FORM OF
ISSUER WARRANT TRANSACTION
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BorgWarner
Inc.
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3850 Hamlin
Road
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Auburn Hills,
MI 48326
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Bank of
America, N.A.
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c/o Banc of
America Securities LLC
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Bank of America
Tower at One Bryant Park
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New York, NY
10036
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Issuer Warrant
Transaction
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NY-38451
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April 6,
2009
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The purpose of
this communication (this “ Confirmation
”) is to set forth the terms and conditions of the
above-referenced transaction entered into on the Trade Date
specified below (the “ Transaction ”)
between Bank of America, N.A. (“ Dealer ”) and
BorgWarner Inc. (“ Issuer ”). This communication
constitutes a “ Confirmation ” as referred to in
the ISDA Master Agreement specified below.
This Confirmation
is subject to, and incorporates, the definitions and provisions of
the 2006 ISDA Definitions (the “ 2006
Definitions ”) and the definitions and provisions of
the 2002 ISDA Equity Derivatives Definitions (the “
Equity Definitions ”, and together with the
2006 Definitions, the “ Definitions ”),
in each case as published by the International Swaps and
Derivatives Association, Inc. (“ ISDA ”).
In the event of any inconsistency between the 2006 Definitions and
the Equity Definitions, the Equity Definitions will govern. For
purposes of the Equity Definitions, each reference herein to a
Warrant shall be deemed to be a reference to a Call Option or an
Option, as context requires.
Each party is
hereby advised, and each such party acknowledges, that the other
party has engaged in, or refrained from engaging in, substantial
financial transactions and has taken other material actions in
reliance upon the parties’ entry into the Transaction to
which this Confirmation relates on the terms and conditions set
forth below.
This Confirmation
evidences a complete and binding agreement between Dealer and
Issuer as to the terms of the Transaction to which this
Confirmation relates. This Confirmation shall be subject to an
agreement (the “ Agreement ”) in the form of the
1992 ISDA Master Agreement (Multicurrency—Cross Border) as if
Dealer and Issuer had executed an agreement in such form on the
date hereof (but without any Schedule except for (i) the
election of Loss and Second Method and US Dollars (“
USD ”) as the Termination Currency, (ii) the
replacement of the word “third” in the last line of
Section 5(a)(i) of the Agreement with the word
“second,” (iii) the election that the “Cross
Default” provisions of Section 5(a)(vi) of the Agreement
shall apply to Issuer with a “Threshold Amount” of
USD25 million and (iv) such other elections as set forth
in this Confirmation.
1
All provisions
contained in, or incorporated by reference to, the Agreement will
govern this Confirmation except as expressly modified herein. In
the event of any inconsistency between this Confirmation and either
the Definitions or the Agreement, this Confirmation shall
govern.
The Transaction
hereunder shall be the sole Transaction under the Agreement. If
there exists any ISDA Master Agreement between Dealer and Issuer or
any confirmation or other agreement between Dealer and Issuer
pursuant to which an ISDA Master Agreement is deemed to exist
between Dealer and Issuer, then notwithstanding anything to the
contrary in such ISDA Master Agreement, such confirmation or
agreement or any other agreement to which Dealer and Issuer are
parties, the Transaction shall not be considered a Transaction
under, or otherwise governed by, such existing or deemed ISDA
Master Agreement.
The Transaction is
a Warrant Transaction, which shall be considered a Share Option
Transaction for purposes of the Equity Definitions. The terms of
the particular Transaction to which this Confirmation relates are
as follows:
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April 6,
2009
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April 9,
2009, or such other date as agreed between the parties, subject to
Section 8(k) below.
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The Transaction
will be divided into individual Components, each with the terms set
forth in this Confirmation, and, in particular, with the Number of
Warrants and Expiration Date set forth in this Confirmation. The
payments and deliveries to be made upon settlement of the
Transaction will be determined separately for each Component as if
each Component were a separate Transaction under the
Agreement.
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European
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Call
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Issuer
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Dealer
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The Common
Stock of Issuer, par value USD0.01 per share (Ticker Symbol:
“BWA”).
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For each
Component, as provided in Annex A to this Confirmation.
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One Share per
Warrant
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USD38.61
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USD13,585,001
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The Effective
Date
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New York Stock
Exchange
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All Exchanges
located in the United States.
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In
respect of any Component:
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Valuation
Time
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2
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As provided in
Annex A to this Confirmation (or, if such date is not a
Scheduled Trading Day, the next following Scheduled Trading Day
that is not already an Expiration Date for another Component);
provided that if that date is a Disrupted Day, the
Expiration Date for such Component shall be the first succeeding
Scheduled Trading Day that is not a Disrupted Day and is not or is
not deemed to be an Expiration Date in respect of any other
Component of the Transaction hereunder; and provided further
that if the Expiration Date has not occurred pursuant to the
preceding proviso as of the Final Disruption Date, the Calculation
Agent shall have the right to elect, in its reasonable discretion,
that the Final Disruption Date shall be the Expiration Date
(irrespective of whether such date is an Expiration Date in respect
of any other Component for the Transaction). “ Final
Disruption Date ” means October 19, 2012.
Notwithstanding the foregoing and anything to the contrary in the
Equity Definitions, if a Market Disruption Event occurs on any
Expiration Date, the Calculation Agent may reasonably determine
that such Expiration Date is a Disrupted Day only in part, in which
case the Calculation Agent shall make adjustments to the Number of
Warrants for the relevant Component for which such day shall be the
Expiration Date and shall designate the Scheduled Trading Day
determined in the manner described in the immediately preceding
sentence as the Expiration Date for the remaining Warrants for such
Component and shall determine the VWAP Price based on transactions
in the Shares effected before the relevant Market Disruption Event
occurred and/or after the relevant Market Disruption Event ended.
Section 6.6 of the Equity Definitions shall not apply to any
Valuation Date occurring on an Expiration Date.
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Section 6.3(a) of the Equity Definitions is
hereby amended by deleting the words “during the one hour
period that ends at the relevant Valuation Time, Latest Exercise
Time, Knock-in Valuation Time or Knock-out Valuation Time, as the
case may be,” in clause (ii) thereof.
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Section 6.3(d) of the Equity Definitions is
hereby amended by deleting the remainder of the provision following
the term “Scheduled Closing Time” in the fourth line
thereof. Any Scheduled Trading Day on which the Exchange is
scheduled to close prior to its normal close of trading shall be
deemed to be a Disrupted Day in full.
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Applicable; and
means that the Number of Warrants for the corresponding Expiration
Date will be deemed to be automatically exercised at the Expiration
Time on such Expiration Date unless Dealer notifies Seller (by
telephone or in writing) prior to the Expiration
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Time on such
Expiration Date that it does not wish Automatic Exercise to occur,
in which case Automatic Exercise will not apply to such Expiration
Date.
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Issuer’s Telephone Number
and
Telex and/or Facsimile Number
and Contact Details for purpose
of Giving Notice:
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To: BorgWarner
Inc.
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Attn: Anthony
D. Hensel,
Vice
President and Treasurer
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Telephone:
248-754-0861
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Facsimile:
248-754-9069
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In
respect of any Component:
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USD
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On each
Settlement Date, Issuer shall deliver to Dealer a number of Shares
equal to the Number of Shares to be Delivered for such Settlement
Date to the account specified by Dealer and cash in lieu of any
fractional Share valued at the VWAP Price on the Valuation Date
corresponding to such Settlement Date. If, in the reasonable
judgment of Issuer or Dealer, based on advice of counsel, for any
reason, the Shares deliverable upon Net Share Settlement would not
be immediately freely transferable by Dealer under Rule 144
under the Securities Act of 1933, as amended (the “
Securities Act ”), then Dealer may elect to either
(x) accept delivery of such Shares notwithstanding any
restriction on transfer or (y) have the provisions set forth
in Section 8(b) below apply.
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The Number of
Shares to be Delivered shall be delivered by Issuer to Dealer no
later than 12:00 noon (local time in New York City) on the relevant
Settlement Date.
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Number of Shares to be
Delivered:
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In respect of
any Exercise Date, subject to the last sentence of Section 9.5
of the Equity Definitions, the product of (i) the number of
Warrants exercised or deemed exercised on such Exercise Date,
(ii) the Warrant Entitlement and (iii) (A) the excess of
the VWAP Price on the Valuation Date occurring on such Exercise
Date over the Strike Price (or, if there is no such excess, zero)
divided by (B) such VWAP Price.
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For any
Exchange Business Day, as reasonably determined by the Calculation
Agent based on the New York Stock Exchange Volume Weighted Average
Price per Share for the regular trading session (including any
extensions thereof) of the Exchange on such Exchange Business Day
(without
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regard to
pre-open or after hours trading outside of such regular trading
session), as published by Bloomberg at 4:15 P.M., New York City
time (or 15 minutes following the end of any extension of the
regular trading session), on such Exchange Business Day, on
Bloomberg page “BWA.N <Equity> AQR” (or any
successor thereto) (or if such published volume weighted average
price is unavailable or is manifestly incorrect, the market value
of one Share on such Exchange Business Day, as reasonably
determined by the Calculation Agent using a volume weighted
method).
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Other Applicable
Provisions:
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The provisions
of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11 and 9.12 of the
Equity Definitions will be applicable as if “Physical
Settlement” applied to the Transaction; provided that
the Representation and Agreement contained in Section 9.11 of
the Equity Definitions shall be modified by excluding any
representations therein relating to restrictions, obligations,
limitations or requirements under applicable securities laws that
exist as a result of the fact that Issuer is the issuer of the
Shares.
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In
respect of any Component:
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Calculation
Agent Adjustment; provided that the parties agree that open
market Share repurchases at prevailing market prices or accelerated
share repurchases, forward contracts or similar transactions on
customary terms (including without limitation any discount to
average VWAP prices) shall not be considered Potential Adjustment
Events. For the avoidance of doubt, Calculation Agent Adjustment
shall continue to apply until the obligations of the parties
(including any obligations of Issuer pursuant to Section 8(e)
below) under the Transaction have been satisfied in
full.
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In the
definition of New Shares in Section 12.1(i) of the Equity
Definitions, the text in clause (i) shall be deleted in its
entirety and replaced with “publicly quoted, traded or listed
on any of the New York Stock Exchange, The NASDAQ Global Market or
The NASDAQ Global Select Market (or their respective
successors)”.
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Consequences of Merger
Events:
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Modified
Calculation Agent Adjustment
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Cancellation
and Payment (Calculation Agent Determination)
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Cancellation
and Payment (Calculation Agent Determination); provided that
the Calculation Agent may elect Component Adjustment for all or
part of the Transaction.
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Applicable;
provided that for the purposes of Section 12.1(d) of
the Equity Definitions, references in the definition of Tender
Offer to 10% shall be replaced with 20%.
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Consequences of Tender
Offers:
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Modified
Calculation Agent Adjustment
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Modified
Calculation Agent Adjustment
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Modified
Calculation Agent Adjustment
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Upon the
occurrence of any Merger Event pursuant to which the holders of
Issuer’s Shares would be entitled to receive cash, securities
or other property for their Shares and for which Modified
Calculation Agent Adjustment would apply, if, as a result of such
Merger Event, Issuer would be different from the issuer of the
Shares under this Confirmation, then, on or prior to the effective
date of such Merger Event, the Issuer and the issuer of the Shares
under this Confirmation will enter into a supplemental confirmation
as a condition precedent to the adjustments contemplated in
Section 12.2(e)(i) of the Equity Definitions, with such
supplemental confirmation containing representations, warranties
and agreements relating to securities law and other issues as
reasonably requested by Dealer that Dealer has determined, in its
reasonable discretion, to be reasonably necessary or appropriate to
allow Dealer to continue as a party to the Transaction, as adjusted
under Section 12.2(e)(i) of the Equity Definitions, and to preserve
its hedging or hedge unwind activities in connection with the
Transaction in a manner compliant with applicable legal, regulatory
or self-regulatory requirements, or with related policies and
procedures applicable to Dealer, and if such conditions are not met
in all material respects or if the Calculation Agent determines
that no adjustment that it could make under Section 12.2(e)(i)
of the Equity Definitions will produce a commercially reasonable
result, then the consequences set forth in Section 12.2(e)(ii)
of the Equity Definitions shall apply.
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Nationalization, Insolvency
or Delisting:
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Cancellation
and Payment (Calculation Agent Determination); provided that
in addition to the provisions of Section 12.6(a)(iii) of the
Equity Definitions, it shall also constitute a Delisting if the
Exchange is located in the United States and the Shares are not
immediately re-listed, re-traded or re-quoted on any of the New
York Stock Exchange, The
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NASDAQ Global
Select Market or The NASDAQ Global Market (or their respective
successors); if the Shares are immediately re-listed, re-traded or
re-quoted on any such exchange or quotation system, such exchange
or quotation system shall thereafter be deemed to be the
Exchange.
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Additional Disruption
Events:
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Applicable;
provided that Section 12.9(a)(ii) of the Equity
Definitions is hereby amended by (i) replacing the phrase
“the interpretation” in the third line thereof with the
phrase “or announcement or statement of the formal or
informal interpretation” and (ii) immediately following
the word “Transaction” in clause (X) thereof,
adding the phrase “in the manner contemplated by Hedging
Party on the Trade Date.”
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Not
Applicable
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Applicable
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Applicable
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(e) Increased Cost
of Hedging:
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Applicable
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(f) Loss of Stock
Borrow:
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Applicable
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2.00% per
annum
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(g) Increased Cost
of Stock
Borrow:
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Applicable
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0.25% per
annum
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Dealer for all
applicable Additional Disruption Events.
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Dealer for all
applicable Additional Disruption Events.
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Applicable
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Agreements and
Acknowledgments Regarding
Hedging Activities:
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Applicable
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Additional
Acknowledgments:
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Applicable
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Calculation
Agent : Dealer. All determinations made by the Calculation
Agent shall be made in good faith and in a commercially reasonable
manner. Following any calculation by the Calculation Agent
hereunder, upon a prior written request by Issuer, the Calculation
Agent will provide to Issuer by e-mail to the e-mail address
provided by Issuer in such prior written request a report (in a
commonly used file format for the storage and manipulation of
financial data) displaying in reasonable detail the basis for such
calculation, it being understood that the Calculation Agent shall
not be obligated to disclose any proprietary models used by it for
such calculation. No transferee of Dealer with respect to any
Warrants in accordance with the terms of this Confirmation shall
act as Calculation Agent with respect to such transferred Warrants
without the prior consent of Issuer, such consent not to be
unreasonably withheld or delayed.
Dealer
Payment Instructions:
Bank of
America
New York, NY
7
SWIFT:
BOFAUS65
Bank Routing: 026-009-593
Account Name: Bank of America
Account No.: 0012333-34172
Account
for delivery of Shares to Dealer:
To be provided
by Dealer.
Issuer
Payment Instructions:
To be provided
by Issuer.
The
Office of Dealer for the Transaction is:
Bank of
America, N.A.
c/o Banc of America Securities LLC
Bank of America Tower at One Bryant Park
New York, NY 10036
The
Office of Issuer for the Transaction is:
Inapplicable.
Issuer is not a Multibranch Party.
6.
Notices : For purposes of this Confirmation:
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(a)
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Address for notices or
communications to Issuer:
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BorgWarner
Inc.
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3850 Hamlin
Road
Auburn Hills, MI 48326
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Anthony D.
Hensel,
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Vice President
and Treasurer
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248-754-0861
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248-754-9069
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(b)
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Address for notices or
communications to Dealer:
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Bank of
America, N.A.
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c/o Banc of
America Securities LLC
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Bank of America
Tower at One Bryant Park New York, NY 10036
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John
Servidio
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646-855-7127
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212-230-8610
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7. Representations
, Warranties and Agreements :
(a) In
addition to the representations and warranties in the Agreement and
those contained elsewhere herein, Issuer represents and warrants to
and for the benefit of, and agrees with, Dealer as
follows:
(i) On the Trade
Date, and as of the date of any election by Issuer of the Share
Termination Alternative under (and as defined in) Section 8(a)
below, none of Issuer and its executive officers and directors is
aware of any material nonpublic information regarding Issuer or the
Shares. On the Trade Date, all reports and other documents filed by
Issuer with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended (the “
Exchange Act ”), when considered as a whole (with the
more recent such reports and documents
8
deemed to amend
inconsistent statements contained in any earlier such reports and
documents), do not contain any untrue statement of a material fact
or any omission of a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading.
(ii) Without
limiting the generality of Section 13.1 of the Equity
Definitions, Issuer acknowledges that neither Dealer nor any of its
affiliates is making any representations or warranties or taking a
position or expressing any view with respect to the treatment of
the Transaction under any accounting standards, including FASB
Statements 128, 133 (as amended), 149 or 150, EITF Issue
No. 00-19, 01-6, 03-6 or 07-5 (or any successor issue
statements) or under the FASB’s Liabilities & Equity
Project.
(iii) Prior to the
Trade Date, Issuer shall deliver to Dealer a resolution of
Issuer’s board of directors authorizing the Transaction and
such other certificate or certificates as Dealer shall reasonably
request.
(iv) Issuer is not
entering into this Confirmation to create actual or apparent
trading activity in the Shares (or any security convertible into or
exchangeable for Shares) or to raise or depress or otherwise
manipulate the price of the Shares (or any security convertible
into or exchangeable for Shares) or otherwise in violation of the
Exchange Act.
(v) Issuer is not,
and after giving effect to the transactions contemplated hereby
will not be, required to register as an “investment
company” as such term is defined in the Investment Company
Act of 1940, as amended.
(vi) On the Trade
Date and the Premium Payment Date (A) the assets of Issuer at
their fair valuation exceed the liabilities of Issuer, including
contingent liabilities, (B) the capital of Issuer is adequate
to conduct the business of Issuer and (C) Issuer has the
ability to pay its debts and obligations as such debts mature and
does not intend to, or does not believe that it will, incur debt
beyond its ability to pay as such debts mature.
(vii) Issuer shall
not take any action to decrease the number of Available Shares
below the Capped Number (each as defined below).
(viii) Issuer
understands no obligations of Dealer to it hereunder will be
entitled to the benefit of deposit insurance and that such
obligations will not be guaranteed by any governmental
agency.
(ix)
(A) During the period starting on the first Expiration Date
and ending on the last Expiration Date (the “ Settlement
Period ”), the Shares or securities that are convertible
into, or exchangeable or exercisable for Shares, are not, and shall
not be, subject to a “restricted period,” as such term
is defined in Regulation M under the Exchange Act (“
Regulation M ”) and (B) Issuer shall not
engage in any “distribution,” as such term is defined
in Regulation M, other than a distribution meeting the
requirements of the exceptions set forth in sections 101(b)(10) and
102(b)(7) of Regulation M, until the second Exchange Business
Day immediately following the Settlement Period.
(x) During the
Settlement Period, neither Issuer nor any “affiliate”
or “affiliated purchaser” (each as defined in
Rule 10b-18 of the Exchange Act (“
Rule 10b-18 ”)) shall directly or indirectly
(including, without limitation, by means of any cash-settled or
other derivative instrument) purchase, offer to purchase, place any
bid or limit order that would effect a purchase of, or commence any
tender offer relating to, any Shares (or an equivalent interest,
including a unit of beneficial interest in a trust or limited
partnership or a depository share) or any security convertible into
or exchangeable or exercisable for Shares, except through Dealer,
other than purchases from its employees that are not
“Rule 10b-18 purchases” as defined in
Rule 10b-18(a)(13).
9
(xi) Issuer agrees
that it (A) will not during the Settlement Period make, or
permit to be made, any public announcement (as defined in Rule
165(f) under the Securities Act) of any Merger Transaction or
potential Merger Transaction unless such public announcement is
made prior to the opening or after the close of the regular trading
session on the Exchange for the Shares; (B) shall promptly
(but in any event prior to the next opening of the regular trading
session on the Exchange) notify Dealer following any such
announcement that such announcement has been made; and
(C) shall promptly (but in any event prior to the next opening
of the regular trading session on the Exchange) provide Dealer with
written notice specifying (i) Issuer’s average daily
Rule 10b-18 Purchases (as defined in Rule 10b-18) during
the three full calendar months immediately preceding the
announcement date that were not effected through Dealer or its
affiliates and (ii) the number of Shares purchased pursuant to
the proviso in Rule 10b-18(b)(4) under the Exchange Act for
the three full calendar months preceding the announcement date.
Such written notice shall be deemed to be a certification by Issuer
to Dealer that such information is true and correct. In addition,
Issuer shall promptly notify Dealer of the earlier to occur of the
completion of such transaction and the completion of the vote by
target shareholders. “ Merger Transaction ”
means any merger, acquisition or similar transaction involving a
recapitalization as contemplated by Rule 10b-18(a)(13)(iv)
under the Exchange Act.
(xii) The Shares
of Issuer initially issuable upon exercise of the Warrants have
been reserved for issuance by all required corporate action of the
Issuer. Any Shares issued or delivered in connection with the
Transaction shall be duly authorized and validly issued, fully paid
and non-assessable, and the issuance or delivery thereof shall not
be subject to any preemptive or similar rights.
(b) Each of
Dealer and Issuer agrees and represents that it is an
“eligible contract participant” as defined in
Section 1a(12) of the U.S. Commodity Exchange Act, as
amended.
(c) Each of
Dealer and Issuer acknowledges that the offer and sale of the
Transaction to it is intended to be exempt from registration under
the Securities Act, by virtue of Section 4(2) thereof.
Accordingly, Dealer represents and warrants to Issuer that
(i) it has the financial ability to bear the economic risk of
its investment in the Transaction and is able to bear a total loss
of its investment and its investments in and liabilities in respect
of the Transaction, which it understands are not readily
marketable, are not disproportionate to its net worth, and it is
able to bear any loss in connection with the Transaction, including
the loss of its entire investment in the Transaction, (ii) it
is an “accredited investor” as that term is defined in
Regulation D as promulgated under the Securities Act,
(iii) it is entering into the Transaction for its own account
without a view to the distribution or resale thereof, (iv) the
assignment, transfer or other disposition of the Transaction has
not been and will not be registered under the Securities Act and is
restricted under this Confirmation, the Securities Act and state
securities laws, and (v) its financial condition is such that
it has no need for liquidity with respect to its investment in the
Transaction and no need to dispose of any portion thereof to
satisfy any existing or contemplated undertaking or indebtedness
and is capable of assessing t
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