Exhibit 10.81


 


 

















 


26 November 2003


 


Priceline.com Incorporated


800 Connecticut Tumpike


Norwalk, CT 06854


 


Attn: Peter Millones / Joy Willing (Sullivan & Cromwell)


Fax: 203-299-8795 / 203-293-6330


 


 


Dear Sirs:


 


The purpose of this letter agreement (this “Confirmation”) is to
confirm the terms and conditions of the Transaction entered into between Party
A and Party B on the Trade Date Specified below (the “Transaction”) on the
terms set out below.  This Confirmation constitutes
a “Confirmation” as referred to in the Agreement specified below.


 


1.                                       The definitions
and provisions contained in the 200 ISDA Definitions (as published by the
International Swaps and Derivatives Association, Inc.) are incorporated into
this Confirmation.  In the event of any
inconsistency between those definitions and provisions and this Confirmation,
this Confirmation will govern. 
References herein to a “Transaction” shall be deemed to be references to
a “Swap Transaction” for the purposes of the 2000 ISDA Definitions.


 


If you and we are parties to the 1992 ISDA Master Agreement, (the
“Agreement”), this Confirmation supplements, forms a part of, and is subject to
such Agreement. Upon execution and delivery by you and us of the Agreement,
this Confirmation shall supplement, form a part of, and be subject to such
Agreement.  This Confirmation (together
with all other Confirmation of Transactions previously entered into between us,
notwithstanding anything to the contrary therein) supplement, form a part of,
and are subject  to the Agreement.


 


The Agreement and each Confirmation thereunder will be governed by and
construed in accordance with the law of the State of New York and each party
hereby submits to the jurisdiction of the Courts of the State of New York.  For purposes of Section 6 of the Agreement,
Second Method and Market Quotation shall apply to this Transaction.


 


Party A and Party B each represents to the other that it has entered
into this Transaction in reliance upon such tax, accounting, regulatory, legal,
and financial advice as it deems necessary and not upon any view expressed by
the other.


 


 


	
  External ID: 8679461/V/NY

  	
   

  	
  TCN: 533250002

  
	
  A subsidiary of CREDIT SUISSE FIRST BOSTON

  	
  Registered Office as above. 
  Regulated by the Financial Services Authority

  
	
   

  	
  CREDIT SUISSE FIRST BOSTON INTERNATIONAL is registered as unlimited
  in England under No. 2500199

  
				



 

















 


In this Confirmation, “Party A” means Credit
Suisse First Boston International, “Party B” means Priceline.com Incorporated.


 


	
  2.

  	
   

  	
  General terms of the Transaction:

  
	
   

  
	
   

  	
  Notional Amount:

  	
   

  	
  $45,000,000 subject to a Conversion Event, Redemption Event,
  Amendment Event, Repayment Event (as each term is defined below) or any other
  similar occurrences as determined by the Calculation Agent.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Trade Date:

  	
   

  	
  November 20, 2003

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Effective Date:

  	
   

  	
  November 24, 2003

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Termination Date:

  	
   

  	
  The earlier of: (i) August 1, 2010, subject to adjustment in
  accordance with the Following Business Day Convention, and (ii) the Early
  Termination Date, subject to the Early Termination and Additional Termination
  Event provisions set forth below

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fixed Amounts:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Fixed Rate Payer:

  	
   

  	
  Party A

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Fixed Rate Payer Payment Dates:

  	
   

  	
  Each February 1st and August 1st, commencing on
  February 1, 2004 and ending on August 1, 2010, inclusive with the final
  Payment Date on August 1, 2010, subject to adjustment in accordance with the
  Following Business Day Convention, using no Adjustment of Period End Dates; provided, however, that upon a
  Redemption Event or Conversion Event, Party A’s obligation to pay the Fixed
  Amount in respect of the related Terminated Amount (as defined below) shall
  terminate.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Fixed Rate:

  	
   

  	
  1.00%

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Accrued Fixed Amounts Upon a Redemption or Conversion Event:

  	
   

  	
  In the event of a Redemption Event, Party A shall pay any accrued but
  unpaid fixed

  
						



 


2

















 


	
   

  	
   

  	
   

  	
  Amounts in respect of the related Terminated Amount to, but
  excluding, the date fixed for such redemption pursuant to the terms of the
  Indenture. In the event a Conversion Event, no Fixed Amounts accrued but
  unpaid since the most recent Fixed Rate Payer Payment Date in respect of the
  related Terminated Amount shall be paid upon such Conversion Event.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Fixed Rate Day Count Fraction:

  	
   

  	
  30/360 unadjusted

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Floating Amounts:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Floating Rate Payer:

  	
   

  	
  Party B

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Floating Rate Payer Payment Dates:

  	
   

  	
  Each March 31st, June 30th, September 30th
  and December 31st, commencing on December 31, 2003, and ending on
  August 1, 2010, inclusive with the final Payment Date on August 1, 2010,
  subject to adjustment in accordance with the Modified Following Business Day
  Convention, using Adjustment of Period End Dates, subject to Early
  Termination ; provided, however,
  that upon a Redemption Event or Conversion Event, Party B’s obligation to pay
  the Floating Amount in respect of the related Terminated Amount shall
  terminate.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Floating Rate for initial Calculation Period:

  	
   

  	
  1.17% (not including Floating Rate Spread)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Floating Rate Option:

  	
   

  	
  USD-LIBOR-BBA

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Accrued Floating Amounts Upon a Redemption or Conversion Event:

  	
   

  	
  In the event of a Redemption Event, Party B shall pay any accrued but
  unpaid Floating Amounts in respect of the related Terminated Amount to, but
  excluding, the date fixed for such redemption pursuant to the terms of the
  Indenture.  In the event of a
  Conversion Event,

  
						



 


3

















 


	
   

  	
   

  	
   

  	
  no Floating Amounts accrued but unpaid since the most recent Floating
  Rate Payer Payment Date in respect of the related Terminated Amount shall be
  paid upon such Conversion Event.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Designated Maturity:

  	
   

  	
  3 months; except in respect of the first and last interest periods,
  for which an interpolation of 3 month and 1 month U.S. Dollar LIBOR-BBA rate
  shall apply.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Floating Rate Spread:

  	
   

  	
  -2.21% through August 1, 2008; provided that on August 1, 2008 (the
  “Floating Rate Spread Reset Date”), the Floating Rate Spread shall be reset
  to a level which is commercially reasonable, in the sole judgment of Party A.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Floating Rate Day Count Fraction:

  	
   

  	
  Actual/360 adjusted

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Reset Dates:

  	
   

  	
  The First day of each Calculation Period

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Compounding:

  	
   

  	
  Inapplicable

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Early Termination:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Early Termination Upon Redemption or Conversion:

  	
   

  	
  If Party B receives notice of a Conversion Event (defined below) with
  respect to any Reference Bonds or in the event of a Redemption Event (defined
  below), Party B shall immediately (and no later than one (1) Business Day
  following receipt of such notice) provide written notice (each a “Termination
  Notice”) to Party A, specifying the details of such event, including the
  principal amount of Reference Bonds being converted or redeemed.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Notional Adjustment:

  	
   

  	
  If Party A receives a Termination Notice, then a portion of this
  Transaction shall terminate equal to the Notional Amount multiplied by the
  Termination Ratio (defined below) (the

  
					



 


4

















 


	
   

  	
   

  	
   

  	
  “Terminated Amount”) and the Calculation Agent shall reduce the
  Notional Amount of this Transaction by the Terminated Amount.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  There shall be no payment due to either party hereunder under Section
  6 of the Agreement in respect of a Terminated Amount.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Notwithstanding any right of Party B to reissue or resell the
  Reference Bonds, Party A has no obligation to increase or otherwise take into
  consideration any such reissued or resold Reference Bonds in respect of the
  Notional Amount.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Conversion Event:

  	
   

  	
  The Conversion of all or a portion of the Reference Bonds into Shares
  by the Issuer pursuant to the terms of the Indenture.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Redemption Event:

  	
   

  	
  The redemption of all or a portion of the Reference Bonds by the
  Issuer pursuant to the Indenture

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Termination Ratio:

  	
   

  	
  With respect to any Conversion Event or Redemption Event, the ratio of
  (a) the principal amount of the Reference Bonds converted or redeemed in
  connection therewith to (b) the total principal amount of Reference Bonds
  originally issued.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Reference Bonds:

  	
   

  	
  Party B’s (also sometimes referred to as the Issuer’s) $125,000,000
  aggregate principal amount of 1.00% Convertible Senior Notes, CUSIP
  741503AB24, convertible into shares of $0.008 par value common stock of Party
  B (the “Shares”).

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Indenture:

  	
   

  	
  The Indenture dated as of February 20, 2002 between the Issuer and U.S.
  Bank National Association, as trustee, as amended or supplemented from time
  to time.

  
					



 


5

















 


	
   

  	
  Business Days:

  	
   

  	
  London and New York

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Calculation Agent:

  	
   

  	
  Party A; provided, however, if an Event of Default has occurred and
  is continuing with respect to Party A, then a third party mutually acceptable
  to both Party A and Party B will be selected to be the Calculation Agent by
  Party B, from the list of preapproved third parties.

  



 


3.                                       Additional
Termination Events:


 


3.1                                 The
parties hereto agree that (i) the occurrence of any of the following shall
automatically be an Additional Termination Event with respect to Party B in
which Party B is the sole Affected Party and this Transaction is the only
Affected Transaction, and (ii) notwithstanding anything to the contrary in the
Agreement, Party A may designate the date of the occurrence of any of the
following events, or any date thereafter, as the Early Termination Date and
Party B hereby agrees that, upon prior written notice thereof by Party A, such
notice shall be deemed effective for purposes of Section 6 of the Agreement.


 


(a)                                  An Amendment Event
occurs (in which case the entirety of this Transaction shall be subject to
termination); or


 


(b)                                 A Repayment Event occurs
(in which case this Transaction shall only be subject to termination in respect
of the Additional Terminated Amount (defined below)).  The Calculation Agent shall reduce the Notional Amount by the
Additional Terminated Amount and, for the avoidance of doubt, the terms of this
Transaction shall continue to apply to the remaining Notional Amount, if any.


 


3.2                                 As
used in this Section 3:


 


“Amendment Event” means that the Issuer amends, modifies, supplements
or waives any term of the Indenture or the Reference Bonds if such amendment,
modification, supplement or waiver has a material effect on this transaction or
a material adverse effect on Party A’s ability to hedge all or a portion of
this Transaction.


 


“Repayment Event” means that (a) any Reference Bonds are repurchased or
redeemed (in each case whether in connection with or as a result of a change of
control, howsoever defined, or for any other reason) by the Issuer, (b) any
Reference Bonds are delivered to the Issuer in exchange for delivery of any property
or assets of the Issuer or any of its affiliates


 


6

















 


(howsoever described), (c) any principal of any of the Reference Bonds
is repaid prior to the scheduled maturity date of the Reference Bonds (whether following
acceleration of the Reference Bonds or otherwise), or (d) any Reference Bonds
are exchanged by or for the benefit of holders thereof for any other securities
of the Issuer or any of its affiliates (or any other property, or any
combination thereof) pursuant to any exchange offer or similar transaction.


 


“Additional Terminated Amount” means the Notional Amount multiplied by
the ratio of (a) the principal amount of the Reference Bonds subject to the
Repayment Amount to (b) the total principal amount of Reference Bonds
originally issued


 


4.                                       Additional
Party B Covenants and Representations:


 


4.1                                 Party
B agrees to notify Party A in writing immediately, and in no event later than
within one (1) Business Day of the date Party B receives, or is deemed to receive,
notice of such Event, of the occurrence of any Conversion Event, Redemption
Event, Amendment Event or Repayment Event. 
Such notice shall include a detailed description of any such Amendment
Event, shall identify the nature of any such Repayment Event and the principal
amount of the Reference Bonds being paid and contain details of any Conversion
Event or Redemption Event.


 


4.2                                 Party
B hereby represents that, on the Trade Date, it is not in possession of any
material non-public information concerning the Issuer or the Reference Bonds
and it has publicly disclosed all material information concerning the Issuer
and the Reference Bonds as may be required to allow Party B to purchase or sell
Shares or the Reference Bonds in compliance with the applicable federal
securities laws and that it has publicly disclosed all material information
with respect to its condition (financial or otherwise) required to be
disclosed.


 


5.                                       Master
Agreement Provisions:


 


The following terms will apply to this Transaction as if such terms
were in the Schedule to the 1992 ISDA Master Agreement referenced in the third
paragraph of the Confirmation.  Any
reference to the “Agreement” shall be deemed a reference to such 1992 ISDA
Master Agreements supplemented by the following terms.


 


(a)                                  Credit Support Document.  Details of any Credit Support Document:
Collateral Appendix, attached.


 


(b)                                  Governing
Law.  The Agreement and each
Confirmation thereunder will be governed by and construed in accordance with
the law of the State of New York and each party hereby submits to the
jurisdiction of the Courts of the State of New York.


 


7

















 


(c)                                  Recording of Conversation.  Each party to this Agreement acknowledges
and agrees to the tape recording of conversations between the parties to this
Agreement whether by one or other or both of the parties and each party hereby
consents to such recordings being used as evidence in Proceedings.


 


(d)                                  Waiver of Right to Trial by Jury.  Each party waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in
respect of any suit, action or proceeding relating to this Agreement or any
Credit Support Document.  Each party (i)
certifies that no representative, agent or attorney of the other party or any
Credit Support Provider has represented, expressly or otherwise, that such
other party would not, in the event of such a suit action or proceeding, seek
to enforce the foregoing waiver and (ii) acknowledges that it and the other party
have been induced to enter into this Agreement and provide for any Credit
Support Document, as applicable by, among other things, the mutual waivers and
certifications in this Section.


 


6.                                       Account
Details:


 


Interest Rate Swap Transaction:


 


	
  Payments to Party A:

  	
   

  	
  To be advised

  
	
   

  	
   

  	
   

  
	
  Payments to Party B:

  	
   

  	
  To be advised

  



 


8

















 


Credit Suisse first Boston International is regulated by The Financial
Services Authority and has entered into this transaction as principal.  The time at which the above transaction was
executed will be notified to Party B on request.


 


Please confirm that the foregoing correctly sets forth the terms of our
agreement by signing and returning this Confirmation.


 


	
   

  	
  Yours faithfully,

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CREDIT SUISSE FIRST BOSTON

  INTERNATIONAL

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Damian Brettkelly

  	
   

  
	
   

  	
  Name:

  	
  Damian Brettkelly

  	
   

  
	
   

  	
  Title:

  	
  Assistant Vice President

  	
   

  
	
   

  	
   

  	
  OTC Derivative Support Group

  	
   

  
	
   

  	
   

  	
   

  
	
  Confirmed as of the date first written above:

  	
   

  
	
   

  	
   

  
	
  PRICELINE.COM INCORPORATED

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Robert J. Mylod

  	
   

  	
   

  
	
  Name:

  	
  Robert
  J. Mylod

  	
   

  
	
  Title:

  	
  Chief
  Financial Officer

  	
   

  
								



 


9

















 


COLLATERAL APPENDIX IN RESPECT OF THE
CONFIRMATION

OF THE TRANSACTION BETWEEN

CREDIT SUISSE FIRST BOSTON INTERNATIONAL

AND

PRICELINE.COM INCORPORATED


 


(External ID: 8679461; TCN: 533250002)


 


This Appendix constitutes a security agreement under Articles 8 and 9
of the Uniform Commercial Code of the State of New York (the “UCC”) with
respect to any Collateral.


 


1.                                       Definitions:


 


1.1                                 In
this Appendix, the following expressions have the following meanings:


 


“Agency” means the
Government National Mortgage Association (“GNMA”), the Federal National Mortgage
Association (“Fannie Mae”), and
the Federal Home Loan Mortgage Corporation (“Freddie
Mac”).


 


“Agency Notes” means
registered, unsecured, unsubordinated negotiable debt obligations issued by
Fannie Mac or Freddie Mac, other than Agency Pass-Through Mortgage Securities
or Agency CMO/REMICs, or issued on behalf of all the Federal Home Loan Banks in
the Federal Home Loan Bank System and constituting the joint and several
obligation of all the Federal Home Loan Banks, and, in any such case, having a
remaining maturity of no more than fifteen (15) years.


 


“Agency Pass-Through Mortgage Securities”
means registered securities commonly referred to as “Pass-Through Securities”
representing fractional undivided interests in pools of mortgages issued and/or
guaranteed by an Agency.


 


“Banking Day” means
any day on which commercial banks are open for business (including dealings in
foreign exchange and foreign currency deposits) in (a) London and New York, and
(b) in the case of a Transfer of Permitted Collateral (i) the location of the
account into which such Transfer is to be made, and (ii) either, in the case of
a Transfer of Cash, the principal financial centre of the currency of such Cash
or, in the case of a Transfer of other Permitted Collateral, the location of
the account out of which such Transfer shall be made and, if different, the
place where the Transfer will be registered (if applicable);


 


“Cash” means US
Dollars and such other currency or currencies as may from time to time be
acceptable to the Secured Party for the purposes of this Appendix;


 


“Cash Collateral” means
Collateral comprising Cash;


 


10

















 


“Collateral” means
all the Permitted Collateral Transferred to and held by or for the Secured
Party pursuant to this Appendix (for the avoidance of doubt including, without
limitation, Initial Collateral) together 
with all proceeds, distributions, substitutions for and additions to the
foregoing in accordance with this Appendix and which has not been retransferred
to the Pledgor;


 


“Initial Collateral”
means Permitted Collateral Delivered to Party A by Party B pursuant to
Paragraph 4;


 


“Permitted Collateral” means
collectively Cash, US Treasuries and such other assets as may from time to time
be acceptable to the Secured Party for the purposes of this Appendix;


 


“Pledgor” means
Party B;


 


“Quasi Agency Obligations”  means the negotiable debt obligations of the
US Government National Mortgage Association, the US Federal National Mortgage
Association, the US Federal Home Loan Mortgage Corporation, the US Student Loan
Marketing Association or a US Federal Home Loan Bank;


 


“Relevant Percentage”
means, on any date, the percentage appearing below opposite the relevant
Permitted Collateral:


 


	
  Type of Permitted Collateral

  	
   

  	
  Relevant

  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  US Government Obligations:

  	
   

  	
   

  	
   

  
	
  with a Residual Maturity of less than one
  year

  	
   

  	
  100

  	
  %

  
	
  with a Residual Maturity equal to or
  greater than 1 year but less than 5 years

  	
   

  	
  98

  	
  %

  
	
  with a Residual Maturity equal to or
  greater than 5 year but less than 10 years

  	
   

  	
  97

  	
  %

  
	
  with a Residual Maturity equal to or
  greater than 10 year but less than 30 years

  	
   

  	
  95

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Agency Notes

  	
   

  	
  93

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Agency Pass-Through Mortgage Securities

  	
   

  	
  95

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Vanilla Agency CMO/REMIC

  	
   

  	
  92

  	
  %

  



 


	
  Other Permitted Collateral (excluding US Dollars)

  	
   

  	
  such percentage as shall from time to time be specified by the
  Valuation Agent;

  	
   

  



 


Notwithstanding anything to the contrary contained in this Appendix, on
any date, for either party:


 


11

















 


(i)             the aggregate value of Agency Notes,
Agency Pass-Through Mortgage Securities and Vanilla Agency CMO/REMICs
comprising the Posted Collateral of a party shall not exceed USD 70,000,000.


 


(ii)          In the case of Agency Pass-Through Mortgage
Securities, the underlying mortgages are required to be issued AFTER July 18,
1984.


 


“Required Amount”
means, in respect of any party on any date, an amount expressed in US Dollars,
agreed upon (orally or in writing) by Party A and Party B on such date or, if
Party A and Party B are unable promptly to agree upon an amount on such date,
the sum of:


 


(a)                                  the Value of the
Permitted Collateral required to be Delivered and maintained pursuant to
Paragraph 4; and


 


(b)                                 the amount, if any,
determined by the Valuation Agent, which would be payable by the Pledgor to the
Secured Party under Section 6(e)(ii)(1) of the Agreement if an Early
Termination Date were to occur in respect of this Transaction on such date, as
a result of a Termination Event on the basis that the Secured Party is not the
Affected Party and provided that Loss will be determined by the Valuation Agent
using its estimates of the total losses and costs (or gain, in which case
expressed as a negative number) that would be borne by Party A upon an Early
Termination of this Transaction (as that term is defined in the definition of Loss);
provided that the amount calculated under this provision (b) shall be deemed to
be zero whenever the calculation described herein produces a number less than
zero;


 


“Residual Maturity”
means, on any date, in respect of any Permitted Collateral comprising
securities, the residual maturity of such securities as of such date;


 


“Secured Party”
means Party A;


 


“Transfer”  or “Transferred” means the transfer by one
party to the other party (or its account) of Permitted Collateral:


 


(a)                                  in the case of Cash,
by wire transfer into one or more bank accounts specified by the recipient;


 


(b)                                 in the case of
Permitted Collateral that cannot be delivered by book entry, by delivery in
appropriate physical form for transfer and accompanied by duly executed
instruments of transfer in blank and such other documentation as the recipient
of such transfer may at any time reasonably request; or


 


(c)                                  in the case of
Permitted Collateral (other than Cash) that can be delivered by book entry, by
giving written instructions to a Federal Reserve Bank, or the Euroclear


 


12

















 


S.A./N.V. or Clearstream Bank, société
anonyme clearing systems, or any other depositary institution or
entity agreed between the parties, together with a written copy thereof to the
recipient of such Permitted Collateral, which if complied with would result in
a legally effective transfer of the relevant interest to such recipient; or


 


(d)                                 by any other method
mutually acceptable to the parties;


 


As used herein, “Transfer” is intended to have the same meaning as when
used in UCC Section 8-313 or, where applicable, in any federal regulation
governing transfers of Permitted Collateral;


 


“Treasury Securities”
means negotiable, registered debt obligations issued by the U.S. Treasury
Department, but excluding principal-only and interest-only Treasury strips.


 


“US Dollars”  and “US$” means the lawful currency of the
United States of America;


 


“US Government Obligations”
means the negotiable debt obligations of the United States of America issued by
the US Treasury Department or any other agency thereof, or negotiable debt
obligations which are fully guaranteed or guaranteed as to principal and
interest by the United States of America, provided that such obligations shall
have a Residual Maturity as of the date of their Transfer to the Secured Party
of less than ten (10) years, and, for the avoidance of doubt, Quasi Agency
obligations shall not constitute US Government Obligations;


 


“Valuation Agent”
means Party A;


 


“Valuation Date”
means any New York Business Day during the operation of this Collateral
Appendix; and


 


“Value” means on any
date:


 


(a)                                  with respect to US
Dollars, the amount thereof;


 


(b)                                 with respect to Cash
comprising currencies other than US Dollars, the equivalent amount thereof in
US Dollars, determined by the Valuation Agent, multiplied by the applicable
Relevant Percentage.


 


(c)                                  with respect to any
US Government Obligations, the bid price for such US Government Obligations,
obtained by the Valuation Agent and expressed in US Dollars, multiplied by the
applicable Relevant Percentage; and


 


13

















 


(d)                                 with respect to any
other Permitted Collateral, the fair market value thereof (expressed in US
Dollars) on such date as determined in any reasonable manner by the Valuation
Agent multiplied by the applicable Relevant Percentage.


 


“Vanilla Agency CMO/REMICs”  means registered, negotiable certificates
representing undivided interests in a pool of Agency Pass-Through Mortgage Securities
that (i) rank pari passu with the highest debt class for payment priority in
the relevant issuance; (ii) are listed on the Bloomberg or Intex (or a
respective successor) listing service, as planned amortization class (“PAC”) or
sequential obligations with modeled cash flows; (iii) pay principal and
interest on a monthly basis; and (iv) have pool numbers; but excluding: (A)
interest-only or principal-only securities; (B) securities commonly known as
“Z”, ‘accural’, or ‘accretion’ bonds; (C) securities commonly known as
‘compartion’ or ‘support’ bonds; (D) Derivatives; and (E) securities
representing residual interests in any mortgage pool.


 


1.2                                 References
to Paragraphs are to Paragraphs of this Appendix.


 


2.                                       Grant of Security Interest:


 


2.1                                                                                 As
continuing security for the payment and discharge of all its obligations under
the Agreement and subject to Paragraph 2.2, the Pledgor, as sole beneficial
owner hereby pledges and grants to the Secured Party a first priority security
interest in, lien on, and right of set-off against, the Collateral and agrees
to do all acts and execute and deliver all documents necessary to ensure that
the Collateral remains at all times subject to the pledge and security interest
referred to in this Paragraph 2.


 


2.2                                 Although the parties
intend that the Pledgor shall have no continuing right, title or interest in or
to Cash Collateral, in the event that the Pledgor is deemed to have any right,
title or interest therein, the foregoing Paragraph 2.1 shall apply to such Cash
Collateral.


 


2.3                                 The rights of the
Secured Party with respect to any Collateral Transferred hereunder shall
include, in addition to and without limiting any other rights provided for in
this Appendix, the right on any terms to use, commingle, sell, pledge, repledge,
hypothecate, assign, or otherwise dispose of such Collateral, provided that no
such transaction shall relieve the Secured Party of its obligations to return
such Collateral pursuant to this Appendix.


 


3.                                       Conditions Precedent:


 


Any obligation on the part of the Secured Party to make a Transfer
pursuant to this Appendix is subject to the following conditions precedent:


 


(a)                                  no Event of Default,
Termination Event and/or any event or condition that with the giving of notice
or passage of time, or both, would constitute such an Event of


 


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Default or Termination Event, has occurred and is continuing as of the
date for such Transfer with the Pledgor as the Defaulting Party or the Affected
Party (as the case may be); and


 


(b)                                 no breach by the
Pledgor hereunder of any obligation to the Secured Party for any payment or
delivery arising otherwise than under the Agreement has occurred and is
continuing as of the date for such Transfer.


 


4.                                       Initial and On-going Collateral:


 


On the Trade Date, Pledgor shall Deliver to Secured Party Permitted
Collateral, having a Value not less than 3.00% of the Notional Amount, in
accordance with the delivery instructions in Section 6 of the Confirmation.


 


5.                                       Delivery of Collateral:


 


Where, on any Valuation Date, the Required Amount exceeds the Value of
the Collateral held by the Secured Party on such date, the Pledgor shall, if
requested by the Secured party. 
Transfer to the Secured Party Permitted Collateral having a Value equal
to such excess (rounded upwards to the nearest integral multiple of US$100,000)
within two (2) Banking Days of such request.


 


6.                                       Return of Collateral:


 


6.1                                                                                 Where,
on any Valuation Date, the Value of Collateral held by the Secured Party
exceeds the Required Amount on such date, the Secured Party shall notify
Pledgor of such excess and, if requested by the Pledgor and subject to
Paragraph 3, Transfer to the Pledgor Collateral having a Value equal to such
excess (rounded downwards to the nearest integral multiple of US$100,000)
within three (3) Banking Days of such request.


 


6.2                                 The Secured Party may
in lieu of returning to the Pledgor any Collateral comprising securities (as
such term is defined in the UCC) return securities which are fungible (as such
term is used in Section 1-201(17) of the UCC) therewith in satisfaction of its
obligations under this Paragraph 6.


 


7.                                       Interest on Cash Collateral:


 


7.1                                                                                 Cash
Collateral shall accrue interest for the benefit of the Pledgor at a rate equal
to the overnight rate for deposits in US Dollars as displayed on Telerate page
118 and will be compounded on each Business Day provided that if, for any
reason, Telerate page 118 shall be unavailable or any Cash Collateral shall
comprise a currency other than US Dollars interest shall accrue at such rate
and be compounded on such days as the Secured Party shall reasonably determine.


 


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7.2                                 Interest accruing
hereunder on Cash Collateral shall accrue from the date that the deposit of such
Cash is confirmed to or to the order of the Secured Party and, subject to
Paragraph 3, shall be paid to the Pledgor within three (3) Banking Days of the
last day of each month, provided that such interest shall only be paid to the
Pledgor to the extent that such interest when added to the Value of the
Collateral, as of the date of such payment, exceeds the Required Amount on such
date and any such interest not paid to the Pledgor shall be an accretion to the
Collateral.


 


8.                                       Substitution:


 


The Pledgor may, with the prior consent of the Secured Party (such
consent not to be unreasonably withheld, conditioned or delayed ), substitute
other Permitted Collateral for existing Collateral.  In the event of the Secured Party granting its consent thereto
the pledgor shall pay all the costs involved in effecting such substitution
and, subject to Paragraph 3, the Secured Party shall Transfer to the Pledgor
the existing Collateral which is the subject of the substitution as soon as
practicable after the Secured Party shall be satisfied that it has received
Permitted Colleteral in replacement therefor having a value, on the date of
Transfer, not less than that of the Collateral being substituted.


 


9.                                       Responsibility
for and Care of Collateral:


 


9.1                                 Subject to Paragraph 12
all rights and powers conferred on or exercisable by the registered holder,
bearer or legal owner of the Collateral (excluding Cash Collateral) shall be
exercisable by the Pledgor or as the Pledgor shall direct and the Pledgor shall
remain liable to observe and perform all conditions and obligations in respect
of the Collateral (excluding Cash Collateral). 
The secured Party shall, upon its receiving express and unequivocal
instructions from the Pledgor, take all action necessary on its part to ensure
that all such rights and powers are exercised in accordance with the Pledgor’s
instructions, provided that the Secured Party shall not be obliged to act in
accordance with the Pledgor’s instructions where: (a) such instructions involve
any expense, and such expense has not been funded in advance by the Pledgor; or
(b) to act in accordance with such instructions may reduce or in any way
prejudice the value of such Collateral. 
The Secured Party agrees to promptly forward to the Pledgor all
communications, notices or other information received by the Secured Party in
respect of the Collateral.


 


9.2                                 The Pledgor hereby
undertakes not to exercise such rights as it may have retained in respect of
the Collateral in such a way as to reduce or prejudice in any way the value of
the Collateral.


 


9.3                                 The Parties
acknowledge and agree that upon the Transfer of Collateral to the Secured
Party, or to an agent or custodian to receive and hold Collateral for or on
behalf of the Secured Party, such Collateral will not necessarily be registered
in the Pledgor’s name.


 


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10.                                 Representations,
Warranties and Undertakings:


 


Each of the Secured Party and the Pledgor represents and Warrants that
the provisions of section 3 of the Agreement apply in full force and effect
and, without limiting the foregoing:


 


(a)                                  it has the power to
enter into the Transaction and to execute and deliver this Confirmation and
perform its obligations hereunder (including, for the avoidance of doubt, under
this Appendix);


 


(b)                                 its obligations under
the Transaction (including, for the avoidance of doubt, under this Appendix)
constitute its legal, valid and binding obligations, enforceable in accordance
with their respective terms;


 


(c)                                  it has taken all
necessary action to authorise such entry, execution, delivery and performance;


 


(d)                                 such entry, execution,
delivery and performance do not violate or conflict with any applicable law,
any provision of its constituent documents, any order or judgement of any court
or other agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;


 


(e)                                  with respect to the
Pledgor only, it is and, subject to the Transaction, the Pledge created
hereunder and the terms of this Confirmation (including this Annex), will at
all times to the sole, lawful and beneficial owner of the Collateral free from
all encumbrances and forms of security interests (except for the charge or
other security interest, howsoever described, created hereby), and no other
person (other that the Secured Party) has, or will at any time have, any
proprietary right or interest therein;


 


(f)                                    with respect to the
Pledgor only, except for the first priority security interest (howsoever
described) in favor of the Secured Party and subject to the Transaction, the
Pledge created hereunder and the terms of this Confirmation (including this
Annex), no person has, (or in the case of after-acquired Collateral, at the
time the Pledgor acquires rights therein, will have) any right, title, claim or
interest (by way of charge, lien, mortgage, pledge, security interest (however
described) or other encumbrance, or otherwise) in, against or to the
Collateral;


 


(g)                                 it will not (without
the prior written consent of the Secured Party at any time) sell or agree to
sell or otherwise dispose of, or agree to dispose of, the Collateral; and


 


(h)                                 it will ensure, so far
as it is able, that the Collateral is and at all times remains free from any
restrictions on transfer.


 


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11.                                 Events of Default:


 


Notwithstanding anything to the contrary in the Agreement, the
occurrence at any time of any of the following events constitutes an Event of
Default with respect to the defaulting Party for the purposes of the Agreement:


 


(a)                                  failure by either
Party to Transfer Permitted Collateral in accordance with Paragraph 4,5 and 6,
if such failure is not remedied within one (1) Banking Day of notice of such
failure being given to such defaulting Party;


 


(b)                                 failure by either
Party to comply with or perform any other provision required to be complied
with or performed by it if such failure is not remedied within seven (7) days
of notice of such failure given to such defaulting Party;


 


(c)                                  the failing or
ceasing of any provision of the Confirmation (including this Appendix) to be in
full force and effect prior to the satisfaction by the Pledgor of all its
obligations to the Secured Party under the Agreement; or


 


(d)                                 either Party
disaffirms, disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, any part of the Confirmation (including this
Appendix).


 


12.                                 Secured Party’s Rights and Remedies:


 


Upon the occurrence and continuance of any Event of Default with
respect to the Pledgor or any Termination Event, or the breach by the Pledgor
of any payment or delivery to the Secured Party otherwise than under the
Agreement, the Secured Party may, to the extent permitted by applicable law,
exercise as to all Collateral then held by the Secured Party the rights and
remedies of a secured party under the UCC and as otherwise provided by law and,
in addition, at its sole option and without notice to or demand upon the
Pledgor, may exercise any or all of the following remedies:


 


(a)                                  set off the Secured
Party’s obligation to repay any Cash to the Pledgor, against any amounts owing
to the Secured Party by the Pledgor; and/or


 


(b)                                 liquidate and apply
all or any part of any Collateral other than Cash in any manner deemed
commercially reasonable by the Secured Party, with the proceeds of such
liquidation constituting Cash Collateral hereunder; and/or


 


(c)                                  set off the Value of
such Collateral against any amounts owing to the Secured party by the Pledgor.


 


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13.                                 Delivery Default:


 


If the Pledgor fails to make, when due, any Transfer of Collateral, it
shall pay to the Secured Party, to the extent permitted under applicable law,
an amount equal to interest at the [Default Rate] (as that expression is
defined in the Agreement) multiplied by the Value of the Collateral which was
required to be Transferred, from (and including) the date that such Collateral
was required to be Transferred to (but excluding) the date of the Transfer.  This interest will be calculated on a daily
rate by reference to the actual number of days elapsed.


 


14.                                 Currency Conversion:


 


The equivalent on any day in one currency (the “first currency”) of an
amount denominated in another currency (the “second currency”) shall be an
amount in the first currency equal to the amount which the Valuation Agent
would have received if the Valuation Agent had on such day made a purchase of
the first currency with such amount of the second currency at its then
prevailing offered spot rate of exchange.


 


15.                                 Security and Performance Assurance:


 


For the avoidance of doubt the parties agree that:


 


(a)                                  Cash
Collateral, is not and shall not be deemed to be “client money” for the
purposes of the Financial Services Authority Client Assets Rules (the “Rules”),
as amended from time to time, and as a consequence such Cash will not be
segregated from that of the Secured Party, will be used by the Secured Party in
the ordinary course of its business and will not be subject to the protections
conferred by the Rules.  In such
circumstances the Pledgor will be a general creditor of the Secured Party; and


 


(b)                                 Collateral
constitutes security and performance assurance without which the Secured Party
would not otherwise enter into and continue any and all Transactions.


 


17.                                 Notices:


 


Any notice or demand to be given to or made by the Secured Party or the
Pledgor pursuant to this Appendix shall be made as specified in Section 12 of
the Agreement save that such notice or demand:


 


(a)                                  if given to the
Secured Party, shall be given to or made in accordance with the following
details:-


 


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  Address:

  	
   

  	
  One Cabot Square, London E14 4QJ England

  
	
  Telephone:

  	
   

  	
  0207 883 8083

  
	
  Facsimile:

  	
   

  	
  0207 883 7987

  
	
  Telex:

  	
   

  	
  264521

  	
   

  	
  Answerback:

  	
   

  	
  CSFBIG

  
	
  Swift:

  	
   

  	
  CSFP GB 2L

  
	
  Attention:

  	
   

  	
  CSFBi Operations Settlements

  



 


or in accordance with such other details as the Secured Party may from
time to time notify (in acordance with the terms of this Paragraph 17) to the
Pledgor; and


 


(b)                                 shall be deemed to be
effective at the time such notice is actually received unless such notice is
received on a day which is not a Banking Day, or after 4.00 p.m. London time on
any Banking Day, in which event such notice shall be deemed to be effective at
9.00 a.m. London time on the next succeeding Banking Day.


 


18.                                 Documentation and Inconsistency:


 


The parties agree to execute a collateral agreement (or such other of
documentation as Party A deems appropriate) in the form provided by Party A,
subject to good faith negotiation, as an appendix to the Agreement


 


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