREEMENTS MAY BE THE ONLY SOURCE OF SATISFACTION OF THE BORROWER'S
OR BUYER'S OBLIGATIONS IN THE EVENT THE BORROWER/BUYER FAILS TO RETURN THE
LOANED SECURITIES AND OR SECURITIES SUBJECT TO REVERSE REPURCHASE AGREEMENTS.
2. Instructions of Principal. All instructions of Principal to Bank shall be
provided as set forth in this Addendum and the Custodian Agreement.
Bank shall be entitled to accept and rely on any instructions Bank reasonably
believes to have been authorized by Principal. Bank shall have no obligation to
act in the absence of instructions. If at any time the circumstances require
immediate action and Bank endeavors to obtain instructions from Principal, but
is unable to so obtain them, Bank may act and is fully protected in acting in
such manner as it considers appropriate hereunder.
3. Reports. Bank shall provide Principal with periodic reports at such intervals
as Principal and Bank should agree, reflecting a schedule of property, statement
of transactions recording principal and income receipts and disbursements,
outstanding loans and reverse repurchase agreement transactions, income, and
schedule of property detailing investments made hereunder.
4. Duties of Bank. Bank's duties and responsibilities shall be only those
expressly set forth in the Custodian Agreement and this Addendum, or as
otherwise agreed by Bank in writing. Bank shall not be liable for acting in
accordance with the instructions of Principal under this Addendum or otherwise
in accordance with this Addendum or within the scope of its actual or apparent
authority. Bank shall not be required to appear in or defend any legal
proceedings with respect to the property subject to this Addendum unless Bank
has been indemnified to its satisfaction against loss and expense (including
reasonable attorneys' fees). Bank may consult with counsel acceptable to it
concerning its duties and responsibilities under this Addendum, and shall not be
liable for any action taken or not taken on the advice of such counsel.
Principal acknowledges that Bank and its agents, if any, act as agent for other
repurchase agreement and securities lending clients and accordingly, that other
clients' securities may be used prior to Principal's. Principal agrees that each
of Bank and any such agent has full discretion to allocate the use of
Principal's securities as it deems appropriate, and that Bank may make available
securities lending and/or reverse repurchase agreement opportunities to clients
other than Principal for any reason, and that Bank will have no obligation to
make any securities lending and/or reverse repurchase agreement opportunities
available to Principal.
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5. Expenses: Compensation of Bank. Principal shall be responsible for payment of
all expenses and charges incurred in connection with the administration of this
Addendum, including Bank's compensation for its services hereunder as determined
in accordance with the attached Exhibit E, and Bank may in its discretion charge
the assets subject to this Addendum therefor.
6. Indemnification. Principal shall indemnify, keep indemnified, defend and hold
harmless the Bank and any of its directors, officers, employees or agents
against any cost, expense, damage, loss or liability whatsoever (including
without limitation attorneys' fees and expenses) which may be suffered or
incurred by any of them directly or indirectly as a result of, or in connection
with, or arising out of, this Addendum or any loan of securities or reverse
repurchase agreement transaction involving Principal's securities. This
provision shall survive any termination of this Addendumand shall be binding on
Principal's successors and assigns.
7. Tax Consequences. Bank makes no representations regarding tax treatment by
federal, state, or local authorities of the lending or placing in reverse
repurchase agreements of securities under this Addendum, the receipt of any
income or profit inuring to Principal as the result of receipt of any loan
premium, dividends, interest, distributions or other amounts on securities
loaned and/or the subject of reverse repurchase agreements hereunder, or the
investment by Bank of any Collateral received in connection with such loans or
cash received in connection with such reverse repurchase agreement transactions
(including without limitation the characterization for tax purposes of any such
amount as taxable income).
8. Financial Condition. Upon reasonable request by Bank, and at least annually,
Principal shall provide Bank with its most recent available audited statement of
its financial condition, and its most recent unaudited statement of its
financial condition if more recent than the audited statement. Principal
represents and warrants which representation and warranty shall continue so long
as any loan of securities or reverse repurchase agreement transaction is
outstanding, that such statements fairly represent its financial condition and
net capital as of the dates of such statements and have been prepared in
accordance with generally accepted accounting principles of the jurisdiction in
which Principal is organized or located, as the case may be. Principal
acknowledges and agrees that Bank may provide Borrowers and Buyers with copies
of such financial statements and that Principal will cooperate with Bank in
providing such other financial information to Borrowers and Buyers as such
Borrowers and Buyers may reasonably request.
9. Other Relationships. Principal acknowledges and agrees that Bank may, through
its commercial, trust or other departments, be a creditor for its own account or
represent in a fiduciary capacity another Borrower(s)/Buyer(s) (or its or their
affiliates, creditors, or customers) to which securities are loaned or sold
under this Addendum, even though any of such relationships may potentially be in
conflict with those of Principal.
10. Termination. This Addendum may be terminated at any time by either party
upon thirty (30) days' written notice to the other. In the event of termination,
Bank shall deliver to Principal all funds, securities, and other property held
by it under this Addendum for the account of Principal or to such other person
or persons as Principal shall designate in writing on Exhibit F or shall
continue to hold such property pursuant to the Custodian Agreement; provided
however, that this Addendum shall remain in effect with respect to all
securities loan transactions or reverse repurchase agreement transactions
outstanding on the effective date of termination, until consummation or
completion thereof.
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11. Amendments. This Addendum may be amended only in writing executed by both
parties. Amendments to any Exhibit or Attachment hereto shall be effective only
if executed by all the parties required to execute the initial
Attachment/Exhibit, and then, only after received by Bank and Principal by the
party to whom notices are to be sent hereunder.
12. Notices. All notices hereunder shall be given and deemed received as set
forth in the Custodian Agreement.
13. Governing Law. The validity, construction, and administration of this
Addendum shall be governed by the laws of the State of California from time to
time in force and effect.
Dated:____________________________
By:__________________________
"PRINCIPAL"
Dated:____________________________
By: Union Bank of California, NA.
By: _________________________
"Bank"
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EXHIBIT A
BORROWERS/BUYERS
FOR
SECURITIES LENDING/REVERSE REPURCHASE AGREEMENT TRANSACTIONS
Dated: ____________________________________
By: ________________________________
"PRINCIPAL"
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EXHIBIT B
SECURITIES LENDING AGREEMENT
Dated: ____________________________________
By: ________________________________
"PRINCIPAL"
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