Exhibit 10.1


 


MASTER SECURITIES LOAN AGREEMENT


 


	
  Dated as of:

  	
  September
  28, 2007

  
	
   

  	
   

  
	
  Between:

  	
  Kenneth T.
  Hern and J.D. McGraw (“Lenders”)  and
  Jefferies & Company, Inc. (“Borrower”)

  



 


1.             APPLICABILITY.


 


From time to time the parties hereto may
enter into transactions in which Lenders will lend to Borrower certain
Securities (as defined herein) against a transfer of Collateral (as defined
herein).  Each such transaction shall be
referred to herein as a “Loan” and, unless otherwise agreed in writing, shall
be governed by this Agreement, including any supplemental terms or conditions
contained in an Annex or Schedule hereto and in any other annexes identified
herein or therein as applicable hereunder. 
Capitalized terms not otherwise defined herein shall have the meanings
provided in Section 24.


 


2.             LOANS OF SECURITIES.


 


2.1                                 Subject
to the terms and conditions of this Agreement, Borrower or Lenders may, from
time to time, seek to initiate a transaction in which the Lenders will lend
Securities to Borrower.  Borrower and Lenders
shall agree on the terms of each Loan (which terms may be amended during the
Loan), including the issuer of the Securities, the amount of Securities to be
lent, the basis of compensation, the amount of Collateral to be transferred by
Borrower, and any additional terms.  Such
agreement shall be confirmed (a) by a schedule and receipt listing the Loaned
Securities provided by Borrower to the applicable Lender in accordance with
Section 3.2, (b) through any system that compares Loans and in which Borrower
and Lenders are participants, or (c) in such other manner as may be agreed by
Borrower and Lenders in writing.  Such
confirmation (the “Confirmation”), together with the Agreement, shall
constitute conclusive evidence of the terms agreed between Borrower and Lenders
with respect to the Loan to which the Confirmation relates, unless with respect
to the Confirmation specific objection is made promptly after receipt
thereof.  In the event of any
inconsistency between the terms of such Confirmation and this Agreement, this
Agreement shall prevail unless each party has executed such Confirmation.


 


2.2                                 Notwithstanding
any other provision in this Agreement regarding when a Loan commences, unless
otherwise agreed, a Loan hereunder shall not occur until the Loaned Securities
and the Collateral therefor have been transferred in accordance with Section
15.


 


2.3                                 Each
Loan shall be made on a pro rata basis by Lenders to Borrower unless the
Lenders otherwise agree and specify to Borrower.  If any Lender is not making a Loan to
Borrower, references in this Agreement to the Lenders shall mean the applicable
Lender.


 

















 


2.4                                 In order to insure that Loaned Securities
are freely tradeable, the Company, the Lenders and the Borrower have entered
into a Share Loan Registration Rights Agreement, dated as of the date hereof,
providing for the registration of Loaned Securities with the Securities and
Exchange Commission.


 


3.             TRANSFER OF LOANED SECURITIES.


 


3.1                                 Unless
otherwise agreed, Lenders shall transfer Loaned Securities to Borrower
hereunder on or before the Cutoff Time on the date agreed to by Borrower and Lenders
for the commencement of the Loan.


 


3.2                                 Unless
otherwise agreed, Borrower shall provide Lenders, for each Loan in which Lenders
are Customers, with a schedule and receipt listing the Loaned Securities.  Such schedule and receipt may consist of (a)
a schedule provided to Borrower by Lenders and executed and returned by
Borrower when the Loaned Securities are received, (b) in the case of Securities
transferred through a Clearing Organization which provides transferors with a
notice evidencing such transfer, such notice, or (c) a confirmation or other
document provided to Lenders by Borrower.


 


3.3                                 Notwithstanding
any other provision in this Agreement, the parties hereto agree that they
intend the Loans hereunder to be loans of Securities.  If, however, any Loan is deemed to be a loan
of money by Borrower to Lenders, then Borrower shall have, and Lenders shall be
deemed to have granted, a security interest in the Loaned Securities and the
proceeds thereof.


 


4.             COLLATERAL.


 


4.1                                 Unless
otherwise agreed, Borrower shall, prior to or concurrently with the transfer of
the Loaned Securities to Borrower, but in no case later than the Close of
Business on the day of such transfer, transfer to Lenders Collateral with a
Market Value at least equal to the Margin Percentage of the Market Value of the
Loaned Securities.


 


4.2                                 The
Collateral transferred by Borrower to the Lenders, as adjusted pursuant to
Section 9, shall be security for Borrower’s obligations in respect of such Loan
and for any other obligations of Borrower to the Lenders hereunder.  Borrower hereby pledges with, assigns to, and
grants the applicable Lender a continuing first priority security interest in,
and a lien upon, the Collateral, which shall attach upon the transfer of the
Loaned Securities by Lenders to Borrower and which shall cease upon the
transfer of the Loaned Securities by Borrower to Lenders.  In addition to the rights and remedies given
to Lenders hereunder, Lenders shall have all the rights and remedies of a
secured party under the UCC.  The
Collateral will be held by Borrower in a segregated account.


 


4.3                                 Except
as otherwise provided herein, upon transfer to Lenders of the Loaned Securities
on the day a Loan is terminated pursuant to Section 6, Lenders shall be
obligated to transfer the Collateral (as adjusted pursuant to Section 9) to
Borrower no later than the Cutoff Time on such day, or, if such day is not a
day on which a 


 


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transfer
of such collateral may be effected under Section 15, the next day on which such
a transfer may be effected.


 


4.4                                 If
Borrower transfers Collateral to Lenders, as provided in Section 4.1, and Lenders
does not transfer the Loaned Securities to Borrower, Borrower shall have the
absolute right to the return of the Collateral; and if Lenders transfer Loaned
Securities to Borrower and Borrower does not transfer Collateral to Lenders as
provided in Section 4.1, Lenders shall have the absolute right to the return of
the Loaned Securities.


 


4.5                                 Borrower
may, upon reasonable notice to Lenders (taking into account all relevant
factors, including industry practice, the type of Collateral to be substituted,
and the applicable method of transfer), substitute additional or new Collateral
for Collateral securing any Loan or Loans; provided, however, that such
substituted Collateral shall (a) consist only of cash, securities or other
property that Borrower and Lenders agreed would be acceptable Collateral prior
to the Loan or Loans and (b) have a Market Value such that the aggregate Market
Value of such substituted Collateral, together with all other Collateral for
Loans in which the party substituting such Collateral is acting as Borrower,
shall equal or exceed the agreed upon Margin Percentage of the Market Value of
the Loaned Securities.


 


4.6                                 Prior
to the expiration of any letter of credit supporting Borrower’s obligations
hereunder, Borrower shall, no later than the Extension Deadline, (a) obtain an
extension of the expiration of such letter of credit, (b) replace such letter
of credit by providing Lenders with a substitute letter of credit in an amount
at least equal to the amount of the letter of credit for which it is
substituted, or (c) transfer such other Collateral to Lenders as may be
acceptable to Lenders.


 


5.             FEES FOR LOAN.


 


5.1                                 Unless
otherwise agreed, (a) Borrower agrees to pay Lenders a loan fee (a “Loan Fee”),
computed daily on each Loan based on the aggregate Market Value of the Loaned
Securities on the day for which such Loan Fee is being computed, and (b) Lenders
agree to pay Borrower a fee or rebate (a “Cash Collateral Fee”) on Collateral
consisting of cash, computed daily based on the amount of cash held by Lenders
as Collateral, in the case of each of the Loan Fee and the Cash Collateral Fee
at such rates as set forth on Schedule B. 
Except as Borrower and Lenders may otherwise agree (in the event that
cash Collateral is transferred by clearing house funds or otherwise), Loan Fees
shall accrue from and including the date on which the Loaned Securities are
transferred to Borrower to, but excluding, the date on which such Loaned
Securities are returned to Lenders, and Cash Collateral Fees shall accrue from
and including the date on which the cash Collateral is transferred to Lenders
to, but excluding, the date on which such cash Collateral is returned to
Borrower.


 


5.2                                 Unless
otherwise agreed, any Loan Fee or Cash Collateral Fee payable hereunder shall
be payable:


 


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(a)                                  in
the case of any Loan of Securities other than Government Securities, upon the
earlier of (i) the fifteenth day of the month following the calendar month in
which such fee was incurred and (ii) the termination of all Loans hereunder
(or, if a transfer of cash in accordance with Section 15 may not be effected on
such fifteenth day or the day of such termination, as the case may be, the next
day on which such a transfer may be effected); and


 


(b)                                 in
the case of any Loan of Government Securities, upon the termination of such
Loan and at such other times, if any, as may be customary in accordance with
market practice.


 


Notwithstanding the foregoing, all Loan Fees shall be
payable by Borrower immediately in the event of a Default hereunder by Borrower
and all Cash Collateral Fees shall be payable immediately by Lenders in the
event of a Default by Lenders.


 


6.             TERMINATION OF THE LOAN.


 


6.1                                 (a)                                  Unless
otherwise agreed, either party may terminate a Loan on a termination date
established by notice given to the other party prior to the Close of Business
on a Business Day.  The termination date
established by a termination notice shall be a date no earlier than the
standard settlement date that would apply to a purchase or sale of the Loaned
Securities (in the case of notice given by Lenders) or the noncash Collateral
securing the Loan (in the case of a notice given by Borrower) entered into at
the time of such notice, which date shall, unless Borrower and Lenders agree to
the contrary, be (i) in the case of Government Securities, the next Business
Day following such notice and (ii) in the case of all other Securities, the
third Business Day following such notice.


 


(b)                                 Notwithstanding
paragraph (a) and unless otherwise agreed, Borrower may terminate a Loan on any
Business Day by giving notice to Lenders and transferring the Loaned Securities
to Lenders before the Cutoff Time on such Business Day.


 


6.2                                 Unless
otherwise agreed, Borrower shall, on or before the Cutoff Time on the termination
date of a Loan, transfer the Loaned Securities to Lenders; provided, however,
that upon such transfer by Borrower, Lenders shall transfer the Collateral (as
adjusted pursuant to Section 9) to Borrower in accordance with Section 4.3.


 


7.             RIGHTS IN RESPECT OF LOANED
SECURITIES AND COLLATERAL.


 


7.1                                 Except
as set forth herein and in Sections 8.1 and 8.2 and as otherwise agreed by
Borrower and Lenders, until Loaned Securities are required to be redelivered to
Lenders upon termination of a Loan hereunder, Borrower shall have all of the
incidents of ownership of the Loaned Securities, including the right to
transfer the Loaned Securities to others; Lenders hereby waive the right to
vote, or to provide 


 


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any
consent or to take any similar action with respect to, the Loaned Securities in
the event that the record date or deadline for such vote, consent or other
action falls during the term of the Loan.


 


8.             DISTRIBUTIONS.


 


8.1                                 Lenders
shall be entitled to receive all Distributions made on or in respect of the
Loaned Securities which are not otherwise received by Lenders, to the full
extent it would be so entitled if the Loaned Securities had not been lent to
Borrower.


 


8.2                                 Any
cash Distributions made on or in respect of the Loaned Securities, which Lenders
are entitled to receive pursuant to Section 8.1, shall be paid by the transfer
of cash to Lenders by Borrower, on the date any such Distribution is paid, in
an amount equal to such cash Distribution, so long as Lenders is not in Default
at the time of such payment.  Non-cash
Distributions that Lenders is entitled to receive pursuant to Section 8.1 shall
be added to the Loaned Securities on the date of distribution and shall be
considered such for all purposes, except that if the Loan has terminated,
Borrower shall forthwith transfer the same to Lenders.


 


8.3                                 Borrower
shall be entitled to receive all Distributions made on or in respect of
non-cash Collateral which are not otherwise received by Borrower, to the full
extent it would be so entitled if the Collateral had not been transferred to Lenders.


 


8.4                                 Any
cash Distributions made on or in respect of such Collateral, which Borrower is
entitled to receive pursuant to Section 8.3, shall be paid by the transfer of
cash to Borrower by Lenders, on the date any such Distribution is paid, in an
amount equal to such cash Distribution, so long as Borrower is not in Default
at the time of such payment.  Non-cash
Distributions that Borrower is entitled to receive pursuant to Section 8.3
shall be added to the Collateral on the date of distribution and shall be
considered such for all purposes, except that if each Loan secured by such
Collateral has terminated, Lenders shall forthwith transfer the same to
Borrower.


 


8.5                                 Unless
otherwise agreed by the parties:


 


(a)                                  If
(i) Borrower is required to make a payment (a “Borrower Payment”) with respect
to cash Distributions on Loaned Securities under Sections 8.1 and 8.2 (“Securities
Distributions”), or (ii) Lenders are required to make a payment (a “Lenders
Payment”) with respect to cash Distributions on Collateral under Sections 8.3
and 8.4 (“Collateral Distributions”), and (iii) Borrower or Lenders, as the
case may be (“Payor”), shall be required by law to collect any withholding or
other tax, duty, fee, levy or charge required to be deducted or withheld from
such Borrower Payment or Lenders Payment (“Tax”), then Payor shall (subject to
subsections (b) and (c) below), pay such additional amounts as may be necessary
in order that the net amount of the Borrower Payment or Lenders Payment
received by the Lenders or Borrower, as the case may be (“Payee”), after
payment of 


 


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such
Tax equals the net amount of the Securities Distribution or Collateral
Distribution that would have been received if such Securities Distribution or
Collateral Distribution had been paid directly to the Payee.


 


(b)                                 No
additional amounts shall be payable to a Payee under subsection (a) above to
the extent that Tax would have been imposed on a Securities Distribution or
Collateral Distribution paid directly to the Payee.


 


(c)                                  No
additional amounts shall be payable to a Payee under subsection (a) above to
the extent that such Payee is entitled to an exemption from, or reduction in
the rate of, Tax on a Borrower Payment or Lenders Payment subject to the
provision of a certificate or other documentation, but has failed timely to
provide such certificate or other documentation.


 


(d)                                 Each
party hereto shall be deemed to represent that, as of the commencement of any
Loan hereunder, no Tax would be imposed on any cash Distribution paid to it
with respect to (i) Loaned Securities subject to a Loan in which it is acting
as Lenders or (ii) Collateral for any Loan in which it is acting as Borrower,
unless such party has given notice to the contrary to the other party hereto
(which notice shall specify the rate at which such Tax would be imposed).  Each party agrees to notify the other of any
change that occurs during the term of a Loan in the rate of any Tax that would
be imposed on any such cash Distributions payable to it.


 


8.6                                 To
the extent that, under the provisions of Sections 8.1 through 8.5, (a) a
transfer of cash or other property by Borrower would give rise to a Margin Excess
or (b) a transfer of cash or other property by Lenders would give rise to a
Margin Deficit, Borrower or Lenders (as the case may be) shall not be obligated
to make such transfer of cash or other property in accordance with such
Sections, but shall in lieu of such transfer immediately credit the amounts
that would have been transferable under such Sections to the account of Lenders
or Borrower (as the case may be).


 


9.             MARK TO MARKET.


 


9.1                                 Borrower
shall daily mark to market any Loan hereunder and in the event that at the
Close of Trading on any Business Day the Market Value of the Collateral for any
Loan to Borrower shall be less than 100% of the Market Value of all the
outstanding Loaned Securities subject to such Loan, Borrower shall transfer
additional Collateral no later than the Close of Business on the next Business
Day so that the Market Value of such additional Collateral, when added to the
Market Value of the other Collateral for such Loan, shall equal 100% of the
Market Value of the Loaned Securities.


 


9.2                                 In
addition to any rights of Lenders under Section 9.1, if at any time the
aggregate Market Value of all Collateral for Loans by Lenders shall be less
than the Margin Percentage of the Market Value of all the outstanding Loaned
Securities subject to 


 


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such
Loans (a “Margin Deficit”), Lenders may, by notice to Borrower, demand that
Borrower transfer to Lenders additional Collateral so that the Market Value of
such additional Collateral, when added to the Market Value of all other
Collateral for such Loans, shall equal or exceed the Margin Percentage of the
Market Value of the Loaned Securities.


 


9.3                                 Subject
to Borrower’s obligations under Section 9.1, if at any time the Market Value of
all Collateral for Loans to Borrower shall be greater than the Margin
Percentage of the Market Value of all the outstanding Loaned Securities subject
to such Loans (a “Margin Excess”), Borrower may, by notice to Lenders, demand
that Lenders transfer to Borrower such amount of the Collateral selected by
Borrower so that the Market Value of the Collateral for such Loans, after
deduction of such amounts, shall thereupon not exceed the Margin Percentage of
the Market Value of the Loaned Securities.


 


9.4                                 Borrower
and Lenders may agree, with respect to one or more Loans hereunder, to mark the
values to market pursuant to Sections 9.2 and


 


9.5                                 by
separately valuing the Loaned Securities lent and the Collateral given in
respect thereof on a Loan-by-Loan basis.


 


9.6                                 Borrower
and Lenders may agree, with respect to any or all Loans hereunder, that the
respective rights of Lenders and Borrower under Sections 9.2 and 9.3 may be
exercised only where a Margin Excess or Margin Deficit exceeds a specified
dollar amount or a specified percentage of the Market Value of the Loaned
Securities under such Loans (which amount or percentage shall be agreed to by
Borrower and Lenders prior to entering into any such Loans).


 


9.7                                 If
any notice is given by Borrower or Lenders under Sections 9.2 or 9.3 at or
before the Margin Notice Deadline on any day on which a transfer of Collateral
may be effected in accordance with Section 15, the party receiving such notice
shall transfer Collateral as provided in such Section no later than the Close
of Business on such day.  If any such
notice is given after the Margin Notice Deadline, the party receiving such
notice shall transfer such Collateral no later than the Close of Business on
the next Business Day following the day of such notice.


 


10.           REPRESENTATIONS.


 


The parties to this Agreement hereby make the
following representations and warranties, which shall continue during the term
of any Loan hereunder:


 


10.1                           Each
party hereto represents and warrants that (a) it has the power to execute and
deliver this Agreement, to enter into the Loans contemplated hereby and to
perform its obligations hereunder, (b) it has taken all necessary action to
authorize such execution, delivery and performance, and (c) this Agreement
constitutes a legal, valid and binding obligation enforceable against it in
accordance with its terms.


 


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10.2                           Each
party hereto represents and warrants that it has not relied on the other for
any tax or accounting advice concerning this Agreement and that it has made its
own determination as to the tax and accounting treatment of any Loan and any
dividends, remuneration or other funds received hereunder.


 


10.3                           Each
party hereto represents and warrants that it is acting for its own account
unless it expressly specifies otherwise in writing and complies with Section
11.1(b).


 


10.4                           Borrower
represents and warrants that it has, or will have at the time of transfer of
any Collateral, the right to grant a first priority security interest therein
subject to the terms and conditions hereof.


 


10.5                           (a)                                  Borrower
represents and warrants that it (or the person to whom it relends the Loaned
Securities) is borrowing or will borrow Loaned Securities that are Equity
Securities for the purpose of making delivery of such Loaned Securities in the
case of short sales, failure to receive securities required to be delivered, or
as otherwise permitted pursuant to Regulation T as in effect from time to time.


 


(b)                                 Borrower
and Lenders may agree, as provided in Section 23.2, that Borrower shall not be
deemed to have made the representation or warranty in subsection (a) with
respect to any Loan.


 


10.6                           Each
Lender represents and warrants that it has, or will have at the time of
transfer of any Loaned Securities, the right to transfer the Loaned Securities
subject to the terms and conditions hereof, and that it owns the Loaned
Securities, free and clear of all liens.


 


11.           COVENANTS.


 


11.1                           Each
party agrees to be liable as principal with respect to its obligations
hereunder.


 


11.2                           Promptly
upon (and in any event within seven (7) Business Days after) demand by Lenders,
Borrower shall furnish Lenders with Borrower’s most recent publicly-available
financial statements and any other financial statements mutually agreed upon by
Borrower and Lenders.  Unless otherwise
agreed, if Borrower is subject to the requirements of Rule 17a-5(c) under the
Exchange Act, it may satisfy the requirements of this Section by furnishing Lenders
with its most recent statement required to be furnished to customers pursuant
to such Rule.


 


12.           EVENTS OF DEFAULT.


 


All Loans hereunder may, at the option of the
non-defaulting party (which option shall be deemed to have been exercised
immediately upon the occurrence of an Act of Insolvency), be terminated
immediately upon the occurrence of any one or more of the following events
(individually, a “Default”):


 


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12.1                           if
any Loaned Securities shall not be transferred to Lenders upon termination of
the Loan as required by Section 6;


 


12.2                           if
any Collateral shall not be transferred to Borrower upon termination of the
Loan as required by Sections 4.3 and 6;


 


12.3                           if
either party shall fail to transfer Collateral as required by Section 9;


 


12.4                           if
either party (a) shall fail to transfer to the other party amounts in respect
of Distributions required to be transferred by Section 8, (b) shall have been
notified of such failure by the other party prior to the Close of Business on
any day, and (c) shall not have cured such failure by the Cutoff Time on the
next day after such Close of Business on which a transfer of cash may be
effected in accordance with Section 15;


 


12.5                           if
an Act of Insolvency occurs with respect to either party;


 


12.6                           if
any representation made by either party in respect of this Agreement or any
Loan or Loans hereunder shall be incorrect or untrue in any material respect
during the term of any Loan hereunder;


 


12.7                           if
either party notifies the other of its inability to or its intention not to
perform its obligations hereunder or otherwise disaffirms, rejects or
repudiates any of its obligations hereunder; or


 


12.8                           if
either party (a) shall fail to perform any material obligation under this
Agreement not specifically set forth in clauses 12.1 through 12.7, above,
including but not limited to the payment of fees as required by Section 5, and
the payment of transfer taxes as required by Section 14, (b) shall have been
notified of such failure by the other party prior to the Close of Business on
any day, and (c) shall not have cured such failure by the Cutoff Time on the
next day after such Close of Business on which a transfer of cash may be
effected in accordance with Section 15.


 


The non-defaulting party shall (except upon
the occurrence of an Act of Insolvency) give notice as promptly as practicable
to the defaulting party of the exercise of its option to terminate all Loans
hereunder pursuant to this Section 12.


 


13.           REMEDIES.


 


13.1                           Upon
the occurrence of a Default under Section 12 entitling Lenders to terminate all
Loans hereunder, Lenders shall have the right, in addition to any other
remedies provided herein, (a) to purchase a like amount of Loaned Securities (“Replacement
Securities”) in the principal market for such Loaned Securities in a
commercially reasonable manner, (b) to sell any Collateral in the principal
market for such Collateral in a commercially reasonable manner and (c) to apply
and set off the Collateral and any proceeds thereof (including any amounts
drawn under a letter of credit supporting any Loan) against the payment of the
purchase price for 


 


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such
Replacement Securities and any amounts due to Lenders under Sections 5, 8, 14
and 16.  In the event that Lenders shall
exercise such rights, Borrower’s obligation to return a like amount of the
Loaned Securities shall terminate.  Lenders
may similarly apply the Collateral and any proceeds thereof to any other
obligation of Borrower under this Agreement, including Borrower’s obligations
with respect to Distributions paid to Borrower (and not forwarded to Lenders)
in respect of Loaned Securities.  In the
event that (i) the purchase price of Replacement Securities (plus all other
amounts, if any, due to Lenders hereunder) exceeds (ii) the amount of the
Collateral, Borrower shall be liable to Lenders for the amount of such excess
together with interest thereon at a rate equal to (A) in the case of purchases
of Foreign Securities, LIBOR, (B) in the case of purchases of any other
Securities (or other amounts, if any, due to Lenders hereunder), the Federal
Funds Rate or (C) such other rate as may be specified in Schedule B, in each
case as such rate fluctuates from day to day, from the date of such purchase
until the date of payment of such excess. 
As security for Borrower’s obligation to pay such excess, Lenders shall
have, and Borrower hereby grants, a security interest in any property of
Borrower then held by or for Lenders and a right of setoff with respect to such
property and any other amount payable by Lenders to Borrower.  The purchase price of Replacement Securities
purchased under this Section 13.1 shall include, and the proceeds of any sale
of Collateral shall be determined after deduction of, broker’s fees and
commissions and all other reasonable costs, fees and expenses related to such
purchase or sale (as the case may be). 
In the event Lenders exercises its rights under this Section 13.1, Lenders
may elect in its sole discretion, in lieu of purchasing all or a portion of the
Replacement Securities or selling all or a portion of the Collateral, to be
deemed to have made, respectively, such purchase of Replacement Securities or
sale of Collateral for an amount equal to the price therefor on the date of
such exercise obtained from a generally recognized source or the last bid
quotation from such a source at the most recent Close of Trading.  Subject to Section 17, upon the satisfaction
of all obligations hereunder, any remaining Collateral shall be returned to
Borrower.


 


13.2                           Upon
the occurrence of a Default under Section 12 entitling Borrower to terminate
all Loans hereunder, Borrower shall have the right, in addition to any other
remedies provided herein, (a) to purchase a like amount of Collateral (“Replacement
Collateral”) in the principal market for such Collateral in a commercially
reasonable manner, (b) to sell a like amount of the Loaned Securities in the
principal market for such Loaned Securities in a commercially reasonable manner
and (c) to apply and set off the Loaned Securities and any proceeds thereof
against (i) the payment of the purchase price for such Replacement Collateral,
(ii) Lenders’s obligation to return any cash or other Collateral, and (iii) any
amounts due to Borrower under Sections 5, 8 and 16.  In such event, Borrower may treat the Loaned
Securities as its own and Lenders’s obligation to return a like amount of the
Collateral shall terminate; provided, however, that Lenders shall immediately
return any letters of credit supporting any Loan upon the exercise or deemed
exercise by Borrower of its termination rights under Section 12.  Borrower may similarly apply the Loaned
Securities and 


 


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any
proceeds thereof to any other obligation of Lenders under this Agreement,
including Lenders’s obligations with respect to Distributions paid to Lenders
(and not forwarded to Borrower) in respect of Collateral.  In the event that (i) the sales price
received from such Loaned Securities is less than (ii) the purchase price of
Replacement Collateral (plus the amount of any cash or other Collateral not
replaced by Borrower and all other amounts, if any, due to Borrower hereunder),
Lenders shall be liable to Borrower for the amount of any such deficiency,
together with interest on such amounts at a rate equal to (A) in the case of
Collateral consisting of Foreign Securities, LIBOR, (B) in the case of
Collateral consisting of any other Securities (or other amounts due, if any, to
Borrower hereunder), the Federal Funds Rate or (C) such other rate as may be specified
in Schedule B, in each case as such rate fluctuates from day to day, from the
date of such sale until the date of payment of such deficiency.  As security for Lenders’s obligation to pay
such deficiency, Borrower shall have, and Lenders hereby grants, a security
interest in any property of Lenders then held by or for Borrower and a right of
setoff with respect to such property and any other amount payable by Borrower
to Lenders.  The purchase price of any
Replacement Collateral purchased under this Section 13.2 shall include, and the
proceeds of any sale of Loaned Securities shall be determined after deduction
of, broker’s fees and commissions and all other reasonable costs, fees and
expenses related to such purchase or sale (as the case may be).  In the event Borrower exercises its rights
under this Section 13.2, Borrower may elect in its sole discretion, in lieu of
purchasing all or a portion of the Replacement Collateral or selling all or a
portion of the Loaned Securities, to be deemed to have made, respectively, such
purchase of Replacement Collateral or sale of Loaned Securities for an amount
equal to the price therefor on the date of such exercise obtained from a
generally recognized source or the last bid quotation from such a source at the
most recent Close of Trading.   Subject
to Section 17, upon the satisfaction of all Lenders’s obligations hereunder,
any remaining Loaned Securities (or remaining cash proceeds thereof) shall be
returned to Lenders.


 


13.3                           Unless
otherwise agreed, the parties acknowledge and agree that (a) the Loaned
Securities and any Collateral consisting of Securities are of a type traded in
a recognized market, (b) in the absence of a generally recognized source for
prices or bid or offer quotations for any security, the non-defaulting party
may establish the source therefor in its reasonable discretion, and (c) all
prices and bid and offer quotations shall be increased to include accrued
interest to the extent not already included therein (except to the extent
contrary to market practice with respect to the relevant Securities).


 


13.4                           In
addition to its rights hereunder, the non-defaulting party shall have any
rights otherwise available to it under any other agreement or applicable law.


 


14.           TRANSFER TAXES.


 


All transfer taxes with respect to the
transfer of the Loaned Securities by Lenders to Borrower and by Borrower to Lenders
upon termination of the Loan and with respect to the 


 


11

















 


transfer of
Collateral by Borrower to Lenders and by Lenders to Borrower upon termination
of the Loan or pursuant to Section 4.5 or Section 9 shall be paid by Borrower.


 


15.           TRANSFERS.


 


15.1                           All
transfers by either Borrower or Lenders of Loaned Securities or Collateral
consisting of “financial assets” (within the meaning of the UCC) hereunder
shall be by (a) in the case of certificated securities, physical delivery of
certificates representing such securities together with duly executed stock and
bond transfer powers, as the case may be, with signatures guaranteed by a bank
or a member firm of the New York Stock Exchange, Inc., (b) registration of an
uncertificated security in the transferee’s name by the issuer of such
uncertificated security, (c) the crediting by a Clearing Organization of such financial
assets to the transferee’s “securities account” (within the meaning of the UCC)
maintained with such Clearing Organization, or (d) such other means as Borrower
and Lenders may agree.


 


15.2                           All
transfers of cash hereunder shall be by (a) wire transfer in immediately
available, freely transferable funds or (b) such other means as Borrower and Lenders
may agree.


 


15.3                           All
transfers of letters of credit from Borrower to Lenders shall be made by
physical delivery to Lenders of an irrevocable letter of credit issued by a “bank”
as defined in Section 3(a)(6)(A)-(C) of the Exchange Act.  Transfers of letters of credit from Lenders
to Borrower shall be made by causing such letters of credit to be returned or
by causing the amount of such letters of credit to be reduced to the amount
required after such transfer.


 


15.4                           A
transfer of Securities, cash or letters of credit may be effected under this
Section 15 on any day except (a) a day on which the transferee is closed for
business at its address set forth in Schedule A hereto or (b) a day on which a
Clearing Organization or wire transfer system is closed, if the facilities of
such Clearing Organization or wire transfer system are required to effect such
transfer.


 


15.5                           For
the avoidance of doubt, the parties agree and acknowledge that the term “securities,”
as used herein (except in this Section 15), shall include any “security
entitlements” with respect to such securities (within the meaning of the
UCC).  In every transfer of “financial
assets” (within the meaning of the UCC) hereunder, the transferor shall take
all steps necessary (a) to effect a delivery to the transferee under Section
8-301 of the UCC, or to cause the creation of a security entitlement in favor
of the transferee under Section 8-501 of the UCC, (b) to enable the transferee
to obtain “control” (within the meaning of Section 8-106 of the UCC), and (c)
to provide the transferee with comparable rights under any applicable foreign
law or regulation.


 


12

















 


16.           CONTRACTUAL CURRENCY.


 


16.1                           Borrower
and Lenders agree that (a) any payment in respect of a Distribution under
Section 8 shall be made in the currency in which the underlying Distribution of
cash was made, (b) any return of cash shall be made in the currency in which
the underlying transfer of cash was made, and (c) any other payment of cash in
connection with a Loan under this Agreement shall be in the currency agreed
upon by Borrower and Lenders in connection with such Loan (the currency
established under clause (a), (b) or (c) hereinafter referred to as the “Contractual
Currency”).  Notwithstanding the
foregoing, the payee of any such payment may, at its option, accept tender
thereof in any other currency; provided, however, that, to the extent permitted
by applicable law, the obligation of the payor to make such payment will be
discharged only to the extent of the amount of Contractual Currency that such
payee may, consistent with normal banking procedures, purchase with such other
currency (after deduction of any premium and costs of exchange) on the banking
day next succeeding its receipt of such currency.


 


16.2                           If
for any reason the amount in the Contractual Currency received under Section
16.1, including amounts received after conversion of any recovery under any
judgment or order expressed in a currency other than the Contractual Currency,
falls short of the amount in the Contractual Currency due in respect of this
Agreement, the party required to make the payment will (unless a Default has occurred
and such party is the non-defaulting party) as a separate and independent
obligation and to the extent permitted by applicable law, immediately pay such
additional amount in the Contractual Currency as may be necessary to compensate
for the shortfall.


 


16.3                           If
for any reason the amount in the Contractual Currency received under Section
16.1 exceeds the amount in the Contractual Currency due in respect of this
Agreement, then the party receiving the payment will (unless a Default has
occurred and such party is the non-defaulting party) refund promptly the amount
of such excess.


 


17.           SINGLE AGREEMENT.


 


Borrower and Lenders acknowledge that, and
have entered into this Agreement in reliance on the fact that, all Loans
hereunder constitute a single business and contractual relationship and have
been entered into in consideration of each other.  Accordingly, Borrower and Lenders hereby
agree that payments, deliveries and other transfers made by either of them in
respect of any Loan shall be deemed to have been made in consideration of
payments, deliveries and other transfers in respect of any other Loan
hereunder, and the obligations to make any such payments, deliveries and other
transfers may be applied against each other and netted.  In addition, Borrower and Lenders acknowledge
that, and have entered into this Agreement in reliance on the fact that, all
Loans hereunder have been entered into in consideration of each other.  Accordingly, Borrower and Lenders hereby
agree that (a) each shall perform all of its obligations in respect of each
Loan hereunder, and that a default in the performance of any such 


 


13

















 


obligation by
Borrower or by Lenders (the “Defaulting Party”) in any Loan hereunder shall
constitute a default by the


 


Defaulting Party under all such Loans
hereunder, and (b) the non-defaulting party shall be entitled to set off claims
and apply property held by it in respect of any Loan hereunder against
obligations owing to it in respect of any other Loan with the Defaulting Party.


 


18.           APPLICABLE LAW.


 


THIS AGREEMENT SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.  


 


19.           WAIVER.


 


The failure of a party to this Agreement to
insist upon strict adherence to any term of this Agreement on any occasion
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.  All waivers in respect of a
Default must be in writing.


 


20.           SURVIVAL OF REMEDIES.


 


All remedies hereunder and all obligations
with respect to any Loan shall survive the termination of the relevant Loan,
return of Loaned Securities or Collateral and termination of this Agreement.


 


21.           NOTICES AND OTHER COMMUNICATIONS.


 


Any and all notices, statements, demands or
other communications hereunder may be given by a party to the other by
telephone, mail, facsimile, e-mail, electronic message, telegraph, messenger or
otherwise to the individuals and at the facsimile numbers and addresses
specified with respect to it in Schedule A hereto, or sent to such party at any
other place specified in a notice of change of number or address hereafter
received by the other party.  Any notice,
statement, demand or other communication hereunder will be deemed effective on
the day and at the time on which it is received or, if not received, on the day
and at the time on which its delivery was in good faith attempted; provided,
however, that any notice by a party to the other party by telephone shall be
deemed effective only if (a) such notice is followed by written confirmation
thereof and (b) at least one of the other means of providing notice that are
specifically listed above has previously been attempted in good faith by the
notifying party.


 


22.           SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL.


 


22.1                           EACH
PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN
NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY SUCH COURT, SOLELY FOR THE
PURPOSE OF ANY SUIT, ACTION OR PROCEEDING BROUGHT TO ENFORCE ITS OBLIGATIONS
HEREUNDER OR RELATING IN ANY WAY TO THIS AGREEMENT OR ANY LOAN 


 


14

















 


HEREUNDER
AND (B) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, ANY DEFENSE OF
AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT AND ANY RIGHT OF JURISDICTION ON ACCOUNT OF ITS PLACE OF RESIDENCE
OR DOMICILE.


 


22.2                           EACH
PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT THAT IT MAY HAVE TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.


 


23.           MISCELLANEOUS.


 


23.1                           Except
as otherwise agreed by the parties, this Agreement supersedes any other
agreement between the parties hereto concerning loans of Securities between
Borrower and Lenders.  This Agreement
shall not be assigned by either party without the prior written consent of the
other party and any attempted assignment without such consent shall be null and
void.  Subject to the foregoing, this
Agreement shall be binding upon and shall inure to the benefit of Borrower and Lenders
and their respective heirs, representatives, successors and assigns.  This Agreement may be terminated by either
party upon notice to the other, subject only to fulfillment of any obligations
then outstanding.  This Agreement shall
not be modified, except by an instrument in writing signed by the party against
whom enforcement is sought.  The parties
hereto acknowledge and agree that, in connection with this Agreement and each
Loan hereunder, time is of the essence. 
Each provision and agreement herein shall be treated as separate and
independent from any other provision herein and shall be enforceable
notwithstanding the unenforceability of any such other provision or agreement.


 


24.           DEFINITIONS.


 


For the purposes hereof:


 


24.1                           “Act
of Insolvency” shall mean, with respect to any party, (a) the commencement by
such party as debtor of any case or proceeding under any bankruptcy,
insolvency, reorganization, liquidation, moratorium, dissolution, delinquency
or similar law, or such party’s seeking the appointment or election of a
receiver, conservator, trustee, custodian or similar official for such party or
any substantial part of its property, or the convening of any meeting of
creditors for purposes of commencing any such case or proceeding or seeking
such an appointment or election, (b) the commencement of any such case or
proceeding against such party, or another seeking such an appointment or
election, or the filing against a party of an application for a protective
decree under the provisions of the Securities Investor Protection Act of 1970,
which (i) is consented to or not timely contested by such party, (ii) results
in the entry of an 


 


15

















 


order
for relief, such an appointment or election, the issuance of such a protective
decree or the entry of an order having a similar effect, or (iii) is not
dismissed within 15 days, (c) the making by such party of a general assignment
for the benefit of creditors, or (d) the admission in writing by such party of
such party’s inability to pay such party’s debts as they become due.


 


24.2                           “Bankruptcy
Code” shall have the meaning assigned in Section 25.1


 


24.3                           “Borrower”
shall have the meaning assigned in Section 1.


 


24.4                           “Borrower
Payment” shall have the meaning assigned in Section 8.5(a).


 


24.5                           “Broker-Dealer”
shall mean any person that is a broker (including a municipal securities
broker), dealer, municipal securities dealer, government securities broker or
government securities dealer as defined in the Exchange Act, regardless of
whether the activities of such person are conducted in the United States or
otherwise require such person to register with the U.S. Securities and Exchange
Commission or other regulatory body.


 


24.6                           “Business
Day” shall mean, with respect to any Loan hereunder, a day on which regular
trading occurs in the principal market for the Loaned Securities subject to
such Loan, provided, however, that for purposes of determining the Market Value
of any Securities hereunder, such term shall mean a day on which regular
trading occurs in the principal market for the Securities whose value is being
determined. Notwithstanding the foregoing, (a) for purposes of Section 9, “Business
Day” shall mean any day on which regular trading occurs in the principal market
for any Loaned Securities or for any Collateral consisting of Securities under
any outstanding Loan hereunder and “next Business Day” shall mean the next day
on which a transfer of Collateral may be effected in accordance with Section
15, and (b) in no event shall a Saturday or Sunday be considered a Business
Day.


 


24.7                           “Cash
Collateral Fee” shall have the meaning assigned in Section 5.1.


 


24.8                           “Clearing
Organization” shall mean (a) The Depository Trust Company, or, if agreed to by
Borrower and Lenders, such other “securities intermediary” (within the meaning
of the UCC) at which Borrower (or Borrower’s agent) and Lenders (or Lenders’s
agent) maintain accounts, or (b) a Federal Reserve Bank, to the extent that it
maintains a book-entry system.


 


24.9                           “Close
of Business” shall mean the time established by the parties in Schedule B or
otherwise orally or in writing or, in the absence of any such agreement, as
shall be determined in accordance with market practice.


 


24.10                     “Close of Trading” shall mean,
with respect to any Security, the end of the primary trading session established
by the principal market for such Security on a Business Day, unless otherwise
agreed by the parties.


 


16

















 


24.11                     “Collateral” shall mean cash,
securities issued or guaranteed by the United States government or its agencies
or instrumentalities, or irrevocable bank letters of credit issued by a person
other than the Borrower or an affiliate thereof.


 


24.12                     “Collateral Distributions” shall
have the meaning assigned in Section 8.5(a).


 


24.13                     “Confirmation” shall have the
meaning assigned in Section 2.1.


 


24.14                     “Contractual Currency” shall have
the meaning assigned in Section 16.1.


 


24.15                     “Customer” shall mean any person
that is a customer of Borrower under Rule 15c3-3 under the Exchange Act or any
comparable regulation of the Secretary of the Treasury under Section 15C of the
Exchange Act (to the extent that Borrower is subject to such Rule or comparable
regulation).


 


24.16                     “Cutoff Time” shall mean a time on
a Business Day by which a transfer of cash, securities or other property must
be made by Borrower or Lenders to the other, as shall be agreed by Borrower and
Lenders in Schedule B or otherwise orally or in writing or, in the absence of
any such agreement, as shall be determined in accordance with market practice.


 


24.17                     “Default” shall have the meaning
assigned in Section 12.


 


24.18                     “Defaulting Party” shall have the
meaning assigned in Section 17.


 


24.19                     “Distribution” shall mean, with
respect to any Security at any time, any distribution made on or in respect of
such Security, including, but not limited to: (a) cash and all other property,
(b) stock dividends, (c) Securities received as a result of split ups of such
Security and distributions in respect thereof, (d) interest payments, (e) all
rights to purchase additional Securities, and (f) any cash or other
consideration paid or provided by the issuer of such Security in exchange for
any vote, consent or the taking of any similar action in respect of such
Security (regardless of whether the record date for such vote, consent or other
action falls during the term of the Loan). 
In the event that the holder of a Security is entitled to elect the type
of distribution to be received from two or more alternatives, such election
shall be made by Lenders, in the case of a Distribution in respect of the
Loaned Securities, and by Borrower, in the case of a Distribution in respect of
Collateral.


 


24.20                     “Equity Security” shall mean any
security (as defined in the Exchange Act) other than a “nonequity security,” as
defined in Regulation T.


 


24.21                     “Exchange Act” shall mean the
Securities Exchange Act of 1934, as amended.


 


24.22                     “Extension Deadline” shall mean,
with respect to a letter of credit, the Cutoff Time on the Business Day
preceding the day on which the letter of credit expires.


 


24.23                     “FDIA” shall have the meaning
assigned in Section 25.4.


 


17

















 


24.24                     “FDICIA” shall have the meaning
assigned in Section 25.5.


 


24.25                     “Federal Funds Rate” shall mean
the rate of interest (expressed as an annual rate), as published in Federal
Reserve Statistical Release H.15(519) or any publication substituted therefor,
charged for federal funds (dollars in immediately available funds borrowed by
banks on an overnight unsecured basis) on that day or, if that day is not a
banking day in New York City, on the next preceding banking day.


 


24.26                     “Foreign Securities” shall mean,
unless otherwise agreed, Securities that are principally cleared and settled
outside the United States.


 


24.27                     “Government Securities” shall mean
government securities as defined in Section 3(a)(42)(A)-(C) of the Exchange
Act.


 


24.28                     “Lenders” shall have the meaning
assigned in Section 1.


 


24.29                     “Lenders Payment” shall have the
meaning assigned in Section 8.5(a).


 


24.30                     “LIBOR” shall mean for any date,
the offered rate for deposits in U.S. dollars for a period of three months
which appears on the Reuters Screen LIBO page as of 11:00 a.m., London time, on
such date (or, if at least two such rates appear, the arithmetic mean of such
rates).


 


24.31                     “Loan” shall have the meaning
assigned in Section 1.


 


24.32                     “Loan Fee” shall have the meaning
assigned in Section 5.1.


 


24.33                     “Loaned Security” shall mean any
Security transferred in a Loan hereunder until such Security (or an identical
Security) is transferred back to Lenders hereunder, except that, if any new or
different Security shall be exchanged for any Loaned Security by
recapitalization, merger, consolidation or other corporate action, such new or
different Security shall, effective upon such exchange, be deemed to become a
Loaned Security in substitution for the former Loaned Security for which such
exchange is made.  For purposes of return
of Loaned Securities by Borrower or purchase or sale of Securities pursuant to
Section 13, such term shall include Securities of the same issuer, class and
quantity as the Loaned Securities, as adjusted pursuant to the preceding
sentence.


 


24.34                     “Margin Deficit” shall have the
meaning assigned in Section 9.2.


 


24.35                     “Margin Excess” shall have the
meaning assigned in Section 9.3.


 


24.36                     “Margin Notice Deadline” shall
mean the time agreed to by the parties in the relevant Confirmation, Schedule B
hereto or otherwise as the deadline for giving notice requiring same-day
satisfaction of mark-to-market obligations as provided in Section 9 hereof (or,
in the absence of any such agreement, the deadline for such purposes
established in accordance with market practice).


 


18

















 


24.37                     “Margin Percentage” shall mean,
with respect to any Loan as of any date, a percentage agreed by Borrower and Lenders,
which shall be not less than 100%, unless (a) Borrower and Lenders agree
otherwise, as provided in Section 23.2, and (b) Lenders are not Customers.  Notwithstanding the previous sentence, in the
event that the writing or other confirmation evidencing the agreement described
in clause (a) does not set out such percentage with respect to any such Loan,
the Margin Percentage shall not be a percentage less than the percentage
obtained by dividing (i) the Market Value of the Collateral required to be
transferred by Borrower to Lenders with respect to such Loan at the
commencement of the Loan by (ii) the Market Value of the Loaned Securities
required to be transferred by Lenders to Borrower at the commencement of the
Loan.


 


24.38                     “Market Value” shall have the
meaning set forth in Annex I or otherwise agreed to by Borrower and Lenders in
writing.  Notwithstanding the previous
sentence, in the event that the meaning of Market Value has not been set forth
in Annex I or in any other writing, as described in the previous sentence,
Market Value shall be determined in accordance with market practice for the
Securities, based on the price for such Securities as of the most recent Close
of Trading obtained from a generally recognized source agreed to by the parties
or the closing bid quotation at the most recent Close of Trading obtained from
such source, plus accrued interest to the extent not included therein (other
than any interest credited or transferred to, or applied to the obligations of,
the other party pursuant to Section 8, unless market practice with respect to
the valuation of such Securities in connection with securities loans is to the
contrary).  If the relevant quotation did
not exist at such Close of Trading, then the Market Value shall be the relevant
quotation on the next preceding Close of Trading at which there was such a
quotation.  The determinations of Market
Value provided for in Annex I or in any other writing described in the first
sentences of this Section 24.38 or, if applicable, in the preceding sentence
shall apply for all purposes under this Agreement, except for purposes of
Section 13.


 


24.39                     “Payee” shall have the meaning
assigned in Section 8.5(a).


 


24.40                     “Payor” shall have the meaning
assigned in Section 8.5(a).


 


24.41                     “Plan” shall mean: (a) any “employee
benefit plan” as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 which is subject to Part 4 of Subtitle B of Title I of such
Act; (b) any “plan” as defined in Section 4975(e)(1) of the Internal Revenue
Code of 1986; or (c) any entity the assets of which are deemed to be assets of
any such “employee benefit plan” or “plan” by reason of the Department of Labor’s
plan asset regulation, 29 C.F.R. Section 2510.3-101.


 


24.42                     “Regulation T” shall mean
Regulation T of the Board of Governors of the Federal Reserve System, as in
effect from time to time.


 


19

















 


24.43                     “Retransfer” shall mean, with
respect to any Collateral, to pledge, repledge, hypothecate, rehypothecate,
lend, relend, sell or otherwise transfer such Collateral, or to re-register any
such Collateral evidenced by physical certificates in any name other than
Borrower’s.


 


24.44                     “Securities” shall mean securities
or, if agreed by the parties in writing, other assets.


 


24.45                     “Securities Distributions” shall
have the meaning assigned in Section 8.5(a).


 


24.46                     “Tax” shall have the meaning
assigned in Section 8.5(a).


 


24.47                     “UCC” shall mean the New York
Uniform Commercial Code.


 


25.           INTENT.


 


25.1                           The
parties recognize that each Loan hereunder is a “securities contract,” as such
term is defined in Section 741 of Title 11 of the United States Code (the “Bankruptcy
Code”), as amended (except insofar as the type of assets subject to the Loan
would render such definition inapplicable).


 


25.2                           It
is understood that each and every transfer of funds, securities and other
property under this Agreement and each Loan hereunder is a “settlement payment”
or a “margin payment,” as such terms are used in Sections 362(b)(6) and 546(e)
of the Bankruptcy Code.


 


25.3                           It
is understood that the rights given to Borrower and Lenders hereunder upon a
Default by the other constitute the right to cause the liquidation of a
securities contract and the right to set off mutual debts and claims in
connection with a securities contract, as such terms are used in Sections 555
and 362(b)(6) of the Bankruptcy Code.


 


25.4                           The
parties agree and acknowledge that if a party hereto is an “insured depository
institution,” as such term is defined in the Federal Deposit Insurance Act, as
amended (“FDIA”), then each Loan hereunder is a “securities contract” and “qualified
financial contract,” as such terms are defined in the FDIA and any rules,
orders or policy statements thereunder (except insofar as the type of assets
subject to the Loan would render such definitions inapplicable).


 


25.5                           It
is understood that this Agreement constitutes a “netting contract” as defined
in and subject to Title IV of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (“FDICIA”) and each payment obligation under any Loan
hereunder shall constitute a “covered contractual payment entitlement” or “covered
contractual payment obligation,” respectively, as defined in and subject to
FDICIA (except insofar as one or both of the parties is not a “financial
institution” as that term is defined in FDICIA).


 


20

















 


25.6                           Except
to the extent required by applicable law or regulation or as otherwise agreed,
Borrower and Lenders agree that Loans hereunder shall in no event be “exchange
contracts” for purposes of the rules of any securities exchange and that Loans
hereunder shall not be governed by the buy-in or similar rules of any such
exchange, registered national securities association or other self-regulatory
organization.


 


26.           DISCLOSURE RELATING TO CERTAIN
FEDERAL PROTECTIONS.


 


26.1                           WITHOUT
WAIVING ANY RIGHTS GIVEN TO LENDERS HEREUNDER, IT IS UNDERSTOOD AND AGREED THAT
THE PROVISIONS OF THE SECURITIES INVESTOR PROTECTION ACT OF 1970 MAY NOT
PROTECT LENDERS WITH RESPECT TO LOANED SECURITIES HEREUNDER AND THAT,
THEREFORE, THE COLLATERAL DELIVERED TO LENDERS MAY CONSTITUTE THE ONLY SOURCE
OF SATISFACTION OF BORROWER’S OBLIGATIONS IN THE EVENT BORROWER FAILS TO RETURN
THE LOANED SECURITIES.


 


26.2                           LENDERS
ACKNOWLEDGES THAT, IN CONNECTION WITH LOANS OF GOVERNMENT SECURITIES AND AS
OTHERWISE PERMITTED BY APPLICABLE LAW, SOME SECURITIES PROVIDED BY BORROWER AS
COLLATERAL UNDER THIS AGREEMENT MAY NOT BE GUARANTEED BY THE UNITED STATES.


 


(Signature Page Follows)


 


21

















 


IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date first above written.


 


 


	
   

  	
  Kenneth T. Hern, as LENDER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Kenneth
  T. Hern

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  J.D. McGraw, as LENDER:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ J.D.
  McGraw

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Jefferies
  & Company, as BORROWER:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Courtney
  Tuttle

  	
   

  



 


S-1

















 


ANNEX I


 


MARKET VALUE


 


Unless
otherwise agreed by Borrower and Lenders:


 


1.                                       If the principal
market for the Securities to be valued is a national securities exchange in the
United States, their Market Value shall be determined by their last sale price
on such exchange at the most recent Close of Trading or, if there was no sale
on the Business Day of the most recent Close of Trading, by the last sale price
at the Close of Trading on the next preceding Business Day on which there was a
sale on such exchange, all as quoted on the Consolidated Tape or, if not quoted
on the Consolidated Tape, then as quoted by such exchange.


 


2.                                       If the principal
market for the Securities to be valued is the over-the-counter market, and the
Securities are quoted on The Nasdaq Stock Market (“Nasdaq”), their Market Value
shall be the last sale price on Nasdaq at the most recent Close of Trading or,
if the Securities are issues for which last sale prices are not quoted on
Nasdaq, the last bid price at such Close of Trading.  If the relevant quotation did not exist at
such Close of Trading, then the Market Value shall be the relevant quotation on
the next preceding Close of Trading at which there was such a quotation.


 


3.                                       Except as
provided in Section 4 of this Annex, if the principal market for the Securities
to be valued is the over-the-counter market, and the Securities are not quoted
on Nasdaq, their Market Value shall be determined in accordance with market
practice for such Securities, based on the price for such Securities as of the
most recent Close of Trading obtained from a generally recognized source agreed
to by the parties or the closing bid quotation at the most recent Close of
Trading obtained from such a source.  If
the relevant quotation did not exist at such Close of Trading, then the Market
Value shall be the relevant quotation on the next preceding Close of Trading at
which there was such a quotation.


 


4.                                       If the
Securities to be valued are Foreign Securities, their Market Value shall be
determined as of the most recent Close of Trading in accordance with market
practice in the principal market for such Securities.


 


5.                                       The Market Value
of a letter of credit shall be the undrawn amount thereof.


 


6.                                       All
determinations of Market Value under Sections 1 through 4 of this Annex shall
include, where applicable, accrued interest to the extent not already included
therein (other than any interest credited or transferred to, or applied to the
obligations of, the other party pursuant to Section 8 of the Agreement), unless
market practice with respect to the valuation of such Securities in connection
with securities loans is to the contrary.


 


7.                                       The
determinations of Market Value provided for in this Annex shall apply for all
purposes under the Agreement, except for purposes of Section 13 of the
Agreement.


 


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ANNEX II


 


TERM LOANS


 


This Annex
sets forth additional terms and conditions governing Loans designated as “Term
Loans” in which Lenders lends to Borrower a specific amount of Loaned
Securities (“Term Loan Amount”) against a pledge of cash Collateral by Borrower
for an agreed upon Cash Collateral Fee until a scheduled termination date (“Termination
Date”).  Unless otherwise defined,
capitalized terms used but not defined in this Annex shall have the meanings
assigned in the Securities Loan Agreement of which it forms a part (such
agreement, together with this Annex and any other annexes, schedules or
exhibits, referred to as the “Agreement”).


 


1.                                       The terms of
this Annex shall apply to Loans of Equity Securities only if they are
designated as Term Loans in a Confirmation therefor provided pursuant to the
Agreement and executed by each party, in a schedule to the Agreement or in this
Annex.  All Loans of Securities other
than Equity Securities shall be “Term Loans” subject to this Annex, unless
otherwise agreed in a Confirmation or other writing.


 


2.                                       The Confirmation
for a Term Loan shall set forth, in addition to any terms required to be set
forth therein under the Agreement, the Term Loan Amount, the Cash Collateral
Fee and the Termination Date.  Lenders
and Borrower agree that, except as specifically provided in this Annex, each
Term Loan shall be subject to all terms and conditions of the Agreement,
including, without limitation, any provisions regarding the parties’ respective
rights to terminate a Loan.


 


3.                                       In the event
that either party exercises its right under the Agreement to terminate a Term
Loan on a date (the “Early Termination Date”) prior to the Termination Date, Lenders
and Borrower shall, unless otherwise agreed, use their best efforts to
negotiate in good faith a new Term Loan (the “Replacement Loan”) of comparable
or other Securities, which shall be mutually agreed upon by the parties, with a
Market Value equal to the Market Value of the Term Loan Amount under the
terminated Term Loan (the “Terminated Loan”) as of the Early Termination
Date.  Such agreement shall, in
accordance with Section 2 of this Annex, be confirmed in a new Confirmation at
the commencement of the Replacement Loan and be executed by each party.  Each Replacement Loan shall be subject to the
same terms as the corresponding Terminated Loan, other than with respect to the
commencement date and the identity of the Loaned Securities.  The Replacement Loan shall commence on the
date on which the parties agree which Securities shall be the subject of the
Replacement Loan and shall be scheduled to terminate on the scheduled
Termination Date of the Terminated Loan.


 


4.                                       Borrower and Lenders
agree that, except as provided in Section 5 of this Annex, if the parties enter
into a Replacement Loan, the Collateral for the related Terminated Loan need
not be returned to Borrower and shall instead serve as Collateral for such
Replacement Loan.


 


5.                                       If the parties
are unable to negotiate and enter into a Replacement Loan for some or all of
the Term Loan Amount on or before the Early Termination Date, (a) the party
requesting 


 


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termination of
the Terminated Loan shall pay to the other party a Breakage Fee computed in
accordance with Section 6 of this Annex with respect to that portion of the
Term Loan Amount for which a Replacement Loan is not entered into and (b) upon
the transfer by Borrower to Lenders of the Loaned Securities subject to the
Terminated Loan, Lenders shall transfer to Borrower Collateral for the
Terminated Loan in accordance with and to the extent required under the
Agreement, provided that no Default has occurred with respect to Borrower.


 


6.                                       For purposes of
this Annex, the term “Breakage Fee” shall mean a fee agreed by Borrower and Lenders
in the Confirmation or otherwise orally or in writing.  In the absence of any such agreement, the
term “Breakage Fee” shall mean, with respect to Loans of Government Securities,
a fee equal to the sum of (a) the cost to the non-terminating party (including
all fees, expenses and commissions) of entering into replacement transactions
and entering into or terminating hedge transactions in connection with or as a
result of the termination of the Terminated Loan, and (b) any other loss,
damage, cost or expense directly arising or resulting from the termination of
the Terminated Loan that is incurred by the non-terminating party (other than
consequential losses or costs for lost profits or lost opportunities), as
determined by the non-terminating party in a commercially reasonable manner,
and (c) any other amounts due and payable by the terminating party to the
non-terminating party under the Agreement on the Early Termination Date.


 


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SCHEDULE A


 


NAMES AND ADDRESSES FOR COMMUNICATIONS


 


Kenneth T Hern

c/o Nova Biosource Fuels, Inc.

363 Sam Houston Parkway East

Suite 630

Houston, TX 77060


 


 


J.D. McGraw

c/o Nova Biosource Fuels, Inc.

363 Sam Houston Parkway East

Suite 630

Houston, TX 77060


 


 


Jefferies
& Company, Inc.

520 Madison Ave. 

New York, New York 10022

Attention:  General Counsel


 


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SCHEDULE B


 


SUPPLEMENTAL
PROVISIONS


 


A.            IDENTIFICATION AND AMOUNT OF LOANED
SECURITIES:


 


Issuer: Nova Biosource Fuels, Inc.


 


Amount: Up to 8,000,000 shares of common
stock of the Issuer


 


B.            COLLATERAL:


 


Cash in an amount equal to the daily Market
Value of the Loaned Securities


 


C.            FEES:


 


Loan Fee:                            [•]%


 


Cash
Collateral Fee:            [•]%


 


At all times, the net of the two fees should
result in a net benefit of 25 basis points to be retained by Lenders.


 


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