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EX-10.35
MASTER STOCK PURCHASE AGREEMENT
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[BANK OF AMERICA LOGO]
EQUITY FINANCIAL PRODUCTS GROUP
MASTER STOCK PURCHASE AGREEMENT
SPECIALIZED TERM APPRECIATION RETENTION SALE (STARS)
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS ............................................................. 1
SECTION 1.01 Definitions ................................................. 1
ARTICLE 2 TRANSACTIONS ............................................................ 6
SECTION 2.01 Transaction Confirmations ................................... 6
ARTICLE 3 SALE AND PURCHASE ....................................................... 6
SECTION 3.01 Sale and Purchase ........................................... 6
SECTION 3.02 Payment for and Delivery of Shares .......................... 6
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER ................................ 7
SECTION 4.01 Representations and Warranties of Seller .................... 7
ARTICLE 5 CONDITIONS TO BUYER'S OBLIGATIONS ....................................... 9
SECTION 5.01 Conditions .................................................. 9
ARTICLE 6 COVENANTS ............................................................... 9
SECTION 6.01 Taxes ....................................................... 9
SECTION 6.02 Forward Contract ............................................ 10
SECTION 6.03 Notices ..................................................... 10
SECTION 6.04 Further Assurances .......................................... 10
SECTION 6.05 Securities Contract ......................................... 11
SECTION 6.06 Indemnity ................................................... 11
ARTICLE 7 ADJUSTMENTS ............................................................. 11
SECTION 7.01 Dilution Adjustments ........................................ 11
SECTION 7.02 Merger Events ............................................... 12
SECTION 7.03 Nationalization and Insolvency .............................. 13
SECTION 7.04 Termination and Payment ..................................... 14
ARTICLE 8 ACCELERATION ............................................................ 14
SECTION 8.01 Acceleration ................................................ 14
ARTICLE 9 MISCELLANEOUS ........................................................... 17
SECTION 9.01 Notices ..................................................... 17
SECTION 9.02 Governing Law; Severability; Submission to Jurisdiction;
Waiver of Jury Trial ........................................ 17
SECTION 9.03 Confidentiality ............................................. 17
SECTION 9.04 Entire Agreement ............................................ 18
SECTION 9.05 Amendments, Waivers ......................................... 18
SECTION 9.06 No Third Party Rights, Successors and Assigns ............... 18
SECTION 9.07 Counterparts ................................................ 18
SECTION 9.08 Early Termination ........................................... 19
SECTION 9.09 Agreements .................................................. 19
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THIS AGREEMENT is made as of the date stated on the last page hereof
among the counterparty name on the last page hereof and any successor to such
counterparty ("SELLER") and BANK OF AMERICA, N.A. ("BUYER").
WHEREAS, Seller owns or may own from time to time shares of common
stock of one or more issuers, or security entitlements in respect thereof;
WHEREAS, Seller has agreed, pursuant to the Pledge Agreement (as
defined herein), to grant Buyer a security interest in certain Common Stock to
secure the obligations of Seller hereunder;
WHEREAS, Seller and Buyer may wish to sell and purchase shares of such
common stock, or security entitlements in respect thereof, from time to time and
on the terms set forth herein and in certain confirmations hereunder;
NOW, THEREFORE, in consideration of their mutual covenants herein
contained, the parties hereto, intending to be legally bound, hereby mutually
covenant and agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01 Definitions. As used herein, the following words and
phrases shall have the following meanings:
"ACCELERATION AMOUNT" has the meaning provided in Section 8.01.
"ACCELERATION AMOUNT NOTICE" has the meaning provided in Section 8.01.
"ACCELERATION DATE" has the meaning provided in Section 8.01.
"ACCELERATION VALUE" has the meaning provided in Section 8.01.
"BANKRUPTCY CODE" has the meaning provided in Section 6.05.
"BASE AMOUNT" means, with respect to any Maturity Date for any
Transaction, the number of shares of Common Stock designated as such in the
applicable Transaction Confirmation.
"BUSINESS DAY" means any day on which commercial banks are open for
business in New York City and the New York Stock Exchange is not closed.
"CALCULATION AGENT" means Bank of America, N.A.
"CLOSING PRICE" means, with respect to any security on any Trading Day
(the "VALUATION DATE"), the arithmetic mean of the closing bid price and the
closing
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offer price (or, if no closing bid price or closing offer price is reported, the
last quoted bid price or offer price for such security on the Exchange on the
Valuation Date), or if such security is not so reported, the last quoted bid
price or offer price in the over-the-counter market as reported by the National
Quotation Bureau or similar organization or, if such bid price or offer price is
not available, the market value of such security on the Valuation Date as
determined by the Calculation Agent in a commercially reasonable manner;
provided that if there is a Market Disruption Event on any Valuation Date, then
the Valuation Date shall be the first succeeding Business Day on which there is
no Market Disruption Event, unless there is a Market Disruption Event on each of
the five Business Days immediately following the original date that, but for the
Market Disruption Event, would have been the Valuation Date, in which case (i)
that fifth Business Day shall be deemed to be the Valuation Date,
notwithstanding the Market Disruption Event and (ii) the Calculation Agent
shall, in a commercially reasonable manner, determine the Closing Price as of
that fifth Business Day.
"COLLATERAL AGENT" has the meaning provided in the Pledge Agreement.
"COMMON STOCK" means, for any Transaction, the class of common stock
that is the subject of such transaction, as identified in the applicable
Transaction Confirmation.
"COMPANY" means, for any Transaction, the issuer of the Common Stock
that is the subject of such Transaction, as identified in the applicable
Transaction Confirmation.
"DOWNSIDE PROTECTION THRESHOLD PRICE" means, for any Transaction, the
price specified as the Downside Protection Threshold Price in the applicable
Transaction Confirmation.
"EVENT OF DEFAULT" has the meaning provided in Section 8.01.
"EXCHANGE" means, for any Transaction at any time, the principal
national securities exchange or automated quotation system, if any, on which the
Common Stock that is the subject of such Transaction is listed or quoted at such
time.
"EXTRAORDINARY DIVIDEND" means, for any Transaction, any distribution
or dividend made or paid with respect to the Common Stock that is the subject of
such Transaction that meets the definition of Extraordinary Dividend set forth
in the applicable Transaction Confirmation.
"FREE SHARES" means shares of Common Stock (or security entitlements in
respect thereof) that are not subject to any Transfer Restrictions in the hands
of Seller immediately prior to delivery to an affiliate of Buyer designated by
Buyer hereunder and would not be subject to any Transfer Restrictions in the
hands of such affiliate of Buyer upon delivery to such affiliate of Buyer.
"FUNDED AMOUNT" means with respect to any Funded Portion for any
Payment Date, the present value on such Payment Date of a payment on the
Interest
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Calculation End Date for the relevant Transaction of such Funded Portion
(determined by the Calculation Agent using a discount rate equal to the
Interpolated LIBOR Rate for the period from such Payment Date to such Interest
Calculation End Date, plus the Spread).
"FUNDED PORTION" has the meaning provided in Section 3.02(a).
"FUNDED PURCHASE PRICE" means, as of any date for any Transaction, the
excess, if any, of (i) the sum of the Funded Portions for such Transaction for
all Payments Dates for such Transaction occurring prior to such date over (ii)
the sum of the Refunded Portions for such Transaction for all Refund Dates for
such Transaction occurring prior to such date.
"FUNDED SHARE AMOUNT" means, for any Maturity Date for any Transaction,
the amount obtained by subtracting the Unfunded Share Amount for such Maturity
Date for such Transaction from the Base Amount with respect to such Maturity
Date for such Transaction.
"INSOLVENCY" has the meaning provided in Section 7.03.
"INTEREST CALCULATION END DATE" means, for any Transaction, the date
specified as such in the applicable Transaction Confirmation.
"INTERPOLATED LIBOR RATE" means, for any period of less than 12 months,
the rate determined by the Calculation Agent using linear interpolation between
USD-LIBOR-BBA for the Designated Maturity (as such terms are defined in the 1991
ISDA Definitions published by the International Swaps and Derivatives
Association, Inc.) that corresponds most closely to, but is longer than, such
period, and USD-LIBOR-BBA for the Designated Maturity that corresponds most
closely to, but is shorter than, such period, or, for any period of more than 12
months, the rate determined by the Calculation Agent using linear interpolation
between the "offer side" U.S. Dollar Swap rate posted on Bloomberg Financial
Markets ("Bloomberg") Page "SWYC23" (or any successor or replacement page) for
the Designated Maturity that corresponds most closely to, but is longer than,
such period, and the "offer side" U.S. Dollar Swap rate posted on Bloomberg Page
"SWYC23" for the Designated Maturity that corresponds most closely to, but is
shorter than, such period; provided that, in either case, the Calculation Agent
shall make such adjustments to such rates as are appropriate to reflect
continuous compounding (and not semi-annual, or other method of, compounding)
over such period.
"LIEN" means any lien, mortgage, security interest, pledge, charge or
encumbrance of any kind.
"MARKET DISRUPTION EVENT" means, for any Transaction, the occurrence or
the existence at any time on any day of any suspension of or limitation in
trading in the Common Stock that is the subject of such Transaction or in listed
options on such Common Stock, if any, (by reason of movements in price exceeding
limits permitted by the Exchange or otherwise), if, in the determination of the
Calculation Agent, such suspension or limitation is material.
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"MARKET VALUE" means, as of any date with respect to any share of
Common Stock, the Closing Price per share of Common Stock for the Trading Day
prior to such date.
"MATURITY DATE" means, for any Transaction, each date specified as such
in the applicable Transaction Confirmation.
"MERGER DATE" has the meaning provided in Section 7.02.
"MERGER EVENT" has the meaning provided in Section 7.02.
"NATIONALIZATION" has the meaning provided in Section 7.03.
"PAYMENT DATE" has the meaning provided in Section 3.02(a).
"PLEDGE AGREEMENT" means the Pledge Agreement dated as of the date
hereof among Seller, Buyer and the Collateral Agent, as amended from time to
time.
"POTENTIAL ADJUSTMENT EVENT" has the meaning provided in Section 7.01.
"PURCHASE PRICE" means, for any Transaction, the amount specified as
the Purchase Price in applicable Transaction Confirmation.
"REFUNDED AMOUNT" means with respect to any Refunded Portion for any
Refund Date, the present value on such Refund Date of a payment on the Interest
Calculation End Date for the relevant Transaction of such Refunded Portion
(determined by the Calculation Agent using a discount rate equal to the
Interpolated LIBOR Rate for the period from such Refund Date to such Interest
Calculation End Date, plus the Spread).
"REFUND DATE" has the meaning provided in Section 3.02(a).
"REFUNDED PORTION" has the meaning provided in Section 3.02(a).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SETTLEMENT DATE" means, with respect to any Maturity Date, the third
Trading Day immediately following such Maturity Date.
"SETTLEMENT PRICE" means, for any Settlement Date, the Closing Price
per share of the relevant Common Stock on the Maturity Date with respect to such
Settlement Date.
"SETTLEMENT RATIO" means, for any Settlement Date for any Transaction,
the ratio determined in the manner set forth in the applicable Transaction
Confirmation.
"SPREAD" means, for any Transaction, the spread specified in the
applicable Transaction Confirmation.
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"TERMINATION VALUE" has the meaning provided in Section 7.04.
"TERMINATION VALUE NOTICE" has the meaning provided in Section 7.04.
"TERMINATION DATE" has the meaning provided in Section 7.04.
"THRESHOLD APPRECIATION PRICE" means, for any Transaction, the price
specified as the Threshold Appreciation Price in the applicable Transaction
Confirmation.
"TRADING DAY" means, with respect to any security, a day on which the
Exchange is open for trading or quotation.
"TRANSACTION" has the meaning provided in Section 2.01.
"TRANSACTION CONFIRMATION" has the meaning provided in Section 2.01.
"TRANSFER RESTRICTION" means, with respect to any share of Common Stock
(or security entitlements in respect thereof) or other item of collateral
pledged under the Pledge Agreement, any condition to or restriction on the
ability of the holder thereof to sell, assign or otherwise transfer such share
of Common Stock (or security entitlements in respect thereof) or other item of
collateral or to enforce the provisions thereof or of any document related
thereto whether set forth in such item of Collateral itself or in any document
related thereto, including, without limitation, (i) any requirement that any
sale, assignment or other transfer or enforcement of such share of Common Stock
(or security entitlements in respect thereof) or other item of collateral be
consented to or approved by any person, including, without limitation, the
issuer thereof or any other obligor thereon, (ii) any limitations on the type or
status, financial or otherwise, of any purchaser, pledgee, assignee or
transferee of such share of Common Stock (or security entitlements in respect
thereof) or other item of collateral, (iii) any requirement of the delivery of
any certificate, consent, agreement, opinion of counsel, notice or any other
document of any person to the issuer of, any other obligor on or any registrar
or transfer agent for, such share of Common Stock (or security entitlements in
respect thereof) or other item of collateral, prior to the sale, pledge,
assignment or other transfer or enforcement of such share of Common Stock (or
security entitlements in respect thereof) or other item of collateral and (iv)
any registration or qualification requirement or prospectus delivery requirement
for such share of Common Stock (or security entitlements in respect thereof) or
other item of collateral pursuant to any federal, state or foreign securities
law (including, without limitation, any such requirement arising as a result of
Rule 144 or Rule 145 under the Securities Act); provided that the required
delivery of any assignment, instruction or entitlement order from the seller,
pledgor, assignor or transferor of such share of Common Stock (or security
entitlements in respect thereof) or other item of collateral, together with any
evidence of the corporate or other authority of such Person, shall not
constitute a "TRANSFER RESTRICTION".
"UNFUNDED PURCHASE PRICE" means, as of any date for any Transaction,
the excess, if any, of the Purchase Price for such Transaction over the Funded
Purchase Price for such Transaction as of such date.
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"UNFUNDED SHARE AMOUNT" means, for any Maturity Date for any
Transaction, the product of the Base Amount with respect to such Maturity Date
and a fraction, the numerator of which is the Unfunded Purchase Price for such
Transaction as of such Maturity Date and the denominator of which is the
Purchase Price for such Transaction.
ARTICLE 2
TRANSACTIONS
SECTION 2.01 Transaction Confirmations. At any time and from time to
time, Seller and Buyer may execute a transaction confirmation agreement
substantially in the form of Exhibit A hereto (a "TRANSACTION CONFIRMATION")
pursuant to which Seller and Buyer shall enter into a forward purchase and sale
transaction (a "TRANSACTION") on the terms set forth herein and in such
Transaction Confirmation.
ARTICLE 3
SALE AND PURCHASE
SECTION 3.01 Sale and Purchase. Upon the terms and subject to the
conditions of this Agreement and the Transaction Confirmation relating to each
Transaction, Seller agrees to sell to Buyer, and Buyer agrees to purchase and
acquire from Seller, a number of shares of the Common Stock that is the subject
of such Transaction (or security entitlements in respect thereof) determined in
accordance with Section 3.02.
SECTION 3.02 Payment for and Delivery of Shares. (a) Upon the terms and
subject to the conditions of this Agreement and the Transaction Confirmation
relating to each Transaction, Buyer and Seller shall make a payment or payments
to the other party under this Agreement and the relevant Transaction
Confirmation at the time and in the manner provided below, in each case in
immediately available funds by wire transfer to an account designated by the
payee. Seller shall have the right with respect to any Transaction, upon five
Business Days' prior written notice to Buyer, to demand payment on any date (a
"PAYMENT DATE" for such Transaction) during the period beginning on the Closing
Date and ending on the date five Business Days prior to the first Maturity Date
for such Transaction of the Funded Amount as of such Payment Date of all or any
portion (the "FUNDED PORTION") of the Unfunded Purchase Price as of such Payment
Date, provided that the Funded Portion shall be equal to or greater than the
lesser of (i) 2% of the Purchase Price for such Transaction and (ii) the
Unfunded Purchase Price on such Payment Date for such Transaction. Following any
such payment to Seller, Seller shall have the right, upon five Business Days'
prior written notice to Buyer, to refund on any date (a "REFUND DATE" for such
Transaction) on or prior to the date five Business Days prior to the first
Maturity Date for such Transaction all or any portion (the "REFUNDED PORTION")
of the Funded Purchase Price as of such Refund Date by paying to Buyer on such
Refund Date the Refunded Amount as of such Refund Date of such Refunded Portion,
provided that the Refunded Portion shall be equal to or greater
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than the lesser of (i) 2% of the Purchase Price for such Transaction and (ii)
the Funded Purchase Price on such Refund Date for such Transaction.
(a) On each Settlement Date for such Transaction, Seller agrees to
deliver to an affiliate of Buyer designated by Buyer a number of Free Shares of
the relevant Common Stock (the "CONTRACT SHARES") equal to the sum of (i) the
product of (A) the Funded Share Amount for the Maturity Date with respect to
such Settlement Date and (B) the Settlement Ratio for such Settlement Date, plus
(ii) if the Settlement Price for such Settlement Date is greater than or equal
to the Threshold Appreciation Price for such Transaction or less than or equal
to the Downside Protection Threshold Price for such Transaction, the Unfunded
Share Amount for the Maturity Date with respect to such Settlement Date, such
sum rounded down to the nearest whole number, and cash in an amount equal to the
value (based on the Settlement Price for such Settlement Date) of any fractional
share not delivered as a result of such rounding. If (x) by 10:00 A.M., New York
City time on each Settlement Date, Seller has not otherwise effected such
delivery of Common Stock (or security entitlements in respect thereof) and (y)
the Collateral Agent then holds as collateral under the Pledge Agreement in
respect of such Transaction a number of Free Shares of the relevant Common Stock
at least equal to the number thereof required to be so delivered on such
Settlement Date, then the delivery provided by this Section 3.02(b) shall be
effected by delivery by the Collateral Agent to an affiliate of Buyer designated
by Buyer of a number of Free Shares of such Common Stock then held by the
Collateral Agent as collateral under the Pledge Agreement in respect of such
Transaction equal to the number thereof required to be delivered by Seller to an
affiliate of Buyer designated by Buyer pursuant to this Section 3.02(b) on such
Settlement Date.
(b) On each Settlement Date for such Transaction, if the Settlement
Price for such Settlement Date is greater than or equal to the Threshold
Appreciation Price for such Transaction, Buyer shall pay to Seller, in
immediately available funds by wire transfer to an account designated by Seller,
an amount of cash equal to the product of (i) the Unfunded Share Amount for the
Maturity Date with respect to such Settlement Date and (ii) the Threshold
Appreciation Price for such Transaction. On each Settlement Date for such
Transaction, if the Settlement Price for such Settlement Date is less than or
equal to the Downside Protection Threshold Price for such Transaction, Buyer
shall pay to Seller, in immediately available funds by wire transfer to an
account designated by Seller, an amount of cash equal the product of (i) the
Unfunded Share Amount for the Maturity Date with respect to such Settlement Date
and (ii) the Downside Protection Threshold Price for such Transaction.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 4.01 Representations and Warranties of Seller. Seller
represents and warrants to Buyer that:
(a) Seller has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation.
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(b) Seller has all corporate power to enter into this Agreement, each
Transaction Confirmation and the Pledge Agreement and each other document
relating hereto and thereto and to consummate the transactions contemplated
hereby and thereby. Each of this Agreement, each Transaction Confirmation and
the Pledge Agreement and each other document relating hereto and thereto has
been duly authorized and validly executed and delivered by Seller and
constitutes a valid and legally binding obligation of Seller enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general equitable
principles.
(c) The execution and delivery by Seller of, and the compliance by
Seller with all of the provisions of, this Agreement, each Transaction
Confirmation and the Pledge Agreement and the consummation of the transactions
herein and therein contemplated will not (i) conflict with or result in a breach
of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or any other agreement or
instrument to which Seller or any of its subsidiaries is a party or by which
Seller or any of its subsidiaries is bound or to which any of the property or
assets of Seller or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of Incorporation or
By-laws or other constitutive documents of Seller or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over Seller or any of its subsidiaries or any of their respective
properties or (ii) require any consent, approval, authorization or order of, or
filing or qualification with, any governmental body, agency, official,
self-regulatory organization or court or other tribunal, whether foreign or
domestic.
(d) Seller is acting for its own account, and has made its own
independent decision to enter into this Agreement, each Transaction Confirmation
and the Pledge Agreement and as to whether this Agreement, any Transaction
Confirmation and the Pledge Agreement are appropriate or proper for it based
upon its own judgment and upon advice of such advisors as it deems necessary.
Seller acknowledges and agrees that it is not relying, and has not relied, upon
any communication (written or oral) of Buyer or any affiliate of Buyer with
respect to the legal, accounting, tax or other implications of this Agreement,
any Transaction Confirmation and the Pledge Agreement and that it has conducted
its own analyses of the legal, accounting, tax and other implications hereof and
thereof; it being understood that information and explanations related to the
terms and conditions of this Agreement, any Transaction Confirmation or the
Pledge Agreement shall not be considered investment advice or a recommendation
to enter into this Agreement, any Transaction Confirmation or the Pledge
Agreement.
(e) Seller is entering into this Agreement and each Transaction
Confirmation with a full understanding of all of the terms and risks hereof
(economic and otherwise) and is capable of evaluating and understanding (on its
own behalf or through independent professional advice), and understands and
accepts, the terms, conditions and risks. Seller is also capable of assuming
(financially and otherwise), and assumes, those risks.
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(f) Seller acknowledges that neither Buyer nor any affiliate of Buyer
is acting as a fiduciary for or an advisor to Seller in respect of this
Agreement, any Transaction Confirmation or the Pledge Agreement.
(g) Seller has a valid business purpose for entering into this
Agreement, and each Transaction Confirmation, and the transactions contemplated
hereby and thereby are consistent with Seller's overall investment strategy.
ARTICLE 5
CONDITIONS TO BUYER'S OBLIGATIONS
SECTION 5.01 Conditions. The obligation of Buyer to deliver (i) the
Funded Amount of the Funded Portion any Payment Date and (ii) the Unfunded
Purchase Price on the Settlement Date for each Transaction, in either case, is
subject to the satisfaction of the following conditions:
(a) The representations and warranties of Seller contained in Article
4, in the relevant Transaction Confirmation and in the Pledge Agreement shall be
true and correct as of such Payment Date or the Settlement Date, as the case may
be.
(b) The Pledge Agreement shall have been executed by the parties
thereto, and Seller shall have delivered to the Collateral Agent in accordance
therewith the collateral required to be delivered pursuant to Section 1(b)
thereof in connection with such Transaction.
(c) Seller shall have performed all of the covenants and obligations to
be performed by it hereunder and under the Pledge Agreement on or prior to such
Payment Date or the Settlement Date, as the case may be.
ARTICLE 6
COVENANTS
SECTION 6.01 Taxes. Seller shall pay any and all documentary, stamp,
transfer or similar taxes and charges that may be payable in respect of the
entry into this Agreement and each Transaction Confirmation and the transfer and
delivery of any Common Stock (or security entitlements in respect thereof)
pursuant hereto and thereto. Seller further agrees to make all payments in
respect of this Agreement and each Transaction Confirmation free and clear of,
and without withholding or deduction for or on account of, any present or future
taxes, duties, fines, penalties, assessments or other governmental charges of
whatsoever nature (or interest on any taxes, duties, fines, penalties,
assessments or other governmental charges of whatsoever nature) imposed, levied,
collected, withheld or assessed by, within or on behalf of (a) the United States
or any political subdivision or governmental authority thereof or therein having
power to tax or (b) any jurisdiction from or through which payment on the
Agreement and each Transaction Confirmation is made by the Seller, or any
political subdivision or
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governmental authority thereof or therein having power to tax. In the event such
withholding or deduction is imposed, Seller agrees to indemnify the Buyer for
the full amount of such withholding or deduction, as well as any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto.
SECTION 6.02 Forward Contract. Seller hereby agrees that: (i) it will
not treat this Agreement or any Transaction Confirmation, any portion of this
Agreement or any Transaction Confirmation, or any obligation hereunder as giving
rise to any interest income or other inclusions of ordinary income; (ii) it will
not treat the delivery of any portion of the shares of Common Stock (or security
entitlements in respect thereof) to be delivered pursuant to this Agreement or
any Transaction Confirmation as the payment of interest or ordinary income;
(iii) it will treat this Agreement as supplemented by each Transaction
Confirmation relating to a particular Transaction in its entirety as a forward
contract for the delivery of such shares of Common Stock (or security
entitlements in respect thereof) that are the subject of such Transaction; and
(iv) it will not take any action (including filing any tax return or form or
taking any position in any tax proceeding) that is inconsistent with the
obligations contained in (i) through (iii). Notwithstanding the preceding
sentence, Seller may take any action or position required by law, provided that
Seller delivers to Buyer an unqualified opinion of counsel, nationally
recognized as expert in Federal tax matters and acceptable to Buyer, to the
effect that such action or position is required by a statutory change or a
Treasury regulation or applicable court decision published after the date of
this Agreement.
SECTION 6.03 Notices. Seller will cause to be delivered to Buyer:
(a) Immediately upon the occurrence of any Event of Default hereunder
or under the Pledge Agreement, or upon any officer of Seller obtaining knowledge
that any of the conditions or events described in paragraph 8.01(a) or 8.01(b)
shall have occurred with respect to the Company, notice of such occurrence; and
(b) In case at any time Seller receives notice, or any officer of
Seller obtains knowledge, that any event requiring that an adjustment be
calculated pursuant to Section 7.01 or 7.02 hereof or any Nationalization or
Insolvency with respect to any Company that is the issuer of the Common Stock
that is the subject of any Transaction shall have occurred or be pending, then
Seller shall promptly cause to be delivered to Buyer a notice identifying such
event and stating, if known to Seller, the date on which such event occurred or
is to occur and, if applicable, the record date relating to such event. Seller
shall cause further notices to be delivered to Buyer if Seller shall
subsequently receive notice, or any officer of Seller shall obtain knowledge, of
any further or revised information regarding the terms or timing of such event
or any record date relating thereto.
SECTION 6.04 Further Assurances. From time to time, each of the parties
hereto shall use its reasonable best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper and
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and each Transaction Confirmation in
accordance with the terms and
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conditions hereof and thereof, including (i) using reasonable best efforts to
remove any legal impediment to the consummation of such transactions and (ii)
the execution and delivery of all such deeds, agreements, assignments and
further instruments of transfer and conveyance necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement
and each Transaction Confirmation in accordance with the terms and conditions
hereof and thereof.
SECTION 6.05 Securities Contract. The parties hereto recognize that the
Buyer is a financial institution within the meaning of Section 101(22) of Title
11 of the United States Code (the "BANKRUPTCY CODE"). The parties hereto further
recognize that this Agreement as supplemented by each Transaction Confirmation
is a securities contract, as such term is defined in Section 741(7) of the
Bankruptcy Code, entitled to the protection of Section 555 of the Bankruptcy
Code.
SECTION 6.06 Indemnity. In the event that Buyer or any of its
affiliates becomes involved in any capacity in any action, proceeding or
investigation brought by or against any person in connection with any matter
referred to in this Agreement, the Seller shall reimburse Buyer or such
affiliate for its reasonable legal and other out-of-pocket expenses (including
the cost of any investigation and preparation) incurred in connection therewith
within 30 days of receipt of notice of such expenses, and shall indemnify and
hold Buyer or such affiliate harmless on an after-tax basis against any losses,
claims, damages or liabilities to which Buyer or such affiliate may become
subject in connection with any such action, proceeding or investigation. The
reimbursement and indemnity obligations of the Seller under this Section shall
be in addition to any liability that the Seller may otherwise have, shall extend
upon the same terms and conditions to the partners, directors, officers, agents,
employees and controlling persons (if any), as the case may be, of Buyer and its
affiliates and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Seller, Buyer, any such
affiliate and any such person. The Seller also agrees that neither Buyer nor any
of such affiliates, partners, directors, officers, agents, employees or
controlling persons shall have any liability to the Seller for or in connection
with any matter referred to in this Agreement except to the extent that any
losses, claims, damages, liabilities or expenses incurred by the Seller result
from the willful misconduct, gross negligence or bad faith of Buyer or a breach
by Buyer of any of its covenants or obligations hereunder. The foregoing
provisions shall survive any termination or completion of this Agreement.
ARTICLE 7
ADJUSTMENTS
SECTION 7.01 Dilution Adjustments. (a) Following the declaration by any
Company that is the issuer of the Common Stock that is the subject of any
Transaction hereunder of the terms of any Potential Adjustment Event, the
Calculation Agent will determine whether such Potential Adjustment Event has a
diluting or concentrative effect on the theoretical value of such Common Stock
and, if so, will (i) make the corresponding adjustment, if any, to any one or
more of each Base Amount, each Settlement Ratio, the Threshold Appreciation
Price, the Downside Protection Threshold
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<PAGE> 15
Price, any Closing Price and any other variable relevant to the exercise,
settlement or payment terms of each such Transaction contemplated hereby as the
Calculation Agent determines appropriate to account for that diluting or
concentrative effect and (ii) determine the effective date of the adjustment.
The Calculation Agent may (but need not) determine the appropriate adjustment by
reference to the adjustment in respect of such Potential Adjustment Event made
by an options exchange to options on the Common Stock traded on that options
exchange.
(b) For these purposes, "POTENTIAL ADJUSTMENT EVENT" means any of the
following:
(i) a subdivision, consolidation or reclassification of shares
of such Common Stock (which does not constitute a Merger Event), or a
free distribution or dividend of any shares of such Common Stock to
existing holders of such Common Stock by way of bonus, capitalization
or similar issue;
(ii) a distribution or dividend to existing holders of such
Common Stock of (i) shares of such Common Stock, or (ii) other share
capital or securities granting the right to payment of dividends and/or
the proceeds of such liquidation of such Company equally or
proportionately with such payments to holders of such Common Stock, or
(iii) other type of securities, rights or warrants or other assets, in
any case for payment (cash or other) at less than the prevailing market
price as determined by the Calculation Agent;
(iii) an Extraordinary Dividend;
(iv) a call by such Company in respect of shares of such
Common Stock that are not fully paid;
(v) a repurchase by such Company of shares of such Common
Stock, whether out of profits or capital and whether the consideration
for such repurchase is cash, securities or otherwise; or
(vi) any other similar event that may have a diluting or
concentrative effect on the theoretical value of such Common Stock.
SECTION 7.02 Merger Events. (a) Buyer shall have the right, upon
becoming aware of the occurrence of any Share-for-Share Merger Event (as defined
below), to notify Seller that the number of New Shares (as defined below) to
which a holder of shares of the Common Stock that is the subject of any
Transaction equal to each Base Amount with respect to such Transaction would be
entitled upon consummation of the Share-for-Share Merger Event will be deemed
such "Base Amount" and the New Shares and their issuer will be deemed the
"Common Stock" and the "Company" for such Transaction, respectively, and that
the Calculation Agent will make corresponding adjustments, if any, to any one or
more of each Base Amount, each Settlement Ratio, the Threshold Appreciation
Price, the Downside Protection Threshold Price, any Closing Price and any other
variable relevant to the exercise, settlement or payment terms of each such
Transaction. Notwithstanding the above, the Calculation Agent will determine if
any
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<PAGE> 16
such Merger Event adjustment affects the theoretical value of any such
Transaction, and if so, may in its sole discretion make an adjustment to any one
or more of the Base Amount, the Settlement Ratio, the Threshold Appreciation
Price, the Downside Protection Threshold Price, any Closing Price, and any other
variable relevant to the exercise, settlement or payment terms of such
Transaction to reflect the characteristics (including, without limitation, the
volatility, dividend practice and policy and liquidity) of the New Shares. Any
adjustment made pursuant to this paragraph will be effective as of the date
determined by the Calculation Agent.
(b) Buyer shall have the right, upon becoming aware of the occurrence
of any Merger Event (as defined below) which does not constitute a
Share-for-Share Merger Event, to notify Seller of such event and terminate the
relevant Transaction Confirmation, following which Seller shall make a payment
to Buyer as provided in Section 7.04.
(c) "MERGER EVENT" means, in respect of any Common Stock, any (A)
reclassification or change of such Common Stock that results in a transfer of or
an irrevocable commitment to transfer 10% or more of the outstanding shares of
such Common Stock, (B) consolidation, amalgamation or merger of the Company that
is the issuer of such Common Stock with or into another entity (other than a
consolidation, amalgamation or merger in which such Company is the continuing
entity and which results in reclassification or change of less than 10% of the
outstanding shares of such Common Stock), or (C) other takeover offer for shares
of such Common Stock that results in a transfer of or an irrevocable commitment
to transfer 10% or more of the shares of such Common Stock (other than such
shares of such Common Stock owned or controlled by the offeror), in each case if
the Merger Date is on or before the final Settlement Date for the relevant
Transaction. "MERGER DATE" means, in respect of any Merger Event, the date upon
which holders of the necessary number of shares of such Common Stock (other
than, in the case of a takeover offer, shares of such Common Stock owned or
controlled by the offeror) have agreed or have irrevocably become obligated to
transfer their shares of such Common Stock. In respect of each Merger Event, the
following terms have the meanings given below:
(i) "SHARE-FOR-SHARE" means, in respect of a Merger Event,
that the consideration for such Common Stock consists (or, at the
option of the holder of such Common Stock, may consist) solely of New
Shares; and
(ii) "NEW SHARES" means shares of common stock (whether of the
offeror or a third party) received in connection with a Merger Event.
SECTION 7.03 Nationalization and Insolvency. If, prior to the final
Settlement Date for any Transaction, all the shares of any Common Stock that is
the subject of such Transaction hereunder or all the assets or substantially all
the assets of the Company that is the issuer of such Common Stock are
nationalized, expropriated or are otherwise required to be transferred to any
governmental agency, authority or entity (a "NATIONALIZATION"); or by reason of
the voluntary or involuntary liquidation, bankruptcy or insolvency of or any
analogous proceeding affecting the Company, (A) all the shares of such Common
Stock are required to be transferred to a trustee, liquidator or
-13-
<PAGE> 17
other similar official or (B) holders of the shares of such Common Stock become
legally prohibited from transferring them (an "INSOLVENCY"), then, in any such
event, Buyer shall have the right, upon becoming aware of the occurrence of a
Nationalization or Insolvency, to notify Seller of such event and terminate each
such Transaction the related Transaction Confirmation as of the date set forth
in such notice following which Seller shall make payment to Buyer as provided in
Section 7.04.
SECTION 7.04 Termination and Payment. Following termination of any
Transaction as a result of any Merger Event, Nationalization or Insolvency, the
Calculation Agent shall determine the value (the "TERMINATION VALUE") equal to
the Acceleration Value for such Transaction (calculated, for purposes of this
Section 7.04, as if the Termination Date were the Acceleration Date, calculated
on the basis of, in addition to the factors indicated in Section 8.01, a value
ascribed to the relevant Common Stock equal to the consideration, if any, paid
in respect of such Common Stock at the time of the Merger Event, Nationalization
or Insolvency, as the case may be, and representing a value to Buyer (which
value may be negative) of an agreement with terms that would preserve for Buyer
the economic equivalent of the payments and deliveries that Buyer and its
affiliates would, but for the occurrence of the Merger Event, Nationalization or
Insolvency, as the case may be, have been obligated to make and entitled to
receive after the Termination Date) in settlement of such Transaction and the
related Transaction Confirmation. As promptly as reasonably practicable after
calculation of the Acceleration Value, the Calculation Agent shall deliver to
Buyer and Seller a notice (the "TERMINATION VALUE NOTICE") specifying the
Termination Value. Not later than three Business Days following delivery of a
Termination Value Notice, if the Termination Value is positive, Seller shall
make a cash payment to Buyer, or, if the Termination Value is negative, Buyer
shall make a cash payment to Seller, in either case, by wire transfer of
immediately available funds to an account designated by the payee, in an amount
equal to the absolute value of the Termination Value.
"TERMINATION DATE" means (i) in respect of a Merger Event, the Merger
Date, (ii) in respect of a Nationalization, the date of the first public
announcement of a firm intention to nationalize and (iii) in respect of an
Insolvency, the earlier of the date the shares of the relevant Common Stock are
required to be transferred to a trustee, liquidator or other similar official
and the date the holders of shares of such Common Stock become legally
prohibited from transferring such Common Stock that, in the case of a
Nationalization or an Insolvency (whether or not amended or on the terms
originally announced), leads to the Nationalization or the Insolvency, as the
case may be, in each case as determined by Buyer.
ARTICLE 8
ACCELERATION
SECTION 8.01 Acceleration. If one or more of the following events (each
an "EVENT OF DEFAULT") shall occur:
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<PAGE> 18
(a) any legal proceeding shall have been instituted that if adversely
decided, in Buyer's reasonable judgment would have a material adverse effect on
the Seller's ability to perform Seller's obligations hereunder or under the
Pledge Agreement or any Transaction Confirmation, or that calls into question
the validity or binding effect of any agreement of Seller hereunder or under the
Pledge Agreement or any Transaction Confirmation;
(b) Seller makes an assignment for the benefit of creditors, files a
petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or
applies to any tribunal for any receiver of or any trustee for Seller or any
substantial part of Seller's property, commences any proceeding relating to
Seller under any reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or hereafter in
effect, or there is commenced against or with respect to Seller or any
substantial portion of its property any such proceeding and an order for relief
is issued or such proceeding remains undismissed for a period of 60 days;
(c) at any time, any representation made or repeated or deemed to have
been made or repeated by Seller under this Agreement, any Transaction
Confirmation or the Pledge Agreement or any certificate delivered pursuant
hereto or thereto would be incorrect or misleading in any material respect if
made or repeated as of such time;
(d) Seller fails to fulfill or discharge when due any of its
obligations, covenants or agreements under or relating to this Agreement, any
Transaction Confirmation or the Pledge Agreement, including Seller's obligations
to deliver shares of Common Stock (or security entitlements in respect thereof)
on each Settlement Date relating to each Transaction entered into hereunder;
(e) due to the adoption of, or any change in, any applicable law after
the date hereof, or due to the promulgation of, or any change in, the
interpretation by any court, tribunal or regulatory authority with competent
jurisdiction of any applicable law after the date hereof, it becomes unlawful
for Seller to perform any absolute or contingent obligation to make payment or
delivery hereunder or to comply with any other material provision of this
Agreement, any Transaction Confirmation or the Pledge Agreement;
(f) any inability (which shall include an increase in costs) of Buyer,
due to market illiquidity, illegality or lack of availability of hedging
transaction market participants or otherwise, to establish, re-establish or
maintain any hedging transaction or transactions necessary in the normal course
of Buyer's business of hedging the price and market risk of entering into and
performing under this Agreement or any Transaction hereunder;
(g) Seller fails to make any payment on the date due with respect to
any financial obligation of whatever kind or description now or hereafter
incurred by Seller (whether present or future), provided that the amount of such
financial obligation is at least equal to USD 30 million;
-15-
<PAGE> 19
(h) Seller fails to make any payment on the date due with respect to
any financial obligation of whatever kind or description now or hereafter
incurred by Seller (whether present or future), provided that (i) the amount of
such financial obligation is less than USD 30 million and (ii) in the reasonable
determination of Buyer, failure to make such payment indicates a material
deterioration of the financial condition of Seller; or
(i) a Collateral Event of Default within the meaning of the Pledge
Agreement shall occur;
then, upon notice to Seller from Buyer at any time following an Event of
Default, an "ACCELERATION DATE" shall occur, and the Calculation Agent shall
determine the Acceleration Value. If the Acceleration Value is positive, Seller
shall become obligated to deliver to an affiliate of Buyer designated by Buyer
immediately upon receipt of the Acceleration Amount Notice (as defined below) a
number of Free Shares of each Common Stock that is the subject of a Transaction
hereunder equal to the Acceleration Amount for such Common Stock; provided that
if the Collateral Agent proceeds to realize upon any collateral pledged under
the Pledge Agreement and to apply the proceeds of such realization as provided
in paragraph second of Section 8(d) thereof, then, to the extent of such
application of proceeds, Seller's obligation to deliver Common Stock pursuant to
this paragraph shall be deemed to be an obligation to deliver an amount of cash
equal to the aggregate Market Value of such Free Stock on the Acceleration Date.
The "ACCELERATION AMOUNT" of any Common Stock means the quotient obtained by
dividing: (i) the aggregate Acceleration Value, as defined below, for all
Transactions hereunder of which such Common Stock is the subject, by (ii) the
Market Value per share of such Common Stock on the Acceleration Date. If the
Acceleration Value is negative, Buyer shall make a cash payment to Seller, by
wire transfer of immediately available funds to an account designated by Seller,
on the fifth Business Day following the Acceleration Date in an amount equal to
the absolute value of the Acceleration Value.
The "ACCELERATION VALUE" means, for any Transaction hereunder, an
amount determined by the Calculation Agent in a commercially reasonable manner
representing the net fair value (which value may be negative) to Buyer and its
affiliates of an agreement with terms that would preserve for Buyer the economic
equivalent of the aggregate payments and deliveries in respect of such
Transaction that Buyer and its affiliates would, but for the occurrence of the
Acceleration Date, have been obligated to make and entitled to receive after the
Acceleration Date under Article 3 (taking into account any adjustments pursuant
to Section 7.01 that may have been calculated on or prior to the Acceleration
Date). The Calculation Agent shall calculate such amount based on the following
factors (and such other factors as it deems appropriate): (i) the volatility of
the Common Stock that is the subject of such Transaction, (ii) dividends on such
Common Stock and (iii) prevailing interest rates.
As promptly as reasonably practicable after calculation of the
Acceleration Value, the Calculation Agent shall deliver to Seller and Buyer a
notice (the "ACCELERATION VALUE NOTICE") specifying the Acceleration Value, and,
if the Acceleration Value is
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<PAGE> 20
positive, the Acceleration Amount of shares of Common Stock (or security
entitlements in respect thereof) required to be delivered by Seller.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard forms of telecommunication. Notices to Buyer shall
be directed to it care of Banc of America Securities LLC, 9 West 57th Street,
New York, New York 10019, Telecopy No. 212-583-8569, Attention: Robert Dilworth;
notices to Seller shall be directed to it at the address as specified on the
last page hereof.
SECTION 9.02 Governing Law; Severability; Submission to Jurisdiction;
Waiver of Jury Trial. (a)(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of New York (without reference to
choice of law doctrine).
(b) To the extent permitted by law, the unenforceability or invalidity
of any provision or provisions of this Agreement shall not render any other
provision or provisions herein contained unenforceable or invalid.
(c) Seller and Buyer hereby irrevocably and unconditionally submit to
the non-exclusive jurisdiction of the Federal and state courts located in the
Borough of Manhattan, in the City of New York in any suit or proceeding arising
out of or relating to this Agreement or the transactions contemplated hereby.
(d) Seller and Buyer hereby irrevocably and unconditionally waive any
and all right to trial by jury in any legal proceeding arising out of or related
to this Agreement or the transactions contemplated hereby.
(e) Service of Process. Seller irrevocably appoints the party as
specified on the last page hereof, and Buyer appoints Banc of America Securities
LLC, as process agent to receive for it and on its behalf, service of process in
any action, suit or other proceeding arising out of this Agreement or any
transaction contemplated hereby. If for any reason the party as specified on the
last page hereof is unable to act as such, Seller will promptly notify Buyer and
within 30 days appoint a substitute process agent acceptable to Buyer. The
parties irrevocably consent to service of process given in the manner provided
for notices in Section 9.01. Nothing in this Agreement will affect the right of
either party to serve process in any other manner permitted by law.
SECTION 9.03 Confidentiality. Except as required by law or judicial or
administrative process, or as requested by a regulatory authority or
self-regulatory organization, each party hereto agrees to keep this Agreement,
each Transaction Confirmation and the Pledge Agreement and the transactions
contemplated hereby and thereby confidential. In the event disclosure is
permitted pursuant to the preceding sentence, the disclosing party shall (i)
provide prior notice of such disclosure to the other
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<PAGE> 21
party, (ii) use its best efforts to minimize the extent of such disclosure and
(iii) comply with all reasonable requests of the other party to minimize the
extent of such disclosure. This Section 9.03 shall not prevent Seller or Buyer
from disclosing information as necessary to third-party advisors in connection
with the transactions contemplated hereby or in any Transaction Confirmation or
the Pledge Agreement; provided that such advisors agree in writing to be bound
by this Section 9.03 as if a party hereto.
SECTION 9.04 Entire Agreement. Except as expressly set forth herein and
in each Transaction Confirmation, this Agreement (as supplemented by each
Transaction Confirmation) constitutes the entire agreement and understanding
among the parties with respect to its subject matter hereof and supersedes all
oral communications and prior writings with respect thereto.
SECTION 9.05 Amendments, Waivers. Any provision of this Agreement or
any Transaction Confirmation may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
Buyer and Seller or, in the case of a waiver, by the party against whom the
waiver is to be effective. No failure or delay by either party in exercising any
right, power or privilege hereunder or thereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
SECTION 9.06 No Third Party Rights, Successors and Assigns. This
Agreement (as supplemented by each Transaction Confirmation) is not intended and
shall not be construed to create any rights in any person other than Seller,
Buyer, an affiliate of Buyer designated hereunder to receive Free Shares and
their respective successors and assigns and no other person shall assert any
rights as third party beneficiary hereunder. Whenever any of the parties hereto
is referred to, such reference shall be deemed to include the successors and
assigns of such party. All the covenants and agreements herein contained by or
on behalf of the Seller and Buyer shall bind, and inure to the benefit of, their
respective successors and assigns whether so expressed or not, and shall be
enforceable by and inure to the benefit of Buyer and its successors and assigns.
Seller shall have the right to assign its rights and obligations under this
Agreement (including each Transaction Confirmation hereunder), the Pledge
Agreement and the Common Stock pledged pursuant to the Pledge Agreement to a
broker or a dealer or an affiliate of a broker or a dealer (as such terms are
defined in the Securities Exchange Act of 1934, as amended, and the rules
thereunder), provided that (i) all such rights and obligations shall be assigned
to the same assignee, (ii) that such assignee shall be reasonably acceptable to
Buyer and (iii) Seller and such assignee shall execute documentation reasonably
acceptable to Buyer.
SECTION 9.07 Counterparts. This Agreement may be executed in any number
of counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same agreement.
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<PAGE> 22
SECTION 9.08 Early Termination. Seller may request to terminate any
Transaction prior to the first Settlement Date for such Transaction (any such
termination, an "Early Termination") by providing written notice to Buyer at
least ten (10) Business Days prior to such Settlement Date, provided that no
Event of Default has occurred or is continuing. Upon such written request to
Buyer, the parties agree to negotiate in good faith the early termination amount
to be made in respect of such Early Termination.
SECTION 9.09 Agreements. This Agreement and the Pledge Agreement shall
be null and void in the event that the parties do not enter into any
Transactions pursuant to this Agreement.
*************
Date of Agreement: February 9, 2000
Seller: Advanced Fibre Communications, Inc., a corporation
Seller's Address for Notices:
One Willow Brook Ct.
Petaluma, CA 94954
Phone No.: 707-792-4163
Telecopy No.: 707-792-7275
Attn: Peter M. Donahower, Treasurer
Service of Process: Seller hereby appoints the party specified below to serve as
process agent pursuant to Section 9.02(e):
Advanced Fibre Communications, Inc.
Attn: Amy Paul, Vice President and General Counsel
One Willow Brook Ct.
Petaluma, CA 94954
Phone No.: 707-792-4163
Telecopy No.: 707-792-7275
**************
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date and year first above written.
SELLER:
ADVANCED FIBRE COMMUNICATIONS, INC.
By: /s/ Keith E. Pratt
-------------------------
Name: Keith E. Pratt
Title: Vice President and CFO
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<PAGE> 23
ADVANCED FIBRE COMMUNICATIONS, INC.
By: /s/ Peter Donahower
-------------------------
Name: Peter Donahower
Title: Director, Treasury
BUYER:
BANK OF AMERICA, N.A.
By: /s/ William Caccamise
-------------------------
Name: William Caccamise
Title: Managing Director
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<PAGE> 24
Exhibit A
to
Master Stock Purchase Agreement
TRANSACTION CONFIRMATION
The purpose of this agreement (this "CONFIRMATION") is to confirm the
terms and conditions of the transaction entered into between Advanced Fibre
Communications, Inc. ("SELLER") and Bank of America, N.A., ("BUYER"), on the
Trade Date specified below (the "TRANSACTION"). This Confirmation constitutes a
Transaction Confirmation as referred to in the Master Stock Purchase Agreement
(as amended or supplemented from time to time, the "MASTER STOCK PURCHASE
AGREEMENT") dated as of February 9, 2000 between Seller and Buyer. This
Confirmation supplements, forms a part of, and is subject to, the Master Stock
Purchase Agreement. All provisions contained in the Master Stock Purchase
Agreement govern this Confirmation except as expressly modified below. Seller,
Buyer and Banc of America Securities LLC, as collateral agent, are parties to a
Pledge Agreement (the "PLEDGE AGREEMENT") dated as of the date of the Master
Stock Purchase Agreement. Capitalized terms used and not otherwise defined
herein shall have the meanings ascribed to them in the Master Stock Purchase
Agreement and the Pledge Agreement.
1. The terms of the particular Transaction to which this Confirmation
relates are as follows:
Trade Date: February 9, 2000
Common Stock and Company: Common stock, $0.001 par value per share of
Cisco Systems, Inc. ("CSCO")
Purchase Price: U.S. $656,166,699.50
Closing Date: February 14, 2000
Threshold Appreciation Price: U.S. $197.9603
Downside Protection Threshold Price: U.S. $130.8266
<TABLE>
<CAPTION>
MATURITY DATE BASE AMOUNT
------------- -----------
<S> <C>
February 10, 2003 501,555 shares
February 11, 2003 501,555 shares
February 12, 2003 501,555 shares
February 13, 2003 501,555 shares
February 14, 2003 501,555 shares
February 18, 2003 501,554 shares
February 19, 2003 501,554 shares
February 20, 2003 501,554 shares
February 21, 2003 501,554 shares
February 24, 2003 501,554 shares
</TABLE>
A-1
<PAGE> 25
Settlement Ratio: For any Settlement Date, (i) if the Settlement Price for such
Settlement Date is less than the Threshold Appreciation Price but greater than
the Downside Protection Threshold Price, the Settlement Ratio shall be a ratio
equal to the Downside Protection Threshold Price divided by the Settlement
Price, (ii) if the Settlement Price for such Settlement Date is equal to or
greater than the Threshold Appreciation Price, the Settlement Ratio shall be a
ratio equal to one (1) minus a fraction the numerator of which is the excess of
the Threshold Appreciation Price over the Downside Protection Threshold Price
and the denominator of which is the Settlement Price, and (iii) if the
Settlement Price for such Settlement Date is equal to or less than the Downside
Protection Threshold Price, the Settlement Ratio shall be one (1), and in each
calculation described in clause (i) or (ii) above, the Settlement Ratio shall be
rounded upward or downward to the nearest 1/10,000th or, if there is not a
nearest 1/10,000th, to the next lower 1/10,000th.
Interest Calculation End Date:
February 21, 2003
Extraordinary Dividend: Any cash dividend that is paid on the Common Stock,
other than those described in Section 7.01(b)(i) or (ii) of the Master Stock
Purchase Agreement, shall be considered an extraordinary dividend (it being
understood that because there is no dividend currently paid on the Common Stock
all such dividends shall be extraordinary dividends).
Spread: 75 basis points
Other Provisions:
2. The parties hereto affirm their respective representations and
warranties set forth in the Master Stock Purchase Agreement and the Pledge
Agreement as if made on the Trade Date. In addition, Seller represents and
warrants to Buyer and to the Collateral Agent that:
(a) Seller is not an "affiliate", within the meaning of Rule 144 under
the Securities Act, of the Company.
(b) Delivery of shares of Common Stock (or security entitlements in
respect thereof) by Seller pursuant to the Master Stock Purchase Agreement and
this Confirmation will pass to Buyer title to such shares (or security
entitlements) free and clear of any Liens, except for those created pursuant to
the Pledge Agreement.
(c) Seller (i) owns and, at all times prior to the release of the
Collateral pledged in respect of the Transaction to which this Confirmation
relates pursuant to the terms of the Pledge Agreement, will own such Collateral
free and clear of any Liens (other than the Security Interests) or Transfer
Restrictions and (ii) is not and will not become a party to or otherwise bound
by any agreement, other than the Pledge Agreement and this Confirmation, that
(x) restricts in any manner the rights of any
A-2
<PAGE> 26
present or future owner of such Collateral with respect thereto or (y) provides
any person other than Seller, the Collateral Agent, Buyer or any securities
intermediary through whom any such Collateral is held (but, in the case of any
such securities intermediary, only in respect of Collateral held through it)
with control (as defined in Section 8-106 of the UCC) with respect to any such
Collateral.
3. In addition to the covenants contained in Article 6 of the Master
Stock Purchase Agreement, Seller agrees that Seller shall notify Buyer
immediately of its intention to (i) purchase Common Stock (or security
entitlements in respect thereof) or any other equity security of the Company in
an amount that would cause Seller to become the beneficial owner, directly or
indirectly, of more than three percent of the outstanding shares of any equity
security of the Company, (ii) accept a position as an officer or director of the
Company, (iii) take any action that would cause Seller to possess, directly or
indirectly, the power to direct or cause the direction of the management and
policies of the Company, whether by ownership of voting securities, by contract
or otherwise, or (iv) take any other action that could reasonably be expected to
result in Seller becoming an "affiliate", within the meaning of Rule 144 under
the Securities Act, of the Company. Seller shall not take any such action unless
a period of fifteen Business Days shall have elapsed after receipt of such
notice by Buyer and Buyer shall not have objected in writing to such action
during such period.
IN WITNESS WHEREOF, the parties have signed this Confirmation as of
this 9th day of February, 2000.
SELLER:
ADVANCED FIBRE COMMUNICATIONS, INC.
By: /s/ Keith E. Pratt
-------------------------
Name: Keith E. Pratt
Title: Vice President and CFO
ADVANCED FIBRE COMMUNICATIONS, INC.
By: /s/ Peter Donahower
-------------------------
Name: Peter Donahower
Title: Director, Treasury
BUYER:
BANK OF AMERICA, N.A.
By: /s/ William Caccamise
-------------------------
Name: William Caccamise
Title: Managing Director
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[BANK OF AMERICA LOGO]
EQUITY FINANCIAL PRODUCTS GROUP
PLEDGE AGREEMENT -
SPECIALIZED TERM APPRECIATION RETENTION SALE (STARS)
TABLE OF CONTENTS
SECTION 1. The Security Interests
SECTION 2. Definitions
SECTION 3. Representations and Warranties of Pledgor
SECTION 4. Representations, Warranties and Agreements of the Collateral Agent
SECTION 5. Certain Covenants of Pledgor
SECTION 6. Administration of the Collateral and Valuation of the Securities
SECTION 7. Income and Voting Rights in Collateral
SECTION 8. Remedies upon Events of Default
SECTION 9. The Collateral Agent
SECTION 10. Miscellaneous
SECTION 11. Termination of Pledge Agreement
THIS AGREEMENT is made as of the date stated on the last page hereof
among the counterparty name on the last page hereof ("PLEDGOR"), BANC OF AMERICA
SECURITIES LLC, as collateral agent (the "COLLATERAL AGENT") hereunder for the
benefit of BANK OF AMERICA, N.A. ("SECURED PARTY").
WHEREAS, pursuant to the Master Stock Purchase Agreement (as amended
from time to time, the "MASTER STOCK PURCHASE AGREEMENT") dated as of the date
hereof between Pledgor and Secured Party, from time to time Pledgor may agree to
sell and Secured Party may agree to purchase shares of common stock of one or
more issuers (or security entitlements in respect thereof), subject to the terms
and conditions of the Master Stock Purchase Agreement and certain confirmations
thereunder;
WHEREAS, it is a condition to the obligations of Secured Party under
the Master Stock Purchase Agreement that Pledgor, the Collateral Agent and
Secured Party enter into this Agreement and that Pledgor grant the pledge
provided for herein;
NOW, THEREFORE, in consideration of their mutual covenants contained
herein and to secure the performance by Pledgor of its obligations under the
Master Stock Purchase Agreement and any Transaction Confirmation (as defined in
the Master Stock Purchase Agreement) and the observance and performance of the
covenants and agreements contained herein and in the Master Stock Purchase
Agreement, the parties hereto, intending to be legally bound, hereby mutually
covenant and agree as follows:
SECTION 1. The Security Interests. In order to secure the full and
punctual observance and performance of the covenants and agreements contained
herein and in the Master Stock Purchase Agreement and each Transaction
Confirmation:
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(a) Pledgor hereby assigns and pledges to the Collateral Agent, as
agent of and for the benefit of Secured Party, and grants to the Collateral
Agent, as agent of and for the benefit of Secured Party, security interests in
and to, and a lien upon and right of set-off against, and transfers to the
Collateral Agent, as agent of and for the benefit of Secured Party, as and by
way of a security interest having priority over all other security interests,
with power of sale, all of its right, title and interest in and to (i) the
Pledged Items described in paragraph (b); (ii) all additions to and
substitutions for such Pledged Items (including, without limitation, any
securities, instruments or other property delivered or pledged pursuant to
Section 5(a) or 6(b)); (iii) all income, proceeds and collections received or to
be received, or derived or to be derived, now or any time hereafter (whether
before or after the commencement of any proceeding under applicable bankruptcy,
insolvency or similar law, by or against Pledgor, with respect to Pledgor) from
or in connection with the Pledged Items (including, without limitation, any
shares of capital stock issued by the Company in respect of any Common Stock (or
security entitlements in respect thereof) constituting Collateral or any cash,
securities or other property distributed in respect of or exchanged for any
Common Stock (or security entitlements in respect thereof) constituting
Collateral, or into which any such Common Stock (or security entitlements in
respect thereof) is converted, in connection with any Merger Event, and any
security entitlements in respect of any of the foregoing); and (iv) all powers
and rights now owned or hereafter acquired under or with respect to the Pledged
Items (such Pledged Items, additions, substitutions, proceeds, collections,
powers and rights being herein collectively called the ("COLLATERAL"). The
Collateral Agent shall have all of the rights, remedies and recourses with
respect to the Collateral afforded a secured party by the UCC, in addition to,
and not in limitation of, the other rights, remedies and recourses afforded to
the Collateral Agent by this Agreement.
(b) On or prior to the Closing Date for each Transaction entered into
pursuant to the Master Stock Purchase Agreement, Pledgor shall deliver to the
Collateral Agent in pledge hereunder Eligible Collateral for such Transaction
consisting of a number of shares of the relevant Common Stock (or security
entitlements in respect thereof) equal to the sum of the Base Amounts for such
Transaction, in the manner provided in Section 6(c).
(c) In the event that the Company at any time issues to Pledgor in
respect of any Common Stock (or security entitlements in respect thereof)
constituting Collateral hereunder any additional or substitute shares of capital
stock of any class (or any security entitlements in respect thereof), Pledgor
shall immediately pledge and deliver to the Collateral Agent in accordance with
Section 6(c) all such shares and security entitlements as additional Collateral
hereunder.
(d) The Security Interests are granted as security only and shall not
subject the Collateral Agent or Secured Party to, or transfer or in any way
affect or modify, any obligation or liability of Pledgor or any Company that is
the issuer of Common Stock that is the subject of any Transaction under the
Master Stock Purchase Agreement with respect to any of the Collateral or any
transaction in connection therewith.
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SECTION 2. Definitions. Capitalized terms used and not otherwise
defined herein shall have the meanings ascribed to them in the Master Stock
Purchase Agreement. As used herein, the following words and phrases shall have
the following meanings:
"AUTHORIZED OFFICER" of Pledgor means any officer as to whom Pledgor
shall have delivered notice to the Collateral Agent that such officer is
authorized to act hereunder on behalf of Pledgor.
"COLLATERAL" has the meaning provided in Section 1(a).
"COLLATERAL AGENT" means the financial institution identified as such
in the preliminary paragraph hereof, or any successor appointed in accordance
with Section 9.
"COLLATERAL EVENT OF DEFAULT" means, at any time, the occurrence of
either of the following: (A) failure of the Collateral in respect of each
Transaction under the Master Stock Purchase Agreement to include, as Eligible
Collateral, at least the Maximum Deliverable Number for such Transaction of
shares of the relevant Common Stock or (B) failure at any time of the Security
Interests to constitute valid and perfected security interests in all of the
Collateral, subject to no prior or equal Lien, or assertion of such by Pledgor
in writing.
"DEFAULT SETTLEMENT DATE" has the meaning provided in Section 8(a).
"ELIGIBLE COLLATERAL" means, for any Transaction, shares of the Common
Stock that is the subject of such Transaction (or security entitlements in
respect thereof) provided that Pledgor has good and marketable title thereto,
free of all Liens (other than the Security Interests) and Transfer Restrictions
(and that the Collateral Agent has a valid, first priority perfected security
interest therein, a first lien thereon and control with respect thereto, and
provided further that to the extent the number of shares of Common Stock or
security entitlements in respect thereof pledged hereunder in respect of any
Transaction exceeds at any time the Maximum Deliverable Number thereof, such
excess shares shall not be Eligible Collateral.
"EXISTING TRANSFER RESTRICTIONS" means, with respect to any shares of
Common Stock or security entitlements in respect thereof pledged as Collateral
hereunder in connection with any Transaction, the Existing Transfer Restrictions
identified in the applicable Transaction Confirmation.
"LOCATION" means, with respect to any party, the place such party is
deemed located within the meaning of Section 9-103(3)(d) of the UCC.
"MAXIMUM DELIVERABLE NUMBER" means, on any date for any Transaction, a
number of shares of Common Stock or security entitlements in respect thereof
equal to the sum of the Base Amounts for such Transaction for which settlement
under the Master Stock Purchase Agreement and the Transaction Confirmation with
respect to such Transaction has not been fully made multiplied successively by
each
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adjustment that shall have been calculated on or prior to such date pursuant to
Section 7.01 of the Master Stock Purchase Agreement.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"PLEDGED ITEMS" means, as of any date, any and all securities and
instruments delivered by Pledgor to be held by the Collateral Agent under this
Agreement as Collateral.
"SECURITY INTERESTS" means the security interests in the Collateral
created hereby.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
SECTION 3. Representations and Warranties of Pledgor. Pledgor hereby
represents and warrants to the Collateral Agent and Secured Party that:
(a) Other than financing statements or other similar or equivalent
documents or instruments with respect to the Security Interests, no financing
statement, security agreement or similar or equivalent document or instrument
covering all or any part of the Collateral is on file or of record in any
jurisdiction in which such filing or recording would be effective to perfect a
lien, security interest or other encumbrance of any kind on such Collateral.
(b) All shares of Common Stock at any time pledged hereunder (or in
respect of which security entitlements are pledged hereunder) are and will be
issued by an issuer organized under the laws of the United States, any State
thereof or the District of Columbia and (i) certificated (and the certificate or
certificates in respect of such shares of Common Stock are and will be located
in the United States) and registered in the name of Pledgor or held through a
securities intermediary whose securities intermediary's jurisdiction (within the
meaning of Section 8-110(e) of the UCC) is located in the United States or (ii)
uncertificated and either registered in the name of Pledgor or held through a
securities intermediary whose securities intermediary's jurisdiction (within the
meaning of Section 8-110(e) of the UCC) is located in the United States.
(c) (i) Upon the delivery of certificates evidencing any Common Stock
to the Collateral Agent in accordance with Section 6(c)(A) or the registration
of uncertificated Common Stock in the name of the Collateral Agent or its
nominee in accordance with Section 6(c)(B), the Collateral Agent will have, for
the benefit of Secured Party, a valid and, as long as the Collateral Agent
retains possession of such certificates or such uncertificated Common Stock
remains so registered, perfected security interest therein, in respect of which
the Collateral Agent will have control, subject to no prior Lien and (ii) upon
the crediting of any Common Stock to a securities account of the Collateral
Agent in accordance with Section 6(c)(C), the Collateral Agent will have, for
the benefit of Secured Party, a valid and, so long as such Common Stock
continues to be credited to
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the account of the Collateral Agent with the applicable securities intermediary,
perfected security interest in a securities entitlement in respect thereof, in
respect of which the Collateral Agent will have control subject to no prior
Lien.
(d) No registration, recordation or filing with any governmental body,
agency or official is required in connection with the execution and delivery of
this Agreement or any Transaction Confirmation or necessary for the validity or
enforceability hereof or thereof or for the perfection or enforcement of the
Security Interests.
(e) Pledgor has not performed and will not perform any acts that might
prevent the Collateral Agent from enforcing any of the terms of this Agreement
or that might limit the Collateral Agent in any such enforcement.
(f) The Location of Pledgor is the address set forth in Section 10(d),
and under the Uniform Commercial Code as in effect in such Location, no local
filing is required to perfect a security interest in collateral consisting of
general intangibles.
(g) Any shares of Common Stock pledged hereunder were acquired by the
Seller in a transaction exempt from the registration requirements under the
Securities Act pursuant to Section 3(a)(10) of the Securities Act.
SECTION 4. Representations, Warranties and Agreements of the Collateral
Agent. The Collateral Agent represents and warrants to, and agrees with, Pledgor
and Secured Party that:
(a) The Collateral Agent is a limited liability company, duly formed,
validly existing and in good standing under the laws of the jurisdiction of its
formation, and has all powers and all material governmental licenses,
authorizations, consents and approvals required to enter into, and perform its
obligations under, this Agreement.
(b) The execution, delivery and performance by the Collateral Agent of
this Agreement have been duly authorized by all necessary action on the part of
the Collateral Agent (no action by the members of the Collateral Agent being
required) and do not and will not violate, contravene or constitute a default
under any provision of applicable law or regulation or of the certificate of
formation or by-laws of the Collateral Agent or of any material agreement,
judgment, injunction, order, decree or other instrument binding upon the
Collateral Agent.
(c) This Agreement constitutes a valid and binding agreement of the
Collateral Agent enforceable against the Collateral Agent in accordance with its
terms.
(d) The Collateral Agent has not and will not enter into any agreement
pursuant to which any person other than the Pledgor, the Collateral Agent, the
Secured Party or any securities intermediary through whom any Collateral is held
(but in the case of any such securities intermediary only in respect of
Collateral held through it) has or will have control (within the meaning of
Section 8-106 of the UCC) with respect to any Collateral.
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(e) The Collateral Agent hereby agrees that all liens, pledges and
other security interests of any kind or nature held by it (other than liens,
pledges and security interests arising hereunder) in any of the Collateral
securing any obligation to the Collateral Agent (either in such capacity or in
any other capacity) (collectively, "OTHER LIENS") shall be subordinate and
junior to the liens, pledges and security interests in the Collateral arising
hereunder and that the Collateral Agent will take no action to enforce any Other
Liens so long as any obligation under the Master Stock Purchase Agreement or
hereunder (whether or not then due) should remain unsatisfied.
SECTION 5. Certain Covenants of Pledgor. Pledgor agrees that, so long
as any of its obligations under the Master Stock Purchase Agreement remain
outstanding:
(a) Pledgor shall ensure at all times that a Collateral Event of
Default shall not occur, and shall pledge additional Collateral in the manner
described in Sections 6(b) and 6(c) as necessary to cause such requirement to be
met.
(b) Pledgor shall, at the expense of Pledgor and in such manner and
form as Secured Party or the Collateral Agent may require, give, execute,
deliver, file and record any financing statement, notice, instrument, document,
agreement or other papers that may be necessary or desirable in order to create,
preserve, perfect, substantiate or validate any security interest granted
pursuant hereto or to enable the Collateral Agent to exercise and enforce its
rights and the rights of Secured Party hereunder with respect to such security
interest. To the extent permitted by applicable law, Pledgor hereby authorizes
the Collateral Agent to execute and file, in the name of Pledgor or otherwise,
UCC financing or continuation statements (which may be carbon, photographic,
photostatic or other reproductions of this Agreement or of a financing statement
relating to this Agreement) that the Collateral Agent in its sole discretion may
deem necessary or appropriate to further perfect, or maintain the perfection of,
the Security Interests.
(c) Pledgor shall warrant and defend its title to the Collateral,
subject to the rights of the Collateral Agent and Secured Party, against the
claims and demands of all persons. The Collateral Agent and Secured Party (or,
as they may agree, one of them) may elect, but without an obligation to do so,
to discharge any Lien of any third party on any of the Collateral.
(d) Pledgor agrees that it shall not change (1) its name, identity
corporate structure in any manner or (2) its Location, unless in either case (A)
it shall have given the Collateral Agent not less than 30 days' prior notice
thereof and (B) such change shall not cause any of the Security Interests to
become unperfected or subject any Collateral to any other Lien.
(e) Pledgor agrees that it shall not (1) create or permit to exist any
Lien (other than the Security Interests) or any Transfer Restriction ( upon or
with respect to the Collateral, (2) sell or otherwise dispose of, or grant any
option with respect to, any of the Collateral or (3) enter into or consent to
any agreement pursuant to which any person other than the Pledgor, the
Collateral Agent, the Secured Party and any securities intermediary through whom
any of the Collateral is held (but in the case of any such
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securities intermediary only in respect of Collateral held through it) has or
will have control (within the meaning of Section 8-106 of the UCC) in respect of
any Collateral.
SECTION 6. Administration of the Collateral and Valuation of the
Securities.
(a) The Collateral Agent shall determine on each Business Day whether a
Collateral Event of Default shall have occurred.
(b) Pledgor may pledge additional Collateral hereunder at any time.
Concurrently with the delivery of any additional Eligible Collateral, Pledgor
shall deliver to the Collateral Agent a certificate of an Authorized Officer of
Pledgor substantially in the form of Exhibit A hereto and dated the date of such
delivery, (A) identifying the additional items of Eligible Collateral being
pledged, (B) identifying the Transaction Confirmation relating to the
Transaction in respect of which such Eligible Collateral is being pledged, and
(C) certifying that with respect to such items of additional Eligible Collateral
the representations and warranties contained in paragraphs (a), (b), (c) and (d)
of Section 3 and paragraph (c) of Section 2 of such Transaction Confirmation are
true and correct with respect to such Eligible Collateral on and as of the date
thereof. Pledgor hereby covenants and agrees to take all actions required under
Section 6(c) and any other actions necessary to create for the benefit of the
Collateral Agent a valid, first priority, perfected security interest in, and a
first lien upon, such additional Eligible Collateral.
(c) Any delivery of Common Stock (or security entitlement in respect
thereof) as Collateral to the Collateral Agent by Pledgor shall be effected (A)
in the case of Collateral consisting of certificated Common Stock registered in
the name of Pledgor, by delivery of certificates representing such Common Stock
to the Collateral Agent, accompanied by any required transfer tax stamps, and in
suitable form for transfer by delivery or accompanied by duly executed
instruments of transfer or assignment in blank, with signatures appropriately
guaranteed, all in form and substance satisfactory to the Collateral Agent, (B)
in the case of Collateral consisting of uncertificated Common Stock registered
in the name of Pledgor, by transmission by Pledgor of an instruction to the
issuer of such Common Stock instructing such issuer to register such Common
Stock in the name of the Collateral Agent or its nominee, accompanied by any
required transfer tax stamps, and the issuer's compliance with such instructions
or (C) in the case of Common Stock in respect of which security entitlements are
held by Pledgor through a securities intermediary, by the crediting of such
Common Stock, accompanied by any required transfer tax stamps, to a securities
account of the Collateral Agent at such securities intermediary or, at the
option of the Collateral Agent, at another securities intermediary satisfactory
to the Collateral Agent. Upon delivery of any such Pledged Item under this
Agreement, the Collateral Agent shall examine such Pledged Item and any
certificates delivered pursuant to Section 6(b) or otherwise pursuant to the
terms hereof in connection therewith to determine that they comply as to form
with the requirements for Eligible Collateral.
(d) If on any Business Day the Collateral Agent determines that a
Collateral Event of Default shall have occurred, the Collateral Agent shall
promptly notify Pledgor
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of such determination by telephone call to an Authorized Officer of Pledgor
followed by a written confirmation of such call.
(e) If on any Business Day the Collateral Agent determines that no
Event of Default or failure by Pledgor to meet any of its obligations under
Sections 5 or 6 hereof has occurred and is continuing, Pledgor may obtain the
release from the Security Interests of any Collateral upon delivery to the
Collateral Agent of a written notice from an Authorized Officer of Pledgor
indicating the items of Collateral to be released so long as, after such
release, no Collateral Event of Default shall have occurred.
(f) On each Settlement Date for each Transaction under the Master Stock
Purchase Agreement, unless (i) Seller shall have otherwise effected the
deliveries required by Section 3.02(b) of the Master Stock Purchase Agreement on
each Settlement Date in respect of such Transaction or (ii) the shares of Common
Stock (or security entitlements in respect thereof) then held by the Collateral
Agent hereunder in respect of such Transaction are not Free Shares, the
Collateral Agent shall deliver (and Pledgor hereby irrevocably instructs the
Collateral Agent to deliver, in whole or partial, as the case may be,
satisfaction of Pledgor's obligations to deliver shares of such Common Stock (or
security entitlements in respect thereof) to an affiliate of Secured Party
designated by Secured Party on such Settlement Date pursuant to the Master Stock
Purchase Agreement) to an affiliate of Secured Party designated by Secured Party
shares of such Common Stock (or security entitlements in respect thereof) then
held by it hereunder in respect of such Transaction representing the number of
shares of such Common Stock (or security entitlements in respect thereof)
required to be delivered under the Master Stock Purchase Agreement on such
Settlement Date. Upon any such delivery, such affiliate of Secured Party shall
hold such shares of such Common Stock (or security entitlements in respect
thereof) absolutely and free from any claim or right whatsoever (including,
without limitation, any claim or right of Pledgor).
(g) The Collateral Agent may at any time or from time to time, in its
sole discretion, cause any or all of the Common Stock pledged hereunder (or in
respect of which security entitlements are pledged hereunder) registered in the
name of Pledgor or its nominee to be transferred of record into the name of the
Collateral Agent or its nominee. Pledgor shall promptly give to the Collateral
Agent copies of any notices or other communications received by Pledgor with
respect to Common Stock (or security entitlements in respect thereof) pledged
hereunder registered, or held through a securities intermediary, in the name of
Pledgor or its nominee and the Collateral Agent shall promptly give to Pledgor
copies of any notices and communications received by the Collateral Agent with
respect to Common Stock (or security entitlements in respect thereof) pledged
hereunder registered, or held through a securities intermediary, in the name of
the Collateral Agent or its nominee.
(h) Pledgor agrees that it shall forthwith upon demand pay to the
Collateral Agent:
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(i) the amount of any taxes that the Collateral Agent or
Secured Party may have been required to pay by reason of the Security
Interests or to free any of the Collateral from any Lien thereon, and
(ii) the amount of any and all out-of-pocket expenses,
including the reasonable fees and disbursements of counsel and of any
other experts, that the Collateral Agent or Secured Party may incur in
connection with (A) the enforcement of this Agreement, including such
expenses as are incurred to preserve the value of the Collateral and
the validity, perfection, rank and value of the Security Interests, (B)
the collection, sale or other disposition of any of the Collateral, (C)
the exercise by the Collateral Agent of any of the rights conferred
upon it hereunder or (D) any Event of Default.
Any such amount not paid on demand shall bear interest (computed on the basis of
a year of 360 days and payable for the actual number of days elapsed) at a rate
per annum equal to 5% plus the prime rate as published in The Wall Street
Journal, Eastern Edition in effect from time to time during the period from the
date hereof to the date of the termination of this Agreement.
(i) Without limiting the rights and obligations of the parties under
this Agreement, the Collateral Agent agrees that, so long as an Event of Default
has not occurred, it shall not sell, lend, pledge, rehypothecate, assign or
invest in its business any of the Collateral it holds.
SECTION 7. Income and Voting Rights in Collateral.
(a) The Collateral Agent shall have the right to receive and retain as
Collateral hereunder all proceeds of the Collateral , and Pledgor shall take all
such action as the Collateral Agent shall deem necessary or appropriate to give
effect to such right. All such proceeds including, without limitation, all
dividends and other payments and distributions that are received by Pledgor
shall be received in trust for the benefit of the Collateral Agent and Secured
Party and, if the Collateral Agent so directs, shall be segregated from other
funds of Pledgor and shall, forthwith upon demand by the Collateral Agent be
paid over to the Collateral Agent as Collateral in the same form as received
(with any necessary endorsement).
(b) Unless an Event of Default shall have occurred and be continuing,
Pledgor shall have the right, from time to time, to vote and to give consents,
ratifications and waivers with respect to the Collateral, and the Collateral
Agent shall, upon receiving a written request from Pledgor accompanied by a
certificate of an Authorized Officer of Pledgor stating that no Event of Default
has occurred and is continuing, deliver to Pledgor or as specified in such
request such proxies, powers of attorney, consents, ratifications and waivers in
respect of any of the Collateral that is registered, or held through a
securities intermediary, in the name of the Collateral Agent or its nominee as
shall be specified in such request and shall be in form and substance
satisfactory to the Collateral Agent.
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(c) If an Event of Default shall have occurred and be continuing, the
Collateral Agent shall have the right, to the extent permitted by law, and
Pledgor shall take all such action as may be necessary or appropriate to give
effect to such right, to vote and to give consents, ratifications and waivers,
and to take any other action with respect to any or all of the Collateral with
the same force and effect as if the Collateral Agent were the absolute and sole
owner thereof.
SECTION 8. Remedies upon Events of Default.
(a) If any Event of Default shall have occurred and be continuing, the
Collateral Agent may exercise on behalf of Secured Party all the rights of a
secured party under the Uniform Commercial Code (whether or not in effect in the
jurisdiction where such rights are exercised) and, in addition, without being
required to give any notice, except as herein provided or as may be required by
mandatory provisions of law, shall: (i) deliver all Collateral consisting of
shares of Common Stock (or security entitlements in respect thereof) (but not in
excess of the number thereof deliverable under the Master Stock Purchase
Agreement at such time) to an affiliate of Secured Party designated by Secured
Party on the date of the Acceleration Amount Notice relating to such Event of
Default (the "DEFAULT SETTLEMENT DATE") in satisfaction of Pledgor's obligations
to deliver Common Stock (or security entitlements in respect thereof) under the
Master Stock Purchase Agreement, whereupon Secured Party shall hold such shares
of Common Stock (or security entitlements in respect thereof) absolutely free
from any claim or right of whatsoever kind, including any equity or right of
redemption of Pledgor that may be waived or any other right or claim of Pledgor,
and Pledgor, to the extent permitted by law, hereby specifically waives all
rights of redemption, stay or appraisal that it has or may have under any law
now existing or hereafter adopted; and (ii) if such delivery shall be
insufficient to satisfy in full all of the obligations of Pledgor under the
Master Stock Purchase Agreement or hereunder, sell all of the remaining
Collateral, or such lesser portion thereof as may be necessary to generate
proceeds sufficient to satisfy in full all of the obligations of Pledgor under
the Master Stock Purchase Agreement or hereunder, at public or private sale or
at any broker's board or on any securities exchange, for cash, upon credit or
for future delivery, and at such price or prices as the Collateral Agent may
deem satisfactory. Pledgor covenants and agrees that it will execute and deliver
such documents and take such other action as the Collateral Agent deems
necessary or advisable in order that any such sale may be made in compliance
with law. Upon any such sale the Collateral Agent shall have the right to
deliver, assign and transfer to the buyer thereof the Collateral so sold. Each
buyer at any such sale shall hold the Collateral so sold absolutely and free
from any claim or right of whatsoever kind, including any equity or right of
redemption of Pledgor that may be waived or any other right or claim of Pledgor,
and Pledgor, to the extent permitted by law, hereby specifically waives all
rights of redemption, stay or appraisal that it has or may have under any law
now existing or hereafter adopted. The notice (if any) of such sale required by
Section 9-504 of the UCC shall (1) in case of a public sale, state the time and
place fixed for such sale, (2) in case of sale at a broker's board or on a
securities exchange, state the board or exchange at which such sale is to be
made and the day on which the Collateral, or the portion thereof so being sold,
will first be offered for sale at such board or exchange, and (3) in the case of
a private sale, state the day after which such sale may be consummated.
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Any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as the Collateral Agent may fix in
the notice of such sale. At any such sale the Collateral may be sold in one lot
as an entirety or in separate parcels, as the Collateral Agent may determine.
The Collateral Agent shall not be obligated to make any such sale pursuant to
any such notice. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the same may be so adjourned. In case
of any sale of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by the Collateral Agent until
the selling price is paid by the buyer thereof, but the Collateral Agent shall
not incur any liability in case of the failure of such buyer to take up and pay
for the Collateral so sold and, in case of any such failure, such Collateral may
again be sold upon like notice. The Collateral Agent, instead of exercising the
power of sale herein conferred upon it, may proceed by a suit or suits at law or
in equity to foreclose the Security Interests and sell the Collateral, or any
portion thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(b) Pledgor hereby irrevocably appoints the Collateral Agent its true
and lawful attorney, with full power of substitution, in the name of Pledgor,
the Collateral Agent or Secured Party or otherwise, for the sole use and benefit
of the Collateral Agent and Secured Party, but at the expense of Pledgor, to the
extent permitted by law, to exercise, at any time and from time to time while an
Event of Default has occurred and is continuing, all or any of the following
powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due upon or by virtue thereof,
(ii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal in or with
the same or the proceeds or avails thereof, as fully and effectually as
if the Collateral Agent were the absolute owner thereof (including,
without limitation, the giving of instructions and entitlement orders
in respect thereof), and
(iv) to extend the time of payment of any or all thereof and
to make any allowance and other adjustments with reference thereto;
provided that the Collateral Agent shall give Pledgor not less than one day's
prior written notice of the time and place of any sale or other intended
disposition of any of the Collateral, except any Collateral that threatens to
decline speedily in value, including, without limitation, equity securities, or
is of a type customarily sold on a recognized market. The Collateral Agent and
Pledgor agree that such notice constitutes reasonable notification within the
meaning of Section 9-504(3) of the UCC.
(c) Upon any delivery or sale of all or any part of any Collateral made
either under the power of delivery or sale given hereunder or under judgment or
decree in any
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<PAGE> 38
judicial proceedings for foreclosure or otherwise for the enforcement of this
Agreement, the Collateral Agent is hereby irrevocably appointed the true and
lawful attorney of Pledgor, in the name and stead of Pledgor, to make all
necessary deeds, bills of sale, instruments of assignment, transfer or
conveyance of the property, and all instructions and entitlement orders in
respect of the property, thus delivered or sold. For that purpose the Collateral
Agent may execute all such documents, instruments, instructions and entitlement
orders. This power of attorney shall be deemed coupled with an interest, and
Pledgor hereby ratifies and confirms that which its attorney acting under such
power, or such attorney's successors or agents, shall lawfully do by virtue of
this Agreement. If so requested by the Collateral Agent, by Secured Party or by
any buyer of the Collateral or a portion thereof, Pledgor shall further ratify
and confirm any such delivery or sale by executing and delivering to the
Collateral Agent, to Secured Party or to such buyer or buyers at the expense of
Pledgor all proper deeds, bills of sale, instruments of assignment, conveyance
or transfer, releases, instructions and entitlement orders as may be designated
in any such request.
(d) In the case of an Event of Default, the Collateral Agent may
proceed to realize upon the security interest in the Collateral against any one
or more of the types of Collateral, at any time, as the Collateral Agent shall
determine in its sole discretion subject to the foregoing provisions of this
Section 8. The proceeds of any sale of, or other realization upon, or other
receipt from, any of the Collateral shall be applied by the Collateral Agent in
the following order of priorities:
first, to the payment to the Collateral Agent of the expenses
of such sale or other realization, including reasonable compensation to
the Collateral Agent and its agents and counsel, and all expenses,
liabilities and advances incurred or made by the Collateral Agent in
connection therewith, including brokerage fees in connection with the
sale by the Collateral Agent of any Collateral;
second, to the payment to Secured Party of an amount in
respect of each Transaction under the Master Stock Purchase Agreement
equal to the aggregate Market Value of a number of shares of the
relevant Common Stock equal to (i) the number of shares of such Common
Stock (or security entitlements in respect thereof) that would be
required to be delivered under Section 8.01 of the Master Stock
Purchase Agreement on the Default Settlement Date in respect of such
Transaction without giving effect to the proviso therein minus (ii) the
number of shares of such Common Stock (or security entitlements in
respect thereof) delivered by the Collateral Agent to Secured Party on
the Default Settlement Date in respect of such Transaction as described
in Section 8(a);
finally, if all of the obligations of Pledgor hereunder and
under the Master Stock Purchase Agreement have been fully discharged or
sufficient funds have been set aside by the Collateral Agent at the
request of Pledgor for the discharge thereof, any remaining proceeds
shall be released to Pledgor.
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<PAGE> 39
SECTION 9. The Collateral Agent.
(a) Secured Party hereby irrevocably appoints and authorizes the
Collateral Agent to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Collateral Agent by the
terms hereof, together with all such powers as are reasonably incidental
thereto.
(b) The obligations of the Collateral Agent hereunder are only those
expressly set forth in this Agreement.
(c) The Collateral Agent may consult with legal counsel, independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
(d) Neither the Collateral Agent nor any of its directors, officers,
agents or employees shall be liable for any action taken or not taken by it in
connection with this Agreement (1) with the consent or at the request of Secured
Party or (2) in the absence of its own gross negligence or willful misconduct.
The Collateral Agent shall not incur any liability by acting in reliance upon
any notice, consent, certificate, statement, or other writing (which may be a
bank wire, telex or similar writing) believed by it to be genuine or to be
signed by the proper party or parties.
(e) Pledgor shall indemnify the Collateral Agent against any cost,
expense (including counsel fees and disbursements), claim, demand, action, loss
or liability (except such as result from the Collateral Agent's gross negligence
or willful misconduct) that the Collateral Agent may suffer or incur in
connection with this Agreement or any action taken or omitted by the Collateral
Agent hereunder.
(f) Beyond the exercise of reasonable care in the custody thereof, the
Collateral Agent shall have no duty as to any Collateral in its possession or
control or in the possession or control of any agent, bailee, clearing
corporation or securities intermediary or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto. The Collateral Agent shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral if the Collateral is accorded
treatment substantially equal to that which it accords its own property, and
shall not be liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any agent, bailee, clearing corporation or securities intermediary
selected by the Collateral Agent in good faith (or selected by an agent, bailee,
clearing corporation or securities intermediary so selected by the Collateral
Agent or by any agent, bailee, clearing corporation or securities intermediary
selected in accordance with this parenthetical phrase).
(g) Any corporation or association into which the Collateral Agent may
be converted or merged, or with which it may be consolidated, or to which it may
sell or transfer its agency business and assets as a whole or substantially as a
whole, or any
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<PAGE> 40
corporation or association resulting from any such conversion, sale, merger,
consolidation or transfer to which it is a party, shall, subject to the prior
written consent of Secured Party, be and become a successor Collateral Agent
hereunder and vested with all of the title to the Collateral and all of the
powers, discretions, immunities, privileges and other matters as was its
predecessor without, except as provided above, the execution or filing of any
instrument or any further act, deed or conveyance on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
SECTION 10. Miscellaneous.
(a) Whenever any of the parties hereto is referred to, such reference
shall be deemed to include the successors and assigns of such party. All the
covenants and agreements herein contained by or on behalf of Pledgor and the
Collateral Agent shall bind, and inure to the benefit of, their respective
successors and assigns whether so expressed or not, and shall be enforceable by
and inure to the benefit of Secured Party and its successors and assigns.
(b) To the extent permitted by law, the unenforceability or invalidity
of any provision or provisions of this Agreement shall not render any other
provision or provisions herein contained unenforceable or invalid.
(c) Any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in the case of an
amendment, by Pledgor, the Collateral Agent and Secured Party or, in the case of
a waiver, by the party against whom the waiver is to be effective. No failure or
delay by either party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
(d) All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if mailed or transmitted by any
standard forms of telecommunication. Notices to Pledgor shall be directed to it
at the address specified on the last page hereof; notices to the Collateral
Agent shall be directed to it at Banc of America Securities LLC, 9 West 57th
Street, New York, New York 10019, Telecopy No. 212-583-8569, Attention: Deidre
Hicks; notices to Secured Party shall be directed to it care of Banc of America
Securities LLC, 9 West 57th Street, New York, New York 10019, Telecopy No.
212-583-8569, Attention: Deidre Hicks.
(e) This Agreement shall in all respects be construed in accordance
with and governed by the laws of the State of New York (without reference to
choice of law doctrine); provided that as to Pledged Items located in any
jurisdiction other than the State of New York, the Collateral Agent on behalf of
Secured Party shall have, in addition to any rights under the laws of the State
of New York, all of the rights to which a secured party is entitled under the
laws of such other jurisdiction. The parties hereto hereby agree that the
Collateral Agent's jurisdiction, within the meaning of Section 8-
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<PAGE> 41
110(e) of the UCC, insofar as it acts as a securities intermediary hereunder or
in respect hereof, is the State of New York. To the extent permitted by law, the
unenforceability or invalidity of any provision or provisions of this Agreement
shall not render any other provision or provisions herein contained
unenforceable or invalid.
(F) EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS LOCATED IN THE
BOROUGH OF MANHATTAN, IN THE CITY OF NEW YORK IN ANY SUIT OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(G) EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(h) This Agreement may be executed, acknowledged and delivered in any
number of counterparts and all such counterparts taken together shall be deemed
to constitute one and the same agreement.
SECTION 11. Termination of Pledge Agreement. This Agreement and the
rights hereby granted by Pledgor in the Collateral shall cease, terminate and be
void upon fulfillment of all of the obligations of Pledgor under the Master
Stock Purchase Agreement, under each Transaction Confirmation and hereunder. Any
Collateral remaining at the time of such termination shall be fully released and
discharged from the Security Interests and delivered to Pledgor by the
Collateral Agent, all at the request and expense of Pledgor.
*************
Date of Agreement: February 9, 2000
Pledgor: Advanced Fibre Communications, Inc. a corporation
Pledgor's Address for Notices:
One Willow Brook Ct.
Petaluma, CA 94954
Phone No.: 707-792-4163
Telecopy No.: 707-792-7275
Attn: Peter M. Donahower, Treasurer
*************
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<PAGE> 42
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date and year first above written.
PLEDGOR:
ADVANCED FIBRE COMMUNICATIONS, INC.
By: /s/ Keith E. Pratt
-------------------------
Name: Keith E. Pratt
Title: Vice President and CFO
ADVANCED FIBRE COMMUNICATIONS, INC.
By: /s/ Peter Donahower
-------------------------
Name: Peter Donahower
Title: Director, Treasury
BANC OF AMERICA SECURITIES LLC,
as Collateral Agent
By: /s/ William Caccamise
-------------------------
Name: William Caccamise
Title: Managing Director
SECURED PARTY:
BANK OF AMERICA, N.A.
By: /s/ William Caccamise
-------------------------
Name: William Caccamise
Title: Managing Director
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<PAGE> 43
Exhibit A
to
Pledge Agreement
CERTIFICATE FOR ADDITIONAL COLLATERAL
The undersigned, an officer of Advanced Fibre Communications, Inc.
("PLEDGOR"), hereby certifies, pursuant to Section 6(b) of the Pledge Agreement,
dated as of February 9, 2000, among Pledgor, Banc of America Securities LLC, as
Collateral Agent, and Bank of America, N.A. (the "PLEDGE AGREEMENT"; terms
defined in the Pledge Agreement being used herein as defined therein), that:
1. Pledgor is delivering, or causing to be delivered in
accordance with Section 6(c) of the Pledge Agreement, the following
securities (or security entitlements in respect thereof) to the
Collateral Agent to be held by the Collateral Agent as additional
Collateral (the "ADDITIONAL COLLATERAL"):
2. The Transaction in respect of which the Additional
Collateral is being pledged is described in the Transaction
Confirmation with a Trade Date of ___________ __, 2000.
3. Pledgor hereby represents and warrants to the Collateral
Agent that the Additional Collateral is Eligible Collateral and that
the representations and warranties contained in paragraphs (a), (b),
(c) and (d) of Section 3 of the Pledge Agreement and paragraph (c) of
Section 2 of such Transaction Confirmation are true and correct with
respect to the Additional Collateral on and as of the date hereof.
This Certificate may be relied upon by Secured Party as fully and to
the same extent as if this Certificate had been specifically addressed to
Secured Party.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
___ day of __________, 2000.
ADVANCED FIBRE COMMUNICATIONS, INC.
By:
-------------------------
Name:
Title:
A-1
