Extraordinary Events - Equity Derivatives Provision

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2002 ISDA Equity Derivatives Definitions
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Hot topics Synthetic Prime Brokerage Anatomy | The Triple Cocktail | Cancellation and Payment | Calculation Agent
TOC | 1 General Definitions | 2 Option Transactions | 3 Exercise of Options | 4 Forward Transactions | 5 Equity Swap Transactions | 6 Valuation | 7 Settlement | 8 Cash Settlement | 9 Physical Settlement | 10 Dividends | 11 Adjustments and Modifications | 12 Extraordinary Events · 12.8 Cancellation Amount · 12.9 Additional Disruption Events · 12.9 List of ADEs · 12.9(b) Consequences of ADEs | 13 Miscellaneous

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Section 12 in a Nutshell
Use at your own risk, campers!

Article 12 Extraordinary Events
12.1. General Provisions Relating to Extraordinary Events.

12.1(a)Extraordinary Event” means a Merger Event, Tender Offer, Index Adjustment Event, Nationalization, Insolvency, Delisting or Additional Disruption Event.
12.1(b) A “Merger Event” relating to any Shares means:
(i) a mandatory requirement to transfer all of those Shares to another entity;
(ii) the Issuer merges with another entity (except where the Issuer is the continuing entity and the Shares are not changed)
(iii) any entity offers to acquire 100% of the outstanding Shares and that offer results in an irrevocable commitment to transfer all the Shares to the offeror, or
(iv) the Issuer or its subsidiaries merges with another entity where the Issuer is the continuing entity and the Shares are not changed, but the outstanding Shares (not controlled by the other entity) immediately before the merger represented less than 50% of the outstanding Shares left after the merger (a “Reverse Merger”),
in each case if the Merger Date is on or before,
(A) for Physically-settled Option Transactions the later of the Expiration Date and the final Settlement Date,
(B) for Physically-settled Forward Transaction or Equity Swap Transactions, the relevant Settlement Date or,
(C) in any other case, the final Valuation Date.
12.1(c)Merger Date” means the closing date of a Merger Event or, if one can’t be determined the date determined by the Calculation Agent.
12.1(d)Tender Offer” means the Calculation Agent determines there has been a takeover offer or other event that results in an entity obtaining or having the right to obtain more than 10% and less than 100% of the outstanding voting shares of the Issuer.
12.1(e)Tender Offer Date” means, for a Tender Offer, the date the Calculation Agent determines on which the applicable percentage threshold of voting shares are actually purchased.
12.1(f)Share-for-Share” means
(i) for a Merger Event or Tender Offer, that the consideration for the relevant Shares consists (or, at the option of the holder of such Shares, will consist) solely of New Shares, and
(ii) a Reverse Merger.
12.1(g)Share-for-Other” means a Merger Event or Tender Offer where the consideration is solely Other Consideration.
12.1(h)Share-for-Combined” means a Merger Event or Tender Offer where the consideration is Combined Consideration.
12.1(i)New Shares” means ordinary shares of any entity, that following the Merger Date or Tender Offer Date will be:
(i) publicly quoted, on a venue located in the same country as the Exchange (or, for European Union Exchanges, in the European Union) and
(ii) not subject to any exchange controls or trading limitations.
12.1(j)Other Consideration” means consideration other than New Shares.
12.1(k)Combined Consideration” means a combination of New Shares and Other Consideration.
12.1(l)Announcement Date” means, in respect of an Extraordinary Event,
(i) for a Merger Event, the date when a firm intention to merge is first publicly announced,
(ii) for a Tender Offer, the date when a firm intention to purchase the requisite number of voting shares that leads to the Tender Offer is first publicly announced,
(iii) for an Index Disruption or Index Cancellation, the date when the Index Sponsor publicly announces any adjustment or cancellation causing an Index Disruption or Index Cancellation and in the case of an Index Modification, the Exchange Business Day before the Index Modificationis effective,
(iv) for a Nationalization, when the proposed Nationalization is first publicly announced,
(v) for an Insolvency, when institution of insolvency proceedings, presentation of an insolvency petition or similar action that leads to the Insolvency is publicly announced; and
(vi) for a Delisting, when the Exchange first publicly announces that the Shares will cease to be listed as contrampled in Section 12.6(a)(iii).
If any Extraordinary Event (other than an Index Disruption) is announced after the actual closing time for the ordinary regular trading session on Exchange, the Announcement Date will be the next Scheduled Trading Day.
12.1(m)Implied Volatility” means for any Exchange Business Day, the mid-market implied volatility of the Shares the Calculation Agent determines by reference to the most comparable listed option on the relevant Shares considering such factors as it considers appropriate. If there is no such listed option or the Calculation Agent considers it is not sufficiently liquid, it will determine Implied Volatility at it sees fit.
12.1(n)Affected Shares” means Shares affected by a Merger Event or Tender Offer.

12.2. Consequences of Merger Events.
For any Merger Event if, under “Consequences of Merger Events” for “Share-for-Share”, “Share-for-Other” or “Share-for-Combined”, the specified consequence is:

12.2(a)Alternative Obligation”, then except for Reverse Mergers, following the Merger Date:
(i) the relevant New Shares or Other Consideration (as modified by any relevant terms and including any proceeds of any redemption) will be deemed to be the “Shares
(ii) if relevant, the new issuer will be deemed to be the “Issuer”;
(iii) those New Shares or Other Consideration to which an existing shareholder would be entitled upon completion of the Merger Event will be deemed the relevant “Number of Shares”; and
(iv) the Calculation Agent will make other adjustments to the terms, as necessary (but will not adjust to account solely for changes in volatility, expected dividends, stock loan rate or liquidity).
12.2(b)Cancellation and Payment”, the Transaction will be cancelled as of the Merger Date and:
(i) Option Transactions: Seller will pay Buyer the Section 12.7(b) amount, and
(ii) Forward Transactions and Equity Swap Transactions: one party will pay the other a 12.7(c) amount;
12.2(c)Options Exchange Adjustment”, then the Calculation Agent will adjust the Transaction per Options Exchange Adjustment in Section 11.2(b) (but ignoring the words “diluting or concentrative”);
12.2(d)Calculation Agent Adjustment”, the Calculation Agent must either:
(i) adjust the Transaction to account for the economic effect of the Merger Event (excluding changes in volatility, expected dividends, stock loan rate or liquidity of the Shares or the Transaction), or
(ii) if it considers that that could not produce a commercially reasonable result, notify the parties that the Transaction will be terminated, in which case Cancellation and Payment will apply and any necessary payments will be calculated under Section 12.7 (and for Option Transactions, the Calculation Agent must determine the payment as if “Calculation Agent Determination” applied);
12.2(e) If “Modified Calculation Agent Adjustment” is specified then, after the Merger Date, the Calculation Agent will either
(i) adjust the Transaction to account for the economic effect of the Merger Date in its determination, or
(ii) if that would not produce a commercially reasonable result, terminate the Transaction, at “Cancellation and Payment” (or, for an Option Transaction, “Calculation Agent Determination”) under Section 12.7.
12.3(e)Partial Cancellation and Payment”, then the portion of a Share Basket Transaction represented by Affected Shares will be cancelled as of the Merger Date, the amount calculated under Section 12.7 for such Affected Shares will be paid by one party to the other, the Share Basket Transaction will continue with the Basket comprising the remaining Shares, and the Calculation Agent will adjust any terms if necessary to preserve as nearly as practicable the economic terms of the Transaction for the remaining Shares; or
12.2(g)Component Adjustment”, then, where a Merger Event is “Share-for-Combined”, the option chosen for “Share-for-Share” will apply to the New Shares component and the option chosen for “Share-for-Other” will apply to the Other Consideration component (as the Calculation Agent determines).

12.3. Consequences of Tender Offers. If “Tender Offer” applies, then if, under “Consequences of Tender Offers” for “Share-for-Share”, “Share-for-Other” or “Share-for-Combined”, the specified consequence is:

12.3(a)Cancellation and Payment”, then the Transaction in question will be cancelled as of the Tender Offer Date and:
(i) Under an Option Transaction, Seller will pay Buyer the amount calculated under Section 12.7(b), and
(ii) Under a Forward Transaction or a Equity Swap Transaction one party will pay to the other the amount calculated under Section 12.7(c);
12.3(b)Options Exchange Adjustment”, then following each adjustment to the settlement terms of any relevant Options Exchange-traded options, the Calculation Agent will make adjustments per Section 11.2(b) (ignoring the words “diluting or concentrative” in the second sentence);
12.3(c)Calculation Agent Adjustment”, then, following the Tender Offer Date the Issuer and the Shares will not change, but the Calculation Agent shall either:
(i) adjust the Transaction to account for the economic effect of the Tender Offer on the Transaction (but not solely for changes in volatility, expected dividends, stock loan rate or liquidity on the Shares), which it may do by reference to corresponding adjustments made by an options exchange to options on the Shares and determine the effective date of that adjustment, or
(ii) if it determines that no adjustment under (i) would produce a commercially reasonable result, notify the parties that the Transaction will terminate and “Cancellation and Payment” will apply and will be calculated under Section 12.7 (for Option Transactions as if “Calculation Agent Determination” applied;
12.3(d) If “Modified Calculation Agent Adjustment (Tender Offers)” is specified then, after the Tender Offer Date, Calculation Agent will either (i) adjust the Transaction to account for the economic effect of the Tender Offer in its determination, or (ii) if that would not produce a commercially reasonable result, terminate the Transaction, in which case “Cancellation and Payment” will under Section 12.7 (and for an Option Transaction, “Calculation Agent Determination” will apply).
12.3(e)Partial Cancellation and Payment”, then the portion of a Share Basket Transaction represented by Affected Shares will be cancelled as of the Tender Offer Date, the amount calculated under Section 12.7 for such Affected Shares will be paid by one party to the other, the Share Basket Transaction will continue with the Basket comprising the remaining Shares, and the Calculation Agent will adjust any terms if necessary to preserve as nearly as practicable the economic terms of the Transaction for the remaining Shares; or
12.3(f)Component Adjustment”, then for a Share-for-Combined Tender Offer:
(i) “Share-for-Share” will apply to the part of the consideration comprising New Shares and
(ii)“Share-for-Other” will apply to the part of the consideration comprising Other Consideration.

12.4. Settlement Following a Merger Event or Tender Offer.
Where, following a Merger Event or Tender Offer and adjustment of:

(a) A Cash-settled Transaction: the Calculation Agent will value the Other Consideration as necessry on each Valuation Date or Averaging Date.
(b) A Physically-settled Transaction:Where:
(i) New Shares are required to be delivered, the deliveror will deliver them per the settlement terms in the Confirmation (though, if it would not have received its New Share entitlement by the Settlement Date, the relevant Settlement Date will be postponed to the first Clearance System Business Day on which it would be able to deliver New Shares to the other party.
(ii) Other Consideration is required to be delivered, the deliveror will deliver it to the other party as the other party directs, as soon as reasonably practicable after the later of:
(1) the Settlement Date; and
(2) the first day on which Shareholder, having received the Other Consideration, would be able to deliver it to the other party.

12.5. Composition of Combined Consideration. For any “Share-for-CombinedMerger Event or Tender Offer:

(a) If “Composition of Combined Consideration” applies:
(i) where a holder of the Option Entitlement or Number of Shares could determine the Combined Consideration and could receive New Shares as part of it, the Combined Consideration will be New Shares to the maximum permitted value; and
(ii) if such a holder could make any election other than New Shares, the Combined Consideration will be determined as follows:
(A) the deliveree/payee may determine the composition by giving to the deliveror/payor at least two Scheduled Trading Days’ notice before the deadline for the relevant election; and
(B) otherwise, the deliveror/payor will determine the Composition of Combined Consideration.
(b) If “Composition of Combined Consideration” does not apply:
(i) to where a holder of the Option Entitlement or Number of Shares could determine the Combined Consideration and could receive New Shares as part of it, the Combined Consideration will be New Shares to the maximum permitted value; and
(ii) if such a holder could make any election other than New Shares, the Calculation Agent will determine Combined Consideration.

12.6 Nationalization, Insolvency and Delisting
12.6(a) The following definitions apply:

(i) “Nationalization” means all an Issuer’s Shares or substantially all of its assets have to be transferred to a government;
(ii) “Insolvency” means that an Issuer becomes insolvent and:
(A) all its Shares have to be transferred to an insolvency administrator or
(B) Shareholders of that Issuer are prohibited from transferring them; and
(iii) “Delisting” means that the Exchange announces that the Shares will cease to be listed on the Exchange (except because of a Merger Event or Tender Offer) and are not immediately re-listed on another exchange in the same country (or, where the Exchange is in the European Union, in the European Union).

12.6(b) If either party becomes aware of a Nationalization, Insolvency or Delisting, it will promptly tell the other party.
12.6(c) When determining the consequence of any Nationalization, Insolvency or Delisting:

(i)if “Negotiated Close-out” applies, then unless the parties agree to terminate the Transaction it will continue, but either party may choose to cash settle a Physically-settled Transaction, and if a Scheduled Valuation Date is a Disrupted Day, the Calculation Agent will ignore Section 6.6 (Disrupted Days) and use its good faith estimate to determine the Settlement Price or Final Price as of the Valuation Time on that Valuation Date;
(ii) “Cancellation and Payment” means that the Transaction will be cancelled as of the Announcement Date and
(A) For Option Transactions, Seller will pay Buyer an amount calculated per Section 12.7(b);
(B) For Forward Transactions or Equity Swap Transactions, one party will pay the other an amount calculated per Section 12.7(c); and
(iii) “Partial Cancellation and Payment” means that the portion of a Share Basket Transaction representing Affected Shares will be cancelled as of the Announcement Date, the amount for the Affected Shares will be calculated and paid per Section 12.7 and the remainder of the Share Basket Transaction will continue with the non-Affected Shares, the Calculation Agent adjusting any terms as necessary to preserve as far as possible the economic terms for the remaining Share Basket.

12.7 Payment upon Certain Extraordinary Events
12.7(a) If “Cancellation and Payment” or “Partial Cancellation and Payment” applies, then one party will pay the other the amounts described below no later than three Currency Business Days after notice of the determination, which must be given promptly, is effective.
12.7(b) Option Transactions: The parties must promptly agree within five Exchange Business Days of the relevant event (the “Closing Date”) the amount Seller must pay Buyer. If they cannot:

12.7(b)(i) if “Agreed Model” applies, the Calculation Agent will determine the sum of the Unadjusted Value and the Adjustment Value, (noting that the Buyer will not have to pay the Seller anything on cancellation of an Option Transaction other than unpaid Premium).
(A) the Calculation Agent will determine the “Unadjusted Value” as the value of the relevant portion of the Option Transaction on the Closing Date based on:
(1) the average Implied Volatility of the relevant Shares over the 15 Exchange Business Days up to the Closing Date;
(2) expected dividends between the Closing Date and the Expiration Date based on, and payable on the same dates as:
(a) gross ordinary cash dividends due on the relevant Shares in the one-year period ending on the Closing Date or
(b) if the Calculation Agent determines the Issuer has changed its dividend policies before the Closing Date, the expected dividends per the changed policy
in each case excluding Extraordinary Dividends;
(3) the Calculation Agent’s valuation of the Shares and any consideration provided for the Shares to holders at the time of the Extraordinary Event;
(4) a combined interest rate and stock loan rate as specified in the related Confirmation from the Closing Date to the Expiration Date; and
(5) a term of the Option Transaction from the Closing Date to the Expiration Date.
(B) “Adjustment Value” means the difference between the amounts determined pursuant to (B)(1) and (B)(2) below:
(1) the Calculation Agent’s valuation of the relevant portion of the Option Transaction based on:
(a) the average Implied Volatility of the relevant Shares over the 15 Exchange Business Days up to the Announcement Date;
(b) expected dividends between the Announcement Date and the Expiration Date based on, and payable on the same dates as:
(x) gross ordinary cash dividends due on the relevant Shares in the one-year period ending on the Announcement Date or
(y) if the Calculation Agent determines the Issuer has changed its dividend policies before the Announcement Date, the expected dividends per the changed policy
in each case excluding Extraordinary Dividends;
(c) its valuation (as of the Announcement Date) of the Settlement Price (assuming Cash Settlement) of the relevant Shares as of the Valuation Time;
(d) a combined interest rate and stock loan rate as specified in the related Confirmation from the Announcement Date to the Expiration Date; and
(e) a term of the Option Transaction from the Announcement Date to the Expiration Date.
(2) a value for the relevant portion of the Option Transaction based on the factors listed in (1)(a)-(e) above, but with an average Implied Volatility over the 15 Exchange Business Days from the Announcement Date.
12.7(b)(ii) If “Calculation Agent Determination” applies, then the Calculation Agent will determine the amount.

12.7(c) Forward Transactions and Equity Swap Transactions: Any Forward Transaction or Equity Swap Transaction, will be cancelled and the Cancellation Amount determined as follows:

(i) where there is one Determining Party, it will calculate the Cancellation Amount and who has to pay it.
(ii) where there are two Determining Parties, each will calculate a Cancellation Amount and they will split the difference.

12.8. Cancellation Amount.

12.8(a): “Cancellation Amount” means the gains or losses the Determining Party would incur under prevailing circumstances in replacing (i) the material terms of the Transaction, including payments and deliveries that would, but for the Extraordinary Event, have been required after termination and (ii) the parties’ option rights under the Transaction.
12.8(b): Any Cancellation Amount will be determined by the Determining Party in good faith using commercially reasonable procedures as of the date the Transaction was terminated (or such other dates as would be commercially reasonable).
12.8(c): In determining a Cancellation Amount, the Determining Party may consider:
(i) Dealer quotations: dealer quotations for replacement transactions
(ii) Market data: market data; and
(iii) Internal valuations: similar material from internal sources and Affiliates where they are regularly used by the Determining Party in its business for similar valuations.
12.8(d): The Determining Party will consider quotations under Section 12.8(c)(i) or relevant market data under Section 12.8(c)(ii) unless it reasonably believes in good faith that they are not readily available or would produce a result that would not satisfy standards described in this definition. The Determining Party may include costs of funding. Third parties supplying quotations or market data pursuant may include dealers, end-users, information vendors, brokers and other sources.
12.8(e): Without duplication and when it is commercially reasonable to do so, when calculating a Cancellation Amount the Determining Party may consider any loss or cost (or gain) incurred in terminating, liquidating or re-establishing any hedge.
12.8(f): The Determining Party will be specified in the confirmation.
12.8(g): “Commercially reasonable procedures” may include:
(i) Determining Party’s pricing and valuation models for similar transactions with third parties; and
(ii) different valuation methods depending on the type, complexity or size of the Transaction.

12.9. Additional Disruption Events.

12.9(a) Additional Disruption Event definitions: The following terms are defined as follows:
12.9(a)(i)Additional Disruption Event” means any of the events in paragraphs 12.9(a)(ii) to 12.9(a)(viii):
12.9(a)(ii)Change in Law” means either party determines that, due to a change in law or regulation:
(X) it becomes illegal to buy, sell or hold underlying Shares or;
(Y) it becomes materially more expensive to perform the Transaction.
12.9(a)(iii)Failure to Deliver” means a party’s failure to deliver Shares when due under a Transaction because of market illiquidity;
12.9(a)(iv)Insolvency Filing” means that the Issuer commences or agrees to insolvency proceedings or a winding-up petition (or has one instituted against it by a regulator or insolvency administrator). Non-consensual insolvency action taken by creditors is not an Insolvency Filing;
12.9(a)(v)Hedging Disruption” means that the Hedging Party cannot reasonably acquire, hold, replace or unwind any transactions hedging its equity price risk, or realise, recover or pay the proceeds of any hedging transactions.
12.9(a)(vi)Increased Cost of Hedging” means that the Hedging Party would incur a materially increased cost under the Transaction to:
(A) hedge its equity price risk; or
(B) realise the proceeds of its hedge.
This excludes costs arising solely from the deterioration of its own creditworthiness.
12.9(a)(vii)Loss of Stock Borrow” means that, having used commercially reasonable efforts, the Hedging Party cannot borrow the Shares it needs to hedge the Transaction at a rate equal to or lower than the Maximum Stock Loan Rate;
12.9(a)(viii)Increased Cost of Stock Borrow”: the rate the Hedging Party incurs to borrow Shares for the Transaction exceeds the Initial Stock Loan Rate;
12.9(a)(ix)Hedging Party”: The party specified as such in the Confirmation or, if none, either party;
12.9(a)(x)Hedging Shares” means the number of Shares the Hedging Party needs to hedge the equity price risk under a Transaction;
12.9(a)(xi)Lending Party” means a counterparty that the Hedging Party reasonably and in good faith selects;
12.9(a)(xii)Non-Hedging Party” is not the Hedging Party;
12.9(a)(xiii)Maximum Stock Loan Rate” for any “Loss of Stock Borrow” will be specified in the Confirmation;
12.9(a)(xiv)Initial Stock Loan Rate” for any Increased Cost of Stock Borrow will be specified in the Confirmation; and
12.9(a)(xv)Price Adjustment” means an adjustment to a price, spread or other variable in a Transaction.

In a super nutshell:

Event Section What happens? At what price?
Change in Law or Insolvency Filing 12.9(b)(i) Either party gives 2 Scheduled Trading Days’ notice to terminate Cancellation Amount
Hedging Disruption 12.9(b)(iii) The Hedging Party may terminate on 2 Scheduled Trading Days’ notice Cancellation Amount
Increased Cost of Hedging 12.9(b)(iv) Hedging Party notifies a Price Adjustment. Non-Hedging Party may
(i) agree to amend Transaction;
(ii) pay the Price Adjustment outright; or
(iii) terminate.
If NHP has done none within 2 Scheduled Trading Days the Hedging Party can terminate.
Cancellation Amount
Loss of Stock Borrow 12.9(b)(iv) The Hedging Party notifies the LOSB, the Non-Hedging Party has two Scheduled Trading Days to come up with a stock loan at a rate no higher than the Maximum Stock Loan Rate, failing which the Hedging Party may terminate Cancellation Amount
Increased Cost of Stock Borrow 12.9(b)(iv) The Hedging Party notifies the ICOSB and a proposed Price Adjustment. Non-Hedging Party has two Scheduled Trading Days to
(i) agree to amend Transaction;
(ii) pay the Price Adjustment outright; or
(iii) terminate on the second Scheduled Trading Day.
Cancellation Amount

In a normal nutshell:

12.9(b) For the purpose of determining the consequence of an Additional Disruption Event:
12.9(b)(i) If Change in Law or Insolvency Filing applies and one happens, either party may terminate the Transaction two Scheduled Trading Days’ notice (or less, if required under Change in Law), and the Determining Party will determine the Cancellation Amount.
12.9(b)(ii) If “Failure to Deliver” applies, then a Failure to Deliver will not be an Event of Default but the “Delivering Party” must:
(A) notify the “Receiving Party” that the Failure to Deliver has occurred within one Clearance System Business Day of the Exercise Date (for Option Transactions) and at least one Settlement Cycle prior to the Settlement Date (for Forward Transactions and Equity Swap Transactions; and
(B) deliver to the Receiving Party on the Settlement Date the Shares that it can deliver on such date;
and the Receiving Party’s corresponding payment or delivery obligation to the Delivering Party will be proportionately reduced.
Thereafter:
(I) For European Options and Forward Transactions: The Receiving Party may terminate the remaining Transaction effective immediately by notice to the Delivering Party and must (as Determining Party) determine the related Cancellation Amount;
(II) For American Options and Bermuda Options: The Receiving Party may terminate that part of the Transaction comprising the exercised but not settled Options effective immediately by notice to the Delivering Party and must (as Determining Party) determine the related Cancellation Amount;
(III) For Equity Swap Transactions: The Receiving Party may terminate that part of the Transaction consisting of the unsettled deliveries effective immediately by notice to the Delivering Party and must (as Determining Party) determine the Cancellation Amount;
(IV) For unexercised American Options and Bermuda Options to which Multiple Exercise applies, and for Equity Swap Transactions where a Settlement Date has not occurred: The Receiving Party may elect within one Settlement Cycle of the affected Settlement Date to terminate the remainder of the Transaction upon two Scheduled Trading Days’ notice, and must (as Determining Party) determine the Cancellation Amount.
12.9(b)(iii) If “Hedging Disruption” applies and it happens, the Hedging Party may terminate the Transaction on 2 Scheduled Trading Days’ notice, and the Determining Party will determine the Cancellation Amount payable under the Transaction.
12.9(b)(iv) If “Loss of Stock Borrow” applies, then if the Hedging Party notifies the Non-Hedging Party of a Loss of Stock Borrow, the Non-Hedging Party may, within 2 Scheduled Trading Days of notice, lend the Hedging Party the necessary Shares at a rate no greater than the Maximum Stock Loan Rate. If it does not, the Hedging Party may terminate the Transaction on notice and the Determining Party will determine the Cancellation Amount.
12.9(b)(v) If “Increased Cost of Stock Borrow” applies, the Hedging Party may tell the Non-Hedging Party that an Increased Cost of Stock Borrow has happened and that it will make a Price Adjustment to the Transaction.
Within 2 Scheduled Trading Days of that notice the Non-Hedging Party must:
(A) amend the Transaction to make the Price Adjustment,
(B) pay the Hedging Party the Price Adjustment or
(C) terminate the Transaction as of that second Scheduled Trading Day.
Within this period, the Non-Hedging Party may lend the Hedging Party, the necessary Hedging Shares at no more than the Initial Stock Loan Rate.
Absent such an election the Hedging Party may terminate the Transaction. On any termination of the Transaction, the Determining Party will determine the Cancellation Amount.
12.9(b)(vi) If “Increased Cost of Hedging” applies and it occurs, the Hedging Party will so notify the Non-Hedging Party and that it will make a Price Adjustment. Within 2 Scheduled Trading Days the Non-Hedging Party must elect to the Hedging Party either to:
(A) amend the Transaction to cater for the Price Adjustment,
(B) pay the Hedging Party the Price Adjustment or
(C) terminate the Transaction as of that second Scheduled Trading Day. Absent such an election the Hedging Party may terminate the Transaction. On any termination of the Transaction, the Determining Party will determine the Cancellation Amount.
12.9(b)(vii) If both “Hedging Disruption” and “Loss of Stock Borrow” apply and an event happens that could be either, it will be treated as a Loss of Stock Borrow and not a Hedging Disruption.
12.9(b)(viii) Any Shares the Non-Hedging Party or Lending Party provides relating to a Loss of Stock Borrow or Increased Cost of Stock Borrow must be in freely tradable book-entry form and documented under suitable stock lending documentation acceptable to the Hedging Party.
12.9(b)(ix) Any Cancellation Amount must be paid in the Transaction settlement currency no later than three Currency Business Days after the Determining Party’s notice of its determination is effective.

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Full text of Section 12

Article 12 Extraordinary Events
Section 12.1. General Provisions Relating to Extraordinary Events.

12.1(a)Extraordinary Event” means a Merger Event, Tender Offer, Index Adjustment Event, Nationalization, Insolvency, Delisting or any applicable Additional Disruption Event, as the case may be.
12.1(b)Merger Event” means, in respect of any relevant Shares, any
(i) reclassification or change of such Shares that results in a transfer of or an irrevocable commitment to transfer all of such Shares outstanding to another entity or person,
(ii) consolidation, amalgamation, merger or binding share exchange of the Issuer with or into another entity or person (other than a consolidation, amalgamation, merger or binding share exchange in which such Issuer is the continuing entity and which does not result in a reclassification or change of all of such Shares outstanding),
(iii) takeover offer, tender offer, exchange offer, solicitation, proposal or other event by any entity or person to purchase or otherwise obtain 100% of the outstanding Shares of the Issuer that results in a transfer of or an irrevocable commitment to transfer all such Shares (other than such Shares owned or controlled by such other entity or person), or
(iv) consolidation, amalgamation, merger or binding share exchange of the Issuer or its subsidiaries with or into another entity in which the Issuer is the continuing entity and which does not result in a reclassification or change of all such Shares outstanding but results in the outstanding Shares (other than Shares owned or controlled by such other entity) immediately prior to such event collectively representing less than 50% of the outstanding Shares immediately following such event (a “Reverse Merger”),
in each case if the Merger Date is on or before,
(A) in the case of a Physically-settled Option Transaction the later to occur of the Expiration Date or the final Settlement Date,
(B) in the case of a Physically-settled Forward Transaction or a Physically-settled Equity Swap Transaction, the relevant Settlement Date or,
(C) in any other case, the final Valuation Date.
12.1(c)Merger Date” means the closing date of a Merger Event or, where a closing date cannot be determined under the local law applicable to such Merger Event, such other date as determined by the Calculation Agent.
12.1(d)Tender Offer” means a takeover offer, tender offer, exchange offer, solicitation, proposal or other event by any entity or person that results in such entity or person purchasing, or otherwise obtaining or having the right to obtain, by conversion or other means, greater than 10% and less than 100% of the outstanding voting shares of the Issuer, as determined by the Calculation Agent, based upon the making of filings with governmental or self-regulatory agencies or such other information as the Calculation Agent deems relevant.
12.1(e)Tender Offer Date” means, in respect of a Tender Offer, the date on which voting shares in the amount of the applicable percentage threshold are actually purchased or otherwise obtained (as determined by the Calculation Agent).
12.1(f)Share-for-Share” means (i) in respect of a Merger Event or Tender Offer, that the consideration for the relevant Shares consists (or, at the option of the holder of such Shares, will consist) solely of New Shares, and (ii) a Reverse Merger.
12.1(g)Share-for-Other” means, in respect of a Merger Event or Tender Offer, that the consideration for the relevant Shares consists solely of Other Consideration.
12.1(h)Share-for-Combined” means, in respect of a Merger Event or Tender Offer, that the consideration for the relevant Shares consists of Combined Consideration.
12.1(i)New Shares” means ordinary or common shares, whether of the entity or person (other than the Issuer) involved in the Merger Event or the making of the Tender Offer or a third party, that are, or that as of the Merger Date or Tender Offer Date are promptly scheduled to be,
(i) publicly quoted, traded or listed on an exchange or quotation system located in the same country as the Exchange (or, where the Exchange is within the European Union, in any member state of the European Union) and
(ii) not subject to any currency exchange controls, trading restrictions or other trading limitations.
12.1(j)Other Consideration” means any cash or securities (other than New Shares) or assets (whether of the entity or person (other than the Issuer) involved in the Merger Event or the making of the Tender Offer or a third party).
12.1(k)Combined Consideration” means New Shares in combination with Other Consideration.
12.1(l)Announcement Date” means, in respect of an Extraordinary Event,
(i) in the case of a Merger Event, the date of the first public announcement of a firm intention to engage in a transaction (whether or not subsequently amended) that leads to the Merger Event,
(ii) in the case of a Tender Offer, the date of the first public announcement of a firm intention to purchase or otherwise obtain the requisite number of voting shares (whether or not subsequently amended) that leads to the Tender Offer,
(iii) in the case of an Index Disruption or Index Cancellation, the date of the first public announcement by the Index Sponsor of any adjustment or cancellation as described in Section 11.1(b) that leads to the Index Disruption or Index Cancellation and in the case of an Index Modification, the Exchange Business Day immediately prior to the effective date of the Index Modification,
(iv) in the case of a Nationalization, the date of the first public announcement to nationalize (whether or not subsequently amended) that leads to the Nationalization,
(v) in the case of an Insolvency, the date of the first public announcement of the institution of a proceeding or presentation of a petition or passing of a resolution (or other analogous procedure in any jurisdiction) that leads to the Insolvency and
(vi) in the case of a Delisting, the date of the first public announcement by the Exchange that the Shares will cease to be listed, traded or publicly quoted in the manner described in Section 12.6(a)(iii).
In respect of any Extraordinary Event other than an Index Disruption, if the announcement of such Extraordinary Event is made after the actual closing time for the regular trading session on the relevant Exchange, without regard to any after hours or any other trading outside of such regular trading session hours, the Announcement Date shall be deemed to be the next following Scheduled Trading Day.
12.1(m)Implied Volatility” means for any Exchange Business Day, the mid-market implied volatility of the relevant Shares, as determined by the Calculation Agent by interpolating or extrapolating from the most comparable listed put or call option (which shall be of the same Option Type as the Option Transaction being cancelled) on the relevant Shares as determined by the Calculation Agent taking into account the nearest strike price, maturity and “in-the-money” or “out-of-the-money” amount, as the case may be, and such other factors that the Calculation Agent deems appropriate. To the extent that such a listed option does not exist or the Calculation Agent determines that the market for such listed option is not sufficiently liquid for the purpose of the relevant calculation, the Implied Volatility will be determined by the Calculation Agent by whatsoever means it deems appropriate.
12.1(n)Affected Shares” means Shares affected by a Merger Event or a Tender Offer, as the case may be.

Section 12.2. Consequences of Merger Events. In respect of any Merger Event if, under “Consequences of Merger Events” in relation to “Share-for-Share”, “Share-for-Other” or “Share-for-Combined”, the consequence specified in the related Confirmation is:

12.2(a)Alternative Obligation”, then except in respect of a Reverse Merger, on or after the relevant Merger Date, the New Shares and/or the amount of Other Consideration, if applicable (as subsequently modified in accordance with any relevant terms and including the proceeds of any redemption, if applicable), and their issuer (if any) will be deemed the “Shares” and the “Issuer”, respectively, the number of New Shares and/or the amount of Other Consideration, if applicable, (as subsequently modified in accordance with any relevant terms and including the proceeds of any redemption, if applicable) to which a holder of the relevant Number of Shares immediately prior to the occurrence of the Merger Event would be entitled upon consummation of the Merger Event will be deemed the relevant “Number of Shares” and, if necessary, the Calculation Agent will adjust any relevant terms, provided, however, that no adjustments will be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or the Transaction;
12.2(b)Cancellation and Payment”, then
(i) in the case of an Option Transaction, the Option Transaction will be cancelled as of the Merger Date and Seller will pay to Buyer the amount calculated in accordance with Section 12.7(b), and
(ii) in the case of a Forward Transaction or an Equity Swap Transaction, the Forward Transaction or the Equity Swap Transaction will be cancelled as of the Merger Date and an amount calculated in accordance with 12.7(c) will be paid by one party to the other;
12.2(c)Options Exchange Adjustment”, then following each adjustment to the settlement terms of options on any relevant Shares traded on any Options Exchange, the Calculation Agent will make one or more adjustments as provided in Section 11.2(b) (without regard to the words “diluting or concentrative” in the second sentence);
12.2(d)Calculation Agent Adjustment”, then, on or after the relevant Merger Date, the Calculation Agent shall either
(i)
(A) make such adjustment to the exercise, settlement, payment or any other terms of the Transaction as the Calculation Agent determines appropriate to account for the economic effect on the Transaction of such Merger Event (provided that no adjustments will be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or to the Transaction), which may, but need not, be determined by reference to the adjustment(s) made in respect of such Merger Event by an options exchange to options on the relevant Shares traded on such options exchange and
(B) determine the effective date of that adjustment, or
(ii) if the Calculation Agent determines that no adjustment that it could make under (i) will produce a commercially reasonable result, notify the parties that the relevant consequence shall be the termination of the Transaction, in which case “Cancellation and Payment” will be deemed to apply and any payment to be made by one party to the other shall be calculated in accordance with Section 12.7, and in respect of an Option Transaction, the Calculation Agent shall determine the amount of such payment as if “Calculation Agent Determination” applied to the Option Transaction;
12.2(e)Modified Calculation Agent Adjustment”, then, on or after the relevant Merger Date, the Calculation Agent shall either
(i)
(A) make such adjustment to the exercise, settlement, payment or any other terms of the Transaction (including, without limitation, the spread) as the Calculation Agent determines appropriate to account for the economic effect on the Transaction of such Merger Event (including adjustments to account for changes in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or to the Transaction), which may, but need not, be determined by reference to the adjustments(s) made in respect of such Merger Event by an options exchange to options on the relevant Shares traded on such options exchange and
(B) determine the effective date of that adjustment, or
(ii) if the Calculation Agent determines that no adjustment that it could make under (i) will produce a commercially reasonable result, notify the parties that the relevant consequence shall be the termination of the Transaction, in which case “Cancellation and Payment” will be deemed to apply and any payment to be made by one party to the other shall be calculated in accordance with Section 12.7, and in respect of an Option Transaction, the Calculation Agent shall determine the amount of such payment as if “Calculation Agent Determination” applied to the Option Transaction;
12.2(f)Partial Cancellation and Payment”, then, in respect of a Share Basket Transaction, that portion of the Share Basket Transaction represented by Affected Shares will be cancelled as of the Merger Date, the amount calculated in accordance with Section 12.7 in respect of such Affected Shares will be paid by one party to the other, the remainder of the Share Basket Transaction will continue with the Basket comprising Shares that are not Affected Shares, and the Calculation Agent will adjust any relevant terms if necessary to preserve as nearly as practicable the economic terms of the Transaction for the remaining Shares; or
12.2(g)Component Adjustment”, then, in respect of a Share-for-Combined Merger Event, the consequence specified opposite “Share-for-Share” shall apply to that portion of the consideration that consists of New Shares (as determined by the Calculation Agent) and the consequence specified opposite “Share-for-Other” shall apply to that portion of the consideration that consists of Other Consideration (as determined by the Calculation Agent).

Section 12.3. Consequences of Tender Offers. If “Tender Offer” is specified in the related Confirmation to be applicable to a Transaction, then if, under “Consequences of Tender Offers” in relation to “Share-for-Share”, “Share-for-Other” or “Share-for-Combined”, the consequence specified in the related Confirmation is:

12.3(a)Cancellation and Payment”, then (i) in the case of an Option Transaction, the Option Transaction will be cancelled as of the Tender Offer Date and Seller will pay to Buyer the amount calculated in accordance with Section 12.7(b), and (ii) in the case of a Forward Transaction or an Equity Swap Transaction, the Forward Transaction or the Equity Swap Transaction will be cancelled as of the Tender Offer Date and an amount calculated in accordance with Section 12.7(c) will be paid by one party to the other;
12.3(b)Options Exchange Adjustment”, then following each adjustment to the settlement terms of options on any relevant Shares traded on any Options Exchange, the Calculation Agent will make one or more adjustments as provided in Section 11.2(b) (without regard to the words “diluting or concentrative” in the second sentence);
12.3(c)Calculation Agent Adjustment”, then, on or after the relevant Tender Offer Date the Issuer and the Shares will not change, but the Calculation Agent shall either
(i)
(A) make such adjustment to the exercise, settlement, payment or any other terms of the Transaction as the Calculation Agent determines appropriate to account for the economic effect on the Transaction of such Tender Offer (provided that no adjustments will be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or to the Transaction), which may, but need not, be determined by reference to the adjustment(s) made in respect of such Tender Offer by an options exchange to options on the relevant Shares traded on such options exchange and
(B) determine the effective date of that adjustment, or
(ii) if the Calculation Agent determines that no adjustment that it could make under (i) will produce a commercially reasonable result, notify the parties that the relevant consequence shall be the termination of the Transaction, in which case “Cancellation and Payment” will be deemed to apply and any payment to be made by one party to the other shall be calculated in accordance with Section 12.7, and in respect of an Option Transaction, the Calculation Agent shall determine the amount of such payment as if “Calculation Agent Determination” applied to the Option Transaction;
12.3(d)Modified Calculation Agent Adjustment (Tender Offers)” then, on or after the relevant Tender Offer Date, the Issuer and the Shares will not change, but the Calculation Agent shall either (i)(A) make such adjustment to the exercise, settlement, payment or any other terms of the Transaction (including, without limitation, the spread) as the Calculation Agent determines appropriate to account for the economic effect on the Transaction of such Tender Offer (including adjustments to account for changes in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or to the Transaction), which may, but need not, be determined by reference to the adjustment(s) made in respect of such Tender Offer by an options exchange to options on the relevant Shares traded on such options exchange and (B) determine the effective date of that adjustment, or (ii) if the Calculation Agent determines that no adjustment that it could make under (i) will produce a commercially reasonable result, notify the parties that the relevant consequence shall be the termination of the Transaction, in which case “Cancellation and Payment” will be deemed to apply and any payment to be made by one party to the other shall be calculated in accordance with Section 12.7, and in respect of an Option Transaction, the Calculation Agent shall determine the amount of such payment as if “Calculation Agent Determination” applied to the Option Transaction;
12.3(e)Partial Cancellation and Payment”, then, in respect of a Share Basket Transaction, that portion of the Share Basket Transaction represented by Affected Shares will be cancelled as of the Tender Offer Date, the amount calculated in accordance with Section 12.7 in respect of such Affected Shares will be paid by one party to the other, the remainder of the Share Basket Transaction will continue with the Basket comprising Shares that are not Affected Shares, and the Calculation Agent will adjust any relevant terms if necessary to preserve as nearly as practicable the economic terms of the Transaction for the remaining Shares; or
12.3(f)Component Adjustment”, then, in respect of a Share-for-Combined Tender Offer, the consequence specified opposite “Share-for-Share” shall apply to that portion of the consideration that consists of New Shares (as determined by the Calculation Agent) and the consequence specified opposite “Share-for-Other” shall apply to that portion of the consideration that consists of Other Consideration (as determined by the Calculation Agent).

Section 12.4. Settlement Following a Merger Event or Tender Offer.
(a) If Other Consideration is required to be valued in relation to a Cash-settled Transaction that has been adjusted following a Merger Event or Tender Offer, the Other Consideration will be valued by the Calculation Agent on each Valuation Date or Averaging Date, as the case may be. For the avoidance of doubt, the provisions of these Definitions relating to Market Disruption Events will not apply to Other Consideration.
(b) If New Shares are required to be delivered in relation to a Physically-settled Transaction that has been adjusted following a Merger Event or Tender Offer, then the deliveror will deliver the relevant New Shares in accordance with the terms of settlement set out in the related Confirmation, provided that if on the relevant Settlement Date a holder of the Shares would not yet have received the New Shares to which it is entitled, the Settlement Date with respect to such New Shares will be postponed to the first Clearance System Business Day falling on or after the first day on which a holder of the relevant Shares, having received the New Shares, would be able to deliver such New Shares to the other party.
(c) If Other Consideration is required to be delivered in relation to a Physically-settled Transaction that has been adjusted following a Merger Event or Tender Offer, then the deliveror will deliver the relevant Other Consideration to the other party in a commercially reasonable manner in accordance with the reasonable directions of the other party as soon as reasonably practicable after the later of (i) the relevant Settlement Date and (ii) the first day on which a holder of the relevant Shares, having received the Other Consideration, would be able to deliver such Other Consideration to the other party.
Section 12.5. Composition of Combined Consideration. In respect of any Share-for-Combined Merger Event or Tender Offer:

(a) If “Composition of Combined Consideration” is specified as applicable in the related Confirmation, then:
(i) to the extent that the composition of the Combined Consideration could be determined by a holder of Shares equal to the relevant Option Entitlement or Number of Shares, and a holder could receive New Shares as part of the Combined Consideration, the Combined Consideration shall be deemed to be New Shares to the maximum value permitted; and
(ii) if a holder could make any other election with respect to the composition of Combined Consideration other than New Shares, the composition of the Combined Consideration shall be determined as follows: (A) the deliveree or payee may determine the composition if notice is given to the deliveror or payor at least two Scheduled Trading Days before the last time when an election of the Combined Consideration by such holder could be timely made; and (B) otherwise the deliveror or payor will, in its sole discretion, determine the composition.
(b) If “Composition of Combined Consideration” is not specified as applicable in the related Confirmation, then:
(i) to the extent that the composition of the Combined Consideration could be determined by a holder of Shares equal to the relevant Option Entitlement or Number of Shares and a holder of Shares could receive New Shares as part of the Combined Consideration, the Combined Consideration shall be deemed to be New Shares to the maximum value permitted; and
(ii) if a holder could make any other election with respect to the composition of Combined Consideration other than New Shares, the Calculation Agent will, in its sole discretion, determine the composition.

12.6 Nationalization, Insolvency and Delisting
12.6(a) The following terms have the meanings given below:

(i) “Nationalization” means that all the Shares or all or substantially all the assets of an Issuer are nationalized, expropriated or are otherwise required to be transferred to any governmental agency, authority, entity or instrumentality thereof;
(ii) “Insolvency” means that by reason of the voluntary or involuntary liquidation, bankruptcy, insolvency, dissolution or winding-up of or any analogous proceeding affecting an Issuer, (A) all the Shares of that Issuer are required to be transferred to a trustee, liquidator or other similar official or (B) holders of the Shares of that Issuer become legally prohibited from transferring them; and
(iii) “Delisting” means that the Exchange announces that pursuant to the rules of such Exchange, the Shares cease (or will cease) to be listed, traded or publicly quoted on the Exchange for any reason (other than a Merger Event or Tender Offer) and are not immediately re-listed, re-traded or re-quoted on an exchange or quotation system located in the same country as the Exchange (or, where the Exchange is within the European Union, in any member state of the European Union).

12.6(b) Either party will, upon becoming aware of the occurrence of a Nationalization, Insolvency or Delisting, promptly notify the other party of such event.
12.6(c) For the purpose of determining the consequence of any Nationalization, Insolvency or Delisting:

(i) “Negotiated Close-out” means that the parties may, but are not obliged, to terminate the Transaction on mutually acceptable terms and if the parties do not agree to terminate the Transaction, then it continues on the terms and subject to the conditions then in effect, provided, that any Physically-settled Transaction will, at the election of either party, become a Transaction to which Cash Settlement is applicable, except that if a Scheduled Valuation Date is a Disrupted Day, the Calculation Agent will ignore the provisions of Section 6.6 relating to Disrupted Days and will instead determine its good faith estimate of the Settlement Price or Final Price as of the Valuation Time on that Valuation Date;
(ii) “Cancellation and Payment” means that the Transaction will be cancelled as of the Announcement Date and (A) in the case of an Option Transaction, Seller will pay to Buyer the amount calculated in accordance with Section 12.7(b), and (B) in the case of a Forward Transaction or an Equity Swap Transaction, an amount calculated in accordance with Section 12.7(c) will be paid by one party to the other; and
(iii) “Partial Cancellation and Payment” means that in respect of a Share Basket Transaction, that portion of the Share Basket Transaction represented by Affected Shares will be cancelled as of the Announcement Date, the amount calculated in accordance with Section 12.7 in respect of such Affected Shares, will be paid by one party to the other, the remainder of the Share Basket Transaction will continue with the Basket comprising Shares that are not Affected Shares, and the Calculation Agent will adjust any relevant terms if necessary to preserve as nearly as practicable the economic terms of the Transaction for the remaining Shares.

12.7 Payment upon Certain Extraordinary Events
12.7(a) If, in respect of an Extraordinary Event, “Cancellation and Payment” or “Partial Cancellation and Payment” applies or is deemed to apply to the relevant Transaction (or a portion thereof), then an amount will be paid by one party to the other determined as provided in clause (b) or (c) below, such payment to be made not later than three Currency Business Days following the date that notice of the determination by the Calculation Agent or the Determining Party, as the case may be, of such amount (denominated in the currency for settlement of the Transaction as determined by the Calculation Agent or the Determining Party, as the case may be) and which party shall pay such amount is effective, which notice shall be provided promptly following such determination.
12.7(b) In respect of an Option Transaction, the amount to be paid by Seller to Buyer will be as agreed promptly (and in any event within five Exchange Business Days) by the parties after the Merger Date, the Tender Offer Date, the date of cancellation in respect of an Index Adjustment Event or the date of occurrence of any event described in Section 12.6, as the case may be (each such date, the “Closing Date”). If the parties are unable to agree on the amount, then:

12.7(b)(i) if “Agreed Model” is specified in the related Confirmation to be applicable to such Transaction, then the amount will be determined by the Calculation Agent as the sum of the Unadjusted Value and the Adjustment Value. For the avoidance of doubt, the Buyer shall not be required to pay any amount to the Seller as a result of the cancellation of the Option Transaction other than any unpaid Premium which Buyer will be obliged to pay to Seller as of the date that the amount determined in this Section 12.7(b)(i) is paid.
(A) “Unadjusted Value” means an amount determined by the Calculation Agent as the value of the Option Transaction (or portion thereof) on the Closing Date based on:
(1) a volatility equal to the average of the Implied Volatilities of the relevant Shares on each of the 15 Exchange Business Days ending on and including the Closing Date;
(2) expected dividends for the time period from the Closing Date until the Expiration Date based on, and payable on the same dates as, (a) amounts to have been paid in respect of gross ordinary cash dividends on the relevant Shares in the one-year period ending on the Closing Date or (b) in the event of an {{subst:Issuer}} published change to dividend policies on the relevant Shares (as determined by the Calculation Agent) prior to the Closing Date, the expected dividends determined in accordance with such published change, in each case excluding Extraordinary Dividends;
(3) a value ascribed to the relevant Shares as determined by the Calculation Agent and, if applicable, equal to the value of the consideration, if any, paid or delivered in respect of such Shares to holders of such Shares at the time of the Extraordinary Event;
(4) a combined interest rate and stock loan rate as specified in the related Confirmation for the period from, and including, the Closing Date to, but excluding, the Expiration Date; and
(5) a term of the Option Transaction from the Closing Date to the Expiration Date.
(B) “Adjustment Value” means the difference between the amounts determined pursuant to (B)(1) and (B)(2) below:
(1) a value of the Option Transaction (or portion thereof) determined by the Calculation Agent based on:
(a) a volatility equal to the average of the Implied Volatilities of the relevant Shares on each of the 15 Exchange Business Days ending on but excluding the Announcement Date;
(b) expected dividends for the time period from the Announcement Date until the Expiration Date based on, and payable on the same dates as, (x) amounts to have been paid in respect of gross ordinary cash dividends on the relevant Shares in the one-year period ending on the Announcement Date or (y) in the event of an Issuer published change to dividend policies on the relevant Shares (as determined by the Calculation Agent) prior to the Announcement Date, the expected dividends determined in accordance with such published change, in each case excluding Extraordinary Dividends;
(c) a value ascribed to the relevant Shares equal to the Settlement Price (assuming Cash Settlement were applicable) of the relevant Shares as of the Valuation Time (for which purpose the Valuation Date will be the Announcement Date);
(d) a combined interest rate and stock loan rate as specified in the related Confirmation for the period from, and including, the Announcement Date to, but excluding, the Expiration Date; and
(e) a term of the Option Transaction from the Announcement Date to the Expiration Date.
(2) a value for the Option Transaction (or portion thereof) based on the factors listed in (1)(a)-(e) above, except with a volatility equal to the average of the Implied Volatilities of the relevant Shares on each of the 15 Exchange Business Days commencing on and including the Announcement Date.
12.7(b)(ii) If “Calculation Agent Determination” is specified in the related Confirmation to be applicable to such Transaction, then the amount will be determined by the Calculation Agent, which determination may, but need not, be based on the factors and adjustments set forth in paragraph (i) above.

12.7(c) For any Forward Transaction or Equity Swap Transaction, such Transaction shall be cancelled and the relevant party or parties (as specified below) shall determine the Cancellation Amount in respect of such cancelled Transaction.

(i) In respect of a cancelled Transaction where there is one Determining Party, the Determining Party will calculate the Cancellation Amount and will determine which party will pay such amount.
(ii) In respect of a cancelled Transaction where there are two Determining Parties, each party will calculate a Cancellation Amount and an amount will be payable equal to one-half of the difference between the Cancellation Amount of the party with the higher Cancellation Amount (“X”) and the Cancellation Amount of the party with the lower Cancellation Amount (“Y”) and Y shall pay it to X.

Section 12.8. Cancellation Amount.

12.8(a)Cancellation Amount” means, with respect to a Determining Party, the amount of the losses or costs of the Determining Party that are or would be incurred under then prevailing circumstances (expressed as a positive number) or gains of the Determining Party that are or would be realized under then prevailing circumstances (expressed as a negative number) in replacing, or in providing for the Determining Party the economic equivalent of, (i) the material terms of the relevant Transaction, including the payments and deliveries by the parties under the ISDA Master Agreement in respect of the relevant Transaction that would, but for the occurrence of the Extraordinary Event, have been required on or after the date that the Transaction is, or is deemed to have been, terminated or cancelled (assuming satisfaction of any applicable conditions precedent in the ISDA Master Agreement) and (ii) the option rights of the parties in respect of the relevant Transaction.
12.8(b) Any Cancellation Amount will be determined by the Determining Party (or its agent), which will act in good faith and use commercially reasonable procedures in order to produce a commercially reasonable result. Each Cancellation Amount will be determined as of the date that the Transaction terminated or cancelled or, if that would not be commercially reasonable, as of the date or dates following the date that the Transaction terminated or cancelled as would be commercially reasonable.
12.8(c) In determining a Cancellation Amount, the Determining Party may consider any relevant information, including, without limitation, one or more of the following types of information:
(i) quotations (either firm or indicative) for replacement transactions supplied by one or more third parties that may take into account the current creditworthiness of the Determining Party at the time the quotation is provided and the terms of any relevant documentation, including credit support documentation, between the Determining Party and the third party providing the quotation;
(ii) information consisting of relevant market data in the relevant market supplied by one or more third parties including, without limitation, relevant rates, prices, yields, yield curves, volatilities, spreads, correlations or other relevant market data in the relevant market; or
(iii) information of the types described in (i) or (ii) above from internal sources (including any Affiliates of the Determining Party) if that information is of the same type used by the Determining Party in the regular course of its business for the valuation of similar transactions.
12.8(d) The Determining Party will consider, taking into account the standards and procedures described in this definition, quotations pursuant to Section 12.8(c)(i) above or relevant market data pursuant to Section 12.8(c)(ii) above unless the Determining Party reasonably believes in good faith that such quotations or relevant market data are not readily available or would produce a result that would not satisfy those standards. When considering information described in Section 12.8(c)(i), 12.8(c)(ii) or 12.8(c)(iii) above, the Determining Party may include costs of funding, to the extent costs of funding are not and would not be a component of the other information being utilized. Third parties supplying quotations pursuant to Section 12.8(c)(i) above or market data pursuant to Section 12.8(c)(ii) above may include, without limitation, dealers in the relevant markets, end-users of the relevant product, information vendors, brokers and other sources of market information.
12.8(e) Without duplication of amounts calculated based on information described in Section 12.8(c)(i), 12.8(c)(ii) or 12.8(c)(iii) above, or other relevant information, and when it is commercially reasonable to do so, the Determining Party may in addition consider in calculating a Cancellation Amount any loss or cost incurred in connection with its terminating, liquidating or re-establishing any hedge related to such Transaction (or any gain resulting from any of them).
12.8(f)Determining Party” means the party or parties specified as such in the related Confirmation.
12.8(g) Commercially reasonable procedures used in determining a Cancellation Amount may include the following:
(i) application to relevant market data from third parties pursuant to Section 12.8(c)(ii) above or information from internal sources pursuant to Section 12.8(c)(iii) above of pricing or other valuation models that are, at the time of the determination of the Cancellation Amount, used by the Determining Party in the regular course of its business in pricing or valuing transactions between the Determining Party and unrelated third parties that are similar to the relevant Transaction; and
(ii) application of different valuation methods to the relevant Transaction depending on the type, complexity or size of the relevant Transaction.

Section 12.9. Additional Disruption Events.

12.9(a) Each of the following terms shall have the meaning set forth below:
12.9(a)(i)Additional Disruption Event” means any of the events set forth in paragraphs 12.9(a)(ii) through 12.9(a)(viii) below:
12.9(a)(ii)Change in Law” means that, on or after the Trade Date of any Transaction:
(A) due to the adoption of or any change in any applicable law or regulation (including, without limitation, any tax law), or
(B) due to the promulgation of or any change in the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law or regulation (including any action taken by a taxing authority),
a party to such Transaction determines in good faith that:
(X) it has become illegal to hold, acquire or dispose of Shares relating to such Transaction, or
(Y) it will incur a materially increased cost in performing its obligations under such Transaction (including, without limitation, due to any increase in tax liability, decrease in tax benefit or other adverse effect on its tax position);
12.9(a)(iii)Failure to Deliver” means the failure of a party to deliver, when due, the relevant Shares under that Transaction, where such failure to deliver is due to illiquidity in the market for such Shares;
12.9(a)(iv)Insolvency Filing” means that the Issuer institutes or has instituted against it by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or organization or the jurisdiction of its head or home office, or it consents to a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation by it or such regulator, supervisor or similar official or it consents to such a petition, provided that proceedings instituted or petitions presented by creditors and not consented to by the Issuer shall not be deemed an Insolvency Filing;
12.9(a)(v)Hedging Disruption” means that the Hedging Party is unable, after using commercially reasonable efforts, to (A) acquire, establish, re-establish, substitute, maintain, unwind or dispose of any transaction(s) or asset(s) it deems necessary to hedge the equity price risk of entering into and performing its obligations with respect to the relevant Transaction, or (B) realize, recover or remit the proceeds of any such transaction(s) or asset(s);
12.9(a)(vi)Increased Cost of Hedging” means that the Hedging Party would incur a materially increased (as compared with circumstances existing on the Trade Date) amount of tax, duty, expense or fee (other than brokerage commissions) to (A) acquire, establish, re-establish, substitute, maintain, unwind or dispose of any transaction(s) or asset(s) it deems necessary to hedge the equity price risk of entering into and performing its obligations with respect to the relevant Transaction, or (B) realize, recover or remit the proceeds of any such transaction(s) or asset(s), provided that any such materially increased amount that is incurred solely due to the deterioration of the creditworthiness of the Hedging Party shall not be deemed an Increased Cost of Hedging;
12.9(a)(vii)Loss of Stock Borrow” means that the Hedging Party is unable, after using commercially reasonable efforts, to borrow (or maintain a borrowing of) Shares with respect to such Transaction in an amount equal to the Hedging Shares (not to exceed the number of Shares underlying the Transaction) at a rate equal to or less than the Maximum Stock Loan Rate;
12.9(a)(viii)Increased Cost of Stock Borrow” means that the Hedging Party would incur a rate to borrow Shares in respect of such Transaction that is greater than the Initial Stock Loan Rate;
12.9(a)(ix)Hedging Party” means the party specified in the related Confirmation as the Hedging Party or, if no Hedging Party is specified, either party to the Transaction;
12.9(a)(x)Hedging Shares” means the number of Shares that the Hedging Party deems necessary to hedge the equity price risk of entering into and performing its obligations with respect to a Transaction to which “Loss of Stock Borrow” or “Increased Cost of Stock Borrow” is applicable;
12.9(a)(xi)Lending Party” means a third party that the Hedging Party considers to be a satisfactory counterparty (acting in good faith and in a commercially reasonable manner in light of other transactions that the Hedging Party may have entered into with such party);
12.9(a)(xii)Non-Hedging Party” means the party that is not the Hedging Party;
12.9(a)(xiii)Maximum Stock Loan Rate” means, in respect of a Transaction to which “Loss of Stock Borrow” is applicable, the stock loan rate specified as such in the related Confirmation;
12.9(a)(xiv)Initial Stock Loan Rate” means, in respect of a Transaction to which “Increased Cost of Stock Borrow” is applicable, the stock loan rate specified as such in the related Confirmation; and
12.9(a)(xv)Price Adjustment” means an adjustment to the Strike Price, Initial Price, Forward Price, Forward Floor Price, Forward Cap Price, Knock-in Price, Knock-out Price, spread or other variable with respect to the relevant Transaction.
12.9(b) For the purpose of determining the consequence of an Additional Disruption Event:
12.9(b)(i) If “Change in Law” or “Insolvency Filing” is specified in the related Confirmation to be applicable to a Transaction, then upon the occurrence of such an event either party may elect to terminate the Transaction upon at least two Scheduled Trading Days’ notice to the other party specifying the date of such termination (or such lesser notice as may be required to comply with the Change in Law), in which event the Transaction will terminate and the Determining Party will determine the Cancellation Amount payable by one party to the other.
12.9(b)(ii) If “Failure to Deliver” is specified in the related Confirmation to be applicable to a Transaction, then such event shall not constitute an Event of Default under the ISDA Master Agreement, but upon the occurrence of such an event, the party required to deliver the relevant Shares (the “Delivering Party”) shall (A) give the other party (the “Receiving Party”) notice that a Failure to Deliver has occurred within one Clearance System Business Day of the relevant Exercise Date in the case of an Option Transaction and at least one Settlement Cycle prior to the Settlement Date in the case of a Forward Transaction or Equity Swap Transaction and (B) deliver on the Settlement Date to the Receiving Party such number of Shares that it can deliver on such date. The Receiving Party’s obligation to make any corresponding payment or delivery to the Delivering Party shall be reduced in proportion to the number of Shares it receives from the Delivering Party. In respect of a European Option or a Forward Transaction, the Receiving Party may then elect to terminate the Transaction by giving notice to the Delivering Party and the Transaction will terminate on the date that such notice is effective. The Receiving Party (who shall be the Determining Party) shall determine the Cancellation Amount payable in relation to such terminated Transaction (after consideration of any partial delivery). In respect of an American Option or a Bermuda Option, the Receiving Party may then elect to terminate that part of the Transaction consisting of the exercised Options by giving notice to the Delivering Party. On the date that such notice is effective, a Transaction consisting of the exercised Options only shall be terminated and the Receiving Party (who shall be the Determining Party) shall determine the Cancellation Amount payable in relation to such terminated Transaction (after consideration of any partial delivery). In respect of an Equity Swap Transaction, the Receiving Party may then elect to terminate that part of the Transaction consisting of the Number of Shares to be Delivered or Number of Baskets to be Delivered, as the case may be, on that Settlement Date by giving notice to the Delivering Party. On the date that such notice is effective, a Transaction consisting of the Number of Shares to be Delivered or Number of Baskets to be Delivered, as the case may be, on that Settlement Date only shall be deemed to have been terminated on such Settlement Date and the Receiving Party (who shall be the Determining Party) shall determine the Cancellation Amount payable in relation to such terminated Transaction (after consideration of any partial delivery). In respect of an American Option or a Bermuda Option, in each case to which Multiple Exercise is applicable and upon which less than all Options have been exercised or deemed exercised on the relevant Exercise Date, or in respect of an Equity Swap Transaction in relation to which one or more Settlement Dates have not occurred, the Receiving Party may elect within one Settlement Cycle of the Settlement Date on which the Transaction was partially terminated to terminate the remaining Transaction upon two Scheduled Trading Days’ notice to the Delivering Party, in which event the Transaction shall terminate on the date that such notice is effective and the Receiving Party (who shall be the Determining Party) shall determine the Cancellation Amount payable in relation to such terminated Transaction.
12.9(b)(iii) If “Hedging Disruption” is specified in the related Confirmation to be applicable to a Transaction, then upon the occurrence of such an event the Hedging Party may elect, while the Hedging Disruption is continuing, to terminate the Transaction, upon at least two Scheduled Trading Days’ notice to the Non-Hedging Party specifying the date of such termination, in which event the Determining Party will determine the Cancellation Amount payable by one party to the other.
12.9(b)(iv) If “Loss of Stock Borrow” is specified in the related Confirmation to be applicable to a Transaction, then upon the occurrence of such an event the Hedging Party may give notice that a Loss of Stock Borrow has occurred to the Non-Hedging Party, who may (A) lend the Hedging Party, subject to the conditions below, Shares in an amount equal to the Hedging Shares at a rate equal to or less than the Maximum Stock Loan Rate or (B) refer the Hedging Party to a Lending Party that will lend the Hedging Party Shares in an amount equal to the Hedging Shares at a rate equal to or less than the Maximum Stock Loan Rate, in each case within two Scheduled Trading Days of receipt of the notice of Loss of Stock Borrow. If neither the Non-Hedging Party nor the Lending Party lends Shares in the amount of the Hedging Shares or a satisfactory Lending Party is not identified within this period, the Hedging Party may give notice that it elects to terminate the Transaction, specifying the date of such termination, which may be the same day that the notice of termination is effective. The Determining Party will then determine the Cancellation Amount payable by one party to the other.
12.9(b)(v) If “Increased Cost of Stock Borrow” is specified in the related Confirmation to be applicable to a Transaction, then upon the occurrence of such an event the Hedging Party will give prompt notice to the Non-Hedging Party that an Increased Cost of Stock Borrow has occurred and that a Price Adjustment will be made to the Transaction. The Non-Hedging Party shall, within two Scheduled Trading Days of receipt of the notice of Increased Cost of Stock Borrow and corresponding Price Adjustment, notify the Hedging Party that it elects to (A) agree to amend the relevant Transaction to take into account the Price Adjustment, (B) pay the Hedging Party an amount determined by the Calculation Agent that corresponds to the Price Adjustment or (C) terminate the Transaction as of that second Scheduled Trading Day. If such notice is not given by the end of that second Scheduled Trading Day, then the Hedging Party may give notice that it elects to terminate the Transaction, specifying the date of such termination, which may be the same day that the notice of termination is effective. If either party elects to terminate the Transaction, the Determining Party will determine the Cancellation Amount payable by one party to the other. Within this period, the Non-Hedging Party may, in order to avoid a Price Adjustment or termination with respect to the Transaction, (X) lend the Hedging Party, subject to the conditions below, Shares in an amount equal to the Hedging Shares at a rate equal to or less than the Initial Stock Loan Rate or (Y) refer the Hedging Party to a Lending Party that lends the Hedging Party Shares in an amount equal to the Hedging Shares at a rate equal to or less than the Initial Stock Loan Rate.
12.9(b)(vi) If “Increased Cost of Hedging” is specified in the related Confirmation to be applicable to a Transaction, then upon the occurrence of such an event the Hedging Party will give prompt notice to the Non-Hedging Party that such increased costs have been incurred and that a Price Adjustment will be made to the Transaction. The Non-Hedging Party shall, within two Scheduled Trading Days of receipt of the notice of Increased Cost of Hedging and corresponding Price Adjustment, notify the Hedging Party that it elects to (A) agree to amend the relevant Transaction to take into account the Price Adjustment, (B) pay the Hedging Party an amount determined by the Calculation Agent that corresponds to the Price Adjustment or (C) terminate the Transaction as of that second Scheduled Trading Day. If such notice is not given by the end of that second Scheduled Trading Day, then the Hedging Party may give notice that it elects to terminate the Transaction, specifying the date of such termination, which may be the same day that the notice of termination is effective. If either party elects to terminate the Transaction, the Determining Party will determine the Cancellation Amount payable by one party to the other.
12.9(b)(vii) If both “Hedging Disruption” and “Loss of Stock Borrow” are specified to be applicable to a Transaction and an event or circumstance that would otherwise constitute or give rise to a Hedging Disruption also constitutes a Loss of Stock Borrow, it will be treated as a Loss of Stock Borrow and will not constitute a Hedging Disruption.
12.9(b)(viii) Any Shares provided by the Non-Hedging Party or the Lending Party, as the case may be, in respect of a Loss of Stock Borrow or Increased Cost of Stock Borrow shall be in book-entry form and freely tradable without any restrictions under relevant law and the lending of such Shares shall be documented under documentation acceptable to the Hedging Party.
12.9(b)(ix) Any Cancellation Amount payable by one party to the other shall be paid by the party to pay such amount not later than three Currency Business Days following the date that notice of the determination by the Determining Party of such amount (denominated in the currency for settlement of the Transaction as determined by the Determining Party) and the party to pay such amount is effective, which notice shall be provided promptly following such determination.

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Article 12. Extraordinary Events

Section 12.1. General Provisions Relating to Extraordinary Events

12.1(a). “Extraordinary Event
12.1(b). “Merger Event
12.1(c). “Merger Date
12.1(d). “Tender Offer
12.1(e). “Tender Offer Date
12.1(f). “Share-for-Share
12.1(g). “Share-for-Other
12.1(h). “Share-for-Combined
12.1(i). “New Shares
12.1(j). “Other Consideration
12.1(k). “Combined Consideration
12.1(l). “Announcement Date
12.1(m). “Implied Volatility
12.1(n). “Affected Shares

Section 12.2. Consequences of Merger Events

12.2(a). “Alternative Obligation (Merger Events)
12.2(b). “Cancellation and Payment (Merger Events)
12.2(c). “Options Exchange Adjustment (Merger Events)
12.2(d). “Calculation Agent Adjustment (Merger Events)
12.2(e). “Modified Calculation Agent Adjustment (Merger Events)
12.2(f). “Partial Cancellation and Payment (Merger Events)
12.2(g). “Component Adjustment (Merger Events)

Section 12.3. Consequences of Tender Offers

12.3(a) Cancellation and Payment (Tender Offers)
12.3(b) Options Exchange Adjustment (Tender Offers)
12.3(c) Calculation Agent Adjustment (Tender Offers)
12.3(d) Modified Calculation Agent Adjustment (Tender Offers)
12.3(e) Partial Cancellation and Payment (Tender Offers)
12.3(f) Component Adjustment (Tender Offers)

Section 12.4. Settlement Following a Merger Event or Tender Offer
Section 12.5. Composition of Combined Consideration
Section 12.6. Nationalization, Insolvency and Delisting
Section 12.7. Payment upon Certain Extraordinary Events

12.7(a) (Cancellation and Payment; Partial Cancellation and Payment)
12.7(b) (Effect of Extraordinary Events on Option Transactions)
12.7(c) (Effect of Extraordinary Events on Forward Transactions and Equity Swap Transactions)

Section 12.8. Cancellation Amount

12.8(a)Cancellation Amount
12.8(b) “Means of determination”
12.8(c) “Determination”
12.8(d) “Quotations”
12.8(e) “Liquidation of hedges”
12.8(f)Determining Party
12.8(g)Commercially reasonable procedures

Section 12.9. Additional Disruption Events

Section 12.9(a): The actual Additional Disruption Events
12.9(a)(i) Additional Disruption Event
12.9(a)(ii) Change in Law
12.9(a)(iii) Failure to Deliver
12.9(a)(iv) Insolvency Filing
12.9(a)(v) Hedging Disruption
12.9(a)(vi) Increased Cost of Hedging
12.9(a)(vii) Loss of Stock Borrow
12.9(a)(viii) Increased Cost of Stock Borrow

Section 12.9(a): Other definitions relating to Additional Disruption Events

12.9(a)(ix) Hedging Party
12.9(a)(x) Hedging Shares
12.9(a)(xi) Lending Party
12.9(a)(xii) Non-Hedging Party
12.9(a)(xiii) Maximum Stock Loan Rate
12.9(a)(xiv) Initial Stock Loan Rate
12.9(a)(xv) Price Adjustment
12.9(b) Consequences of an Additional Disruption Event
12.9(b)(i) Consequences of Change in Law or Insolvency Filing
12.9(b)(ii) Consequences of Failure to Deliver
12.9(b)(iii) Consequences of Hedging Disruption
12.9(b)(iv) Consequences of Loss of Stock Borrow
12.9(b)(v) Consequences of Increased Cost of Stock Borrow
12.9(b)(vi) Consequences of Increased Cost of Hedging
12.9(b)(vii) Consequences of Hedging Disruption and Loss of Stock Borrow
12.9(b)(viii) Shares provided by the Non-Hedging Party
12.9(b)(ix) Cancellation Amount payable by one party to the other

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Summary

Break these “Extraordinary Events” into four categories:

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General discussion

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See also

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References


  1. especially since there is already an “Insolvency” event covering most of this).