SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
- -------------------------------------------------------------------------------
JUNE 3, 2004 (May 28, 2004)
CHESAPEAKE ENERGY CORPORATION
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
OKLAHOMA 1-13726 73-1395733
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
6100 NORTH WESTERN AVENUE, OKLAHOMA CITY, OKLAHOMA 73118
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(405) 848-8000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER MATTERS
Chesapeake Exploration Limited Partnership, a wholly owned subsidiary of
Chesapeake Energy Corporation, entered into an International Swap Dealers
Association, Inc. ("ISDA") Master Agreement with Deutsche Bank AG on May 28,
2004. The ISDA Master Agreement, Schedule to the ISDA Master Agreement and
Credit Support Annex to the Schedule to the ISDA Master Agreement are filed as
Exhibits 99.1, 99.2 and 99.3 to this current report on Form 8-K and are
incorporated in their entirety into Item 5 of this report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits. The following exhibits are filed herewith:
99.1 ISDA Master Agreement
99.2 Schedule to the ISDA Master Agreement
99.3 Credit Support Annex to the Schedule to the ISDA Master Agreement
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHESAPEAKE ENERGY CORPORATION
By: /S/ AUBREY K. MCCLENDON
----------------------------------
Aubrey K. McClendon
Chairman of the Board and
Chief Executive Officer
Dated: June 3 2004
EXHIBIT 99.1
------------
ISDA(R)
International Swaps and Derivatives Association, Inc.
2002 MASTER AGREEMENT
dated as of May 28, 2004
Deutsche Bank AG and Chesapeake Exploration Limited Partnership
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this 2002 Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties or otherwise
effective for the purpose of confirming or evidencing those Transactions. This
2002 Master Agreement and the Schedule are together referred to as this "Master
Agreement".
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and elsewhere in this Master
Agreement will have the meanings therein specified for the purpose of this
Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement, such Confirmation will prevail for the
purpose of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value
on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in the
relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to (1)
the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other condition specified in this Agreement to be a condition
precedent for the purpose of this Section 2(a)(iii).
(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the Scheduled Settlement Date for the payment or delivery
to which such change applies unless such other party gives timely notice of a
reasonable objection to such change.
(c) NETTING OF PAYMENTS. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by which the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
and payment obligation will be determined in respect of all amounts payable on
the same date in the same currency in respect of those Transactions, regardless
of whether such amounts are payable in respect of the same Transaction. The
election may be made in the Schedule or any Confirmation by specifying that
"Multiple Transaction Payment Netting" applies to the Transactions identified as
being subject to the election (in which case clause (ii) above will not apply to
such Transactions). If Multiple Transaction Payment Netting is applicable to
Transactions, it will apply to those Transactions with effect from the starting
date specified in the Schedule or such Confirmation, or, if a starting date is
not specified in the Schedule or such Confirmation, the starting date otherwise
agreed by the parties in writing. This election may be made separately for
different groups of Transactions and will apply separately to each pairing of
Offices through which the parties make and receive payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS-UP. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such deduction
or withholding is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, then in effect. If
a party is so required to deduct or withhold, then that party ("X") will:--
(1) promptly notify the other party ("Y") of such
requirement;
(2) pay to the relevant authorities the full amount required
to be deducted or withheld (including the full amount required
to be deducted or withheld from any additional amount paid by
X to Y under this Section 2(d)) promptly upon the earlier of
determining that such deduction or withholding is required or
receiving notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y,
evidencing such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition
to the payment to which Y is otherwise entitled under this
Agreement, such additional amount as is necessary to ensure
that the net amount actually received by Y (free and clear of
Indemnifiable Taxes, whether assessed against X or Y) will
equal the full amount Y would have received had no such
deduction or withholding been required. However, X will not be
required to pay any additional amount to Y to the extent that
it would not be required to be paid but for:--
(A) the failure by Y to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or
4(d); or
(B) the failure of a representation made by Y
pursuant to Section 3(f) to be accurate and true
unless such failure would not have occurred but for
(I) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, after a
Transaction is entered into (regardless of whether
such action is taken or brought with respect to a
party to this Agreement) or (II) a Change in Tax Law.
2
(ii) LIABILITY. If:--
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to
make any deduction or withholding in respect of which X would
not be required to pay an additional amount to Y under Section
2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such liability
(including any related liability for interest, but including any related
liability for penalties only if Y has failed to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
3. REPRESENTATIONS
Each party makes the representations contained in Sections 3(a), 3(b), 3(c),
3(d), 3(e) and 3(f) and, if specified in the Schedule as applying, 3(g) to the
other party (which representations will be deemed to be repeated by each party
on each date on which a Transaction is entered into and, in the case of the
representations in Section 3(f), at all times until the termination of this
Agreement). If any "Additional Representation" is specified in the Schedule or
any Confirmation as applying, the party or parties specified for such Additional
Representation will make and, if applicable, be deemed to repeat such Additional
Representation at the time or times specified for such Additional
Representation.
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organized and validly existing under the laws of the
jurisdiction of its organization or incorporation and, if relevant under
such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorize such execution, delivery and performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance do
not violate or conflict with any law applicable to it, any provision of its
constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;
(iv) CONSENTS. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of Default
or, to its knowledge, Termination Event with respect to it has occurred and is
continuing and no such event or circumstance would occur as a result of its
entering into or performing its obligations under this Agreement or any Credit
Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it, any of its Credit Support Providers or any of its
applicable Specified Entities any action, suit or proceeding at law or in equity
or before any court, tribunal, governmental body, agency or official or any
arbitrator that is likely to affect the legality, validity or enforceability
against it of this Agreement or any Credit Support Document to which it is a
party or its ability to perform its obligations under this Agreement or such
Credit Support Document.
3
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.
(g) NO AGENCY. It is entering into this Agreement, including each Transaction,
as principal and not as agent of any person or entity.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or,
in certain cases under clause (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation specified in
the Schedule or any Confirmation,
(ii) any other documents specified in the Schedule or any Confirmation; and
(iii) upon reasonable demand by such other party, any form or document that
may be required or reasonably requested in writing in order to allow such
other party or its Credit Support Provider to make a payment under this
Agreement or any applicable Credit Support Document without any deduction
or withholding for or on account of any Tax or with such deduction or
withholding at a reduced rate (so long as the completion, execution or
submission of such form or document would not materially prejudice the
legal or commercial position of the party in receipt of such demand), with
any such form or document to be accurate and completed in a manner
reasonably satisfactory to such other party and to be executed and to be
delivered with any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORIZATIONS. It will use all reasonable efforts to maintain
in full force and effect all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party and will use all reasonable
efforts to obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning of
such failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp
Tax levied or imposed upon it or in respect of its execution or performance of
this Agreement by a jurisdiction in which it is incorporated, organized, managed
and controlled or considered to have its seat, or where an Office through which
it is acting for the purpose of this Agreement is located ("Stamp Tax
Jurisdiction"), and will indemnify the other party against any Stamp Tax levied
or imposed upon the other party or in respect of the other party's execution or
performance of this Agreement by any such Stamp Tax Jurisdiction which is not
also a Stamp Tax Jurisdiction with respect to the other party.
4
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes (subject to
Sections 5(c) and 6(e)(iv)) an event of default (an "Event of Default") with
respect to such party:--
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due, any
payment under this Agreement or delivery under Section 2(a)(i) or
9(h)(i)(2) or (4) required to be made by it if such failure is not remedied
on or before the first Local Business Day in the case of any such payment
or the first Local Delivery Day in the case of any such delivery after, in
each case, notice of such failure is given to the party;
(ii) BREACH OF AGREEMENT; REPUDIATION OF AGREEMENT.
(1) Failure by the party to comply with or perform any agreement or
obligation (other than an obligation to make any payment under this
Agreement or delivery under Section 2(a)(i) or 9(h)(i)(2) or (4) or
to give notice of a Termination Event or any agreement or obligation
under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or
performed by the party in accordance with this Agreement if such
failure is not remedied within 30 days after notice of such failure
is given to the party; or
(2) the party disaffirms, disclaims, repudiates or rejects, in whole
or in part, or challenges the validity of, this Master Agreement, any
Confirmation executed and delivered by that party or any Transaction
evidenced by such a Confirmation (or such action is taken by any
person or entity appointed or empowered to operate it or act on its
behalf);
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such party
to comply with or perform any agreement or obligation to be complied
with or performed by it in accordance with any Credit Support
Document if such failure is continuing after any applicable grace
period has elapsed;
(2) the expiration or termination of such Credit Support Document or
the failing or ceasing of such Credit Support Document, or any
security interest granted by such party or such Credit Support
Provider to the other party pursuant to any such Credit Support
Document, to be in full force and effect for the purpose of this
Agreement (in each case other than in accordance with its terms)
prior to the satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without the
written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms, disclaims,
repudiates or rejects, in whole or in part, or challenges the
validity of, such Credit Support Document (or such action is taken by
any person or entity appointed or empowered to operate it or act on
its behalf);
(iv) MISREPRESENTATION. A representation (other than a representation under
Section 3(e) or 3(f)) made or repeated or deemed to have been made or
repeated by the party or any Credit Support Provider of such party in this
Agreement or any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or deemed to have
been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party:--
(1) defaults (other than by failing to make a delivery) under a
Specified Transaction or any credit support arrangement relating to a
Specified Transaction and, after giving effect to any applicable
notice requirement or grace period, such default results in a
liquidation of, an acceleration of obligations under, or an early
termination of, that Specified Transaction;
(2) defaults, after giving effect to any applicable notice
requirement or grace period, in making any payment due on the last
payment or exchange date of, or any payment on early termination of,
a Specified Transaction (or, if there is no applicable notice
requirement or grace period, such default continues for at least one
Local Business Day);
5
(3) defaults in making any delivery due under (including any delivery
due on the last delivery or exchange date of) a Specified Transaction
or any credit support arrangement relating to a Specified Transaction
and, after giving effect to any applicable notice requirement or
grace period, such default results in a liquidation of, an
acceleration of obligations under, or an early termination of, all
transactions outstanding under the documentation applicable to that
Specified Transaction; or
(4) disaffirms, disclaims, repudiates or rejects, in whole or in
part, or challenges the validity of, a Specified Transaction or any
credit support arrangement relating to a Specified Transaction that
is, in either case, confirmed or evidenced by a document or other
confirming evidence executed and delivered by that party, Credit
Support Provider or Specified Entity (or such action is taken by any
person or entity appointed or empowered to operate it or act on its
behalf);
(vi) CROSS-DEFAULT. If "Cross-Default" is specified in the Schedule as
applying to the party, the occurrence or existence of:--
(1) a default, event of default or other similar condition or event
(however described) in respect of such party, any Credit Support
Provider of such party or any applicable Specified Entity of such
party under one or more agreements or instruments relating to
Specified Indebtedness of any of them (individually or collectively)
where the aggregate principal amount of such agreements or
instruments, either alone or together with the amount, if any,
referred to in clause (2) below, is not less than the applicable
Threshold Amount (as specified in the Schedule) which has resulted in
such Specified Indebtedness becoming, or becoming capable at such
time of being declared, due and payable under such agreements or
instruments before it would otherwise have been due and payable; or
(2) a default by such party, such Credit Support Provider or such
Specified Entity (individually or collectively) in making one or more
payments under such agreements or instruments on the due date for
payment (after giving effect to any applicable notice requirement or
grace period) in an aggregate amount, either alone or together with
the amount, if any, referred to in clause (1) above, of not less than
the applicable Threshold Amount;
(vii) BANKRUPTCY. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to pay
its debts or fails or admits in writing its inability generally to
pay its debts as they become due; (3) makes a general assignment,
arrangement or composition with or for the benefit of its creditors;
(4)(A) 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, 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 (B) has instituted against it 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, and such proceeding or petition is
instituted or presented by a person or entity not described in clause
(A) above and either (I) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making of an
order for its winding-up or liquidation or (II) is not dismissed,
discharged, stayed or restrained in each case within 15 days of the
institution or presentation thereof; (5) has a resolution passed for
its winding-up, official management or liquidation (other than
pursuant to a consolidation, amalgamation or merger); (6) seeks or
becomes subject to the appointment of an administrator, provisional
liquidator, conservator, receiver, trustee, custodian or other
similar official for it or for all or substantially all its assets;
(7) has a secured party take possession of all or substantially all
its assets or has a distress, execution, attachment, sequestration or
other legal process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged, stayed
or restrained, in each case within 15 days thereafter; (8) causes or
is subject to any event with respect to it which, under the
applicable laws of any jurisdiction, has an analogous effect to any
of the events specified in clauses (1) to (7) above (inclusive); or
(9) takes any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the foregoing acts; or
6
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support Provider
of such party consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, or reorganizes,
reincorporates or reconstitutes into or as, another entity and, at the time
of such consolidation, amalgamation, merger, transfer, reorganization,
reincorporation or reconstitution:--
(1) the resulting, surviving or transferee entity fails to assume all
the obligations of such party or such Credit Support Provider under
this Agreement or any Credit Support Document to which it or its
predecessor was a party; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by such
resulting, surviving or transferee entity of its obligations under
this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes (subject to Section 5(c))
an Illegality if the event is specified in clause (i) below, a Force Majeure
Event if the event is specified in clause (ii) below, a Tax Event if the event
is specified in clause (iii) below, a Tax Event Upon Merger if the event is
specified in clause (iv) below, and, if specified to be applicable, a Credit
Event Upon Merger if the event is specified pursuant to clause (v) below or an
Additional Termination Event if the event is specified pursuant to clause (vi)
below:--
(i) ILLEGALITY. After giving effect to any applicable provision,
disruption fallback or remedy specified in, or pursuant to, the relevant
Confirmation or elsewhere in this Agreement, due to an event or
circumstance (other than any action taken by a party or, if applicable, any
Credit Support Provider of such party) occurring after a Transaction is
entered into, it becomes unlawful under any applicable law (including
without limitation the laws of any country in which payment, delivery or
compliance is required by either party or any Credit Support Provider, as
the case may be), on any day, or it would be unlawful if the relevant
payment, delivery or compliance were required on that day (in each case,
other than as a result of a breach by the party of Section 4(b)):--
(1) for the Office through which such party (which will be the
Affected Party) makes and receives payments or deliveries with
respect to such Transaction to perform any absolute or contingent
obligation to make a payment or delivery in respect of such
Transaction, to receive a payment or delivery in respect of such
Transaction or to comply with any other material provision of this
Agreement relating to such Transaction; or
(2) for such party or any Credit Support Provider of such party
(which will be the Affected Party) to perform any absolute or
contingent obligation to make a payment or delivery which such party
or Credit Support Provider has under any Credit Support Document
relating to such Transaction, to receive a payment or delivery under
such Credit Support Document or to comply with any other material
provision of such Credit Support Document;
(ii) FORCE MAJEURE EVENT. After giving effect to any applicable provision,
disruption fallback or remedy specified in, or pursuant to, the relevant
Confirmation or elsewhere in this Agreement, by reason of force majeure or
act of state occurring after a Transaction is entered into, on any day:--
(1) the Office through which such party (which will be the Affected
Party) makes and receives payments or deliveries with respect to such
Transaction is prevented from performing any absolute or contingent
obligation to make a payment or delivery in respect of such
Transaction, from receiving a payment or delivery in respect of such
Transaction or from complying with any other material provision of
this Agreement relating to such Transaction (or would be so prevented
if such payment, delivery or compliance were required on that day),
or it becomes impossible or impracticable for such Office so to
perform, receive or comply (or it would be impossible or
impracticable for such Office so to perform, receive or comply if
such payment, delivery or compliance were required on that day); or
(2) such party or any Credit Support Provider of such party (which
will be the Affected Party) is prevented from performing any absolute
or contingent obligation to make a payment or delivery which such
party or Credit Support Provider has under any Credit Support
Document relating to such Transaction, from receiving a payment or
delivery under such Credit Support Document or from complying with
any other material provision of such Credit Support Document (or
would be so prevented if such payment, delivery or compliance were
required on that day), or it becomes impossible or impracticable for
such party or Credit Support Provider so to perform, receive or
comply (or it would be impossible or impracticable for such party or
Credit Support Provider so to perform, receive or comply if such
payment, delivery or compliance were required on that day),
7
so long as the force majeure or act of state is beyond the control of such
Office, such party or such Credit Support Provider, as appropriate, and such
Office, party or Credit Support Provider could not, after using all reasonable
efforts (which will not require such party or Credit Support Provider to incur a
loss, other than immaterial, incidental expenses), overcome such prevention,
impossibility or impracticability;
(iii) TAX EVENT. Due to (1) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, after a Transaction is
entered into (regardless of whether such action is taken or brought with
respect to a party to this Agreement) or (2) a Change in Tax Law, the party
(which will be the Affected Party) will, or there is a substantial
likelihood that it will, on the next succeeding Scheduled Settlement Date
(A) be required to pay to the other party an additional amount in respect
of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of
interest under Section 9(h)) or (B) receive a payment from which an amount
is required to be deducted or withheld for or on account of a Tax (except
in respect of interest under Section 9(h)) and no additional amount is
required to be paid in respect of such Tax under Section 2(d)(i)(4) (other
than by reason of Section 2(d)(i)(4)(A) or (B));
(iv) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the next
succeeding Scheduled Settlement Date will either (1) be required to pay an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 9(h)) or (2)
receive a payment from which an amount has been deducted or withheld for or
on account of any Tax in respect of which the other party is not required
to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A)
or (B)), in either case as a result of a party consolidating or
amalgamating with, or merging with or into, or transferring all or
substantially all its assets (or any substantial part of the assets
comprising the business conducted by it as of the date of this Master
Agreement) to, or reorganizing, reincorporating or reconstituting into or
as, another entity (which will be the Affected Party) where such action
does not constitute a Merger Without Assumption;
(v) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified
in the Schedule as applying to the party, a Designated Event (as defined
below) occurs with respect to such party, any Credit Support Provider of
such party or any applicable Specified Entity of such party (in each case,
"X") and such Designated Event does not constitute a Merger Without
Assumption, and the creditworthiness of X or, if applicable, the successor,
surviving or transferee entity of X, after taking into account any
applicable Credit Support Document, is materially weaker immediately after
the occurrence of such Designated Event than that of X immediately prior to
the occurrence of such Designated Event (and, in any such event, such party
or its successor, surviving or transferee entity, as appropriate, will be
the Affected Party). A "Designated Event" with respect to X means that:--
(1) X consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets (or any substantial
part of the assets comprising the business conducted by X as of the
date of this Master Agreement) to, or reorganizes, reincorporates or
reconstitutes into or as, another entity;
(2) any person, related group of persons or entity acquires directly
or indirectly the beneficial ownership of (A) equity securities
having the power to elect a majority of the board of directors (or
its equivalent) of X or (B) any other ownership interest enabling it
to exercise control of X; or
(3) X effects any substantial change in its capital structure by
means of the issuance, incurrence or guarantee of debt or the
issuance of (A) preferred stock or other securities convertible into
or exchangeable for debt or preferred stock or (B) in the case of
entities other than corporations, any other form of ownership
interest; or
(vi) ADDITIONAL TERMINATION EVENT. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying,
the occurrence of such event (and, in such event, the Affected Party or
Affected Parties will be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
8
(c) HIERARCHY OF EVENTS.
(i) An event or circumstance that constitutes or gives rise to an
Illegality or a Force Majeure Event will not, for so long as that is the
case, also constitute or give rise to an Event of Default under Section
5(a)(i), 5(a)(ii)(l) or 5(a)(iii)(1) insofar as such event or circumstance
relates to the failure to make any payment or delivery or a failure to
comply with any other material provision of this Agreement or a Credit
Support Document, as the case may be.
(ii) Except in circumstances contemplated by clause (i) above, if an event
or circumstance which would otherwise constitute or give rise to an
Illegality or a Force Majeure Event also constitutes an Event of Default or
any other Termination Event, it will be treated as an Event of Default or
such other Termination Event, as the case may be, and will not constitute
or give rise to an Illegality or a Force Majeure Event.
(iii) If an event or circumstance which would otherwise constitute or give
rise to a Force Majeure Event also constitutes an Illegality, it will be
treated as an Illegality, except as described in clause (ii) above, and not
a Force Majeure Event.
(d) DEFERRAL OF PAYMENTS AND DELIVERIES DURING WAITING PERIOD. If an Illegality
or a Force Majeure Event has occurred and is continuing with respect to a
Transaction, each payment or delivery which would otherwise be required to be
made under that Transaction will be deferred to, and will not be due until:--
(i) the first Local Business Day or, in the case of a delivery, the first
Local Delivery Day (or the first day that would have been a Local Business
Day or Local Delivery Day, as appropriate, but for the occurrence of the
event or circumstance constituting or giving rise to that Illegality or
Force Majeure Event) following the end of any applicable Waiting Period in
respect of that Illegality or Force Majeure Event, as the case may be; or
(ii) if earlier, the date on which the event or circumstance constituting
or giving rise to that Illegality or Force Majeure Event ceases to exist
or, if such date is not a Local Business Day or, in the case of a delivery,
a Local Delivery Day, the first following day that is a Local Business Day
or Local Delivery Day, as appropriate.
(e) INABILITY OF HEAD OR HOME OFFICE TO PERFORM OBLIGATIONS OF BRANCH. If (i)
an Illegality or a Force Majeure Event occurs under Section 5(b)(i)(1) or
5(b)(ii)(1) and the relevant Office is not the Affected Party's head or home
office, (ii) Section 10(a) applies, (iii) the other party seeks performance of
the relevant obligation or compliance with the relevant provision by the
Affected Party's head or home office and (iv) the Affected Party's head or home
office fails so to perform or comply due to the occurrence of an event or
circumstance which would, if that head or home office were the Office through
which the Affected Party makes and receives payments and deliveries with respect
to the relevant Transaction, constitute or give rise to an Illegality or a Force
Majeure Event, and such failure would otherwise constitute an Event of Default
under Section 5(a)(i) or 5(a)(iii)(l) with respect to such party then, for so
long as the relevant event or circumstance continues to exist with respect to
both the Office referred to in Section 5(b)(i)(1) or 5(b)(ii)(l), as the case
may be, and the Affected Party's head or home office, such failure will not
constitute an Event of Default under Section 5(a)(i) or 5(a)(iii)(1).
9
6. EARLY TERMINATION; CLOSE-OUT NETTING
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event other than a Force Majeure Event occurs,
an Affected Party will, promptly upon becoming aware of it, notify the
other party, specifying the nature of that Termination Event and each
Affected Transaction, and will also give the other party such other
information about that Termination Event as the other party may reasonably
require. If a Force Majeure Event occurs, each party will, promptly upon
becoming aware of it, use all reasonable efforts to notify the other party,
specifying the nature of that Force Majeure Event, and will also give the
other party such other information about that Force Majeure Event as the
other party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If a Tax Event occurs and there
is only one Affected Party, or if a Tax Event Upon Merger occurs and the
Burdened Party is the Affected Party, the Affected Party will, as a
condition to its right to designate an Early Termination Date under Section
6(b)(iv), use all reasonable efforts (which will not require such party to
incur a loss, other than immaterial, incidental expenses) to transfer
within 20 days after it gives notice under Section 6(b)(i) all its rights
and obligations under this Agreement in respect of the Affected
Transactions to another of its Offices or Affiliates so that such
Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days after
the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to
and conditional upon the prior written consent of the other party, which
consent will not be withheld if such other party's policies in effect at
such time would permit it to enter into transactions with the transferee on
the terms proposed.
(iii) TWO AFFECTED PARTIES. If a Tax Event occurs and there are two
Affected Parties, each party will use all reasonable efforts to reach
agreement within 30 days after notice of such occurrence is given under
Section 6(b)(i) to avoid that Termination Event.
(iv) RIGHT TO TERMINATE.
(1) If:--
(A) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected
with respect to all Affected Transactions within 30 days after
an Affected Party gives notice under Section 6(b)(i); or
(B) a Credit Event Upon Merger or an Additional Termination
Event occurs, or a Tax Event Upon Merger occurs and the
Burdened Party is not the Affected Party,
the Burdened Party in the case of a Tax Event Upon Merger, any
Affected Party in the case of a Tax Event or an Additional
Termination Event if there are two Affected Parties, or the
Non-affected Party in the case of a Credit Event Upon Merger or an
Additional Termination Event if there is only one Affected Party may,
if the relevant Termination Event is then continuing, by not more
than 20 days notice to the other party, designate a day not earlier
than the day such notice is effective as an Early Termination Date in
respect of all Affected Transactions.
10
(2) If at any time an Illegality or a Force Majeure Event has
occurred and is then continuing and any applicable Waiting Period has
expired:--
(A) Subject to clause (B) below, either party may, by not more
than 20 days notice to the other party, designate (I) a day
not earlier than the day on which such notice becomes
effective as an Early Termination Date in respect of all
Affected Transactions or (II) by specifying in that notice the
Affected Transactions in respect of which it is designating
the relevant day as an Early Termination Date, a day not
earlier than two Local Business Days following the day on
which such notice becomes effective as an Early Termination
Date in respect of less than all Affected Transactions. Upon
receipt of a notice designating an Early Termination Date in
respect of less than all Affected Transactions, the other
party may, by notice to the designating party, if such notice
is effective on or before the day so designated, designate
that same day as an Early Termination Date in respect of any
or all other Affected Transactions.
(B) An Affected Party (if the Illegality or Force Majeure
Event relates to performance by such party or any Credit
Support Provider of such party of an obligation to make any
payment or delivery under, or to compliance with any other
material provision of, the relevant Credit Support Document)
will only have the right to designate an Early Termination
Date under Section 6(b)(iv)(2)(A) as a result of an Illegality
under Section 5(b)(i)(2) or a Force Majeure Event under
Section 5(b)(ii)(2) following the prior designation by the
other party of an Early Termination Date, pursuant to Section
6(b)(iv)(2)(A), in respect of less than all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under Section
6(a) or 6(b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination
Date, no further payments or deliveries under Section 2(a)(i) or 9(h)(i) in
respect of the Terminated Transactions will be required to be made, but
without prejudice to the other provisions of this Agreement. The amount, if
any, payable in respect of an Early Termination Date will be determined
pursuant to Sections 6(e) and 9(h)(ii).
(d) CALCULATIONS; PAYMENT DATE.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable detail,
such calculations (including any quotations, market data or information
from internal sources used in making such calculations), (2) specifying
(except where there are two Affected Parties) any Early Termination Amount
payable and (3) giving details of the relevant account to which any amount
payable to it is to be paid. In the absence of written confirmation from
the source of a quotation or market data obtained in determining a
Close-out Amount, the records of the party obtaining such quotation or
market data will be conclusive evidence of the existence and accuracy of
such quotation or market data.
(ii) PAYMENT DATE. An Early Termination Amount due in respect of any Early
Termination Date will, together with any amount of interest payable
pursuant to Section 9(h)(ii)(2), be payable (1) on the day on which notice
of the amount payable is effective in the case of an Early Termination Date
which is designated or occurs as a result of an Event of Default and (2) on
the day which is two Local Business Days after the day on which notice of
the amount payable is effective (or, if there are two Affected Parties,
after the day on which the statement provided pursuant to clause (i) above
by the second party to provide such a statement is effective) in the case
of an Early Termination Date which is designated as a result of a
Termination Event.
11
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
amount, if any, payable in respect of that Early Termination Date (the "Early
Termination Amount") will be determined pursuant to this Section 6(e) and will
be subject to Section 6(f).
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an Event
of Default, the Early Termination Amount will be an amount equal to (1) the
sum of (A) the Termination Currency Equivalent of the Close-out Amount or
Close-out Amounts (whether positive or negative) determined by the
Non-defaulting Party for each Terminated Transaction or group of Terminated
Transactions, as the case may be, and (B) the Termination Currency
Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (2)
the Termination Currency Equivalent of the Unpaid Amounts owing to the
Defaulting Party. If the Early Termination Amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value of
the Early Termination Amount to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:--
(1) ONE AFFECTED PARTY. Subject to clause (3) below, if there is one
Affected Party, the Early Termination Amount will be determined in
accordance with Section 6(e)(i), except that references to the
Defaulting Party and to the Non-defaulting Party will be deemed to be
references to the Affected Party and to the Non-affected Party,
respectively.
(2) TWO AFFECTED PARTIES. Subject to clause (3) below, if there are
two Affected Parties, each party will determine an amount equal to
the Termination Currency Equivalent of the sum of the Close-out
Amount or Close-out Amounts (whether positive or negative) for each
Terminated Transaction or group of Terminated Transactions, as the
case may be, and the Early Termination Amount will be an amount equal
to (A) the sum of (I) one-half of the difference between the higher
amount so determined (by party 'T') and the lower amount so
determined (by party "Y") and (II) the Termination Currency
Equivalent of the Unpaid Amounts owing to X less (B) the Termination
Currency Equivalent of the Unpaid Amounts owing to Y. If the Early
Termination Amount is a positive number, Y will pay it to X; if it is
a negative number, X will pay the absolute value of the Early
Termination Amount to Y.
(3) MID-MARKET EVENTS. If that Termination Event is an Illegality or
a Force Majeure Event, then the Early Termination Amount will be
determined in accordance with clause (1) or (2) above, as
appropriate, except that, for the purpose of determining a Close-out
Amount or Close-out Amounts, the Determining Party will:--
(A) if obtaining quotations from one or more third parties (or
from any of the Determining Party's Affiliates), ask each
third party or Affiliate (I) not to take account of the
current creditworthiness of the Determining Party or any
existing Credit Support Document and (II) to provide
mid-market quotations; and
(B) in any other case, use mid-market values without regard to
the creditworthiness of the Determining Party.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because Automatic Early Termination applies in
respect of a party, the Early Termination Amount will be subject to such
adjustments as are appropriate and permitted by applicable law to reflect
any payments or deliveries made by one party to the other under this
Agreement (and retained by such other party) during the period from the
relevant Early Termination Date to the date for payment determined under
Section 6(d)(ii).
(iv) ADJUSTMENT FOR ILLEGALITY OR FORCE MAJEURE EVENT. The failure by a
party or any Credit Support Provider of such party to pay, when due, any
Early Termination Amount will not constitute an Event of Default under
Section 5(a)(i) or 5(a)(iii)(1) if such failure is due to the occurrence of
an event or circumstance which would, if it occurred with respect to
payment, delivery or compliance related to a Transaction, constitute or
give rise to an Illegality or a Force Majeure Event. Such amount will (1)
accrue interest and otherwise be treated as an Unpaid Amount owing to the
other party if subsequently an Early Termination Date results from an Event
of Default, a Credit Event Upon Merger or an Additional Termination Event
in respect of which all outstanding Transactions are Affected Transactions
and (2) otherwise accrue interest in accordance with Section 9(h)(ii)(2).
(v) PRE-ESTIMATE. The parties agree that an amount recoverable under this
Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such
amount is payable for the loss of bargain and the loss of protection
against future risks, and, except as otherwise provided in this Agreement,
neither party will be entitled to recover any additional damages as a
consequence of the termination of the Terminated Transactions.
12
(f) SET-OFF. Any Early Termination Amount payable to one party (the "Payee")
BY the other party (the "Payer"), in circumstances where there is a Defaulting
Party or where there is one Affected Party in the case where either a Credit
Event Upon Merger has occurred or any other Termination Event in respect of
which all outstanding Transactions are Affected Transactions has occurred, will,
at the option of the Non-defaulting Party or the Non-affected Party, as the case
may be ("X") (and without prior notice to the Defaulting Party or the Affected
Party, as the case may be), be reduced by its set-off against any other amounts
("Other Amounts") payable by the Payee to the Payer (whether or not arising
under this Agreement, matured or contingent and irrespective of the currency,
place of payment or place of booking of the obligation). To the extent that any
Other Amounts are so set off, those Other Amounts will be discharged promptly
and in all respects. X will give notice to the other party of any set-off
effected under this Section 6(f).
For this purpose, either the Early Termination Amount or the Other Amounts (or
the relevant portion of such amounts) may be converted by X into the currency in
which the other is denominated at the rate of exchange at which such party would
be able, in good faith and using commercially reasonable procedures, to purchase
the relevant amount of such currency.
If an obligation is unascertained, X may in good faith estimate that obligation
and set off in respect of the estimate, subject to the relevant party accounting
to the other when the obligation is ascertained.
Nothing in this Section 6(f) will be effective to create a charge or other
security interest. This Section 6(f) will be without prejudice and in addition
to any right of set-off, offset, combination of accounts, lien, right of
retention or withholding or similar right or requirement to which any party is
at any time otherwise entitled or subject (whether by operation of law, contract
or otherwise).
7. TRANSFER
Subject to Section 6(b)(ii) and to the extent permitted by applicable law,
neither this Agreement nor any interest or obligation in or under this Agreement
may be transferred (whether by way of security or otherwise) by either party
without the prior written consent of the other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
Early Termination Amount payable to it by a Defaulting Party, together with any
amounts payable on or with respect to that interest and any other rights
associated with that interest pursuant to Sections 8, 9(h) and 11.
Any purported transfer that is not in compliance with this Section 7 will be
void.
13
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in good faith and using
commercially reasonable procedures in converting the currency so tendered into
the Contractual Currency, of the full amount in the Contractual Currency of all
amounts payable in respect of this Agreement. If for any reason the amount in
the Contractual Currency so received falls short of the amount in the
Contractual Currency payable in respect of this Agreement, the party required to
make the payment will, to the extent permitted by applicable law, immediately
pay such additional amount in the Contractual Currency as may be necessary to
compensate for the shortfall. If for any reason the amount in the Contractual
Currency so received exceeds the amount in the Contractual Currency payable in
respect of this Agreement, the party receiving the payment will refund promptly
the amount of such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in clause (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purpose of such
judgment or order and the rate of exchange at which such party is able, acting
in good faith and using commercially reasonable procedures in converting the
currency received into the Contractual Currency, to purchase the Contractual
Currency with the amount of the currency of the judgment or order actually
received by such party.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, the
indemnities in this Section 8 constitute separate and independent obligations
from the other obligations in this Agreement, will be enforceable as separate
and independent causes of action, will apply notwithstanding any indulgence
granted by the party to which any payment is owed and will not be affected by
judgment being obtained or claim or proof being made for any other sums payable
in respect of this Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter. Each of the
parties acknowledges that in entering into this Agreement it has not relied on
any oral or written representation, warranty or other assurance (except as
provided for or referred to in this Agreement) and waives all rights and
remedies which might otherwise be available to it in respect thereof, except
that nothing in this Agreement will limit or exclude any liability of a party
for fraud.
(b) AMENDMENTS. An amendment, modification or waiver in respect of this
Agreement will only be effective if in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or by an exchange of electronic messages on an electronic
messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
14
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in respect
of it) may be executed and delivered in counterparts (including by
facsimile transmission and by electronic messaging system), each of which
will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation will be entered into as soon as practicable and
may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes, by an exchange of
electronic messages on an electronic messaging system or by an exchange of
e-mails, which in each case will be sufficient for all purposes to evidence
a binding supplement to this Agreement. The parties will specify therein or
through another effective means that any such counterpart, telex,
electronic message or e-mail constitutes a Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
(h) INTEREST AND COMPENSATION.
(i) PRIOR TO EARLY TERMINATION. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction:--
(1) INTEREST ON DEFAULTED PAYMENTS. If a party defaults in the
performance of any payment obligation, it will, to the extent
permitted by applicable law and subject to Section 6(c), pay interest
(before as well as after judgment) on the overdue amount to the other
party on demand in the same currency as the overdue amount, for the
period from (and including) the original due date for payment to (but
excluding) the date of actual payment (and excluding any period in
respect of which interest or compensation in respect of the overdue
amount is due pursuant to clause (3)(B) or (C) below), at the Default
Rate.
(2) COMPENSATION FOR DEFAULTED DELIVERIES. If a party defaults in the
performance of any obligation required to be settled by delivery, it
will on demand (A) compensate the other party to the extent provided
for in the relevant Confirmation or elsewhere in this Agreement and
(B) unless otherwise provided in the relevant Confirmation or
elsewhere in this Agreement, to the extent permitted by applicable
law and subject to Section 6(c), pay to the other party interest
(before as well as after judgment) on an amount equal to the fair
market value of that which was required to be delivered in the same
currency as that amount, for the period from (and including) the
originally scheduled date for delivery to (but excluding) the date of
actual delivery (and excluding any period in respect of which
interest or compensation in respect of that amount is due pursuant to
clause (4) below), at the Default Rate. The fair market value of any
obligation referred to above will be determined as of the originally
scheduled date for delivery, in good faith and using commercially
reasonable procedures, by the party that was entitled to take
delivery.
(3) INTEREST ON DEFERRED PAYMENTS. If:--
(A) a party does not pay any amount that, but for Section
2(a)(iii), would have been payable, it will, to the extent
permitted by applicable law and subject to Section 6(c) and
clauses (B) and (C) below, pay interest (before as well as
after judgment) on that amount to the other party on demand
(after such amount becomes payable) in the same currency as
that amount, for the period from (and including) the date the
amount would, but for Section 2(a)(iii), have been payable to
(but excluding) the date the amount actually becomes payable,
at the Applicable Deferral Rate;
15
(B) a payment is deferred pursuant to Section 5(d), the party
which would otherwise have been required to make that payment
will, to the extent permitted by applicable law, subject to
Section 6(c) and for so long as no Event of Default or
Potential Event of Default with respect to that party has
occurred and is continuing, pay interest (before as well as
after judgment) on the amount of the deferred payment to the
other party on demand (after such amount becomes payable) in
the same currency as the deferred payment, for the period from
(and including) the date the amount would, but for Section
5(d), have been payable to (but excluding) the earlier of the
date the payment is no longer deferred pursuant to Section
5(d) and the date during the deferral period upon which an
Event of Default or Potential Event of Default with respect to
that party occurs, at the Applicable Deferral Rate; or
(C) a party fails to make any payment due to the occurrence of
an Illegality or a Force Majeure Event (after giving effect to
any deferral period contemplated by clause (B) above), it
will, to the extent permitted by applicable law, subject to
Section 6(c) and for so long as the event or circumstance
giving rise to that Illegality or Force Majeure Event
continues and no Event of Default or Potential Event of
Default with respect to that party has occurred and is
continuing, pay interest (before as well as after judgment) on
the overdue amount to the other party on demand in the same
currency as the overdue amount, for the period from (and
including) the date the party fails to make the payment due to
the occurrence of the relevant Illegality or Force Majeure
Event (or, if later, the date the payment is no longer
deferred pursuant to Section 5(d)) to (but excluding) the
earlier of the date the event or circumstance giving rise to
that Illegality or Force Majeure Event ceases to exist and the
date during the period upon which an Event of Default or
Potential Event of Default with respect to that party occurs
(and excluding any period in respect of which interest or
compensation in respect of the overdue amount is due pursuant
to clause (B) above), at the Applicable Deferral Rate.
(4) COMPENSATION FOR DEFERRED DELIVERIES. If:--
(A) a party does not perform any obligation that, but for
Section 2(a)(iii), would have been required to be settled by
delivery;
(B) a delivery is deferred pursuant to Section 5(d); or
(C) a party fails to make a delivery due to the occurrence of
an Illegality or a Force Majeure Event at a time when any
applicable Waiting Period has expired,
the party required (or that would otherwise have been required) to
make the delivery will, to the extent permitted by applicable law and
subject to Section 6(c), compensate and pay interest to the other
party on demand (after, in the case of clauses (A) and (B) above,
such delivery is required) if and to the extent provided for in the
relevant Confirmation or elsewhere in this Agreement.
(ii) EARLY TERMINATION. Upon the occurrence or effective designation of
an Early Termination Date in respect of a Transaction:--
(1) UNPAID AMOUNTS. For the purpose of determining an Unpaid
Amount in respect of the relevant Transaction, and to the
extent permitted by applicable law, interest will accrue on
the amount of any payment obligation or the amount equal to
the fair market value of any obligation required to be settled
by delivery included in such determination in the same
currency as that amount, for the period from (and including)
the date the relevant obligation was (or would have been but
for Section 2(a)(iii) or 5(d)) required to have been performed
to (but excluding) the relevant Early Termination Date, at the
Applicable Close-out Rate.
(2) INTEREST ON EARLY TERMINATION AMOUNTS. If an Early
Termination Amount is due in respect of such Early Termination
Date, that amount will, to the extent permitted by applicable
law, be paid together with interest (before as well as after
judgment) on that amount in the Termination Currency, for the
period from (and including) such Early Termination Date to
(but excluding) the date the amount is paid, at the Applicable
Close-out Rate.
(iii) INTEREST CALCULATION. Any interest pursuant to this Section 9(h) will
be calculated on the basis of daily compounding and the actual number of
days elapsed.
16
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to and agrees with the other party that, notwithstanding the place of
booking or its jurisdiction of incorporation or organization, its obligations
are the same in terms of recourse against it as if it had entered into the
Transaction through its head or home office, except that a party will not have
recourse to the head or home office of the other party in respect of any payment
or delivery deferred pursuant to Section 5(d) for so long as the payment or
delivery is so deferred. This representation and agreement will be deemed to be
repeated by each party on each date on which the parties enter into a
Transaction.
(b) If a party is specified as a Multibranch Party in the Schedule, such party
may, subject to clause (c) below, enter into a Transaction through, book a
Transaction in and make and receive payments and deliveries with respect to a
Transaction through any Office listed in respect of that party in the Schedule
(but not any other Office unless otherwise agreed by the parties in writing).
(c) The Office through which a party enters into a Transaction will be the
Office specified for that party in the relevant Confirmation or as otherwise
agreed by the parties in writing, and, if an Office for that party is not
specified in the Confirmation or otherwise agreed by the parties in writing, its
head or home office. Unless the parties otherwise agree in writing, the Office
through which a party enters into a Transaction will also be the Office in which
it books the Transaction and the Office through which it makes and receives
payments and deliveries with respect to the Transaction. Subject to Section
6(b)(ii), neither party may change the Office in which it books the Transaction
or the Office through which it makes and receives payments or deliveries with
respect to a Transaction without the prior written consent of the other party.
11. EXPENSES
A Defaulting Party will on demand indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees,
execution fees and Stamp Tax, incurred by such other party by reason of the
enforcement and protection of its rights under this Agreement or any Credit
Support Document to which the Defaulting Party is a party or by reason of the
early termination of any Transaction, including, but not limited to, costs of
collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner described below (except that a notice or
other communication under Section 5 or 6 may not be given by electronic
messaging system or e-mail) to the address or number or in accordance with the
electronic messaging system or e-mail details provided (see the Schedule) and
will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date it is
delivered;
(ii) if sent by telex, on the date the recipient's answerback is received;
(iii) if sent by facsimile transmission, on the date it is received by a
responsible employee of the recipient in legible form (it being agreed that
the burden of proving receipt will be on the sender and will not be met by
a transmission report generated by the sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date it is delivered or its
delivery is attempted;
(v) if sent by electronic messaging system, on the date it is received; or
(vi) if sent by e-mail, on the date it is delivered,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication will be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF DETAILS. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system or e-mail
details at which notices or other communications are to be given to it.
17
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating to
any dispute arising out of or in connection with this Agreement ("Proceedings"),
each party irrevocably:--
(i) submits:--
(1) if this Agreement is expressed to be governed by English law, to
(A) the non-exclusive jurisdiction of the English courts if the
Proceedings do not involve a Convention Court and (B) the exclusive
jurisdiction of the English courts if the Proceedings do involve a
Convention Court; or
(2) if this Agreement is expressed to be governed by the laws of the
State of New York, to the non-exclusive jurisdiction of the courts of
the State of New York and the United States District Court located in
the Borough of Manhattan in New York City;
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party; and
(iii) agrees, to the extent permitted by applicable law, that the bringing
of Proceedings in any one or more jurisdictions will not preclude the
bringing of Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent, if
any, specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any reason any party's
Process Agent is unable to act as such, such party will promptly notify the
other party and within 30 days appoint a substitute process agent acceptable to
the other party. The parties irrevocably consent to service of process given in
the manner provided for notices in Section l2(a)(i), l2(a)(iii) or 12(a)(iv).
Nothing in this Agreement will affect the right of either party to serve process
in any other manner permitted by applicable law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the extent permitted
by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction or order for specific performance or
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"ADDITIONAL REPRESENTATION" has the meaning specified in Section 3.
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Force Majeure Event, Tax Event or Tax Event Upon
Merger, all Transactions affected by the occurrence of such Termination Event
(which, in the case of an Illegality under Section 5(b)(i)(2) or a Force Majeure
Event under Section 5(b)(ii)(2), means all Transactions unless the relevant
Credit Support Document references only certain Transactions, in which case
those Transactions and, if the relevant Credit Support Document constitutes a
Confirmation for a Transaction, that Transaction) and (b) with respect to any
other Termination Event, all Transactions.
18
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the-voting power of the
entity or person.
"AGREEMENT" has the meaning specified in Section 1(c).
"APPLICABLE CLOSE-OUT RATE" means:--
(a) in respect of the determination of an Unpaid Amount:--
(i) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(ii) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate;
(iii) in respect of obligations deferred pursuant to Section 5(d), if there
is no Defaulting Party and for so long as the deferral period continues,
the Applicable Deferral Rate; and
(iv) in all other cases following the occurrence of a Termination Event
(except where interest accrues pursuant to clause (iii) above), the
Applicable Deferral Rate; and
(b) in respect of an Early Termination Amount:--
(i) for the period from (and including) the relevant Early Termination
Date to (but excluding) the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable:--
(1) if the Early Termination Amount is payable by a Defaulting Party,
the Default Rate;
(2) if the Early Termination Amount is payable by a Non-defaulting
Party, the Non-default Rate; and
(3) in all other cases, the Applicable Deferral Rate; and
(ii) for the period from (and including) the date (determined in accordance
with Section 6(d)(ii)) on which that amount is payable to (but excluding)
the date of actual payment:--
(1) if a party fails to pay the Early Termination Amount due to the
occurrence of an event or circumstance which would, if it occurred
with respect to a payment or delivery under a Transaction, constitute
or give rise to an Illegality or a Force Majeure Event, and for so
long as the Early Termination Amount remains unpaid due to the
continuing existence of such event or circumstance, the Applicable
Deferral Rate;
(2) if the Early Termination Amount is payable by a Defaulting Party
(but excluding any period in respect of which clause (I) above
applies), the Default Rate;
(3) if the Early Termination Amount is payable by a Non-defaulting
Party (but excluding any period in respect of which clause (1) above
applies), the Non-default Rate; and
(4) in all other cases, the Termination Rate.
"APPLICABLE DEFERRAL RATE" means:--
(a) for the purpose of Section 9(h)(i)(3)(A), the rate certified by the relevant
payer to be a rate offered to the payer by a major bank in a relevant interbank
market for overnight deposits in the applicable currency, such bank to be
selected in good faith by the payer for the purpose of obtaining a
representative rate that will reasonably reflect conditions prevailing at the
time in that relevant market;
(b) for purposes of Section 9(h)(i)(3)(B) and clause (a)(iii) of the definition
of Applicable Close-out Rate, the rate certified by the relevant payer to be a
rate offered to prime banks by a major bank in a relevant interbank market for
overnight deposits in the applicable currency, such bank to be selected in good
faith by the payer after consultation with the other party, if practicable, for
the purpose of obtaining a representative rate that will reasonably reflect
conditions prevailing at the time in that relevant market; and
19
(c) for purposes of Section 9(h)(i)(3)(C) and clauses (a)(iv), (b)(i)(3) and
(b)(ii)(1) of the definition of Applicable Close-out Rate, a rate equal to the
arithmetic mean of the rate determined pursuant to clause (a) above and a rate
per annum equal to the cost (without proof or evidence of any actual cost) to
the relevant payee (as certified by it) if it were to fund or of funding the
relevant amount.
"AUTOMATIC EARLY TERMINATION" has the meaning specified in Section 6(a).
"BURDENED PARTY" has the meaning specified in Section 5(b)(iv).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs after the parties enter into the relevant
Transaction.
"CLOSE-OUT AMOUNT" means, with respect to each Terminated Transaction or each
group of Terminated Transactions and 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, (a) the material terms of that
Terminated Transaction or group of Terminated Transactions, including the
payments and deliveries by the parties under Section 2(a)(i) in respect of that
Terminated Transaction or group of Terminated Transactions that would, but for
the occurrence of the relevant Early Termination Date, have been required after
that date (assuming satisfaction of the conditions precedent in Section
2(a)(iii)) and (b) the option rights of the parties in respect of that
Terminated Transaction or group of Terminated Transactions.
Any Close-out 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. The Determining Party may determine
a Close-out Amount for any group of Terminated Transactions or any individual
Terminated Transaction but, in the aggregate, for not less than all Terminated
Transactions. Each Close-out Amount will be determined as of the Early
Termination Date or, if that would not be commercially reasonable, as of the
date or dates following the Early Termination Date as would be commercially
reasonable.
Unpaid Amounts in respect of a Terminated Transaction or group of Terminated
Transactions and legal fees and out-of-pocket expenses referred to in Section 11
are to be excluded in all determinations of Close-out Amounts.
In determining a Close-out 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
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 clause (i) or (ii) above from
internal sources (including any of the Determining Party's Affiliates) 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.
The Determining Party will consider, taking into account the standards and
procedures described in this definition, quotations pursuant to clause (i) above
or relevant market data pursuant to clause (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 clause (i), (ii) or
(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 clause (i) above
or market data pursuant to clause (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.
Without duplication of amounts calculated based on information described in
clause (i), (ii) or (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 Close-out Amount any loss or cost incurred in connection with
its terminating, liquidating or re-establishing any hedge related to a
Terminated Transaction or group of Terminated Transactions (or any gain
resulting from any of them).
20
Commercially reasonable procedures used in determining a Close-out Amount may
include the following:--
(1) application to relevant market data from third parties pursuant
to clause (ii) above or information from internal sources pursuant to
clause (iii) above of pricing or other valuation models that are, at
the time of the determination of the Close-out 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 Terminated Transaction or group
of Terminated Transactions; and
(2) application of different valuation methods to Terminated
Transactions or groups of Terminated Transactions depending on the
type, complexity, size or number of the Terminated Transactions or
group of Terminated Transactions.
"CONFIRMATION" has the meaning specified in the preamble.
"CONSENT" includes a consent, approval, action, authorization, exemption,
notice, filing, registration or exchange control consent.
"CONTRACTUAL CURRENCY" has the meaning specified in Section 8(a).
"CONVENTION COURT" means any court which is bound to apply to the Proceedings
either Article 17 of the 1968 Brussels Convention on Jurisdiction and the
Enforcement of Judgments in Civil and Commercial Matters or Article 17 of the
1988 Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil
and Commercial Matters.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"CROSS-DEFAULT" means the event specified in Section 5(a)(vi).
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"DESIGNATED EVENT" has the meaning specified in Section 5(b)(v).
"DETERMINING PARTY" means the party determining a Close-out Amount.
"EARLY TERMINATION AMOUNT" has the meaning specified in Section 6(e).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"ELECTRONIC MESSAGES" does not include e-mails but does include documents
expressed in markup languages, and "ELECTRONIC MESSAGING SYSTEM" will be
construed accordingly.
"ENGLISH LAW" means the law of England and Wales, and "ENGLISH" will be
construed accordingly.
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"FORCE MAJEURE EVENT" has the meaning specified in Section 5(b).
"GENERAL BUSINESS DAY" means a day on which commercial banks are open for
general business (including dealings in foreign exchange and foreign currency
deposits).
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organized, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
21
"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority),
and "UNLAWFUL" will be construed accordingly.
"LOCAL BUSINESS DAY" means (a) in relation to any obligation under Section
2(a)(i), a General Business Day in the place or places specified in the relevant
Confirmation and a day on which a relevant settlement system is open or
operating as specified in the relevant Confirmation or, if a place or a
settlement system is not so specified, as otherwise agreed by the parties in
writing or determined pursuant to provisions contained, or incorporated by
reference, in this Agreement, (b) for the purpose of determining when a Waiting
Period expires, a General Business Day in the place where the event or
circumstance that constitutes or gives rise to the Illegality or Force Majeure
Event, as the case may be, occurs, (c) in relation to any other payment, a
General Business Day in the place where the relevant account is located and, if
different, in the principal financial center, if any, of the currency of such
payment and, if that currency does not have a single recognized principal
financial center, a day on which the settlement system necessary to accomplish
such payment is open, (d) in relation to any notice or other communication,
including notice contemplated under Section 5(a)(i), a General Business Day (or
a day that would have been a General Business Day but for the occurrence of an
event or circumstance which would, if it occurred with respect to payment,
delivery or compliance related to a Transaction, constitute or give rise to an
Illegality or a Force Majeure Event) in the place specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(e) in relation to Section 5(a)(v)(2), a General Business Day in the relevant
locations for performance with respect to such Specified Transaction.
"LOCAL DELIVERY DAY" means, for purposes of Sections 5(a)(i) and 5(d), a day on
which settlement systems necessary to accomplish the relevant delivery are
generally open for business so that the delivery is capable of being
accomplished in accordance with customary market practice, in the place
specified in the relevant Confirmation or, if not so specified, in a location as
determined in accordance with customary market practice for the relevant
delivery.
"MASTER AGREEMENT" has the meaning specified in the preamble.
"MERGER WITHOUT ASSUMPTION" means the event specified in Section 5(a)(viii).
"MULTIPLE TRANSACTION PAYMENT NETTING" has the meaning specified in Section
2(c).
NON-AFFECTED PARTY" means, so long as there is only one Affected Party, the
other party.
"NON-DEFAULT RATE" means the rate certified by the Non-defaulting Party to be a
rate offered to the Non-defaulting Party by a major bank in a relevant interbank
market for overnight deposits in the applicable currency, such bank to be
selected in good faith by the Non-defaulting Party for the purpose of obtaining
a representative rate that will reasonably reflect conditions prevailing at the
time in that relevant market.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"OTHER AMOUNTS" has the meaning specified in Section 6(f).
"PAYEE" has the meaning specified in Section 6(f).
"PAYER" has the meaning specified in Section 6(f).
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"PROCEEDINGS" has the meaning specified in Section 13(b).
"PROCESS AGENT" has the meaning specified in the Schedule.
22
"RATE OF EXCHANGE" includes, without limitation, any premiums and costs of
exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organized, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"SCHEDULE" has the meaning specified in the preamble.
"SCHEDULED SETTLEMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect to any such transaction) now existing or
hereafter entered into between one party to this Agreement (or any Credit
Support Provider of such party or any applicable Specified Entity of such party)
and the other party to this Agreement (or any Credit Support Provider of such
other party or any applicable Specified Entity of such other party) which is not
a Transaction under this Agreement but (i) which is a rate swap transaction,
swap option, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option, credit protection transaction, credit swap,
credit default swap, credit default option, total return swap, credit spread
transaction, repurchase transaction, reverse repurchase transaction,
buy/sell-back transaction, securities lending transaction, weather index
transaction or forward purchase or sale of a security, commodity or other
financial instrument or interest (including any option with respect to any of
these transactions) or (ii) which is a type of transaction that is similar to
any transaction referred to in clause (i) above that is currently, or in the
future becomes, recurrently entered into in the financial markets (including
terms and conditions incorporated by reference in such agreement) and which is a
forward, swap, future, option or other derivative on one or more rates,
currencies, commodities, equity securities or other equity instruments, debt
securities or other debt instruments, economic indices or measures of economic
risk or value, or other benchmarks against which payments or deliveries are to
be made, (b) any combination of these transactions and (c) any other transaction
identified as a Specified Transaction in this Agreement or the relevant
confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"STAMP TAX JURISDICTION" has the meaning specified in Section 4(e).
"TAX" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means, with respect to any Early Termination Date, (a)
if resulting from an Illegality or a Force Majeure Event, all Affected
Transactions specified in the notice given pursuant to Section 6(b)(iv), (b) if
resulting from any other Termination Event, all Affected Transactions and (c) if
resulting from an Event of Default, all Transactions in effect either
immediately before the effectiveness of the notice designating that Early
Termination Date or, if Automatic Early Termination applies, immediately before
that Early Termination Date.
"TERMINATION CURRENCY" means (a) if a Termination Currency is specified in the
Schedule and that currency is freely available, that currency, and (b)
otherwise, euro if this Agreement is expressed to be governed by English law or
United States Dollars if this Agreement is expressed to be governed by the laws
of the State of New York.
23
"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Close-out Amount is determined as of a later date, that later date,
with the Termination Currency at the rate equal to the spot exchange rate of the
foreign exchange agent (selected as provided below) for the purchase of such
Other Currency with the Termination Currency at or about 11:00 a.m. (in the city
in which such foreign exchange agent is located) on such date as would be
customary for the determination of such a rate for the purchase of such Other
Currency for value on the relevant Early Termination Date or that later date.
The foreign exchange agent will, if only one party is obliged to make a
determination under Section 6(e), be selected in good faith by that party and
otherwise will be agreed by the parties.
"TERMINATION EVENT" means an illegality, a Force Majeure Event, a Tax Event, a
Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon
Merger or an Additional Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"THRESHOLD AMOUNT" means the amount, if any, specified as such in the Schedule.
"TRANSACTION" has the meaning specified in the preamble.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii) or due but for Section 5(d)) to such party under Section 2(a)(i) or
2(d)(i)(4) on or prior to such Early Termination Date and which remain unpaid as
at such Early Termination Date, (b) in respect of each Terminated Transaction,
for each obligation under Section 2(a)(i) which was (or would have been but for
Section 2(a)(iii) or 5(d)) required to be settled by delivery to such party on
or prior to such Early Termination Date and which has not been so settled as at
such Early Termination Date, an amount equal to the fair market value of that
which was (or would have been) required to be delivered and (c) if the Early
Termination Date results from an Event of Default, a Credit Event Upon Merger or
an Additional Termination Event in respect of which all outstanding Transactions
are Affected Transactions, any Early Termination Amount due prior to such Early
Termination Date and which remains unpaid as of such Early Termination Date, in
each case together with any amount of interest accrued or other compensation in
respect of that obligation or deferred obligation, as the case may be, pursuant
to Section 9(h)(ii)(1) or (2), as appropriate. The fair market value of any
obligation referred to in clause (b) above will be determined as of the
originally scheduled date for delivery, in good faith and using commercially
reasonable procedures, by the party obliged to make the determination under
Section 6(e) or, if each party is so obliged, it will be the average of the
Termination Currency Equivalents of the fair market values so determined by both
parties.
"WAITING PERIOD" means:--
(a) in respect of an event or circumstance under Section 5(b)(i), other than in
the case of Section 5(b)(i)(2) where the relevant payment, delivery or
compliance is actually required on the relevant day (in which case no Waiting
Period will apply), a period of three Local Business Days (or days that would
have been Local Business Days but for the occurrence of that event or
circumstance) following the occurrence of that event or circumstance; and
(b) in respect of an event or circumstance under Section 5(b)(ii), other than in
the case of Section 5(b)(ii)(2) where the relevant payment, delivery or
compliance is actually required on the relevant day (in which case no Waiting
Period will apply), a period of eight Local Business Days (or days that would
have been Local Business Days but for the occurrence of that event or
circumstance) following the occurrence of that event or circumstance.
24
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
Deutsche Bank AG Chesapeake Exploration Limited Partnership
- ----------------------------------- ------------------------------------------
(Name of Party) (Name of Party)
By: Chesapeake Operating, Inc., its
general Partner
By: /s/ GREGORY COLLETT By: /S/ MARTHA A. BURGER
-------------------------------- --------------------------------------
Name: Gregory Collett Name: Martha A. Burger
Title: Vice President and Counsel Title: Treasurer
Date: Date:
By: /s/ CARLO CARLTON
--------------------------------
Name: Carlo Carlton
Title: Vice President and Counsel
Date:
25
EXHIBIT 99.2
------------
EXECUTION COPY
SCHEDULE
TO THE
ISDA MASTER AGREEMENT
DATED AS OF MAY 28, 2004
BETWEEN
DEUTSCHE BANK AG ("PARTY A")
AND
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP ("PARTY B")
PART 1. TERMINATION PROVISIONS.
(a) "SPECIFIED ENTITY" means:
(i) in relation to Party A:
Section 3(c): Party A's Affiliates
Otherwise: Not Applicable
(ii) in relation to Party B: Party B's Affiliates
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14
of this Agreement.
(c) The "CROSS DEFAULT" provisions of Section 5(a)(vi) will apply to both
parties subject to amendment by adding at the end thereof the following
words:
"PROVIDED that, notwithstanding the foregoing, an Event of Default
shall not occur under either clause (1) or (2) above if (A) (I) the
default, or other similar event or condition referred to in clause (1)
or the failure to pay referred to in clause (2) is a failure to pay or
deliver caused by an error or omission of an administrative or
operational nature, and (II) funds or the asset to be delivered were
available to such party to enable it to make the relevant payment or
delivery when due and (III) such payment or delivery is made within
three Local Business Days following receipt of written notice from an
interested party of such failure to pay or such failure to deliver, or
(B) such party was precluded from paying, or was unable to pay, using
reasonable means, through the office of the party through which it was
acting for purposes of the relevant Specified Indebtedness, by reason
of force majeure, act of State, illegality or impossibility."
For such purposes:
"SPECIFIED INDEBTEDNESS" means any obligation (whether present or
future, contingent or otherwise) in respect of (i) borrowed money
(other than indebtedness in respect of bank deposits received in the
ordinary course of business) and (ii) Financial Market Transactions.
For purposes herein, "FINANCIAL MARKET TRANSACTIONS" mean any
transaction of a type specified in clause (a) or (b) of the definition
of "Specified Transaction" which is entered into between such party
and an entity other than the other party to this Agreement, or any
Credit Support Provider or Specified Entity of such party. For the
purposes of determining whether the Threshold Amount has been exceeded
in respect of any Financial Market Transaction, the portion
attributable to Financial Market Transactions shall be the amount owed
and not paid or delivered when due (whether on any regularly scheduled
payment or delivery date, on early termination or otherwise) to the
other party under the terms relating to such Financial Market
Transaction.
With regard to Party A, "THRESHOLD AMOUNT" means 1% of its
shareholders' equity (as calculated in accordance with generally
accepted accounting principles applicable to Party A).
With regard to Party B, any applicable Specified Entity of
Party B or any Credit Support Provider of Party B, "THRESHOLD AMOUNT"
means:
(x) at any time when the shareholders' equity of the Company (as
calculated in accordance with generally accepted accounting
principles applicable to the Company) is greater than
U.S.$1,650,000,000, U.S.$25,000,000; and
(y) at any other time, 1% of the shareholders' equity of the
Company (as so calculated).
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(v) will
apply to both parties.
(e) The "AUTOMATIC EARLY TERMINATION" provisions of Section 6(a) will not
apply to Party A and will not apply to Party B.
(f) "TERMINATION CURRENCY" means Dollars.
(g) "ADDITIONAL TERMINATION EVENT" will not apply to Party A. Each
Additional Termination Event set forth in Part 6 below or in the Credit
Support Annex will apply to Party B (and, for such Additional
Termination Events, Party B shall be the sole Affected Party).
PART 2. TAX REPRESENTATIONS.
(a) PAYER REPRESENTATIONS. For the purposes of Section 3(e) of this
Agreement, Party A and Party B each make the following representations
to the other:
It is not required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, of any Relevant
Jurisdiction to make any deduction or withholding for or on account of
any Tax from any payment (other than interest under Section 9(h) of
this Agreement) to be made by it to the other party under this
Agreement. In making this representation, each party may rely on:
(i) the accuracy of any representations made by the other party
pursuant to Section 3(f) of this Agreement;
(ii) the satisfaction of the agreement of the other party contained
in Section 4(a)(i) or 4(a)(iii) of this Agreement and the
accuracy and effectiveness of any document provided by the
other party pursuant to Section 4(a)(i) or 4(a)(iii) of this
Agreement; and
(iii) the satisfaction of the agreement of the other party contained
in Section 4(d) of this Agreement,
except that it will not be a breach of this representation where
reliance is placed on clause (ii) and the other party does not deliver
a form or document under Section 4(a)(iii) by reason of material
prejudice to its legal or commercial position.
(b) PAYEE REPRESENTATIONS. For the purpose of Section 3(f) of this
Agreement:
(1) Party A makes the following representations:--
(A) It is a "foreign person" within the meaning of the
applicable United States Treasury Regulations
concerning information reporting and backup withholding
tax (as in effect on January 1, 2001), unless Party A
provides written notice to Party B that it is no longer
a foreign person. In respect of each Transaction it
enters into through an office or discretionary agent in
the United States or which otherwise is allocated for
United States federal income tax purposes to such
United States trade or business, each payment received
or to be received by it under such Transaction will be
effectively connected with its conduct of a trade or
business in the United States.
(B) In respect of all Transactions (other than those
described in (A) above), no payment received or to be
received by it in connection with this Agreement is
attributable to a trade or business carried on by it
through a permanent establishment in the United States.
(2) Party B makes the following representations:--
It is a U.S. person, and it is a limited partnership that is
the beneficial owner of all payments to be made to it under
this Agreement, organized under the laws of the State of
Oklahoma, and its taxpayer identification number is
73-1384282.
2
PART 3. AGREEMENT TO DELIVER DOCUMENTS.
(a) For the purpose of Section 4(a)(i) of this Agreement, the documents
to be delivered are:--
PARTY REQUIRED TO FORM/DOCUMENT/ DATE BY WHICH COVERED BY
DELIVER DOCUMENT CERTIFICATE TO BE DELIVERED SECTION 3(d)
REPRESENTATION
Party A An executed United States (i) Upon execution of this No
Internal Revenue Service Agreement; (ii) promptly
Form W-8ECI (or any upon reasonable demand by
successor thereto) and an Party B; and
executed United States (iii) promptly upon
Internal Revenue Service learning that any such form
Form W-8BEN (or any previously provided by
successor thereto). Party A has become obsolete
or incorrect.
Party B An executed United States (i) Upon execution of this No
Internal Revenue Service W-9 Agreement; (ii) promptly
(or any successor thereto). upon reasonable demand by
Party A; and (iii)
promptly upon learning that
any such form previously
provided by Party B
has become obsolete
or incorrect.
(b) For the purpose of Section 4(a)(ii) of this Agreement, the other
documents to be delivered (which will be covered by the representation
in Section 3(d) of the Agreement if specified) are as follows:--
3
PARTY REQUIRED TO FORM/DOCUMENT/ DATE BY WHICH COVERED BY
DELIVER DOCUMENT CERTIFICATE TO BE DELIVERED SECTION 3(d)
REPRESENTATION
Party A and Party B Evidence of the authority, Upon or prior to the Yes
incumbency and specimen execution and delivery of
signature of each person this Agreement and, with
executing this Agreement or respect to any Confirmation,
any Confirmation, Credit upon request by the other
Support Document or other party.
document entered into in
connection with this Agreement
on its behalf or on behalf of
a Credit Support Provider or
otherwise, as the case may be.
Party A and Party B A copy of the most recent Promptly after request by Yes
annual report containing the other party.
consolidated financial
statements of (in the case of
Party A) Party A and (in the
case of Party B) the Company,
and such other public
information respecting the
condition or operations,
financial or otherwise of such
Person, as the other party may
reasonably request from time
to time.
Party B A copy of the resolution of Upon execution of this Yes
Party B's board of directors Agreement
(or other managers of such
entity) approving the entering
into of this Agreement and the
Transactions hereunder and a
board resolution delegating
the powers to named
individuals to enter into any
Transactions under this
Agreement. Party B shall also
deliver to Party A a copy of
its constituent documents,
each certified by an
appropriately authorized
officer of Party B to the
effect that such documents are
up to date and in full force
and effect and that Party A
may continue to rely thereon.
Party B A duly executed and delivered Upon execution of this Yes
copy of each Credit Support Agreement and from time to
Document. time thereafter as required
under Part 6 below
Party B A copy of the resolution of Upon execution of this
each Credit Support Provider's Agreement and from time to Yes
board of directors (or other time thereafter as required
managers of such entity) under Part 6 below
approving the entering into of
the applicable Credit Support
Document and a copy of each
Credit Support Provider's
constituent documents, each
certified by an appropriately
authorized officer of the
Credit Support Provider to the
effect that such documents are
up to date and in full force
and effect and that Party A
may continue to rely thereon.
Party B Each other document required From time to time as Yes, unless otherwise
under Part 6 below required under Part 6 below expressly stated in
Part 6 below
4
PART 4. MISCELLANEOUS.
(a) ADDRESSES FOR NOTICES. For the purpose of Section 12(a) of this
Agreement, the addresses for notices and communications to Party A and
Party B shall be as follows:--
TO PARTY A:
All notices to Party A under Section 5 or 6 of this Agreement (other
than notices under Section 5(a)(i)) shall be sent to:
Deutsche Bank AG, Head Office
Taunusanlage 12
60262 Frankfurt
GERMANY
Attention: Legal Department
Fax No: 0049 69 910 36097
With copies to:
Deutsche Bank AG, New York Branch
60 Wall Street
New York, NY 10005
Attention: Legal Department
Fax No: 212 250 4566
Deutsche Bank AG, New York Branch
60 Wall Street
New York, NY 10005
Attention: Brad Blesie
Fax No: 212 797 4469
Deutsche Bank Securities Inc.
60 Wall Street
New York, NY 10005
Attention: Brad Blesie
Fax No: 212 797 4469
All other notices to Party A shall be sent to:
Deutsche Bank AG, New York Branch
60 Wall Street
New York, NY 10005
Attention: Brad Blesie
Fax No: 212 797 4469
With a copy to:
Deutsche Bank Securities Inc.
60 Wall Street
New York, NY 10005
Attention: Brad Blesie
Fax No: 212 797 4469
5
TO PARTY B:
With respect to Confirmations and payments:
Chesapeake Exploration Limited Partnership
6100 N. Western Avenue
Oklahoma City, OK 73118
Attention: Cash Manager
Fax No: 405 879 9576
All other notices to Party B shall be sent to:
Chesapeake Exploration Limited Partnership
6100 N. Western Avenue
Oklahoma City, OK 73118
Attention: Treasurer
Fax No: 405 879 9587
(b) PROCESS AGENT. For the purpose of Section 13(c) of this Agreement:--
Party A appoints as its Process Agent: Not applicable.
Party B appoints as its Process Agent: Not applicable.
(c) OFFICES. The provisions of Section 10(a) will apply to this Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(b) of this
Agreement:--
Party A is a Multibranch Party and may act through any of the following
Offices:--
Its New York, London, Tokyo, Paris, Singapore, Brussels,
Sydney, Amsterdam, Vienna, Canada (Toronto), and New Zealand
(Auckland) Branches and its Frankfurt Head Office.
Party B is not a Multibranch Party.
(e) CALCULATION AGENT. The Calculation Agent shall be Party A.
(f) CREDIT SUPPORT DOCUMENTS.
(i) "CREDIT SUPPORT DOCUMENTS" means in relation to Party A: None.
(ii) "CREDIT SUPPORT DOCUMENTS" means in relation to Party B: Each
of the documents stated to be a Credit Support Document in
Part 6 below.
(g) CREDIT SUPPORT PROVIDER.
(i) "CREDIT SUPPORT PROVIDER" means in relation to Party A: None.
(ii) "CREDIT SUPPORT PROVIDER" means in relation to Party B: Each
of the Persons stated to be a Credit Support Provider in Part
6 below.
(h) GOVERNING LAW. This Agreement is governed by, and will be construed and
enforced in accordance with, the laws of the State of New York (without
reference to its choice of law doctrine).
(i) NETTING OF PAYMENTS. "Multiple Transaction Payment Netting" will apply.
(j) ABSENCE OF LITIGATION. For the purpose of Section 3(c):
(i) "SPECIFIED ENTITY" means in relation to Party A: Party A's
Affiliates.
(ii) "SPECIFIED ENTITY" means in relation to Party B: Party B's
Affiliates.
(k) NO AGENCY. The provisions of Section 3(g) will apply to this Agreement.
6
(l) ADDITIONAL REPRESENTATION will apply. For the purpose of Section 3 of
this Agreement, each of the following will constitute an Additional
Representation:--
(i) RELATIONSHIP BETWEEN PARTIES. Each party will be deemed to
represent to the other party on the date on which it enters
into a Transaction that (absent a written agreement between
the parties that expressly imposes affirmative obligations to
the contrary for that Transaction):--
(1) NON-RELIANCE. It is acting for its own account, and
it has made its own independent decisions to enter
into that Transaction and as to whether that
Transaction is appropriate or proper for it based
upon its own judgment and upon advice from such
advisers as it has deemed necessary. It is not
relying on any communication (written or oral) of the
other party as investment advice or as a
recommendation to enter into that Transaction, it
being understood that information and explanations
related to the terms and conditions of a Transaction
will not be considered investment advice or a
recommendation to enter into that Transaction. No
communication (written or oral) received from the
other party will be deemed to be an assurance or
guarantee as to the expected results of that
Transaction.
(2) ASSESSMENT AND UNDERSTANDING. It is capable of
assessing the merits of and understanding (on its own
behalf or through independent professional advice),
and understands and accepts, the terms, conditions
and risks of that Transaction. It is also capable of
assuming, and assumes, the risks of that Transaction.
(3) STATUS OF PARTIES. The other party is not acting as a
fiduciary for or an adviser to it in respect of that
Transaction.
(ii) COMMODITY EXCHANGE ACT. Each party represents to the other
party on and as of the date hereof and on each date on which a
Transaction is entered into between them that:
(1) each Transaction is intended to be exempt from, or
otherwise not subject to regulation under, the
Commodity Exchange Act; and
(2) such party is an "eligible contract participant"
within the meaning of the Commodity Exchange Act,
Section 1a(12).
(iii) ADDITIONAL REPRESENTATIONS OF PARTY B. Party B represents to
Party A on and as of the date hereof and at all times until
the termination of this Agreement that:
(1) with respect to each source of funds to be used by it
to enter into such Transactions (each such source
being referred to herein as a "SOURCE"), the Source
is not the assets of any "plan" (as such term is
defined in Section 4975 of the Internal Revenue Code
of 1986, as amended (the "CODE")) subject to Section
4975 of the Code or any "employee benefit plan" (as
such term is defined in Section 3(3) of the employee
Retirement Income Security Act of 1974, as amended
("ERISA")) subject to Title I of ERISA, or otherwise
out of "plan assets" within the meaning of United
States Department of Labor regulation ss. 2510.3-101,
29CFR ss. 2510-3-101; and
(2) each Transaction is intended to be exempt from, or
otherwise not subject to regulation under, the
Investment Company Act of 1940 and Party B is exempt
from regulation under such Act.
7
(iv) ADDITIONAL REPRESENTATIONS OF PARTY B. The representations and
warranties set forth in Section 4 of the Credit Agreement,
together with related definitions and ancillary provisions and
schedules and exhibits, are hereby incorporated herein by
reference, as if set forth herein in full, MUTATIS MUTANDIS;
PROVIDED that, as incorporated herein (unless the context
otherwise requires):
(1) each reference therein to "this Agreement", "the
Revolving Loans", "the Letters of Credit" or "the
Revolving Commitments" or the like shall be deemed to
be a reference to this Agreement and the Transactions
hereunder, as the case may be;
(2) each reference therein to any "Agent" or any "Lender"
or the like shall be deemed to be a reference to
Party A hereunder;
(3) each reference therein to the "Loan Documents" or the
like shall be deemed to be a reference to the Secured
Trading Line Documents; and
(4) each reference therein to the "Collateral" or the
like shall be deemed to be a reference to the
Collateral as defined herein.
Party B represents to Party A on and as of the date hereof and
on each date on which a Transaction is entered into between
them that:
(1) Party B and each Credit Support Provider is Solvent;
and
(2) each representation and warranty set forth in Section
4 of the Credit Agreement (as incorporated by
reference above) is true and correct on and as of
such date as if made as of such date.
(m) RECORDING OF CONVERSATIONS. Each party (i) consents to the recording of
telephone conversations between the trading, marketing and other
relevant personnel of it and any personnel employed by any Affiliate or
any third party acting on its behalf in connection with this Agreement
or any potential Transaction, (ii) agrees to obtain any necessary
consent of, and give any necessary notice of such recording to, such
persons and (iii) agrees, to the extent permitted by applicable law,
that recordings may be submitted in evidence in any Proceedings.
8
PART 5. OTHER PROVISIONS
(a) ESCROW. On any date on which both parties are required to make
payments hereunder, either party may at its option and in its sole
discretion notify the other party that payments on that date are to be
made in escrow. In this case deposit of the payment due earlier on
that date will be made by 2.00 p.m. (local time at the place for the
earlier payment if there is a time difference between the cities in
which payments are to be made) on that date with an escrow agent
selected by the party giving the notice and reasonably acceptable to
the other party, accompanied by irrevocable payment instructions (a)
to release the deposited payment to the intended recipient upon
receipt by the escrow agent of the required deposit of the
corresponding payment from the other party on the same date
accompanied by irrevocable payment instructions to the same effect or
(b) if the required deposit of the corresponding payment is not made
on that same date, to return the payment deposited to the party that
paid it into escrow at such party's request. The party that elects to
have payments made in escrow will pay the costs of the escrow
arrangements and will cause those arrangements to provide that the
intended recipient of the payment due to be deposited first will be
entitled to interest on that deposited payment for each day in the
period of its deposit at the rate offered by the escrow agent for that
day for overnight deposits in the relevant currency in the office
where it holds that deposited payment (at 11.00 a.m. local time on
that day) if that payment is not released by 5.00 p.m. local time on
the date it is deposited for any reason other than the intended
recipient's failure to make the escrow deposit it is required to make
hereunder in a timely fashion.
(b) TAX PROVISIONS.
(i) The definition of "Tax Event", in Section 5(b)(iii), is
modified by adding the following at the end thereof:
"PROVIDED that for purposes of clarification, the parties
acknowledge that the introduction or proposal of legislation
will not, in and of itself, give rise to a presumption that a
Tax Event has occurred."
(ii) The definition of the term "Indemnifiable Tax" is amended by
adding the following at the end thereof:
"Notwithstanding the foregoing, "Indemnifiable Tax" also means
any Tax imposed in respect of a payment under this Agreement
by reason of a Change in Tax Law by a government or taxing
authority of a Relevant Jurisdiction of the party making such
payment, unless the other party is incorporated, organized,
managed and controlled or considered to have its seat in such
jurisdiction, or is acting for purposes of this Agreement
through a branch or office located in such jurisdiction."
(c) SET OFF. Section 6(f) of this Agreement is deleted in its entirety
and replaced with the following:
"(f) Upon the designation of any Early Termination Date, the
party that is not the Defaulting Party or Affected Party
("X") may, without prior notice to the Defaulting or
Affected Party ("Y"), set off any sum or obligation (whether
or not arising under this Agreement, whether matured or
unmatured, whether or not contingent and irrespective of the
currency, place of payment or booking office of the sum or
obligation) owed by Y to X or any Affiliate of X (the "X SET
OFF AMOUNT") against any sum or obligation (whether or not
arising under this Agreement, whether matured or unmatured,
whether or not contingent and irrespective of the currency,
place of payment or booking office of the sum or obligation)
owed by X or any Affiliate of X to Y (the "Y SET OFF
AMOUNT"). X will give notice to the other party of any set
off effected under this Section 6(f).
For this purpose, either the X Set Off Amount or the Y Set Off
Amount (or the relevant portion of such set off amounts) may
be converted by X into the currency in which the other set off
amount is denominated at the rate of exchange at which X would
be able, acting in a reasonable manner and in good faith, to
purchase the relevant amount of such currency.
If a sum or obligation is unascertained, X may in good faith
estimate that obligation and set-off in respect of the
estimate, subject to the relevant party accounting to the
other when the obligation is ascertained.
9
Nothing in this Section 6(f) will be effective to create a
charge or other security interest. This Section 6(f) will be
without prejudice and in addition to any right of set-off,
combination of accounts, lien or other rights to which any
party is at any time otherwise entitled (whether by operation
of law, contract or otherwise).
Notwithstanding the foregoing provisions of this Section 6(f),
obligations owing under the Credit Agreement may not be set
off hereunder against obligations owing under this Agreement."
(d) ADDITIONAL ACKNOWLEDGMENTS AND AGREEMENTS OF THE PARTIES.
(i) BANKRUPTCY CODE. Without limiting the applicability, if any,
of any other provision of the U.S. Bankruptcy Code as
amended (the "BANKRUPTCY CODE") (including Sections 362,
546, 556, and 560 thereof and the applicable definitions in
Section 101 thereof), the parties acknowledge and agree that
all Transactions entered into hereunder will constitute
"forward contracts" or "swap agreements" as defined in
Section 101 of the Bankruptcy Code or "commodity contracts"
as defined in Section 761 of the Bankruptcy Code, that the
rights of the parties under Section 6 of this Agreement will
constitute contractual rights to liquidate Transactions,
that any margin or collateral provided under any margin,
collateral, security, pledge, or similar agreement related
hereto will constitute a "margin payment" as defined in
Section 101 of the Bankruptcy Code, and that the parties are
entities entitled to the rights under, and protections
afforded by, Sections 362, 546, 556, and 560 of the
Bankruptcy Code.
(ii) WAIVER OF RIGHT TO TRIAL BY JURY. Each of the parties hereby
irrevocably waives any and all right to a trial by jury with
respect to any legal proceeding arising out of or relating to
this Agreement or any Transaction.
(e) AMENDMENTS. Section 9(b) of this Agreement is modified by the deletion
of the words "or confirmed by an exchange of telexes or by an exchange
of electronic messages on an electronic messaging system".
(f) COUNTERPARTS AND CONFIRMATIONS. Section 9(e)(i) of this Agreement is
modified by the deletion of the words "and by electronic messaging
system".
(g) DISCLOSURE. Each party consents to the communication or disclosure by
the other party of information in respect of or relating to this
Agreement and any Transactions hereunder to such other party's
branches, subsidiaries and Affiliates and, to the extent required by
law or regulation, any government or regulatory authority.
PART 6. SPECIFIED NATURAL GAS PROVISIONS
(a) PRELIMINARY STATEMENTS. Party B wishes to enter into certain natural
gas derivative transactions with Party A from time to time to hedge
certain volumes of natural gas production of Party B and certain of its
Affiliates, and Party A has agreed to provide commercially reasonable
pricing to Party B for such transactions, all on and subject to the
terms and conditions set forth herein. To induce Party A to enter into
this Agreement, Party B has agreed to provide credit support to Party A
in the form of mortgages, guaranties and other security documents.
Accordingly, Party A and Party B hereby agree to the terms and
conditions set forth in this Part 6.
(b) CERTAIN DEFINITIONS. Certain terms used in this Agreement have the
meanings assigned to them in clause (u) below. An index of certain
defined terms and the page numbers on which such terms are defined is
attached as Annex A to this Agreement.
(c) SCOPE OF MASTER AGREEMENT. This Agreement shall apply to all Specified
Natural Gas Transactions entered into between Party A and Party B, and
shall not apply to any other Transactions entered into between Party A
and Party B.
10
(d) CERTAIN CONDITIONS FOR ENTERING INTO SPECIFIED NATURAL GAS
TRANSACTIONS. The parties acknowledge and agree that Party A and Party
B may enter into Specified Natural Gas Transactions with each other at
any time and from time to time during the Trading Period (if each of
Party A and Party B mutually agree in their sole discretion to do so),
PROVIDED that each of the following conditions are satisfied both prior
to and after giving effect to such Transaction:
(1) Natural Gas PFE is less than or equal to Available Capacity;
(2) the Reserve Collateral Ratio is greater than or equal to the
Minimum Reserve Collateral Ratio;
(3) the Volume Limitations are not exceeded;
(4) each representation of Party B set forth herein is true and
correct on such date as if made on and as of such date; and
(5) no Event of Default or Potential Event of Default has occurred
and is then continuing,
and each entry into a Specified Natural Gas Transaction by Party B
hereunder shall be deemed to be a certification by Party B that each of
the foregoing conditions is satisfied. Party A agrees that all pricing
it provides for Specified Natural Gas Transactions shall be determined
by it in a commercially reasonable manner.
Party A and Party B agree not to enter into any Transaction under this
Agreement that includes a swap that, evaluated in isolation from any
other components of such Transaction (including options, other swaps,
floors, collars and the like), is not based on "costless" swap prices
prevailing at the time of such Transaction. For the avoidance of doubt,
it is understood that Party B may from time to time request Party A to
enter into one or more Transactions under this Agreement with swap
prices above or below the "costless" swap prices prevailing at the time
such Transaction is entered into and if such adjustment to such swap
prices results from an embedded option (sold or purchased) included in
such Transaction then such Transactions (and other similar
transactions) are expressly permitted under this Agreement.
(e) VOLUNTARY TERMINATION. Upon not less than 60 days' prior written notice
to Party A, Party B may (if in its sole discretion it elects to do so)
terminate the Trading Period (and, accordingly, terminate the ability
of the parties to enter into further Specified Natural Gas Transactions
hereunder and the obligations of Party A under clause (d) above)
without any penalty or other damage payment to Party A (such
termination, the "VOLUNTARY TRADING PERIOD TERMINATION", and the
effective date of such termination, the "VOLUNTARY TRADING PERIOD
TERMINATION DATE"), PROVIDED that:
(1) Party B shall pay to Party A the Breakage Fee (if any) in
accordance with clause (f)(2) below; and
(2) such Voluntary Trading Period Termination shall not affect the
rights or obligations of Party A or Party B under any
Specified Natural Gas Transactions then outstanding, which
Transactions shall continue to be governed by all of the terms
and conditions set forth in this Agreement and the other
Secured Trading Line Documents.
(f) SECURED TRADING LINE FEES. Party B hereby agrees to pay to Party A
the following fees:
(1) FACILITY FEES. On each Calculation Date (including the
Effective Date), Party B shall pay to Party A a facility fee
(the "FACILITY FEES") in an amount equal to:
(x) Maximum Total Capacity (or, if such Calculation Date is
on or after the Voluntary Trading Period Termination
Date, the Natural Gas PFE as of the later of the
Voluntary Trading Period Termination Date and the most
recent Quarter End Date falling prior to such
Calculation Date); MULTIPLIED BY
(y) 0.30%,
PROVIDED that payment of Breakage Fees under clause (2) below
on or prior to the Calculation Date in 2005 shall relieve
Party B of its obligation to pay Facility Fees on the
Calculation Date in 2005 (but not on any other Calculation
Date).
11
(2) BREAKAGE FEE. If the Voluntary Trading Period Termination Date
occurs on or prior to the Calculation Date in 2005, then on
the Voluntary Trading Period Termination Date Party B shall
pay to Party A a fee (the "BREAKAGE FEE") in an amount equal
to U.S.$1,800,000.
(3) EXPOSURE FEES. On the second Local Business Day following each
Exposure Fee Accrual Period, Party B shall pay to Party A an
exposure fee (the "EXPOSURE FEES") in an amount equal to:
(x) the Daily Average Natural Gas Mark-to-Market Amount for
such Exposure Fee Accrual Period; MULTIPLIED BY
(y) 1.00% MULTIPLIED BY the number of days in such Exposure
Fee Accrual Period DIVIDED BY 365 (or 366 in the case
of a leap year).
As used herein:
"DAILY AVERAGE NATURAL GAS MARK-TO-MARKET AMOUNT"
means, for any Exposure Fee Accrual Period, the average, for
each Local Business Day during such Exposure Fee Accrual
Period, of the greater of (1) the Natural Gas Mark-to-Market
Amount for such Local Business Day and (2) zero.
"EXPOSURE FEE ACCRUAL PERIOD" means each calendar
quarter ending on the Quarter End Dates, PROVIDED that the
first such period will begin on the Effective Date and the
last such period will end on the Facility Termination Date.
"QUARTER END DATE" means the last day of March, June,
September and December in each year.
(4) REFUND IF NOT FULLY SYNDICATED. If, as of the 90th day
following the Effective Date:
(x) Syndicated Capacity is less than U.S.$400,000,000; and
(y) no Event of Default or Potential Event of Default has
occurred and either (A) continued for a period of at
least 10 days; or (B) is then continuing,
then on such date Party A shall pay to party B an amount equal
to (I) the amount of Facility Fees paid by Party B to Party A
on the Effective Date MULTIPLIED BY (II) U.S.$400,000,000
MINUS Syndicated Capacity as of such date DIVIDED BY (III)
U.S.$600,000,000.
(5) FEES NON-REFUNDABLE. Subject to clause (4) above, all Facility
Fees, Breakage Fees and Exposure Fees, once paid, are
non-refundable.
(g) VOLUME LIMITATIONS. Party B hereby agrees that it shall not (and it
shall not permit any other CHK Company to) enter into, or have
outstanding, any Natural Gas Hedges other than Natural Gas Hedges
entered into with the purpose and effect of hedging price or basis risk
on natural gas expected to be produced and attributable to the
interests of the CHK Companies, PROVIDED that at all times:
(1) no Price Hedge has, or fixes a price for, a term including any
month later than 60 months from the date such Price Hedge is
entered into;
(2) the Net Volume for all Price Hedges for each single future
month (determined, in the case of Natural Gas Hedges that are
not settled on a monthly basis, by a monthly proration
acceptable to Party A) is greater than or equal to zero and
less than or equal to the Specified Production for such month;
(3) the Net Basis Position for all Basis Hedges for each single
future month (determined, in the case of Natural Gas Hedges
that are not settled on a monthly basis, by a monthly
proration acceptable to Party A) is greater than or equal to
zero and less than or equal to the Specified Production for
such month;
(4) the Net Contract Volume for all Price Hedges under this
Agreement for each single future month (determined, in the
case of Natural Gas Hedges that are not settled on a monthly
basis, by a monthly proration acceptable to Party A) is
greater than or equal to zero and less than or equal to the
Specified Production for such month; and
(5) the Net Contract Basis Position for all Basis Hedges under
this Agreement for each single future month (determined, in
the case of Natural Gas Hedges that are not settled on a
monthly basis, by a monthly proration acceptable to Party A)
is greater than or equal to zero and less than or equal to the
Specified Production for such month.
12
The restrictions set forth in this clause (g) are referred to herein as
the "VOLUME LIMITATIONS".
Party B hereby agrees to deliver to Party A, within five Local Business
Days after the end of each calendar quarter ending in March, June,
September and December, commencing with June 2004, a report (a "VOLUME
REPORT") setting forth in reasonable detail the volumes of natural gas
covered by each Natural Gas Hedge to which each CHK Company is a party,
broken out monthly and separately identifying volumes for each CHK
Company for such month, volumes for Long Price Hedges, Short Price
Hedges, Long Basis Hedges and Short Basis Hedges for such month (each
broken out for Natural Gas Hedges under this Agreement and Natural Gas
Hedges not under this Agreement) and volumes of Specified Production
for such month, all in form, scope and detail satisfactory to Party A
and setting forth such supporting detail as Party A may request.
Each Volume Report shall be accompanied by a certificate of a Financial
Officer of Party B (with such certification under no circumstances
conflicting with any similar certificate provided by Party B or any of
its Affiliates to other parties under any credit agreement or other
financing arrangement) stating that (x) the information set forth
therein is true and correct on and as of the date on which such Volume
Report is delivered and (y) the Budget Basis Projected Production
reported therein is based on reasonable estimates, information and
assumptions and that such Financial Officer has no reason to believe
that such Budget Basis Projected Production is incorrect or misleading
in any material respect.
As used herein:
"BASIS HEDGE" means each Natural Gas Hedge that hedges only
basis differential risk. A Basis Hedge is referred to herein as a "LONG
BASIS HEDGE" if a CHK Company would benefit from an increase in natural
gas basis differentials thereunder and as a "SHORT BASIS HEDGE" if a
CHK Company would benefit from a decrease in natural gas basis
differentials thereunder. For such purposes, the term "NATURAL GAS
BASIS DIFFERENTIALS" will be determined by the Calculation Agent in
accordance with recognized industry practices.
"PRICE HEDGE" means each Natural Gas Hedge (other than a Basis
Hedge). A Price Hedge is referred to herein as a "LONG PRICE HEDGE" if
a CHK Company would benefit from an increase in natural gas prices
thereunder and as a "SHORT PRICE HEDGE" if a CHK Company would benefit
from a decrease in natural gas prices thereunder.
"NATURAL GAS HEDGE" means (a) any agreement (including each
confirmation entered into under a master agreement) providing for
options, swaps, floors, caps, collars, forward sales or forward
purchases involving natural gas or natural gas prices, volumes or basis
differentials, or indexes based on any of the foregoing, (b) any
natural gas option, futures or forward contract traded on an exchange,
and (c) any other derivative agreement or other similar agreement or
arrangement covering or referencing natural gas or natural gas prices,
volumes or basis differentials.
13
"NET BASIS POSITION" means, for each month as at any date of
determination, an amount (which may be less than zero) equal to:
(x) the aggregate notional quantity or volume of natural
gas for that month under all outstanding Short Basis
Hedges; MINUS
(y) the aggregate notional quantity or volume of natural
gas for that month under all outstanding Long Basis
Hedges.
"NET CONTRACT BASIS POSITION" means, for each month as at any
date of determination, an amount (which may be less than zero) equal
to:
(x) the aggregate notional quantity or volume of natural
gas for that month under all outstanding Short Basis
Hedges under this Agreement; MINUS
(y) the aggregate notional quantity or volume of natural
gas for that month under all outstanding Long Basis
Hedges under this Agreement.
"NET VOLUME" means, for each month as at any date of
determination, an amount (which may be less than zero) equal to:
(x) the aggregate notional quantity or volume of natural
gas for that month under all outstanding Short Price
Hedges; MINUS
(y) the aggregate notional quantity or volume of natural
gas for that month under all outstanding Long Price
Hedges.
"NET CONTRACT VOLUME" means, for each month as at any date of
determination, an amount (which may be less than zero) equal to:
(x) the aggregate notional quantity or volume of natural
gas for that month under all outstanding Short Price
Hedges under this Agreement; MINUS
(y) the aggregate notional quantity or volume of natural
gas for that month under all outstanding Long Price
Hedges under this Agreement.
"SPECIFIED PRODUCTION" means, for each month as at any date of
determination:
(x) if such month is or is prior to the 36th month after
the month in which such determination is being made,
100% of Budget Basis Projected Production projected
to be produced during such month, and
(y) if such month is later than the 36th month after the
month in which such determination is being made, 100%
of Adjusted SPE Projected Production projected to be
produced during such month.
14
For such purposes:
"ADJUSTED SPE PROJECTED PRODUCTION" means, for any
month, the sum of:
(A) SPE Basis Projected Production for such
month attributable to reserves that are, at
the time of determination, classified as
Producing Reserves; PLUS
(B) 25% of SPE Basis Projected Production for
such month attributable to Proved Reserves
that are not, at the time of determination,
classified as Producing Reserves.
"BUDGET BASIS PROJECTED PRODUCTION" means, at any
time of determination, the projected production of natural gas
(measured by volume unit or BTU equivalent, not sales price)
from properties and interests owned by any CHK Company which
are located in or offshore of the United States and Canada, as
such production is projected in the most recent reports
delivered by Party B pursuant to this Agreement for purposes
of management planning and budgeting, determined after
deducting projected production from any properties or
interests sold or under contract for sale that had been
included in such report and after adding projected production
from any properties or interests acquired or under contract to
be acquired by any CHK Company that had not been reflected in
such report, all as reported by Party B to Party A hereunder.
"SPE BASIS PROJECTED PRODUCTION" means, at any time
of determination, the projected production of natural gas
(measured by volume unit or BTU equivalent, not sales price)
from properties and interests owned by any CHK Company which
are located in or offshore of the United States and Canada
attributable to the portion of the reserves categorized as
Proved, as such production is projected in the most recent
Reserve Reports delivered pursuant to this Agreement, after
deducting projected production from any properties or
interests sold or under contract for sale that had been
included in such report and after adding projected production
from any properties or interests acquired or under contract to
be acquired by any CHK Company that had not been reflected in
such report, all as reported by Party B to Party A hereunder.
(h) CERTAIN CONDITIONS PRECEDENT. No Specified Natural Gas Transaction may
be entered into, and the obligations of Party A under clause (d) of
this Part 6 shall not become effective, until the date on which Party A
shall have received each of the following, each satisfactory to it in
form and substance:
(1) EXECUTED COUNTERPARTS. From each party hereto a counterpart of
this Agreement (including the Schedule to this Agreement and
the Credit Support Annex) signed on behalf of such party.
(2) PART 3 DOCUMENTS. Each document referred to in Part 3 that is
required to be delivered upon execution of this Agreement.
(3) OPINION OF COUNSEL TO PARTY B. A favorable written opinion
(addressed to Party A and dated the Effective Date) of
Commercial Law Group, P.C., counsel for Party B and the Credit
Support Providers, substantially in the form of Exhibit A to
this Agreement, and covering such other matters relating to
Party B, the Credit Support Providers, this Agreement, the
other Secured Trading Line Documents or the transactions
contemplated hereby and thereby as Party A may reasonably
request (and Party B and each Credit Support Provider hereby
instruct such counsel to deliver such opinion to Party A).
(4) CORPORATE AND PARTNERSHIP DOCUMENTS. Such documents and
certificates as Party A may reasonably request relating to the
organization, existence and good standing of Party B, each
Credit Support Provider and of Party B's general partner, the
authorization of the transactions contemplated hereby and any
other legal matters relating to Party B and the Credit Support
Providers and Party B's general partner, this Agreement, the
other Secured Trading Line Documents or the transactions
contemplated hereby and thereby, all in form and substance
satisfactory to Party A.
15
(5) OFFICER'S CERTIFICATE. A certificate, dated the Effective Date
and signed by a Financial Officer of Party B or the President
or a Vice President of Party B's general partner, acting for
and on behalf of Party B, confirming that each representation
of Party B set forth herein is true and correct on such date
as if made on and as of such date and that no Event of Default
or Potential Event of Default has occurred and is then
continuing.
(6) GUARANTY. The Guaranty, duly executed and delivered by the
Company, each Subsidiary of the Company (other than Party B
and members of the CEMI Group) and Party A.
(7) UCC, TAX LIEN, JUDGMENT AND LITIGATION SEARCHES. Reports
satisfactory to Party A listing the results of Uniform
Commercial Code filing, tax lien, judgment and litigation
searches prepared by one or more firms satisfactory to Party A
with respect to Party B and each of the mortgagors in each
jurisdiction in which it maintains its principal place of
business or in which any of the Mortgaged Properties are
located.
(8) MORTGAGES. One or more Mortgages encumbering Eligible
Properties of Party B and one or more of the other CHK
Companies (the "INITIAL RESERVE COLLATERAL"), each duly
executed and delivered by Party B or another initial Credit
Support Provider and in recordable form in each of the
jurisdictions where Mortgaged Properties covered by such
Mortgage are located and having attached thereto property
descriptions that are in form and substance satisfactory to
Party A.
(9) FILINGS, REGISTRATIONS AND RECORDINGS. Each document
(including any Uniform Commercial Code financing statement)
required by the Credit Support Documents or under law or
reasonably requested by Party A to be filed, registered or
recorded in order to create in favor of Party A a perfected
Lien on the collateral described therein, prior and superior
in right to any other Person (other than with respect to liens
expressly permitted hereunder), and each such document shall
be in proper form for filing, registration or recordation. In
addition, Party B shall have taken such other action as Party
A shall have requested in order to perfect the security
interests created under the Mortgages.
(10) TITLE ASSURANCE. Such information regarding the title of each
mortgagor to the Mortgaged Properties and the priority of the
Lien of the Mortgage as Party A may request (including, if
requested by Party A, title opinions of counsel satisfactory
to Party A with respect to Mortgaged Properties representing
not more than 50% of the Forward Value of the Initial Reserve
Collateral stating that such mortgagor has good and defensible
title to such Mortgaged Properties, free and clear of all
Liens other than Liens permitted by the Mortgages and subject
only to such title defects as shall be acceptable to Party A).
(11) OPINIONS OF LOCAL COUNSEL. A favorable written opinion
(addressed to Party A and dated the Effective Date), in form
and substance and rendered by counsel satisfactory to Party A,
of counsel for Party B and the Credit Support Providers
licensed to practice law in each State in which the Initial
Reserve Collateral is located as to, among other things, the
execution, delivery, recordation and enforceability of each
initial Mortgage in such State (and Party B and each Credit
Support Provider hereby instruct such counsel to deliver such
opinion to Party A).
(12) INSURANCE. Certificates of insurance evidencing the existence
of all insurance required to be maintained by Party B pursuant
to the terms of this Part 6, in form and substance
satisfactory to Party A. In addition, Party B shall have
delivered a certificate, dated the Effective Date, of a
Financial Officer of Party B setting forth the insurance
obtained by it in accordance with the requirements of this
Part 6 and stating that such insurance is in full force and
effect and that all premiums then due and payable thereon have
been paid.
(13) ENVIRONMENTAL DUE DILIGENCE. Results of such environmental due
diligence regarding the properties to be covered by the
Mortgages referred to in clause (8) above as may be reasonably
requested by Party A, the results of which due diligence shall
be satisfactory to Party A.
16
(14) RESERVE REPORTS. Copies of the most recent reserve reports of
Lee Keeling and Associates, Ryder Scott Company, Netherland
Sewell and Associates and the Company's employee engineers
(the "INITIAL RESERVE REPORTS"), each dated such dates, and
otherwise in form and substance, satisfactory to Party A, and
certified by a Financial Officer of Party B to be a true and
correct copy thereof.
(15) INITIAL RESERVE COLLATERAL. Evidence that, on the Effective
Date, the Forward Value of the Initial Reserve Collateral as
of the Calculation Date in 2005, as projected in good faith by
the Calculation Agent, is not less than U.S.$900,000,000.
(16) SOLVENCY. A Solvency Certificate of Party B and each other
initial Credit Support Provider dated as of the Effective
Date.
(17) FEES. The initial Facility Fee and such other fees and
expenses as Party B shall have agreed to pay to Party A in
connection herewith, including the reasonable fees and
expenses of Milbank, Tweed, Hadley & McCloy LLP, special
counsel to Party A, in connection with the negotiation,
preparation, execution and delivery of this Agreement and the
other Secured Trading Line Documents.
(18) CREDIT AGREEMENT DOCUMENTS. Copies of the Credit Agreement and
each other "Loan Document" referred to therein (to the extent,
in the case of security documents, reasonably requested by
Party A), in form and substance satisfactory to Party A and
certified as true, correct and complete by a Financial Officer
of Party B.
(19) OTHER DOCUMENTS. Such other documents as Party A may
reasonably request.
(i) RESERVE REPORTS.
(1) RESERVE REPORTING. Party B hereby agrees to deliver to Party A
the following reserve reports and other information:
(w) ANNUAL REPORTS. Promptly following (but in any event
not later than 90 days after) December 31 in each
year (commencing with December 31, 2004), copies of:
(A) One or more reserve reports as of December
31 from Lee Keeling and Associates, Ryder
Scott Company, Netherland Sewell and
Associates and/or any other recognized
independent reservoir engineering firms
reasonably acceptable to Party A (each, an
"INDEPENDENT RESERVOIR ENGINEERING REPORT").
Such Independent Reservoir Engineering
Reports shall evaluate not less than (i) 70%
of all reserve volumes of Party B and the
other CHK Companies and (ii) 80% of all
Reserve Collateral reserve volumes
attributable to the properties and interests
of Party B and the other mortgagors under
the Mortgages.
(B) A reserve report as of December 31 certified
by an appropriately authorized officer of
Party B (and subject to the review of
internal reservoir engineers for Party A) (a
"SUPPLEMENTAL RESERVE REPORT"). Each
Supplemental Reserve Report shall cover
those properties and reserves of Party B and
the other CHK Companies not evaluated in the
Independent Reservoir Engineering Reports
delivered pursuant to clause (A) above.
17
(x) SEMI-ANNUAL UPDATES. Promptly following (but in any
event no later than 60 days after) June 30 in each year
(commencing with June 30, 2004, a reserve report as of
such June 30 certified by an appropriately authorized
officer of Party B (and subject to the review of
internal reservoir engineers for Party A) (an "UPDATED
RESERVOIR ENGINEERING REPORT") for all of the
properties and reserves of Party B and the other CHK
Companies.
(y) ACCOMPANYING INFORMATION. Party B shall deliver a
report to Party A, at the time it delivers the reports
under clauses (w) and (x) above, reflecting the
occurrence of the following events since the date of
the most recent Reserve Reports: (I) all properties or
interests sold, transferred, terminated, abandoned or
under contract for sale, transfer or termination that
had been included in such report, together (in the case
of completed or pending sales or transfers) with the
property and sale price therefor; (II) all property
purchases and pending property purchases (unless such
disclosure will violate a confidentiality agreement)
identifying the property and the purchase price
therefor, and (III) all changes in the categories of
Proved Developed Producing Reserves, Proved Developed
Nonproducing Reserves and Proved Undeveloped Reserves
attributable to each Mortgaged Property interest of
Party B and the other CHK Companies.
(z) ADDITIONAL INFORMATION. In addition, Party B shall from
time to time deliver to Party A all other information,
reports and data which Party A has requested in
connection with the Reserve Reports.
As used herein, "RESERVE REPORT" means, collectively, the
Independent Reservoir Engineering Reports, the Supplemental
Reserve Reports and the Updated Reservoir Engineering Reports.
(2) SCOPE OF RESERVE REPORTS. Each Reserve Report (not including
the Initial Reserve Reports) shall be addressed to (among any
other Persons) Party A, shall be accompanied by a certificate
of a Financial Officer of Party B to the effect that such
Reserve Report is a true and correct copy thereof, shall
contain information comparable to the information contained in
the reports delivered on the Effective Date under clause
(h)(14) above and otherwise be in form and scope satisfactory
to Party A in its sole discretion, shall take into account any
"over-produced" status under gas balancing arrangements, shall
clearly delineate each property evaluated and shall
distinguish those properties that constitute Reserve
Collateral from those properties that do not constitute
Reserve Collateral. Without limiting the foregoing, each
Reserve Report shall contain:
(x) for each covered property interest owned by Party B and
the other CHK Companies, (A) Proved Reserves, (2)
Proved Developed Producing Reserves, (3) Proved
Developed Non-Producing Reserves and (4) Proved
Undeveloped Reserves (each, a "CATEGORY OF RESERVES"),
in each case, to the extent properly allocable to such
property interest;
(y) for each covered property interest owned by Party B and
the other CHK Companies for each year during the
remaining commercial operation period for such
property, (1) the projected volume of production
attributable to each category of reserves, (2)
projected gross cash operating revenues to be received
from production attributable to each category of
reserves and (3) projected net operating income to be
earned from production attributable to each category of
reserves, in each case, to the extent properly
allocable to such property interest; and
(z) without limiting clauses (x) and (y) above, sufficient
information to enable Party B to meet the reporting
requirements concerning oil and gas reserves contained
in Regulations S-K and S-X and to ascertain projected
future production attributable to the portion of the
reserves of the Mortgaged Properties categorized as
Producing.
In determining such projected gross cash operating revenues
and projected net operating income, each Reserve Report shall
use price assumptions set forth in Regulations S-K and S-X,
PROVIDED that, upon request of Party A, Party B shall cause
projected gross cash operating revenues and projected net
operating income to be determined using price assumptions
specified by Party A.
17
(j) COLLATERAL RAMP-UP; ADDITIONAL POST-CLOSING TITLE WORK; ADDITIONAL
CALCULATION DATE RESERVE COLLATERAL.
(1) COLLATERAL RAMP-UP. Party B shall, at its own cost and
expense, promptly (and in any event by no later than 90 days)
after the Effective Date:
(x) execute and deliver one or more Mortgages encumbering
Eligible Properties having Proved Developed Producing
Reserves attributed thereto such that the Forward Value
of the Reserve Collateral (including the Initial
Reserve Collateral and the collateral pledged under
this clause (j)(1)), as projected in good faith by the
Calculation Agent, is not less than the Minimum Reserve
Collateral Ratio MULTIPLIED BY Maximum Total Capacity;
(y) in connection with such Mortgages; take the related
actions required under clause (o) below; and
(z) to the extent not delivered to Party A on the Effective
Date pursuant to clause (h)(10) above, deliver to Party
A such information regarding the title of each
mortgagor to the Mortgaged Properties and the priority
of the Lien of the Mortgage as Party A may request
(including, if requested by Party A, title opinions of
counsel satisfactory to Party A stating that such
mortgagor has good and defensible title to such
Mortgaged Properties, free and clear of all Liens other
than Liens permitted by the Mortgages and subject only
to such title defects as shall be acceptable to Party
A).
(2) ESTIMATE OF CALCULATION DATE NATURAL GAS PFE. By no later than
the date (a "PRE-CALCULATION DATE") that is 60 days prior to
each Calculation Date falling after the Effective Date, the
Calculation Agent shall give written notice (a
"PRE-CALCULATION DATE COLLATERAL NOTICE") to Party A and Party
B setting forth:
(w) the Calculation Agent's good faith projection of
Natural Gas PFE as of such Calculation Date and the
Forward Reserve Collateral Value as of such Calculation
Date;
(x) the ratio (the "ESTIMATED RESERVE COLLATERAL RATIO") of
such Forward Reserve Collateral Value to such projected
Natural Gas PFE;
(y) if such Estimated Reserve Collateral Ratio is less than
the Minimum Reserve Collateral Ratio, the Forward Value
of additional Proved Developed Producing Reserves of
Eligible Properties that will need to be pledged to
Party A so that the Estimated Reserve Collateral Ratio
(determined taking into account such additional
collateral) is equal to the Minimum Reserve Collateral
Ratio (a "DEFICIENCY AMOUNT"); and
(z) the Forward Value of additional Proved Developed
Producing Reserves of Eligible Properties (if any)
that, if pledged to Party A, would result in Available
Capacity being equal to Maximum Total Capacity (an
"OPTIONAL AMOUNT"), it being understood that no
properties are required to be pledged to Party A
pursuant to this clause (z).
If the Pre-Calculation Date Collateral Notice with respect to
any Calculation Date specifies a Deficiency Amount, then Party
B shall, at its own cost and expense, promptly (and in any
event by no later than three Local Business Days prior to such
Calculation Date) execute and deliver one or more Mortgages
encumbering Eligible Properties having Proved Developed
Producing Reserves attributed thereto having an aggregate
Forward Value equal to such Deficiency Amount and take the
related actions required under clause (o) below.
In addition, if the Pre-Calculation Date Collateral Notice
with respect to any Calculation Date specifies an Optional
Amount, then Party B may (if in its sole discretion it elects
to do so), at its own cost and expense, on or prior to the
date three Local Business Days prior to such Calculation Date
execute and deliver one or more Mortgages encumbering Eligible
Properties having Proved Developed Producing Reserves
attributed thereto having an aggregate Forward Value equal to
such Optional Amount and take the related actions required
under clause (o) below.
For purposes of this clause (2), determinations of the Forward
Reserve Collateral Value and Forward Value will be made on
each Pre-Calculation Date, but will be made as if such
determinations were in fact being made on the immediately
following Calculation Date. Accordingly, references in the
definitions of "Forward Reserve Collateral Value" and "Forward
Value" to a "date of determination" will mean such Calculation
Date rather than such Pre-Calculation Date.
18
(3) RECALCULATION OF CALCULATION DATE NATURAL GAS PFE. On each
Calculation Date, the Calculation Agent shall give written
notice (a "CALCULATION DATE COLLATERAL NOTICE") to Party A and
Party B setting forth:
(w) the Natural Gas PFE as of such Calculation Date and the
Forward Reserve Collateral Value (determined taking
into account the additional collateral (if any) pledged
under clause (2) above) as of such Calculation Date;
(x) the ratio (the "ACTUAL RESERVE COLLATERAL RATIO") of
such Forward Reserve Collateral Value to such Natural
Gas PFE;
(y) if such Actual Reserve Collateral Ratio is less than
the Minimum Reserve Collateral Ratio:
(I) the Forward Value of additional Proved Developed
Producing Reserves of Eligible Properties that
will need to be pledged to Party A so that the
Actual Reserve Collateral Ratio (determined taking
into account such additional collateral) is equal
to the Minimum Reserve Collateral Ratio (also, a
"DEFICIENCY AMOUNT"); and
(II) such Deficiency Amount DIVIDED BY the Minimum
Reserve Collateral Ratio (the "CASH DEFICIENCY
AMOUNT"); and
(z) the Forward Value of additional Proved Developed
Producing Reserves of Eligible Properties (if any)
that, if pledged to Party A, would result in Available
Capacity being equal to Maximum Total Capacity (also,
an "OPTIONAL AMOUNT"), it being understood that no
properties are required to be pledged to Party A
pursuant to this clause (z).
If the Calculation Date Collateral Notice with respect to any
Calculation Date specifies a Deficiency Amount, then Party B
shall, at its own cost and expense:
(A) promptly (and in any event within one Local Business
Day after such Calculation Date) deliver to Party A
Cash or Letters of Credit pursuant to the Credit
Support Annex having an aggregate Value equal to the
Cash Deficiency Amount (such Cash and Letters of
Credit, "TEMPORARY RESERVE COLLATERAL"); and
(B) within 60 days after such Calculation Date, execute and
deliver one or more Mortgages encumbering Eligible
Properties having Proved Developed Producing Reserves
attributed thereto having an aggregate Forward Value
equal to such Deficiency Amount and take the related
actions required under clause (o) below (whereupon
Party A shall return such Temporary Reserve Collateral
to Party B in accordance with the terms set forth in
the Credit Support Annex).
In addition, if the Calculation Date Collateral Notice with
respect to any Calculation Date specifies an Optional Amount,
then Party B may (if in its sole discretion it elects to do
so), at its own cost and expense, on or prior to the date that
is 60 days after such Calculation Date, execute and deliver
one or more Mortgages encumbering Eligible Properties having
Proved Developed Producing Reserves attributed thereto having
an aggregate Forward Value equal to such Optional Amount and
take the related actions required under clause (o) below.
19
(k) ADDITIONAL INTRA-YEAR COLLATERAL. If on any date (other than a
Calculation Date) (x) the Reserve Collateral Ratio is less than the
Minimum Reserve Collateral Ratio and (y) the Intra-Year Deficiency
Amount exceeds U.S.$10,000,000, then, upon request from Party A to
Party B, Party B shall, at its own cost and expense, promptly (and in
any event within one Local Business Day after the date of such request)
deliver to Party A Cash or Letters of Credit pursuant to the Credit
Support Annex having an aggregate Value equal to such Intra-Year
Deficiency Amount. The Cash and Letters of Credit delivered to Party A
pursuant to this clause (k) are referred to as the "INTRA-YEAR
COLLATERAL".
As used herein:
"INTRA-YEAR DETERMINATION DATE" means each date on which the
conditions set forth in clauses (x) and (y) above in this clause (k)
are satisfied.
"INTRA-YEAR DEFICIENCY AMOUNT" means, as of any date of
determination, the positive difference (if any) of:
(1) (A) if the Natural Gas Mark-to-Market Amount as of such date
is a positive number, the Natural Gas Mark-to-Market Amount or
(B) otherwise, the Intra-Year Natural Gas PFE as of such date;
MINUS
(2) the Current Reserve Collateral Value as of such date DIVIDED
BY the Minimum Reserve Collateral Ratio.
(l) SUBSTITUTION OF COLLATERAL. Party B shall be entitled (at its own cost
and expense) at any time and from time to time to substitute all or any
part of the Reserve Collateral for other Reserve Collateral of equal
Forward Value, PROVIDED that:
(1) no Event of Default or Potential Event of Default shall have
occurred and then be continuing or shall result therefrom;
(2) after giving effect thereto, the Reserve Collateral Ratio is
not less than the Minimum Reserve Collateral Ratio;
(3) the long-term ratings of the Company are not lower than "Ba3"
by Moody's or "BB-" by Standard & Poor's and are not on watch
for possible downgrade by either such rating agency;
(4) the aggregate Forward Value of Reserve Collateral substituted
in any Transaction Year shall not exceed 15% of Available
Capacity;
(5) Reserve Collateral shall not be substituted pursuant to this
clause (l) more than three times in any Transaction Year; and
(6) for any new Reserve Collateral to be pledged by Party B, Party
B shall take the related actions required under clause (o)
below.
20
(m) COLLATERAL CALL.
(1) If requested by Party B on any Local Business Day, Party A
shall return some or all of the Intra-Year Collateral to Party
B in accordance with the terms set forth herein and in the
Credit Support Annex, PROVIDED that:
(x) such day is not an Intra-Year Determination Date;
(y) the aggregate Value of Intra-Year Collateral returned
to Party B on any Local Business Day will (subject to
the rounding and minimum transfer amount terms of the
Credit Support Annex) equal an amount (the "INTRA-YEAR
EXCESS AMOUNT" for such Local Business Day) equal to
the positive difference (if any) of:
(A) the Current Reserve Collateral Value as of such
date DIVIDED BY the Minimum Reserve Collateral
Ratio; MINUS
(B) (I) if the Natural Gas Mark-to-Market Amount as of
such date is a positive number, the Natural Gas
Mark-to-Market Amount or (II) otherwise, the
Intra-Year Natural Gas PFE as of such date; and
(z) no Event of Default or Potential Event of Default shall
have occurred and then be continuing or shall result
therefrom.
(2) If requested by Party B within three Local Business Days
following any Calculation Date, Party A shall release one or
more Mortgaged Properties from the Lien of the Mortgages in
accordance with the terms set forth herein and therein,
PROVIDED in each case that:
(x) after giving effect thereto, the Reserve Collateral
Ratio is not less than the Minimum Reserve Collateral
Ratio; and
(y) no Event of Default or Potential Event of Default shall
have occurred and then be continuing or shall result
therefrom.
(n) CHK COMPANY MORTGAGES. Party B will be entitled to deliver Mortgages
executed and delivered by one or more of the other CHK Companies
(rather than by Party B) under clauses (j)(1), (j)(2), (j)(3)(B) and
(l) above, PROVIDED that:
(1) each such CHK Company is Solvent on and as of the date on
which it executes and delivers such Mortgage, and Party B and
such CHK Company each deliver a Solvency Certificate to Party
A with respect to such CHK Company at the time such Mortgage
is delivered;
(2) such CHK Company is not then an Unrestricted Subsidiary;
(3) if such CHK Company is not then a Credit Support Provider,
such CHK Company executes and delivers to Party A an
Assumption and Accession Agreement (whereupon it shall become
a Credit Support Provider of Party B hereunder); and
(4) Party B shall take, and shall cause such CHK Company to take,
the related actions required under clause (o) below.
(o) OTHER REQUIRED ACTIONS. In connection with each delivery of a Mortgage
or pledge of additional Reserve Collateral, Party B shall, and shall
cause each relevant CHK Company to:
(1) execute and deliver documents with respect to Party B or such
CHK Company, such Mortgage and the relevant Mortgaged
Properties (in each case as applicable) that are consistent
with the documents delivered pursuant to clauses (2), (3),
(4), (5), (7), (8), (9), (10), (11), (13), (17) and (19) of
clause (h) of this Part 6 on the Effective Date;
(2) if such CHK Company is not then a Credit Support Provider,
deliver an Assumption and Accession Agreement duly executed
and delivered by such CHK Company; and
(3) take such other action (including executing and delivering
such Uniform Commercial Code financing statements) as shall be
necessary to create and perfect valid and enforceable first
priority Liens on the property to be pledged by Party B or
such CHK Company under such Mortgage or with respect to such
additional Reserve Collateral.
21
(p) ADDITIONAL COVENANTS. Party B covenants and agrees, for the benefit of
Party A, to:
(1) deliver to Party A all of the statements, certificates and
other information delivered to any lender or agent under
Sections 6.1, 6.2, 6.7, 6.8(c) and 6.8(d) of the Credit
Agreement;
(2) perform, comply with and be bound by each of its covenants,
agreements and obligations contained in Sections 6 and 7 of
the Credit Agreement (other than those subsections referred to
in clause (1) above); and
(3) notify Party A of each amendment, modification and supplement
to, and waiver of any provision under, the Credit Agreement
and the other "Loan Documents" referred to therein.
Without limiting the generality of the foregoing, the provisions of the
Credit Agreement referred to in clause (2) above, together with related
definitions and ancillary provisions and schedules and exhibits, are
hereby incorporated herein by reference, as if set forth herein in
full, MUTATIS MUTANDIS; PROVIDED that, as incorporated herein (unless
the context otherwise requires):
(i) each reference therein to "this Agreement", "the Revolving
Loans", "the Letters of Credit" or "the Revolving Commitments"
or the like shall be deemed to be a reference to this
Agreement and the Transactions hereunder, as the case may be;
(ii) each reference therein to any "Agent" or any "Lender" or the
like shall be deemed to be a reference to Party A hereunder;
(iii) each reference therein to the "Loan Documents" or the like
shall be deemed to be a reference to the Secured Trading Line
Documents; and
(iv) each reference therein to the "Collateral" or the like shall
be deemed to be a reference to the Collateral as defined
herein.
(q) SUBSIDIARY GUARANTORS. Party B shall at all time cause each Subsidiary
of the Company that is not an Unrestricted Subsidiary under the CHK
Indentures to be a Subsidiary Guarantor under the Guaranty (and,
accordingly, a Credit Support Provider of Party B hereunder). Without
limiting the foregoing, if any Subsidiary is created or acquired after
the Effective Date by any CHK Company (other than any such Subsidiary
that is then designated an Unrestricted Subsidiary under the CHK
Indentures, but which, for the purposes of this clause (q), shall
include any existing Subsidiary that ceases to be an Unrestricted
Subsidiary under the CHK Indentures), promptly cause such Subsidiary to
become a Subsidiary Guarantor under the Guaranty (and, accordingly, a
Credit Support Provider of Party B hereunder), and to take such actions
and execute and deliver to Party A such documents with respect to such
Subsidiary that are consistent with the actions taken and documents
delivered with respect to Party B pursuant to clauses (2), (3), (4),
(5), (7), (16), (17) and (19) of clause (h) of this Part 6 on the
Effective Date.
Notwithstanding anything to the contrary contained herein or in any
other Secured Trading Line Document, if, after the Effective Date,
Party B shall designate a Subsidiary Guarantor or any newly created or
acquired Subsidiary as an Unrestricted Subsidiary under the CHK
Indentures, and so long as such designation is permitted hereunder
(including under the provisions of the Credit Agreement incorporated
herein by reference) and a Financial Officer of Party B has certified
in writing thereto to Party A, Party A shall release such designated
Subsidiary from its guarantee obligations under the Guaranty.
Notwithstanding any such release, no Subsidiary Guarantor shall be
released from any of its obligations under any Mortgage as to which it
is a mortgagor, nor shall any related Mortgaged Properties be released
from the Lien thereof, unless such release is permitted under clause
(l) or (m) of this Part 6 and, if otherwise required pursuant to the
terms hereof, any related replacement or substitution of Reserve
Collateral occurs simultaneously therewith.
22
(r) FURTHER ASSURANCES. Party B shall from time to time execute and
deliver, or cause to be executed and delivered by other CHK Companies,
such additional mortgages, deeds of trust, chattel mortgages, security
agreements, financing statements, reports (including Reserve Reports),
instruments, legal opinions, certificates or documents, all in form and
substance satisfactory to Party A, and take all such actions as may be
requested hereunder (including in order to comply with clause (q) of
this Part 6) or as Party A may reasonably request, in each case for the
purposes of implementing or further effectuating the provisions of this
Agreement and the other Secured Trading Line Documents (including
clause (q) of this Part 6), or of more fully perfecting or renewing the
rights of Party A with respect to the Collateral (or with respect to
any additions thereto or replacements or proceeds thereof or with
respect to any other property or assets hereafter acquired by Party B
or any Subsidiary Guarantor which may be deemed to be part of the
Collateral) pursuant hereto or thereto. Upon the exercise by Party A of
any power, right, privilege or remedy pursuant to this Agreement or the
other Secured Trading Line Documents that requires any consent,
approval, recording qualification or authorization of any governmental
authority, the Company and Party B shall execute and deliver, or will
cause the execution and delivery of, all applications, certifications,
instruments and other documents and papers that Party A may be required
to obtain from the Company, Party B or any of the Subsidiary Guarantors
for such governmental consent, approval, recording, qualification or
authorization.
(s) ADDITIONAL EVENTS OF DEFAULT. In addition to the Events of Default set
forth in Section 5(a) of this Agreement, the following shall constitute
additional Events of Default as to which Party B shall be the sole
Defaulting Party:
(1) RESERVE COLLATERAL RATIO. Failure by Party B to maintain the
Reserve Collateral Ratio in excess of the Minimum Reserve
Collateral Ratio if such failure is not remedied within one
Local Business Day after receipt of notice from Party A;
(2) ADDITIONAL COLLATERAL. Failure by Party B to deliver the
additional Collateral as and when required under clauses (j)
and (k) of this Part 6 if such failure is not remedied within
five Local Business Days;
(3) VOLUME LIMITATIONS. Party B breaches the Volume Limitations
and such breach is not remedied (whether by unwinding or
liquidating one or more Natural Gas Hedges or otherwise)
within 10 Local Business Days;
(4) REPORTING. Failure by Party B to comply with all the
requirements of clause (i) of this Part 6 if such failure is
not remedied within five Local Business Days (PROVIDED that no
other Event of Default or Potential Event of Default is in
effect after such remediation);
(5) ADDITIONAL AGREEMENTS. Failure by Party B to comply with any
of the other covenants set forth in clause in this Part 6; and
(6) CHANGE IN CONTROL. (i) Any "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the U.S. Securities
Exchange Act of 1934 (the "EXCHANGE ACT"), shall become, or
obtain rights (whether by means of warrants, options or
otherwise) to become, the "beneficial owner" (as defined in
Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or
indirectly, of more than 35% of the outstanding common stock
of the Company; (ii) the board of directors of the Company
shall cease to consist of a majority of Continuing Directors;
(iii) the Company shall cease to own and control, of record
and beneficially, directly or indirectly, 100% of each class
of outstanding Capital Stock of Party B and each other Credit
Support Provider free and clear of all Liens; or (iv) a
Specified Change of Control shall occur.
As used in this clause (6), "CONTINUING DIRECTORS" and
"SPECIFIED CHANGE OF CONTROL" have the meanings given to them
in the Credit Agreement.
23
(t) CERTAIN LETTER OF CREDIT PROVISIONS.
(1) COMMON PROVISIONS. Each Letter of Credit shall be subject to
the following provisions:
(A) Each Letter of Credit provided by Party B shall be an
irrevocable, transferable, standby letter of credit
from an Eligible Financial Institution in form and
substance satisfactory to Party A in its sole
discretion.
(B) Each Letter of Credit shall provide that Party A may
draw upon such Letter of Credit in an amount (up to
the undrawn portion of the stated or face amount of
such Letter of Credit) that is equal to all amounts
that are due and owing from Party B hereunder but
have not been paid to Party A within the time allowed
for such payments under this Agreement (after giving
effect to any applicable notice requirement or grace
period). A Letter of Credit shall provide that a
drawing be made upon such Letter of Credit by
submission to the issuer thereof of one or more
certificates specifying the amounts due and owing to
Party A in accordance with the specific requirements
of such Letter of Credit.
(C) If any issuer of a Letter of Credit (including UBOC)
ceases to be an Eligible Financial Institution, then
Party B shall, by no later than the date 10 Local
Business Days thereafter, replace such Letter of
Credit with Cash or another Letter of Credit whose
issuer is an Eligible Financial Institution (or a
combination thereof) in accordance with and subject
to the terms set forth in this Agreement and the
Credit Support Annex. Each Letter of Credit that is
required to be substituted in accordance with this
clause (C) but that is not so substituted within such
10 Local Business Day period is herein referred to as
an "INELIGIBLE LETTER OF CREDIT".
(2) UBOC PROVISIONS. If Union Bank of California ("UBOC") is at
any time deemed to be an Eligible Financial Institution
pursuant clause (3) of the definition of "Eligible Financial
Institution" in this Agreement, then the following provisions
shall apply to all Letters of Credit issued by UBOC that are
then outstanding at such time (such Letters of Credit, in such
circumstances, the "UBOC LETTERS OF CREDIT"):
(A) the aggregate undrawn face amount of the UBOC Letters
of Credit at such time shall not exceed the UBOC
Sublimit at such time;
(B) no UBOC Letter of Credit shall have an expiry date
later than 120 days after its date of issuance; and
(C) on or prior to the expiry date of each UBOC Letter of
Credit, Party B shall substitute such UBOC Letter of
Credit for Cash or one or more non-UBOC Letters of
Credit (or a combination thereof) in accordance with
and subject to the terms set forth in this Agreement
and the Credit Support Annex (it being understood
that if such UBOC Letter of Credit constitutes
Temporary Reserve Collateral, then Party B may (or
shall) replace such UBOC Letter of Credit with
Mortgages in the manner and to the extent provided in
clause (j)(3) of this Part 6).
As used herein, "UBOC SUBLIMIT" means, at any date of
determination, Maximum Total Capacity (or, if such date of
determination is prior to the 90th day after the Effective
Date, U.S.$200,000,000 PLUS Syndicated Capacity as of such
date) MULTIPLIED BY 10%.
24
(3) PROVISIONS FOR NON-UBOC LETTERS OF CREDIT. The following
provisions shall apply to all Letters of Credit other than
UBOC Letters of Credit:
(A) Each such Letter of Credit shall have an expiry date
that is thirty days following the first Calculation
Date following the date on which such Letter of
Credit is issued (or, if such Letter of Credit is
issued on or following the final Calculation Date,
the date that is thirty days following the latest
Termination Date of the Termination Dates of all
Transactions then outstanding under this Agreement).
(B) No such Letter of Credit may be increased by Party B
without the prior consent of Party A (which Party A
may withhold in its sole discretion) unless the
issuer of such Letter of Credit is an Eligible
Financial Institution at the time of such increase.
(u) CERTAIN DEFINITIONS. The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". The term "date hereof" refers
to the date of this Agreement first above written. Unless the context
requires otherwise (1) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to
such agreement, instrument or other document as from time to time
amended, restated, supplemented or otherwise modified (subject to any
restrictions on such amendments, restatements, supplements or
modifications set forth therein or herein), (2) references to any law,
constitution, statute, treaty, regulation, rule or ordinance, including
any section or other part thereof (each, for purposes of this
paragraph, a "LAW"), shall refer to that law as amended from time to
time and shall include any successor law, (3) any reference herein to
any Person shall be construed to include such Person's successors and
permitted assigns, (4) the words "herein", "hereof" and "hereunder",
and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof
and (5) all references herein to Sections, Parts, Annexes, Schedules
and Exhibits shall be construed to refer to Sections and Parts of, and
Annexes, Schedules and Exhibits to, this Agreement.
As used herein, the following terms have the meanings given to them
below:
"ASSUMPTION AND ACCESSION AGREEMENT" means an assumption and
accession agreement between a Subsidiary of the Company and Party A in
substantially the form of Exhibit A to the Guaranty.
"AVAILABLE CAPACITY" means, as of any date of determination,
the lesser of:
(a) the Forward Reserve Collateral Value DIVIDED BY the
Minimum Reserve Collateral Ratio; and
(b) Maximum Total Capacity (or, if such date of
determination is prior to the 90th day after the
Effective Date, U.S.$200,000,000 PLUS Syndicated
Capacity as of such date).
"CALCULATION DATE" means (a) the Effective Date; and (b) each
anniversary of the Effective Date falling prior to the Scheduled
Maturity Date (or, if any such anniversary is not a Local Business Day,
the first following day that is a Local Business Day).
"CASH" means the lawful currency of the United States of
America.
"CEMI GROUP" means Chesapeake Energy Marketing, Inc., Mayfield
Processing, L.L.C., MidCon Compression, L.P. and each other Subsidiary
which is designated as an Unrestricted Subsidiary under the CHK
Indentures in compliance with the terms of this Agreement and the CHK
Indentures.
"CHK COMPANY" means the Company and each of its Subsidiaries
(including Party B and each other Credit Support Provider).
"CHK INDENTURES" means the Indentures referred to in the
Credit Agreement.
"COLLATERAL" means, collectively, the Reserve Collateral, the
Intra-Year Collateral and the Temporary Reserve Collateral and all
other collateral pledged by Party B and the Credit Support Providers to
Party A under the Secured Trading Line Documents.
"COMPANY" means Chesapeake Energy Corporation.
25
"CREDIT AGREEMENT" means the Fourth Amended and Restated
Credit Agreement, dated as of May 7, 2004, among (INTER ALIA) the
Company, Party B, as Borrower, Union Bank of California, N.A., as
Administrative Agent and Collateral Agent, the co-syndication agents
and co-documentation agents referred to therein and the several lenders
from time to time parties thereto, as such Credit Agreement is in
effect on the date hereof and without giving effect to any amendments,
modifications or supplements thereto, or waiver or termination thereof,
after the date hereof, PROVIDED that if Party A (in its sole
discretion) consents to any such amendment, modification, supplement or
waiver expressly for purposes this Agreement, then the term "Credit
Agreement" shall refer to the Credit Agreement as so amended, modified,
supplemented or waived.
"CREDIT SUPPORT ANNEX" means the Credit Support Annex hereto
between Party A and Party B in substantially the form of Annex B
hereto.
"CREDIT SUPPORT DOCUMENT" means, collectively:
(a) the Credit Support Annex;
(b) the Guaranty;
(c) the Mortgages (together with any related financing
statements); and
(d) the Letters of Credit delivered to Party A pursuant
to the terms of this Agreement and the Credit Support
Annex.
"CREDIT SUPPORT PROVIDER" means, collectively:
(a) the Company; and
(b) each CHK Company (other than Party B) that is a
mortgagor under a Mortgage or a Subsidiary Guarantor
under the Guaranty.
"CURRENT RESERVE COLLATERAL VALUE" means, for any date of
determination, (a) the then-current Value of the Reserve Collateral,
PLUS (b) the then-current Value of the Temporary Reserve Collateral
MULTIPLIED BY the Minimum Collateral Reserve Ratio PLUS (c) unless
otherwise specified herein, the then-current Value of the Intra-Year
Collateral MULTIPLIED BY the Minimum Collateral Reserve Ratio, all as
reasonably determined by the Calculation Agent.
"EFFECTIVE DATE" means the date of this Agreement.
"ELIGIBLE FINANCIAL INSTITUTION" means, at any time:
(1) a financial institution whose long-term unsecured debt
obligations then have a credit rating of "Aa3" or better by
Moody's and "AA-" or better by Standard & Poor's;
(2) a financial institution not referred to in clause (1) above
whose long-term unsecured debt obligations then have a credit
rating of at least "A1" by Moody's and at least "A+" by
Standard & Poor's, but only if such financial institution is
otherwise acceptable to Party A in its sole discretion; and
(3) if UBOC does not qualify as an Eligible Financial Institution
on any date under clause (1) or (2) above, then UBOC shall
nevertheless be deemed to be an Eligible Financial Institution
on such date if its long-term unsecured debt obligations then
have a credit rating of at least "A2" by Moody's and at least
"A-" by Standard & Poor's.
"ELIGIBLE PROPERTIES" means property interests of Party B and
the other CHK Companies to which Proved Developed Producing Reserves
are attributable and which have oil and natural gas production,
diversity and other characteristics acceptable to Party A in its sole
discretion.
26
"FACILITY TERMINATION DATE" means the earlier of:
(a) the Scheduled Maturity Date; and
(b) the first day following the Voluntary Trading Period
Termination Date (if any) on which no Specified
Natural Gas Transaction is outstanding.
"FINANCIAL OFFICER" means, as to Party B or any of the Credit
Support Providers, the chief financial officer, treasurer or other
officer thereof acceptable to Party A.
"FORWARD RESERVE COLLATERAL VALUE" means:
(a) for any date of determination that occurs prior to
the final Calculation Date, the sum of:
(1) the Forward Value of the Reserve Collateral PLUS
(2) the aggregate Value of all Temporary Reserve
Collateral MULTIPLIED BY the Minimum Collateral
Reserve Ratio; and
(b) for any date of determination that occurs on or after
the final Calculation Date, the Current Reserve
Collateral Value (determined without regard to any
Intra-Year Collateral),
in each case as reasonably determined by the Calculation Agent.
"FORWARD VALUE" means, for any Eligible Property:
(a) for any date of determination that occurs prior to
the final Calculation Date, the projected Value of
such Eligible Property as of the next occurring
Calculation Date; and
(b) for any date of determination that occurs on or after
the final Calculation Date, the Value of such
Eligible Property as of such date of determination,
all as reasonably determined by the Calculation Agent. For the
avoidance of doubt:
(1) if a Forward Value calculation is being made under
clause (j)(2) of this Part 6 on or after a
Pre-Calculation Date, then (x) the "date of
determination" for such calculation will be deemed to
be the Calculation Date immediately following such
Pre-Calculation Date, and (y) the reference in clause
(a) above to the "next occurring Calculation Date"
means the second Calculation Date following such
Pre-Calculation Date;
(2) if a Forward Value calculation is being made on a
Calculation Date, then (x) the "date of
determination" for such calculation will be such
Calculation Date, and (y) the reference in clause (a)
above to the "next occurring Calculation Date" means
the Calculation Date following the Calculation Date
on which such calculation is made; and
(3) for each Forward Value calculation other than those
referred to in clauses (1) and (2) above, (x) the
"date of determination" for such calculation will be
the date on which such calculation is made, and (y)
the reference in clause (a) above to the "next
occurring Calculation Date" means the Calculation
Date following the date on which such calculation is
made.
"GUARANTY" means the Guaranty Agreement dated as of the
Effective Date by the Company and each Subsidiary Guarantor in favor of
Party A in substantially the form attached as Exhibit C hereto.
"INTRA-YEAR NATURAL GAS PFE" means, as of any date of
determination, the highest Natural Gas PFE that occurs between such
date of determination and the next occurring Calculation Date (or, if
such date of determination occurs after the final Calculation Date,
between such date of determination and the Facility Termination Date),
as determined by the Calculation Agent taking into account all existing
(and, if relevant, proposed) Specified Natural Gas Transactions.
"LETTER OF CREDIT" means a letter of credit in substantially
the form attached as Exhibit D (or otherwise in form and substance
satisfactory to Party A), issued by an Eligible Financial Institution
for the account of Party B or one of its Affiliates and for the benefit
of Party A hereunder and meeting the requirements set forth herein and
in the Credit Support Annex.
27
"LETTER OF CREDIT DEFAULT" means, with respect to any Letter
of Credit, the related issuing bank (a) becomes subject to any event
analogous to an event specified in Section 5(a)(vii) of this Agreement,
(b) fails to comply with or perform its obligations under such Letter
of Credit if such failure shall continue after the lapse of any
applicable grace period, (c) shall disaffirm, disclaim, repudiate or
reject, in whole or in part, or challenge the validity of such Letter
of Credit or (d) suffers a material adverse change in its financial
condition or prospects (the existence of any such change being
determined by the beneficiary of the Letter of Credit acting in its
sole discretion).
"LIEN" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or
other security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any conditional sale or other title retention agreement and
any capital lease having substantially the same economic effect as any
of the foregoing).
"MAXIMUM TOTAL CAPACITY" means U.S.$600,000,000, PROVIDED that
if Syndicated Capacity on the 90th day after the Effective Date is less
than U.S.$400,000,000, then Maximum Total Capacity shall be reduced on
that date by the amount of such deficiency.
"MINIMUM RESERVE COLLATERAL RATIO" means 1.50 to 1.00.
"MOODY'S" means Moody's Investors Service, Inc.
"MORTGAGE" shall mean the Mortgage, Deed of Trust, Security
Agreement, Assignment of Production, Financing Statement (Personal
Properties Including Hydrocarbons) and Fixture Filing, dated as of the
date of its execution and delivery and in substantially the form
attached as Exhibit B hereto or otherwise in form and substance
satisfactory to Party A in its sole discretion. Each Mortgage shall
cover all of the relevant mortgagor's right, title and interest in and
to the collateral purported to be covered thereby (including all
proceeds thereof and all related accounts receivable).
"MORTGAGED PROPERTIES" shall mean the "Mortgaged Properties"
as defined in, and subject to the duly recorded Lien of, the Mortgages.
"NATURAL GAS MARK-TO-MARKET AMOUNT" means the aggregate
mark-to-market position of all Specified Natural Gas Transactions as
determined by the Calculation Agent in a commercially reasonable manner
at the close of each Local Business Day. If such position is in favor
of Party A, the Natural Gas Mark-to-Market Amount will be stated as a
positive number. If such position is in favor of Party B, the Natural
Gas Mark-to-Market Amount will be stated as a negative number.
"NATURAL GAS PFE" means, as of the date of determination, the
peak potential future natural gas trading credit exposure to Party B by
Party A as determined in good faith by the Calculation Agent taking
into account all existing (and, if relevant, proposed) Specified
Natural Gas Transactions. For the avoidance of doubt, the Calculation
Agent's determination of Natural Gas PFE will depend on factors
including (a) changes in NYMEX natural gas futures prices, (b) NYMEX
natural gas futures implied volatility levels, and (c) delivery volumes
remaining at each calendar month until the Facility Termination Date.
"PERSON" means an individual, corporation (including a
business trust), partnership, limited liability company, limited
liability partnership, joint venture, association, joint stock company,
trust (including any beneficiary thereof), unincorporated association
or government or any agency or political subdivision thereof.
"PROVED", "PROVED DEVELOPED PRODUCING RESERVES", "PROVED
RESERVES", "PROVED DEVELOPED NON-PRODUCING RESERVES", "PROVED
UNDEVELOPED RESERVES" and "PRODUCING" have the respective meanings
given to them in the Definitions for Oil and Gas Reserves promulgated
by the Society of Petroleum Engineers (or any generally recognized
successors).
28
"QUALIFIED MORTGAGED PROPERTY" means a Mortgaged Property (a)
which is an Eligible Property; (b) as to which Party B shall have taken
all actions and executed and delivered all documents under clauses (2),
(3), (4), (5), (7), (8), (9), (10), (11), (13), (17) and (19) of clause
(h) of this Part 6 or clause (o) of this Part 6; and (c) which shall be
subject to a first priority perfected Lien in favor of Party A.
"REGULATION S-K" and "REGULATION S-X" mean, respectively,
Regulation S-K and Regulation S-X promulgated by the SEC, as such Rules
are in effect on the date hereof.
"RESERVE COLLATERAL" means the Initial Reserve Collateral and
all other Mortgaged Properties pledged by Party B and the Credit
Support Providers to Party A pursuant to the terms of this Agreement
and the other Secured Trading Line Documents, PROVIDED that Reserve
Collateral shall not include on any date any property that is not then
a Qualified Mortgaged Property.
"RESERVE COLLATERAL RATIO" means:
(a) for any date of determination that is a Calculation
Date, the Forward Reserve Collateral Value DIVIDED BY
the Natural Gas PFE; and
(b) for any other date of determination, (1) the Current
Reserve Collateral Value for such date DIVIDED BY (2)
(x) if the Natural Gas Mark-to-Market Amount is a
positive number as of such date, the Natural Gas
Mark-to-Market Amount for such date or (y) otherwise,
the Intra-Year Natural Gas PFE.
"SCHEDULED MATURITY DATE" means May 31, 2009, PROVIDED that
the Scheduled Maturity Date may be extended at any time and from time
to time to May 31 in any subsequent year if Party A and Party B so
agree (it being understood that no party shall be obligated to agree to
any such extension of the Scheduled Maturity Date, and may withhold its
consent to any such extension in its sole discretion).
"SEC" means the U.S. Securities and Exchange Commission (or
any governmental agency substituted therefor).
"SECURED TRADING LINE DOCUMENTS" means this Agreement
(including the Schedule and Credit Support Annex and all Confirmations
of Specified Natural Gas Transactions) and the Credit Support
Documents.
"SOLVENCY CERTIFICATE" means a certificate of Party B or one
if its Affiliates (as applicable), addressed to Party A, certifying
that, as of the date of such certificate, Party B or such Affiliate (as
applicable) is Solvent.
"SOLVENT" means that, as of any date of determination as to
any Person, (a) the amount of the "present fair saleable value" of the
assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date,
as such quoted terms are determined in accordance with applicable
federal and state laws governing determinations of the insolvency of
debtors, (b) the present fair saleable value of the assets of such
Person will, as of such date, be greater than the amount that will be
required to pay the liability of such Person on its debts as such debts
become absolute and matured, (c) such Person will not have, as of such
date, an unreasonably small amount of capital with which to conduct its
business, and (d) such Person will be able to pay its debts as they
mature. For purposes of this definition, (1) "debt" means liability on
a "claim", and (2) "claim" means any (x) right to payment, whether or
not such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured or unsecured or (y) right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment,
whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed,
undisputed, secured or unsecured.
29
"SPECIFIED NATURAL GAS TRANSACTION" means any Transaction
between Party A and Party B that satisfies (in the good faith judgment
of the Calculation Agent) each of the following conditions:
(a) such Transaction is a cash-settled commodity
transaction in which the sole commodity covered is
natural gas;
(b) the effective date of such Transaction falls during
the Trading Period; and
(c) no part of the term of such Transaction falls after
the Scheduled Maturity Date.
"STANDARD & POOR'S" means Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies, Inc.
"SUBSIDIARY GUARANTOR" means each Subsidiary of the Company
(other than Party B) that is a "Subsidiary Guarantor" under and as
defined in the Guaranty.
"SYNDICATED CAPACITY" means, as of any date, the portion (if
any) of Maximum Total Capacity that Party A has syndicated to third
parties, all as determined by Party A in its sole discretion and
reported by Party A to Party B from time to time.
"TRADING PERIOD" means the period from and including the
Effective Date to but excluding the earlier of (a) the Scheduled
Maturity Date and (b) the Voluntary Trading Period Termination Date.
"TRANSACTION YEAR" means each period from and including a
Calculation Date (including the Effective Date) through but excluding
the next succeeding Calculation Date, PROVIDED that the final
Transaction Year shall end on and include the Facility Termination
Date.
"UNRESTRICTED SUBSIDIARY" means an "Unrestricted Subsidiary"
as defined in the CHK Indentures.
"VALUE" means, as of any date of determination:
(a) with respect to Cash, the amount thereof;
(b) with respect to a Letter of Credit, the amount then
available to be unconditionally drawn by Party A
under the terms of such Letter of Credit, PROVIDED
that if:
(1) such Letter of Credit is not a UBOC Letter of
Credit and the stated expiry date of such Letter
of Credit is less than 30 days after such date
of determination;
(2) such Letter of Credit is then an Ineligible
Letter of Credit; or
(3) a Letter of Credit Default occurs with respect
to such Letter of Credit,
then the Value of such Letter of Credit as of such
date shall be equal to U.S.$0;
(c) with respect to any Mortgaged Properties, the value
of Proved Developed Producing Reserves attributable
thereto (determined taking into account all remaining
production volumes as of such date of determination),
all as reasonably determined by the Calculation
Agent, and
(d) with respect to any other property, U.S.$0.
30
In making its determination under clause (c) above, the
Calculation Agent will determine the expected nominal future
cash flows of such reserves (based on the then-most recent
Reserve Reports and utilizing commodity prices based on the
Calculation Agent's then-current standard internal commodity
"price decks" used by it for evaluating and making credit
decisions for Party B and other similar commodity exploration
and production companies with which Party A has existing or
prospective credit exposure, PROVIDED that the Calculation
Agent shall be entitled to use its own estimates of, among
other things, natural gas liquids prices and production
volumes), net of expenses estimated by the Calculation Agent
(including the Calculation Agent's estimates of operating
expenses, capital costs and any environmental, remediation and
other costs and expenses related to such reserves), and
discount such net nominal future cash flows back to the date
of determination using a discount rate of 9% per annum.
[signature page follows]
31
DEUTSCHE BANK AG CHESAPEAKE EXPLORATION
LIMITED PARTNERSHIP
By: Chesapeake Operating, Inc.,
its general partner
By: /s/ GREGORY COLLETT By: /s/ MARTHA A BURGER
---------------------------------- ------------------------------
Name: Gregory Collett Name: Martha A. Burger
Title: Vice President and Counsel Title: Treasurer and
Senior Vice President -
Human Resources
By: /s/ CARLO CARLTON
---------------------------------
Name: Carlo Carlton
Title: Vice President and Counsel
32
EXHIBIT 99.3
------------
ISDA
International Swaps and Derivatives Association, Inc.
CREDIT SUPPORT ANNEX
to the Schedule to the
ISDA MASTER AGREEMENT
dated as of May 28, 2004
between
DEUTSCHE BANK AG,
("Party A")
and
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
("Party B")
This Credit Support Annex supplements, forms part of, and is subject to, the
above-referenced Agreement, is part of its Schedule and is a Credit Support
Document under this Agreement with respect to each party.
Accordingly, the parties agree as follows:
PARAGRAPH 1. Interpretation
(a) DEFINITIONS AND INCONSISTENCY. Capitalized terms not otherwise defined
herein or elsewhere in this Agreement have the meanings specified
pursuant to Paragraph 12, and all references in this Annex to
Paragraphs are to Paragraphs of this Annex. In the event of any
inconsistency between this Annex and the other provisions of this
Schedule, this Annex will prevail, and in the event of any
inconsistency between Paragraph 13 and the other provisions of this
Annex, Paragraph 13 will prevail.
(b) SECURED PARTY AND PLEDGOR. All references in this Annex to the "Secured
Party" will be to either party when acting in that capacity and all
corresponding references to the "Pledgor" will be to the other party
when acting in that capacity; PROVIDED, HOWEVER, that if Other Posted
Support is held by a party to this Annex, all references herein to that
party as the Secured Party with respect to that Other Posted Support
will be to that party as the beneficiary thereof and will not subject
that support or that party as the beneficiary thereof to provisions of
law generally relating to security interests and secured parties.
PARAGRAPH 2. Security Interest
Each party, as the Pledgor, hereby pledges to the other party, as the Secured
Party, as security for its Obligations, and grants to the Secured Party a first
priority continuing security interest in, lien on and right of Set-off against
all Posted Collateral Transferred to or received by the Secured Party hereunder.
Upon the Transfer by the Secured Party to the Pledgor of Posted Collateral, the
security interest and lien granted hereunder on that Posted Collateral will be
released immediately and, to the extent possible, without any further action by
either party.
PARAGRAPH 3. CREDIT SUPPORT OBLIGATIONS
(a) DELIVERY AMOUNT. Subject to Paragraphs 4 and 5, upon a demand made by the
Secured Party on or promptly following a Valuation Date, if the Delivery
Amount for that Valuation Date equals or exceeds the Pledgor's Minimum
Transfer Amount, then the Pledgor will Transfer to the Secured Party
Eligible Credit Support having a Value as of the date of Transfer at least
equal to the applicable Delivery Amount (rounded pursuant to Paragraph 13).
Unless otherwise specified in Paragraph 13, the "Delivery Amount"
applicable to the Pledgor for any Valuation Date will equal the amount by
which:
(i) the Credit Support Amount exceeds
(ii) the Value as of that Valuation Date of all Posted Credit Support held
by the Secured Party.
(b) RETURN AMOUNT. Subject to Paragraphs 4 and 5, upon a demand made by the
Pledgor on or promptly following a Valuation Date, if the Return Amount for
that Valuation date equals or exceeds the Secured Party's Minimum Transfer
Amount, then the Secured Party will Transfer to the Pledgor Posted Credit
Support specified by the Pledgor in that demand having a Value as of the
date of Transfer as close as practicable to the applicable Return Amount
(rounded pursuant to Paragraph 13). Unless otherwise specified in Paragraph
13, the "RETURN AMOUNT" applicable to the Secured Party for any Valuation
Date will equal the amount by which:
(i) the Value as of that Valuation Date of all Posted Credit Support held
by the Secured Party exceeds
(ii) the Credit Support Amount.
"CREDIT SUPPORT AMOUNT" means, unless otherwise specified in Paragraph 13,
for any Valuation Date (i) the Secured Party's Exposure for that Valuation
Date plus (ii) the aggregate of all Independent Amounts applicable to the
Pledgor, if any, minus (iii) all Independent Amounts applicable to the
Secured Party, if any, minus (iv) the Pledgor's Threshold; PROVIDED,
HOWEVER, that the Credit Support Amount will be deemed to be zero whenever
the calculation of Credit Support Amount yields a number less than zero.
PARAGRAPH 4. CONDITIONS PRECEDENT, TRANSFER TIMING, CALCULATIONS AND
SUBSTITUTIONS
(a) CONDITIONS PRECEDENT. Each Transfer obligation of the Pledgor under
Paragraphs 3 and 5 and of the Secured Party under Paragraphs 3, 4(d)(ii), 5
and 6(d) is subject to the conditions precedent that:
(i) no Event of Default, Potential Event of Default or Specified Condition
has occurred and is continuing with respect to the other party; and
(ii) no Early Termination Date for which any unsatisfied payment
obligations exist has occurred or been designated as the result of an Event
of Default or Specified Condition with respect to the other party.
(b) TRANSFER TIMING. Subject to Paragraphs 4(a) and 5 and unless otherwise
specified, if a demand for the Transfer of Eligible Credit Support or
Posted Credit Support is made by the Notification Time, then the relevant
Transfer will be made not later than the close of business on the next
Local Business Day; if a demand is made after the Notification Time, then
the relevant Transfer will be made not later than the close of business on
the second Local Business Day thereafter.
(c) CALCULATIONS. All calculations of Value and Exposure for purposes of
Paragraphs 3 and 6(d) will be made by the Valuation Agent as of the
Valuation Time. The Valuation Agent will notify each party (or the other
party, if the Valuation Agent is a party) of its calculations not later
than the Notification Time on the Local Business Day following the
applicable Valuation Date (or in the case of Paragraph 6(d), following the
date of calculation).
(d) SUBSTITUTIONS.
(i) Unless otherwise specified in Paragraph 13, upon notice to the Secured
Party specifying the items of Posted Credit Support to be exchanged, the
Pledgor may, on any Local Business Day, Transfer to the Secured Party
substitute Eligible Credit Support (the "Substitute Credit Support"); and
(ii) subject to Paragraph 4(a), the Secured Party will Transfer to the
Pledgor the items of Posted Credit Support specified by the Pledgor in its
notice not later than the Local Business Day following the date on which
the Secured Party receives the Substitute Credit Support, unless otherwise
specified in Paragraph 13 (the "Substitution Date"); provided that the
Secured Party will only be obligated to Transfer Posted Credit Support with
a Value as of the date of Transfer of that Posted Credit Support equal to
the Value as of that date of the Substitute Credit Support.
2
PARAGRAPH 5. DISPUTE RESOLUTION
If a party (a "Disputing Party") disputes (I) the Valuation Agent's calculation
of a Delivery Amount or a Return Amount or (II) the Value of any Transfer of
Eligible Credit Support or Posted Credit Support, then (1) the Disputing Party
will notify the other party and the Valuation Agent (if the Valuation Agent is
not the other party) not later than the close of business on the Local Business
Day following (X) the date that the demand is made under Paragraph 3 in the case
of (I) above or (Y) the date of Transfer in the case of (II) above, (2) subject
to Paragraph 4(a), the appropriate party will Transfer the undisputed amount to
the other party not later than the close of business on the Local Business Day
following (X) the date that the demand is made under Paragraph 3 in the case of
(I) above or (Y) the date of Transfer in the case of (II) above, (3) the parties
will consult with each other in an attempt to resolve the dispute and (4) if
they fail to resolve the dispute by the Resolution Time, then:
(i) In the case of a dispute involving a Delivery Amount or Return Amount,
unless otherwise specified in Paragraph 13, the Valuation Agent will
recalculate the Exposure and the Value as of the Recalculation Date by:
(A) utilizing any calculations of Exposure for the Transaction (or
Swap Transactions) that the parties have agreed are not in dispute;
(B) calculating the Exposure for the Transactions (or Swap
Transactions) in dispute by seeking four actual quotations at
mid-market from Reference Market-makers for purposes of calculating
Market Quotation, and taking the arithmetic average of those
obtained; provided that if four quotations are not available for a
particular Transaction (or Swap Transaction), then fewer than four
quotations may be used for that Transaction (or Swap Transaction),
and if no quotations are available for a particular Transaction (or
Swap Transaction), then the Valuation Agent's original calculations
will be used for that Transaction (or Swap Transaction); and
(C) utilizing the procedures specified in Paragraph 13 for
calculating the Value, if disputed, of Posted Credit Support.
(ii) In the case of a dispute involving the Value of any Transfer of
Eligible Credit Support or Posted Credit Support, the Valuation Agent will
recalculate the Value as of the date of Transfer pursuant to Paragraph 13.
Following a recalculation pursuant to this Paragraph, the Valuation Agent will
notify each party (or the other party, if the Valuation Agent is a party) not
later than the Notification Time on the Local Business Day following the
Resolution Time. The appropriate party will, upon demand following that notice
by the Valuation Agent or a resolution pursuant to (3) above and subject to
Paragraphs 4(a) and 4(b), make the appropriate Transfer.
PARAGRAPH 6. HOLDING AND USING POSTED COLLATERAL
(a) CARE OF POSTED COLLATERAL. Without limiting the Secured Party's rights
under Paragraph 6(c), the Secured Party will exercise reasonable care to
assure the safe custody of all Posted Collateral to the extent required by
applicable law, and in any event the Secured Party will be deemed to have
exercised reasonable care if it exercises at least the same degree of care
as it would exercise with respect to its own property. Except as specified
in the preceding sentence, the Secured Party will have no duty with respect
to Posted Collateral, including, without limitation, any duty to collect
any Distributions, or enforce or preserve any rights pertaining thereto.
(b) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS.
(i) GENERAL. Subject to the satisfaction of any conditions specified in
Paragraph 13 for holding Posted Collateral, the Secured Party will be
entitled to hold Posted Collateral or to appoint an agent (a "Custodian")
to hold Posted Collateral for the Secured Party. Upon notice by the Secured
Party to the Pledgor of the appointment of a Custodian, the Pledgor's
obligations to make any Transfer will be discharged by making the Transfer
to that Custodian. The holding of Posted Collateral by a Custodian will be
deemed to be the holding of that Posted Collateral by the Secured Party for
which the Custodian is acting.
(ii) FAILURE TO SATISFY CONDITIONS. If the Secured Party or its Custodian
fails to satisfy any conditions for holding Posted Collateral, then upon a
demand made by the Pledgor, the Secured Party will, not later than five
Local Business Days after the demand, Transfer or cause its Custodian to
Transfer all Posted Collateral held by it to a Custodian that satisfies
those conditions or to the Secured Party if it satisfies those conditions.
3
(iii) LIABILITY. The Secured Party will be liable for the acts or omissions
of its Custodian to the same extent that the Secured Party would be liable
hereunder for its own acts or omissions.
(c) USE OF POSTED COLLATERAL. Unless otherwise specified in Paragraph 13 and
without limiting the rights and obligations of the parties under Paragraphs
3, 4(d)(ii), 5, 6(d) and 8, if the Secured Party is not a Defaulting Party
or an Affected Party with respect to a Specified Condition and no Early
Termination Date has occurred or been designated as the result of an Event
of Default or Specified Condition with respect to the Secured Party, then
the Secured Party will, notwithstanding Section 9-207 of the New York
Uniform Commercial Code, have the right to:
(i) sell, pledge, rehypothecate, assign, invest, use, commingle or
otherwise dispose of, or otherwise use in its business any Posted
Collateral it holds, free from any claim or right of any nature whatsoever
of the Pledgor, including any equity or right of redemption by the Pledgor;
and
(ii) register any Posted Collateral in the name of the Secured Party, its
Custodian or a nominee for either.
For purposes of the obligation to Transfer Eligible Credit Support or Posted
Credit Support pursuant to Paragraphs 3 and 5 and any rights or remedies
authorized under this Agreement, the Secured Party will be deemed to continue to
hold all Posted Collateral and to receive Distributions made thereon, regardless
of whether the Secured Party has exercised any rights with respect to any Posted
Collateral pursuant to (i) or (ii) above.
(d) DISTRIBUTIONS AND INTEREST AMOUNT.
(i) DISTRIBUTIONS. Subject to Paragraph 4(a), if the Secured Party receives
or is deemed to receive Distributions on a Local Business Day, it will
Transfer to the Pledgor not later than the following Local Business Day any
Distributions it receives or is deemed to receive to the extent that a
Delivery Amount would not be created or increased by that Transfer, as
calculated by the Valuation Agent (and the date of calculation will be
deemed to be a Valuation Date for this purpose).
(ii) INTEREST AMOUNT. Unless otherwise specified in Paragraph 13 and
subject to Paragraph 4(a), in lieu of any interest, dividends or other
amounts paid or deemed to have been paid with respect to Posted Collateral
in the form of Cash (all of which may be retained by the Secured Party),
the Secured Party will Transfer to the Pledgor at the times specified in
Paragraph 13 the Interest Amount to the extent that a Delivery Amount would
not be created or increased by that Transfer, as calculated by the
Valuation Agent (and the date of calculation will be deemed to be a
Valuation Date for this purpose). The Interest Amount or portion thereof
not Transferred pursuant to this Paragraph will constitute Posted
Collateral in the form of Cash and will be subject to the security interest
granted under Paragraph 2.
PARAGRAPH 7. EVENTS OF DEFAULT
For purposes of Section 5(a)(iii)(l) of this Agreement, an Event of Default will
exist with respect to a party if:
(i) that party fails (or fails to cause its Custodian) to make, when due,
any Transfer of Eligible Collateral, Posted Collateral or the Interest
Amount, as applicable, required to be made by it and that failure continues
for two Local Business Days after notice of that failure is given to that
party;
(ii) that party fails to comply with any restriction or prohibition
specified in this Annex with respect to any of the rights specified in
Paragraph 6(c) and that failure continues for five Local Business Days
after notice of that failure is given to that party; or
(iii) that party fails to comply with or perform any agreement or
obligation other than those specified in Paragraphs 7(i) and 7(ii) and that
failure continues for 30 days after notice of that failure is given to that
party.
4
PARAGRAPH 8. CERTAIN RIGHTS AND REMEDIES
(a) SECURED PARTY'S RIGHTS AND REMEDIES. If at any time (1) an Event of Default
or Specified Condition with respect to the Pledgor has occurred and is
continuing or (2) an Early Termination Date has occurred or been designated
as the result of an Event of Default or Specified Condition with respect to
the Pledgor, then, unless the Pledgor has paid in full all of its
Obligations that are then due, the Secured Party may exercise one or more
of the following rights and remedies:
(i) all rights and remedies available to a secured party under applicable
law with respect to Posted Collateral held by the Secured Party;
(ii) any other rights and remedies available to the Secured Party under the
terms of Other Posted Support, if any;
(iii) the right to Set-off any amounts payable by the Pledgor with respect
to any Obligations against any Posted Collateral or the Cash equivalent of
any Posted Collateral held by the Secured Party (or any obligation of the
Secured Party to Transfer that Posted Collateral); and
(iv) the right to liquidate any Posted Collateral held by the Secured Party
through one or more public or private sales or other dispositions with such
notice, if any, as may be required under applicable law, free from any
claim or right of any nature whatsoever of the Pledgor, including any
equity or right of redemption by the Pledgor (with the Secured Party having
the right to purchase any or all of the Posted Collateral to be sold) and
to apply the proceeds (or the Cash equivalent thereof) from the liquidation
of the Posted Collateral to any amounts payable by the Pledgor with respect
to any obligations in that order as the Secured Party may elect.
Each party acknowledges and agrees that Posted Collateral in the form of
securities may decline speedily in value and is of a type customarily sold on a
recognized market, and, accordingly, the Pledgor is not entitled to prior notice
of any sale of that Posted Collateral by the Secured Party, except any notice
that is required under the applicable law and cannot be waived.
(b) PLEDGOR'S RIGHTS AND REMEDIES. If at any time an Early Termination Date has
occurred or been designated as the result of an Event of Default or
Specified Condition with respect to the Secured Party, then (except in the
case of an Early Termination Date relating to less than all Transactions
(or Swap Transactions) where the Secured Party has paid in full all of its
obligations that are then under Section 6(e) of this Agreement):
(i) the Pledgor may exercise all rights and remedies available to a pledgor
under applicable law with respect to Posted Collateral held by the Secured
Party;
(ii) the Pledgor may exercise any other rights and remedies available to
the Pledgor under the terms of Other Posted Support, if any;
(iii) the Secured Party will be obligated immediately to Transfer all
Posted Collateral and the Interest Amount to the Pledgor; and
(iv) to the extent that Posted Collateral or the Interest Amount is not so
Transferred pursuant to (iii) above, the Pledgor may:
(A) Set-off any amounts payable by the Pledgor with respect to any
Obligations against any Posted Collateral or the Cash equivalent of
any Posted Collateral held by the Secured Party (or any obligation of
the Secured Party to Transfer that Posted Collateral); and
(B) to the extent that the Pledgor does not Set-off under (iv)(A)
above, withhold payment of any remaining amounts payable by the
Pledgor with respect to any Obligations, up to the Value of any
remaining Posted Collateral held by the Secured Party, until that
Posted Collateral is Transferred to the Pledgor.
(c) DEFICIENCIES AND EXCESS PROCEEDS. The Secured Party will Transfer to the
Pledgor any proceeds and Posted Credit Support remaining after liquidation,
Set-off and/or application under Paragraphs 8(a) and 8(b) after
satisfaction in full of all amounts payable by the Pledgor with respect to
any Obligations; the Pledgor in all events will remain liable for any
amounts remaining unpaid after any liquidation, Set-off and/or application
under Paragraphs 8(a) and 8(b).
(d) FINAL RETURNS. When no amounts are or thereafter may become payable by the
Pledgor with respect to any Obligations (except for any potential liability
under Section 2(d) of this Agreement), the Secured Party will Transfer to
the Pledgor all Posted Credit Support and the Interest Amount, if any.
5
PARAGRAPH 9. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated as of each date on which it, as the Pledgor, Transfers Eligible
Collateral) that:
(i) it has the power to grant a security interest in and lien on any
Eligible Collateral it Transfers as the Pledgor and has taken all necessary
actions to authorize the granting of that security interest and lien;
(ii) it is the sole owner of or otherwise has the right to Transfer all
Eligible Collateral it Transfers to the Secured Party hereunder, free and
clear of any security interest, lien, encumbrance or other restrictions
other than the security interest and lien granted under Paragraph 2;
(iii) upon the Transfer of any Eligible Collateral to the Secured Party
under the terms of this Annex, the Secured Party will have a valid and
perfected first priority security interest therein (assuming that any
central clearing corporation or any third-party financial intermediary or
other entity not within the control of the Pledgor involved in the Transfer
of that Eligible Collateral gives the notices and takes the action required
of it under applicable law for perfection of that interest); and
(iv) the performance by it of its obligations under this Annex will not
result in the creation of any security interest, lien or other encumbrances
on any Posted Collateral other than the security interest and lien granted
under Paragraph 2.
PARAGRAPH 10. EXPENSES
(a) GENERAL. Except as otherwise provided in Paragraphs 10(b) and 10(c), each
party will pay its own costs and expenses in connection with performing its
obligations under this Annex and neither party will be liable for any costs
and expenses incurred by the other party in connection herewith.
(b) POSTED CREDIT SUPPORT. The Pledgor will promptly pay when due all taxes,
assessments or charges of any nature that are imposed with respect to
Posted Credit Support held by the Secured Party upon becoming aware of the
same, regardless of whether any portion of that Posted Credit Support is
subsequently disposed of under Paragraph 6(c), except for those taxes,
assessments and charges that result from the exercise of the Secured
Party's rights under Paragraph 6(c).
(c) LIQUIDATION/APPLICATION OF POSTED CREDIT SUPPORT. All reasonable costs and
expenses incurred by or on behalf of the Secured Party or the Pledgor in
connection with the liquidation and/or application of any Posted Credit
Support under Paragraph 8 will be payable, on demand and pursuant to the
Expenses Section of this Agreement, by the Defaulting Party or, if there is
no Defaulting Party, equally by the parties.
PARAGRAPH 11. MISCELLANEOUS
(a) DEFAULT INTEREST. A Secured Party that fails to make, when due, any
Transfer of Posted Collateral or the Interest Amount will be obligated to
pay the Pledgor (to the extent permitted under applicable law) an amount
equal to interest at the Default Rate multiplied by the Value of the items
of property that were required to be Transferred, from (and including) the
date that Posted Collateral or Interest Amount was required to be
Transferred to (but excluding) the date of Transfer of that Posted
Collateral or Interest Amount. This Interest will be calculated on the
basis of daily compounding and the actual number of days elapsed.
(b) FURTHER ASSURANCES. Promptly following a demand made by a party, the other
party will execute, deliver, file and record any financing statement,
specific assignment or other document and take any other action that may be
necessary or desirable and reasonably requested by that party to create,
preserve, perfect or validate any security interest or lien granted under
Paragraph 2, to enable that party to exercise or enforce its rights under
this Annex with respect to Posted Credit Support or an Interest Amount or
to effect or document a release of a security interest on Posted Collateral
or an Interest Amount.
(c) FURTHER PROTECTION. The Pledgor will promptly give notice to the Secured
Party of, and defend against, any suit, action, proceeding or lien that
involves Posted Credit Support Transferred by the Pledgor or that could
adversely affect the security interest and lien granted by it under
Paragraph 2, unless that suit, action, proceeding or lien results from the
exercise of the Secured Party's rights under Paragraph 6(c).
6
(d) GOOD FAITH AND COMMERCIALLY REASONABLE MANNER. Performance of all
obligations under this Annex, including, but not limited to, all
calculations, valuations and determinations made by either party, will be
made in good faith and in a commercially reasonable manner.
(e) DEMANDS AND NOTICES. All demands and notices made by a party under this
Annex will be made as specified in the Notices Section of this Agreement,
except as otherwise provided in Paragraph 13.
(f) SPECIFICATIONS OF CERTAIN MATTERS. Anything referred to in this Annex as
being specified in Paragraph 13 also may be specified in one or more
Confirmations or other documents and this Annex will be construed
accordingly.
PARAGRAPH 12. DEFINITIONS
As used in this Annex: -
"CASH" means the lawful currency of the United States of America.
"CREDIT SUPPORT AMOUNT" has the meaning specified in Paragraph 3.
"CUSTODIAN" has the meaning specified in Paragraphs 6(b)(i) and 13.
"DELIVERY AMOUNT" has the meaning specified in Paragraph 3(a).
"DISPUTING PARTY" has the meaning specified in Paragraph 5.
"DISTRIBUTIONS" means with respect to Posted Collateral other than Cash, all
principal, interest and other payments and distributions of cash or other
property with respect thereto, regardless of whether the Secured Party has
disposed of that Posted Collateral under Paragraph 6(c). Distributions will not
include any item of property acquired by the Secured Party upon any disposition
or liquidation of Posted Collateral or, with respect to any Posted Collateral in
the form of Cash, any distributions on that collateral, unless otherwise
specified herein.
"ELIGIBLE COLLATERAL" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"ELIGIBLE CREDIT SUPPORT" means Eligible Collateral and Other Eligible Support.
"EXPOSURE" means for any Valuation Date or other date for which Exposure is
calculated and subject to Paragraph 5 in the case of a dispute, the amount, if
any, that would be payable to a party that is the Secured Party by the other
party (expressed as a positive number) or by a party that is the Secured Party
to the other party (expressed as a negative number) pursuant to Section
6(e)(ii)(2)(A) of this Agreement as if all Transactions (or Swap Transactions)
were being terminated as of the relevant Valuation Time: provided that Market
Quotation will be determined by the Valuation Agent using its estimates at
mid-market of the amounts that would be paid for Replacement Transactions (as
that term is defined in the definition of "Market Quotation").
"INDEPENDENT AMOUNT" means, with respect to a party, the amount specified as
such for that party in Paragraph 13; if no amount is specified, zero.
"INTEREST AMOUNT" means, with respect to an Interest Period, the aggregate sum
of the amounts of interest calculated for each day in that Interest Period on
the principal amount of Posted Collateral in the form of Cash held by the
Secured Party on that day, determined by the Secured Party for each such day as
follows:
(x) the amount of that Cash on that day; multiplied by
(y) the Interest Rate in effect for that day; divided by
(z) 365.
"INTEREST PERIOD" means the period from (and including) the last Local Business
Day on which an Interest Amount was Transferred (or, if no Interest Amount has
yet been Transferred, the Local Business Day on which Posted Collateral in the
form of Cash was Transferred to or received by the Secured Party) to (but
excluding) the Local Business Day on which the current Interest Amount is to be
Transferred.
"INTEREST RATE" means the rate specified in Paragraph 13.
"LOCAL BUSINESS DAY" unless otherwise specified in Paragraph 13, has the meaning
specified in the Definitions Section of this Agreement, except that references
to a payment in clause (c) thereof will be deemed to include a Transfer under
this Annex.
7
"MINIMUM TRANSFER AMOUNT" means, with respect to a party, the amount specified
as such for that party in Paragraph 13; if no amount is specified, zero.
"NOTIFICATION TIME" has the meaning specified in Paragraph 13.
"OBLIGATIONS" means, with respect to a party, all present and future obligations
of that party under this Agreement and any additional obligations specified for
that party in Paragraph 13.
"OTHER ELIGIBLE SUPPORT" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"OTHER POSTED SUPPORT" means all Other Eligible Support Transferred to the
Secured Party that remains in effect for the benefit of that Secured Party.
"PLEDGOR" means either party, when that party (i) receives a demand for or is
required to Transfer Eligible Credit Support under Paragraph 3(a) or (ii) has
Transferred Eligible Credit Support under Paragraph 3(a).
"POSTED COLLATERAL" means all Eligible Collateral, other property,
Distributions, and all proceeds thereof that have been Transferred to or
received by the Secured Party under this Annex and not Transferred to the
Pledgor pursuant to Paragraph 3(b), 4(d)(ii) or 6(d)(i) or released by the
Secured Party under Paragraph 8. Any Interest Amount or portion thereof not
Transferred pursuant to Paragraph 6(d)(ii) will constitute Posted Collateral in
the form of Cash.
"POSTED CREDIT SUPPORT" means Posted Collateral and Other Posted Support.
"RECALCULATION DATE" means the Valuation Date that gives rise to the dispute
under Paragraph 5; PROVIDED, however, that if a subsequent Valuation Date occurs
under Paragraph 3 prior to the resolution of the dispute, then the
"Recalculation Date" means the most recent Valuation Date under Paragraph 3.
"RESOLUTION TIME" has the meaning specified in Paragraph 13.
"RETURN AMOUNT" has the meaning specified in Paragraph 3(b).
"SECURED PARTY" means either party, when that party (i) makes a demand for or is
entitled to receive Eligible Credit Support under Paragraph 3(a) or (ii) holds
or is deemed to hold Posted Credit Support.
"SPECIFIED CONDITION" means, with respect to a party, any event specified as
such for that party in Paragraph 13.
"SUBSTITUTE CREDIT SUPPORT" has the meaning specified in Paragraph 4(d)(i).
"SUBSTITUTION DATE" has the meaning specified in Paragraph 4(d)(ii).
"THRESHOLD" means, with respect to a party, the amount specified as such for
that party in Paragraph 13; if no amount is specified, zero.
"TRANSFER" means, with respect to any Eligible Credit Support, Posted Credit
Support or Interest Amount and in accordance with the instructions of the
Secured Party, Pledgor or Custodian, as applicable:
(i) in the case of Cash, payment or delivery by wire transfer into one or
more bank accounts specified by the recipient;
(ii) in the case of certificated securities that cannot be paid or
delivered by book-entry, payment or delivery in appropriate physical form
to the recipient or its account accompanied by any duly executed
instruments of transfer, assignments in blank, transfer tax stamps and any
other documents necessary to constitute a legally valid transfer to the
recipient;
(iii) in the case of securities that can be paid or delivered by
book-entry, the giving of written instructions to the relevant depository
institution or other entity specified by the recipient, together with a
written copy thereof to the recipient, sufficient if complied with to
result in a legally effective transfer of the relevant interest to the
recipient; and
(iv) in the case of Other Eligible Support or Other Posted Support, as
specified in Paragraph 13.
8
"VALUATION AGENT" has the meaning specified in Paragraph 13.
"VALUATION DATE" means each date specified in or otherwise determined pursuant
to Paragraph 13.
"VALUATION PERCENTAGE" means, for any item of Eligible Collateral, the
percentage specified in Paragraph 13.
"VALUATION TIME" has the meaning specified in Paragraph 13.
"VALUE" means for any Valuation Date or other date for which Value is calculated
and subject to Paragraph 5 in the case of a dispute, with respect to:
(i) Eligible Collateral or Posted Collateral that is:
(A) Cash, the amount thereof; and
(B) a security, the bid price obtained by the Valuation Agent
multiplied by the applicable Valuation Percentage, if any;
(ii) Posted Collateral that consists of items that are not specified as
Eligible Collateral, zero; and
(iii) Other Eligible Support and Other Posted Support, as specified in
Paragraph 13.
PARAGRAPH 13. ELECTIONS AND VARIABLES
As used in this Paragraph 13, "PART 6" means Part 6 of the Schedule to this
Agreement.
(a) SECURITY INTEREST FOR "OBLIGATIONS". The term "OBLIGATIONS" as used in
this Annex includes the following additional obligations:
(i) with respect to Party A, not applicable; and
(ii) with respect to Party B, "Obligations" means any and all
present and future obligations of Party B under or in
connection with this Agreement and the other Secured Trading
Line Documents.
(b) CREDIT SUPPORT OBLIGATIONS.
(i) This Annex is amended to delete the definition of (and all
references to) "Credit Support Amount" therein. This Annex is
further amended by restating Paragraph 3 thereof to read in
its entirety as follows:
"PARAGRAPH 3. CREDIT SUPPORT OBLIGATIONS
(a) DELIVERY AMOUNT.
(1) WITH RESPECT TO TEMPORARY RESERVE COLLATERAL.
-----------------------------------------------
Subject to Paragraphs 4 and 5, upon a demand
made by Party A on or promptly following a
Calculation Date, if the Cash Deficiency Amount
for such Calculation Date specified in the
related Calculation Date Collateral Notice
delivered pursuant to clause (j)(3) of Part 6
equals or exceeds Party B's Minimum Transfer
Amount, then Party B will Transfer to Party A
Eligible Collateral or Other Eligible Support
(collectively, "ELIGIBLE CREDIT SUPPORT") having
a Value as of the date of Transfer at least
equal to such Cash Deficiency Amount (for such
purposes, a "DELIVERY AMOUNT"), rounded pursuant
to Paragraph 13.
(2) WITH RESPECT TO INTRA-YEAR COLLATERAL. Subject
------------------------------------------------
to Paragraphs 4 and 5, upon a demand made by
Party A on or promptly following an Intra-Year
Deficiency Date, Party B will Transfer to Party
A Eligible Credit Support having a Value as of
the date of Transfer at least equal to the
Intra-Year Deficiency Amount specified in the
notice relating to such Intra-Year Deficiency
Date delivered to Party B pursuant to clause (k)
of Part 6 (for such purposes, a "DELIVERY
AMOUNT"), rounded pursuant to Paragraph 13.
9
(b) RETURN AMOUNT.
(1) WITH RESPECT TO TEMPORARY RESERVE COLLATERAL.
------------------------------------------------
Subject to Paragraphs 4 and 5, upon a demand
made by Party B on or promptly following a Local
Business Day on which Eligible Properties
pledged to Party A pursuant to clause (j)(3)(B)
of Part 6 become Qualified Mortgaged Properties
(each, a "MORTGAGE QUALIFICATION DATE"), if the
Forward Value of such Qualified Mortgaged
Properties DIVIDED BY the Minimum Reserve
Collateral Ratio (for such purposes, a "RETURN
AMOUNT") equals or exceeds Party A's Minimum
Transfer Amount, then Party A will Transfer to
Party B Posted Credit Support specified by Party
B in that demand that is Temporary Reserve
Collateral having a Value as of the date of
Transfer as close as practicable to such Return
Amount (rounded pursuant to Paragraph 13).
(2) WITH RESPECT TO INTRA-YEAR COLLATERAL. Subject
------------------------------------------------
to Paragraphs 4 and 5, upon a demand made by
Party B on or promptly following a Local
Business Day, if the Intra-Year Excess Amount
(for such purposes, a "RETURN AMOUNT") equals or
exceeds Party A's Minimum Transfer Amount, then
Party A will Transfer to Party B Posted Credit
Support specified by Party B in that demand that
is Intra-Year Collateral having a Value as of
the date of Transfer as close as practicable to
such Return Amount (rounded pursuant to
Paragraph 13)."
(ii) ELIGIBLE COLLATERAL. The following items will qualify as
"ELIGIBLE COLLATERAL":
Cash
(iii) OTHER ELIGIBLE SUPPORT. The following items will qualify
as "OTHER ELIGIBLE SUPPORT":
Letters of Credit issued in favor of Party A on the
terms set forth in Part 6 and this Annex.
(iv) THRESHOLDS.
(A) "INDEPENDENT AMOUNT" means: Inapplicable
(B) "THRESHOLD" means: Inapplicable
(C) "MINIMUM TRANSFER AMOUNT" means:
(1) with respect to Party A, U.S.$250,000; PROVIDED
that the Minimum Transfer Amount for Party A
shall be zero upon the occurrence and during the
continuance of an Event of Default, Potential
Event of Default, Termination Event, Additional
Termination Event or Specified Condition with
respect to such party; and
(2) with respect to Party B, U.S.$250,000; PROVIDED
that the Minimum Transfer Amount for Party B
shall be zero upon the occurrence and during the
continuance of an Event of Default, Potential
Event of Default, Termination Event, Additional
Termination Event or Specified Condition with
respect to such party.
(D) ROUNDING. The Delivery Amounts and Return Amounts
will be rounded up and down respectively to the
nearest integral multiple of U.S.$10,000.
10
(c) VALUATION AND TIMING.
(i) "VALUATION AGENT" means the Calculation Agent.
(ii) "VALUATION DATE" means:
(1) for purposes of Paragraph 3(a) (Delivery Amounts):
(x) for Temporary Reserve Collateral, each
Calculation Date; and
(y) for Intra-Year Collateral, each Intra-Year
Determination Date; and
(2) for purposes of Paragraph 3(b) (Return Amounts):
(x) for Temporary Reserve Collateral, each Mortgage
Qualification Date; and
(y) for Intra-Year Collateral, each Local Business
Day.
(iii) "VALUE" has the meaning given to it in the Agreement.
(iv) "VALUATION TIME" means the close of business on the Local
Business Day before the Valuation Date or date of calculation,
as applicable, PROVIDED that the calculations of Value and
Delivery Amount or Return Amount (as the case may be) will be
made as of approximately the same time on the same date.
(v) "NOTIFICATION TIME" means 1:00 p.m., New York time, on a Local
Business Day.
(vi) TRANSFER TIMING. Notwithstanding anything to the contrary in
this Annex (including Paragraph 3(b) or Paragraph 4(b)), the
Secured Party shall not be obligated to Transfer to the
Pledgor Posted Credit Support except on the dates and in the
amounts required pursuant to the terms of Part 6.
(vii) CALCULATIONS. Paragraph 4(c) of this Annex is restated to read
in its entirety as follows:
"All calculations of Delivery Amounts and Return Amounts for
purposes of Intra-Year Collateral and Paragraph 6(d) will be
made by the Valuation Agent as of the Valuation Time. The
Valuation Agent will notify each party (or the other party, if
the Valuation Agent is a party) of its calculations not later
than the Notification Time on the Local Business Day following
the applicable Valuation Date (or in the case of Paragraph
6(d), following the date of calculation).
(d) CONDITIONS PRECEDENT AND SECURED PARTY'S RIGHTS AND REMEDIES. Each
Termination Event specified below with respect to a party will be a
"SPECIFIED CONDITION" for that party (the specified party being the
Affected Party if a Termination Event or Additional Termination Event
occurs with respect to that party):
PARTY A PARTY B
Illegality [X] [X]
Force Majeure Event [X] [X]
Tax Event [ ] [ ]
Tax Event Upon Merger [ ] [ ]
Credit Event Upon Merger [X] [X]
(e) SUBSTITUTION.
(i) "SUBSTITUTION DATE" has the meaning specified in Paragraph
4(d)(ii).
(ii) ADDITIONAL SUBSTITUTION CONDITIONS. In addition to any other
conditions regarding substitutions of Posted Credit Support
for other Eligible Credit Support set forth in this Annex,
substitutions of collateral are subject to the terms and
conditions set forth in Part 6.
11
(f) DISPUTE RESOLUTION.
(i) "RESOLUTION TIME" means 1:00 p.m., New York time, on the Local
Business Day following the date on which the notice is given
that gives rise to a dispute under Paragraph 5.
(ii) VALUE. For the purpose of Paragraph 5(ii), the Value of Posted
Credit Support will be calculated in accordance with the
requirements of Part 6.
(iii) ALTERNATIVE. The provisions of Paragraph 5 will apply, except
to the following extent:
(A) pending the resolution of a dispute, Transfer of the
undisputed Value of Eligible Credit Support or Posted
Credit Support involved in the relevant demand will
be due as provided in Paragraph 5 if the demand is
given by the Notification Time, but will be due on
the second Local Business Day after the demand if the
demand is given after the Notification Time; and
(B) the Disputing Party need not comply with the
provisions of Paragraph 5(II)(2) if the amount to be
Transferred does not exceed the Disputing Party's
Minimum Transfer Amount.
(iv) AMENDMENT. Paragraphs 5(i) and (ii) of this Annex are amended
to read in their entirety as follows:
"(i) In the case of a dispute involving a Delivery Amount
or Return Amount that is dependent in whole or in
part upon a determination of the Natural Gas
Mark-to-Market Amount for any Valuation Date, unless
otherwise specified in Paragraph 13, the Valuation
Agent will recalculate the Natural Gas Mark-to-Market
Amount and the Value as of the Recalculation Date by:
(A) utilizing any calculations of Natural Gas
Mark-to-Market Amount for the Transactions
that the parties have agreed are not in
dispute; and
(B) calculating that part of the Natural Gas
Mark-to-Market Amount attributable to the
Transactions in dispute by seeking four
actual quotations at mid-market from third
parties for purposes of calculating the
relevant Close-out Amount, and taking the
arithmetic average of those obtained;
PROVIDED that if four quotations are not
available for a particular Transaction, then
fewer than four quotations may be used for
that Transaction, and if no quotations are
available for a particular Transaction, then
the Valuation Agent's original calculations
will be used for the Transaction.
(ii) In the case of a dispute involving the Value of any
Transfer of Eligible Credit Support or Posted Credit
Support, the Valuation Agent will recalculate the
Value as of the date of Transfer pursuant to Part 6."
(g) HOLDING AND USING POSTED COLLATERAL.
(i) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS. Party A and
its Custodian will be entitled to hold Posted Collateral
pursuant to Paragraph 6(b); PROVIDED that the following
conditions applicable to it are satisfied:
(A) Party A is not a Defaulting Party.
(B) Posted Collateral may be held only in the following
jurisdictions: New York.
Initially, the Custodian for Party A is Deutsche Bank AG, New
York Branch.
(ii) USE OF POSTED COLLATERAL. The provisions of Paragraph 6(c)
will apply to Party A, but only with respect to Posted
Collateral that is Cash.
12
(h) DISTRIBUTIONS AND INTEREST AMOUNT.
(i) INTEREST RATE. The "INTEREST RATE" will be, with respect to
Eligible Collateral in the form of Cash, for any day, the rate
opposite the caption "Federal Funds (Effective)" for such day
as published for such day in Federal Reserve Publication
H.15(519) or any successor publication as published by the
Board of Governors of the Federal Reserve System. No Interest
Rate will apply to any other Eligible Collateral.
(ii) TRANSFER OF INTEREST AMOUNT. The Transfer of the Interest
Amount will be made on the first Local Business Day of each
calendar month and on any Local Business Day that Posted
Collateral in the form of Cash is Transferred to the Pledgor
pursuant to Paragraph 3(b).
(iii) ALTERNATIVE TO INTEREST AMOUNT. The provisions of Paragraph
6(d)(ii) will apply.
(i) OTHER ELIGIBLE SUPPORT AND OTHER POSTED SUPPORT.
(i) "VALUE" with respect to Other Eligible Support and Other
Posted Support shall be the "Value" thereof determined in
accordance with the definition of such term in Part 6.
(ii) "TRANSFER" means, with respect to Letters of Credit:
(1) for purposes of Paragraph 3(a) (Delivery Amounts),
delivery of a Letter of Credit by Party B to Party A
at the address specified in this Annex or delivery of
an executed amendment to such Letter of Credit, in
form and substance satisfactory to Party A, by Party
B to Party A at the address specified in this Annex;
and
(2) for purposes of Paragraph 3(b) (Return Amounts),
return of a Letter of Credit by Party A to Party B,
at the address specified in this Annex, or delivery
of an executed amendment to such Letter of Credit, at
the address specified in this Annex.
(j) DEMANDS AND NOTICES. All demands, specifications and notices under this
Annex will be made pursuant to the Notices Section of this Agreement,
unless otherwise specified here:
Party A: Deutsche Bank AG
60 Wall Street
New York, NY 10005
Attention: Collateral Management and Valuations
Party B: Chesapeake Exploration Limited Partnership
6100 N. Western Avenue
Oklahoma City, OK 73118
Attention: Cash Manager
(k) ADDRESSES FOR TRANSFERS OF CASH:
Party A: Deutsche Bank AG, New York Branch
New York, NY
ABA: 026003780
Account No.: To be advised
Reference: To be advised
Party B: Bank of Oklahoma, N.A.
Oklahoma City, OK
ABA: 103900036
Account No.: 814109493
13
(l) OTHER PROVISIONS.
(i) LIMIT ON SECURED PARTY'S LIABILITY. The Secured Party will not
be liable for any losses or damages that the Pledgor may
suffer as a result of any failure by the Secured Party to
perform, or any delay by it in performing, any of its
obligations under this Annex if the failure or delay results
from circumstances beyond the reasonable control of the
Secured Party or its Custodian, such as interruption or loss
of computer or communication services, labor disturbance,
natural disaster or local or national emergency.
(ii) FURTHER ASSURANCES. If the Pledgor fails (a) to execute and
deliver to the Secured Party such financing statements,
assignments, or other documents or (b) to do such other things
relating to the Posted Collateral as the Secured Party may
reasonably request in order to protect and maintain its
security interest in the Posted Collateral and to protect,
preserve, and realize upon the Posted Collateral, then the
Secured Party is hereby authorized by the Pledgor (but not
required) to complete and execute such financing statements,
assignments, and other documents as the Secured Party deems
appropriate for such purposes. The Pledgor hereby appoints the
Secured Party, during the term of this Agreement, as the
Pledgor's agent and attorney-in-fact to complete and execute
such financing statements, assignments and other documents and
to perform all other acts which the Secured Party may deem
appropriate to protect and maintain its security interest in
the Posted Collateral and to protect, preserve, and realize
upon the Posted Collateral. The power-of-attorney granted
herein to the Secured Party is coupled with an interest and is
irrevocable during the term of this Agreement.
(iii) AGREEMENT AS TO SINGLE SECURED PARTY AND PLEDGOR. Party A and
Party B agree that, notwithstanding anything to the contrary
in the recital to this Annex, Paragraph 1(b) or Paragraph 2 or
the definitions in Paragraph 12, (a) the term "SECURED PARTY"
as used in this Annex means only Party A, (b) the term
"PLEDGOR" as used in this Annex means only Party B, (c) only
Party B makes the pledge and grant in Paragraph 2, the
acknowledgment in the final sentence of Paragraph 8(a) and the
representations in Paragraph 9, (d) only Party B will be
required to make Transfers of Eligible Credit Support
hereunder (it being understood that Party A will be required
to make Transfers of Posted Credit Support at the times and to
the extent required hereunder) and (e) Paragraph 7 shall apply
to Party B only and shall not apply to Party A.
(iv) MODIFICATIONS TO THIS ANNEX. The following amendments are made
to this Annex:
(A) References throughout this Annex to "Swap Transactions"
are deleted.
(B) The definition of "Exposure" in Paragraph 12 of this
Annex is hereby deleted.
(C) SET-OFF. For purposes of Paragraphs 2 and 8 of this
Annex, the reference to "Set-off" shall mean that the
party shall have the right to set-off any amount
payable by the Pledgor to the Secured Party with
respect to any Obligation (whether matured or
unmatured, whether or not contingent and irrespective
of the currency, place of payment or booking office
of the sum or obligation), PROVIDED that no Posted
Credit Support may be set off against Obligations
owing to Party A under the Credit Agreement.
(v) ADDITIONAL EXPENSES. Notwithstanding Paragraph 10, the costs
and expenses (including but not limited to the reasonable
costs, expenses and external attorney's fees of Party A) of
establishing, renewing, substituting, canceling, increasing
and reducing the amount of one or more Letters of Credit shall
be borne by Party B.
(vi) LETTER OF CREDIT PROVISIONS. Each posting of a Letter of
Credit by Party B hereunder shall be subject to the terms and
conditions set forth in Part 6, including clause (t) thereof.
[signature page follows]
14
DEUTSCHE BANK AG CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP
By: Chesapeake Operating, Inc.,
By: /s/ GREGORY COLLETT its general partner
-----------------------------
Name: Gregory Collett
Title: Vice President and
Counsel
By: /s/ MARTHA A. BURGER
--------------------------
Name: Martha A. Burger
Title: Treasurer
By: /s/ CARLO CARLTON
-----------------------------
Name: Carlo Carlton
Title: Vice President and
Counsel
15