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EXHIBIT 10.28
[ENRON NORTH AMERICA CORP. LETTERHEAD]
Deal No. VH0931.1
CONFIRMATION
(SWAP)
Date: June 14, 2001
To: National Energy Group, Inc. ("Counterparty")
Attention: Document Department
Fax No.: 000-000-0000
From: Enron North America Corp. ("ENA")
Re: Commodity Swap VH0931.1
The purpose of this letter agreement (together with the General Terms
and Conditions of Confirmation as set forth in Annex A and any other attachments
hereto, collectively the "Confirmation") is to confirm the terms and conditions
of the transaction entered into between us on the Trade Date specified below
(the "Transaction") whereby we accepted your offer to enter into the
Transaction. The terms of the particular Transaction to which this Confirmation
relates are as follows:
GENERAL TERMS:
Notional Quantity per
Determination Period: 46,000 MMBtu per month
Commodity: Natural Gas
Commodity Unit: MMBtu (One Million British Thermal Units)
Trade Date: June 14, 2001
Effective Date: July 01, 2001
Termination Date: December 31, 2001
Determination Period(s): Each calendar month beginning with July 01, 2001 and ending
on December 31, 2001.
Payment Date(s): The last Business Day of the month following the month during
which the Floating Price is determinable (i.e. for the
Determination Period of July, 2001, the Payment Date shall
be August 31, 2001).
FIXED AMOUNT DETAILS:
Fixed Price Payor: ENA
Fixed Price: US Dollars $2.53000 per XXXxx
0
0
Xxxx Xx. XX0000.0
FLOATING AMOUNT DETAILS:
Floating Price Payor: Counterparty
Floating Price: The Houston Ship Channel/Beaumont, Texas index (large packages
only) price for delivery during the applicable Determination
Period in the "Delivered Spot-Gas Price" section located in
the first issue of Inside F.E.R.C.'s Gas Market Report
published during the applicable Determination Period
CONTRACTUAL CURRENCY: US Dollars
GOVERNING LAW: Texas
GENERAL TERMS AND CONDITIONS
OF CONFIRMATIONS: The general terms and conditions contained in Annex A attached
hereto and made a part hereof apply and are incorporated
herein by reference
CREDIT OR OTHER SPECIAL PROVISIONS: Not Applicable
For the purposes of the calculations of the Floating Price(s), all
numbers shall be rounded as follows: Floating Price(s) relating to commodities
quoted in (i) gallons shall be rounded to five places, (ii) MMBtu's shall be
rounded to four places, (iii) barrels shall be rounded to three places and (iv)
gigajoules shall be rounded to four places. If the number after the final number
is five (5) or greater then the final number shall be increased by one (1), and
if the number after the final number is less than five (5) then the final number
shall remain unchanged.
This Confirmation is a complete and binding agreement between you and
us as to the Transaction. Until a Master Agreement is executed by you and us,
all currently existing swap, option or other financially-settled derivative
transactions between the parties shall be governed by the terms and conditions
set forth in any Annex attached hereto. All such swap, option or other
financially-settled derivative transactions, shall constitute a single
integrated agreement between you and us, it being acknowledged that the parties
are relying upon the fact that all such swap, option or other
financially-settled derivative transactions will form a single agreement and
that the parties would not otherwise enter into any transactions. The terms and
conditions contained in any Annex attached hereto are incorporated into this
Confirmation, and in the event of any inconsistency between any Annex and this
letter agreement, this letter agreement shall govern. Upon execution by you and
us of a Master Agreement, this Confirmation will supplement, form a part of, and
be subject to the Master Agreement. In the event of any inconsistency between
this Confirmation and the Master Agreement, the Master Agreement shall govern
except as expressly set forth therein.
If this Confirmation correctly sets forth the terms of the Transaction
that we have entered into, please promptly confirm in a reply to us by signing
below and sending this Confirmation (or a copy hereof) to us (or notifying us of
any bona fide error that would require revision in order to accurately reflect
our agreement on the Transaction) by facsimile transmission within two Business
Days after your receipt of this Confirmation. If you fail to so reply within
such time period, the terms hereof will constitute binding and conclusive
evidence of the Transaction. We look forward to receiving your prompt reply.
Sincerely,
Enron North America Corp. National Energy Group, Inc.
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Deal No. VH0931.1
By: /s/ XXX XXXXXX By: /s/ XXXX X. XXXX
Name: Xxx Xxxxxx Name: Xxxx X. Xxxx
Title: Agent and Attorney-in-Fact Title: Vice President of Product Marketing
Date: June 26, 2001 Date: July 5, 2001
COUNTERPARTY: AFTER YOU HAVE CONFIRMED TRANSACTION, PLEASE RETURN TO ENA,
ATTENTION: DIRECTOR OF DOCUMENTATION AT FAX NO (000) 000-0000
ADDRESS FOR NOTICES TO ENA: PAYMENT ACCOUNT INFORMATION FOR ENA:
0000 Xxxxx Xx See invoice for wire instructions
Xxxxxxx, XX 00000-0000
Attention: Director, Documentation Dept
Fax: (000) 000-0000
Phone: (000) 000-0000
With a copy of any notice given pursuant to Section 3 or 4 of Annex A or Annex
B, if any, to:
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attn.: Assistant General Counsel, Trading Group
Fax: (000)000-0000
ADDRESS FOR NOTICES TO COUNTERPARTY: PAYMENT ACCOUNT INFORMATION FORCOUNTER PARTY:
------------------------------------ ----------------------------------------------
Address: 0000 Xxx Xxxxxx Xxxxxx Xxxx Xxx, Xxxxx X.X., Xxxxxx, XX
--------------------------- ----------------------------------------------
0000 Xxxxxxxxxx Xxxxxx ABA 000000000
------------------------------------ ----------------------------------------------
Xxxxxx, XX 00000 For the Account of National Energy Group, Inc.
------------------------------------ ----------------------------------------------
Attention: Xxxx X. Xxxx Account No. 1586274423
------------------------- ----------------------------------------------
Fax: (000) 000-0000
------------------------------- ----------------------------------------------
Phone: (000) 000-0000 X000 Tax I.D.# 00-0000000
----------------------------- ----------------------------------------------
COUNTERPARTY: PLEASE PROVIDE ABOVE REQUESTED INFORMATION IF NOT PROVIDED
PREVIOUSLY OR IF CHANGES HAVE OCCURRED
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ENA/U.S. COUNTERPARTY
REVISION OF 03/02/00
ANNEX A
GENERAL TERMS AND CONDITIONS
This Annex A supplements, forms part of, and is incorporated into the
Confirmation to which this Annex A is attached. Until a Master Agreement is
executed by the parties, this Annex A will set forth the general terms and
conditions governing all Transactions between the parties except as otherwise
specified in a Confirmation to a Transaction.
1. REPRESENTATIONS. Each of ENA and Counterparty represents and warrants to the
other that (a) Authority/Taxation (i) the execution, delivery and performance
of this Confirmation have been duly authorized by all necessary corporate or
other organization action on its part, (ii) this Confirmation is its legally
valid and binding obligation, enforceable against it in accordance with its
terms, (iii) it is a United States person (as such term is defined in Section
7701 of the Internal Revenue Code), and (iv) during the term hereof, it will
not be doing business in any jurisdiction that imposes any withholding tax or
similar levy on any payment made or received by it under this Confirmation; and
(b) Eligible Swap Participant (i) it constitutes an "eligible swap participant"
as such term is defined in 17 C.F.R. Section 35.1(b)(2), and (ii) this
Confirmation constitutes a "swap agreement" within the meaning of 17 C.F.R.
Section 35.1(b)(1); and (c) Line of Business (i) it is entering into this
Confirmation in conjunction with its line of business (including financial
intermediation services) or the financing of its business; and (ii) solely with
respect to Options, it is a producer, processor, commercial user of, or
merchant handling, the commodity subject to this Confirmation or the products
or byproducts thereof, and it has entered into this Confirmation solely for
purposes related to its business as such; and (d) No Reliance (i) the other
party to this Confirmation (1) is not acting as a fiduciary or financial,
investment or commodity trading advisor for it, and (2) has not given to it
(directly or indirectly through any other person) any assurance, guaranty or
representation whatsoever as to the merits (either legal, regulatory, tax,
financial, accounting or otherwise) of this Confirmation or the expected
performance or result of this Confirmation; and (ii) in connection with the
negotiation and execution of this Confirmation, (1) it is acting as a principal
(and not as an agent or in any other capacity, fiduciary or otherwise), (2) it
is not relying upon any advice, counsel or representations (whether written or
oral) of the other party other than the representations expressly set forth in
this Confirmation, (3) it has made and will make its own decisions regarding
the entering into of this Confirmation based upon its own judgment and upon the
advice from such professional advisors as it deemed, or will deem, necessary to
consult, (4) all of its decisions regarding this Confirmation have been the
result of arm's length negotiations between the parties, and (5) it has a full
understanding of all the terms, conditions and risks (economic and otherwise)
of this Confirmation, and it is capable of assuming and willing to assume
(financially and otherwise) those risks; and (e) Absence of Litigation there is
not pending or, to its knowledge, threatened against it or any of its
Affiliates 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
Confirmation or any Credit Support Document to which it or its Affiliates is a
party or its or its Affiliates ability to perform their respective obligations
under this Confirmation or such Credit Support Document.
2. PAYMENTS. For each Determination Period, on the applicable Payment Date with
respect to (a) a SWAP, (i) if the Floating Amount is greater than the Fixed
Amount for the relevant Determination Period, the Floating Price Payor shall
pay the Fixed Price Payor the amount by which the Floating Amount exceeds the
Fixed Amount, and (ii) if the Floating Amount is less than the Fixed Amount,
the Fixed Price Payor shall pay the Floating Price Payor the amount by which
the Fixed Amount exceeds the Floating Amount; (b) an OPTION (other than a
Swaption) that has been properly exercised by the Buyer, the Seller shall pay
the Buyer the Cash Settlement Amount (if any) for the relevant Determination
Period (Buyer may exercise the rights granted pursuant to the Option only by
giving a Notice of Exercise on a Business Day during the Exercise Period
(unless Automatic Exercise is specified to apply in the Confirmation);
otherwise the Option shall expire); (c) a COLLAR, (i) if the Floating Amount is
greater than the Cap Amount, the Floating Price Payor will pay to the Fixed
Price Payor the amount by which the Floating Amount exceeds the Cap Amount, and
(ii) if the Floating Amount is less than the Floor Amount, the Fixed Price
Payor shall pay to the Floating Price Payor the amount by which the Floating
Amount is less than the Floor Amount; (d) a SWAPTION that has been properly
exercised by the Buyer, all payments payable under the Underlying Transaction
shall be made by the relevant party in the manner specified for a Swap in this
Section (Buyer shall exercise Swaption in accordance with the Option
procedures); and (e) the TOTAL PREMIUM (if any) for an Option, Collar or
Swaption, the Total Premium is due and payable by the Buyer or Premium Payor
(as the case may be) to the other party on the Premium Payment Date(s).
For the purposes of the calculations of the Floating Price(s), all numbers
shall be rounded as follows: Floating Price(s) relating to commodities quoted
in (i) gallons, shall be rounded to five places, (ii) Mmbtu's shall be rounded
to four places, and (iii) barrels and megawatt hours shall be rounded to three
places.
Each payment will be made in the Contractual Currency (specified in the
Confirmation or if not specified, in U.S. Dollars) via wire transfer in
immediately available funds on the relevant Payment Date (or if not a Business
Day, on the next Business Day). If amounts are not paid when due, they shall
bear interest daily until paid in full at the Interest Rate on the basis of the
actual number of days elapsed, and on the basis of a year of 365/366 days. If
the Payment Dates for two or more Transactions between the parties fall on the
same day in the same currency, if each party is required to make a payment to
the other on such Payment Date, such amounts with respect to each party shall
be aggregated, and the party owing the greater aggregate amount shall pay to
the other party the difference between the amounts owed.
3. EVENTS OF DEFAULT. An event of default ("Event of Default") shall mean with
respect to a party (the "Defaulting Party") any of the following: (a) the
failure by the Defaulting Party to make, when due, any payment required under
this Confirmation if such failure is not remedied within three Business Days
after notice of such failure is given to the Defaulting Party; (b) any
representation or warranty made by the Defaulting Party in this Confirmation
shall prove to have been false or misleading in any material respect; (c) the
breach by the Defaulting Party of any other covenant or agreement set forth in
this Confirmation (other than the obligation to make payment) and such failure
is not cured within ten Business Days after it is given notice thereof; (d) the
institution, with respect to the Defaulting Party, of a bankruptcy,
reorganization, moratorium, liquidation or similar insolvency proceeding or
other relief under any bankruptcy or insolvency law affecting creditors' rights
or a petition is presented or instituted for its winding-up or liquidation
(and, if such a proceeding is instituted against the party, it remains
undismissed for 30 days); (e) the Defaulting Party consolidates or amalgamates
with, or merges into or with, or transfers substantially all of its assets to
another entity and (y) the resulting entity fails to assume all of the
obligations of the Defaulting Party under this Confirmation or (z) the
resulting entity's creditworthiness is materially weaker than that of the
Defaulting Party; or (f) an event of default occurs (howsoever determined)
under any other Transaction between the parties.
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Annex A
5
4. REMEDIES. If an Event of Default shall have occurred and shall be continuing
the non-defaulting party may, in its sole discretion, by no more than 20 days
notice to the Defaulting Party designate a day no earlier than the day such
notice is effective as an early termination date ("Early Termination Date"). On
the Early Termination Date, all obligations under all Transactions with respect
to all Determination Periods which would have ended after the Early Termination
Date shall be terminated, except as provided below. If an Early Termination
Date has been designated, the non-defaulting party shall in good faith
calculate its Gains or Losses and Costs resulting from the termination of the
parties' obligations under all Transactions with respect to all Payment Dates
which would have occurred after the Early Termination Date had the Early
Termination Date not occurred. The non-defaulting party shall aggregate such
Gains, Losses and Costs with respect to all Transactions into a single net
amount and notify the Defaulting Party of the net amount owed or owing. If the
non-defaulting party's aggregate Losses and Costs exceed its aggregate Gains,
the Defaulting Party shall, within five Business Days of receipt of such
notice, pay the net amount to the non-defaulting party, which amount shall bear
interest at the Interest Rate from the Early Termination Date until paid. If
the non-defaulting party's aggregate Gains exceed its Losses and Costs, if any,
resulting from the Event of Default, subject to the provisions of Section 5
herein, the non-defaulting party shall pay the net amount to the Defaulting
Party on the Payment Date for the first next succeeding Determination Period.
As used herein with respect to each party: (a) "Costs" shall mean, with respect
to such party, brokerage fees, commissions and other similar transaction costs
and expenses reasonably incurred by such a party either in terminating any
arrangement pursuant to which it has hedged its obligations or entering into
new arrangements which replace a Transaction; (b) "Gains" shall mean, with
respect to a party, an amount equal to the present value of the economic
benefit, if any, (exclusive of costs) to it resulting from the termination of
its obligations with respect to a Transaction, determined in a commercially
reasonable manner; and (c) "Losses" shall mean an amount equal to the present
value of the economic loss, if any, (exclusive of Costs) to it resulting from
the termination of its obligations with respect to a Transaction, determined in
a commercially reasonable manner. NO PARTY SHALL BE REQUIRED TO PAY SPECIAL,
EXEMPLARY, PUNITIVE, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES (WHETHER OR
NOT ARISING FROM A PARTY'S NEGLIGENCE) TO THE OTHER PARTY, EXCEPT TO THE EXTENT
THAT THE PAYMENTS REQUIRED TO BE MADE PURSUANT TO THE CONFIRMATION ARE DEEMED
TO BE SUCH DAMAGES. IF AND TO THE EXTENT ANY PAYMENT MADE PURSUANT TO THE
CONFIRMATION IS DEEMED TO CONSTITUTE LIQUIDATED DAMAGES, THE PARTIES
ACKNOWLEDGE AND AGREE THAT DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE AND
THAT SUCH PAYMENT CONSTITUTES A REASONABLE APPROXIMATION OF THE AMOUNT OF SUCH
DAMAGES, AND NOT A PENALTY.
5. SETOFF. In the event of an occurrence of an Early Termination Date, the
non-defaulting party shall be entitled, at its option and in its discretion, to
set-off against any amounts owed to the Defaulting Party by the non-defaulting
party or any of its Affiliates under this Confirmation or otherwise any amounts
payable by the Defaulting Party to the non-defaulting party or any of its
Affiliates under this Confirmation or otherwise. This Section shall be without
prejudice and in addition to any right of setoff, combination of accounts, lien
or other right to which any party is at any time otherwise entitled (whether by
operation of law, contract or otherwise). Notwithstanding any provision to the
contrary contained in this Confirmation, the non-defaulting party shall not be
required to pay to the Defaulting Party any amount under this Confirmation
until the non-defaulting party receives confirmation satisfactory to it in its
reasonable discretion that all obligations of any kind whatsoever of the
Defaulting Party to make any payments to the non-defaulting party or any of its
Affiliates under this Confirmation or otherwise which are due and payable as of
the Early Termination Date hereof have been fully and finally performed.
6. MISCELLANEOUS. This Confirmation shall (a) be governed by, interpreted and
construed in accordance with the laws of the jurisdiction (excluding conflict
of laws principles) specified in this Confirmation for the governing law, and
if no such specification is made, the governing law shall be the laws of the
State of Texas (excluding conflict of laws principles); (b) be binding upon and
inure of the benefit of the parties and their respective successors and
(effective upon scheduled delivery day) permitted assigns; however, except for
any assignments by a party to an Affiliate of such party (y) who is in the same
tax jurisdiction as such party and (z) whose creditworthiness is not materially
weaker than that of such party, neither party shall have the power to assign or
otherwise transfer all or any of its rights or obligations under this
Confirmation without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed, and any purported
assignment or transfer in violation of this provision shall be void and of no
force and effect; and (c) contain the entire agreement between the parties and
supersede all prior oral or written communications or agreements relating to
the subject matter. All notices in connection with this Confirmation may be
given during normal business hours by hand delivery (effective upon attempted
delivery), overnight mail service (effective upon scheduled weekday delivery
day) or telefacsimile (effective upon receipt of evidence, including
telefacsimile evidence, that telefacsimile was received), as specified in this
Confirmation or as may be subsequently designated by effective notice. This
Confirmation may be executed in counterparts (including by telefacsimile), each
of which when executed and delivered shall be deemed to be an original
instrument and all of which when taken together shall constitute one and the
same agreement. Any party in default hereunder shall reimburse the other party,
on demand, for actual, reasonable out-of-pocket expenses (and any interest
thereon at the Interest Rate), including, without limitation, reasonable legal
fees and expenses incurred by the other party during the occurrence and
continuation of such default in connection with the enforcement of, or the
preservation of its rights in respect of this Transaction.
Any dispute relating to this Confirmation shall be resolved by binding
arbitration conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association ("AAA") and governed by the Federal
Arbitration Act ("FAA"). Each party shall select one arbitrator within 30 days
of a notice for arbitration and the two arbitrators shall select a third
neutral arbitrator with at least eight years professional experience in
over-the-counter derivative transactions. Only damages allowed pursuant to this
Confirmation may be awarded and the arbitrators shall have no authority to
award treble, exemplary or punitive damages of any kind under any circumstances
regardless of whether such damages may be available under the governing law for
this Confirmation and/or the FAA or AAA. The arbitration shall be conducted in
New York City, New York, if New York law governs this Confirmation, otherwise
in Houston, Texas and such arbitration, and any related award shall be
confidential.
The contents of this Confirmation and all other documents relating to this
Confirmation or Annex B, if any, and any information made available by one
party or its Credit Support Provider, if any, to the other party or its Credit
Support Provider, if any, with respect to this Confirmation is confidential and
shall not be disclosed to any third party (nor shall any public announcement be
made by either party), except for such information (1) as may become generally
available to the public, (2) as may be required or appropriate in response to
any summons, subpoena, or otherwise in connection with any litigation or to
comply with any applicable law, order, regulation, ruling or accounting
disclosure rule or standard, (3) as may be obtained from a non-confidential
source that disclosed such information in a manner that did not violate its
obligations to the non-disclosing party or its Credit Support Provider, if any,
in making such disclosure, or (4) as may be furnished to the disclosing party's
Affiliates, and to each of such person's auditors, attorneys, advisors or
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Annex A
6
lenders which are required to keep the information that is disclosed in
confidence.
If any term, provision, covenant, or condition of this Confirmation, or the
application thereof to any party or circumstance, shall be held to be invalid
or unenforceable (in whole or in part) for any reason, the remaining terms,
provisions, covenants, and conditions hereof shall continue in full force and
effect as if this Confirmation had been executed with the invalid or
unenforceable portion eliminated, so long as this Confirmation as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter of this Confirmation and the deletion of such
portion of this Confirmation will not substantially impair the respective
benefits or expectations of the parties to this Confirmation; provided,
however, that this severability provision shall not be applicable if any
provision of Section 2, 3 or 4 (or any definition or provision in Section 8 to
the extent it relates to, or is used in or in connection with any such Section)
shall be so held to be invalid or unenforceable.
7. MARKET DISRUPTION. If a Market Disruption Event has occurred and is
continuing on any Trading Day, the Floating Price for such Trading Day shall be
determined pursuant to the Floating Price Source specified in this Confirmation
for the first Trading Day thereafter on which no Market Disruption Event
exists; provided, however, if the Floating Price is not so determined within
three Business Days after the first Trading Day on which the Market Disruption
Event occurred or existed, then the Floating Price shall be determined by
reference to the Alternative Floating Price Source specified in this
Confirmation, if any, which is not subject to a Market Disruption Event. If no
Alternative Floating Price Source is available or has been specified, and the
Market Disruption Event continues for more than three Business Days, then the
parties shall negotiate in good faith to agree on a Floating Price (or a method
for determining a Floating Price), and if the parties have not so agreed on or
before the twelfth Business Day following the first Trading Day on which the
Market Disruption Event occurred or existed, then the Floating Price shall be
determined in good faith by ENA, by taking the average of two or more dealer
quotes.
8. GENERAL DEFINITIONS. Terms used, but not defined in this Annex, are used
with the meanings provided in Annex B attached hereto, if any or in the
Confirmation. As used in this Annex:
"Affiliate" shall mean in relation to any party, any entity controlled,
directly or indirectly, by the party, any entity that controls, directly or
indirectly, the party or any entity directly or indirectly under common control
with the party. Control means ownership of a majority of the voting power of
such entity or party.
"American" means a style of Option pursuant to which the right(s) granted are
exercisable on any Business Day during an Exercise Period that consists of more
than one day.
"Asian" means a style of Option pursuant to which the right(s) granted are
exercisable only on the one day designated as the Exercise Period in the
Confirmation, and the Floating Price for which is the unweighted arithmetic
average (or such other specified method of averaging) of the Floating Prices
for the Trading Days referenced in the Floating Price Source (unless otherwise
specified in the Confirmation).
"Automatic Exercise" means, if specified to be applicable in the Confirmation,
that if at the close of the Exercise Period the Option has not been exercised,
it will be deemed exercised as of that time. If Automatic Exercise is specified
to be applicable and the Exercise Period is specified to be inapplicable in the
Confirmation, the Option (including Swaptions) shall be deemed exercised on the
first day of the first Determination Period.
"Business Day" means a day on which commercial banks are open for business in
Xxx Xxxx, Xxx Xxxx, Xxxxxxx, Xxxxx and in the cities where the parties'
addresses are located as specified in the Confirmation.
"Call" means an Option entitling Buyer to receive after exercise the Cash
Settlement Amount on the applicable Payment Date(s) if the Floating Price
exceeds the Strike Price.
"Cap Amount" means an amount equal to the product of (a) the Notional Quantity
per Determination Period multiplied by (b) the Cap Price, or as otherwise
provided in the Confirmation.
"Cash Settlement Amount" means, in respect of an Option, an amount (if any)
that is payable by Seller on the applicable Payment Date(s) and is determined
as provided in the Confirmation governing such Option.
"Determination Period" means each period from and including the first date
specified as being included in that Determination Period to and including the
last date specified as being included in that Determination Period. If such
period is a calendar month, the period commences on the first day of the month
and it ends on the last day of the month.
"European" means a style of Option pursuant to which the right(s) granted are
exercisable only on the one day designated as the Exercise Period in the
Confirmation, if any.
"Fixed Amount" means an amount equal to the product of (a) the Notional
Quantity per Determination Period multiplied by (b) the Fixed Price, or as
otherwise provided in the Confirmation.
"Floating Amount" means an amount equal to the product of (a) the Notional
Quantity per Determination Period multiplied by (b) the Floating Price, or as
otherwise provided in the Confirmation.
"Floor Amount" means an amount equal to the product of (a) the Notional
Quantity per Determination Period multiplied by (b) the Floor Price, or as
otherwise provided in the Confirmation.
"Interest Rate" means (a) with respect to a non-defaulting party, a per annum
rate of interest equal to the prime lending rate as may from time to time be
published in The Wall Street Journal under "Money Rates" and (b) with respect
to a Defaulting Party, a per annum rate of interest equal to two percent (2%)
over such prime lending rate; provided, however, in either case the Interest
Rate may never exceed the maximum lawful rate under applicable law.
"Market Disruption Event" means, with respect to a Floating Price Source, any
of the following events (the existence of which shall be determined in good
faith by ENA): (a) the failure of the Floating Price Source to announce or
publish information necessary for determining the Floating Price; (b) the
failure of trading to commence or the permanent discontinuation or material
suspension of trading in the relevant futures contract, options contract or
commodity on the exchange or market (e.g., NYMEX) acting as the Floating Price
Source (the "Exchange"); (c) the temporary or permanent discontinuance or
unavailability or any relevant Floating Price Source; (d) the temporary or
permanent closing of any Exchange acting as the Floating Price Source; (e) the
imposition of trading limits by the Exchange such that there are limits on the
range within which the price of the relevant commodity may fluctuate in the
prompt month and the closing or settlement price of such commodity on such day
is at the upper or lower limit of that range; (f) a material change in the
formula for or the method of determining the Floating Price; or (g) a material
change in the content, composition or constitution of the relevant commodity.
"Notice of Exercise" means, in respect of an Option (or Swaption), irrevocable
notice given by Buyer to Seller (which may be given orally,
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Annex A
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including by telephone, unless otherwise specified in the Confirmation) of
exercise of the right(s) granted pursuant to the Option during the hours
specified in the Confirmation (if no hours are specified, then prior to noon
Central time) on any Business Day during the Exercise Period.
"Option" means a Transaction that is a Call, Cap, Floor, Put, Swaption or is
identified in the relevant Confirmation as an Option.
"Put" means an Option entitling Buyer to receive after exercise the Cash
Settlement Amount on the applicable Payment Date(s) if the Strike Price exceeds
the Floating Price.
"Swaption" means an Option to cause an Underlying Transaction to become
effective.
"Trading Day" means (a) in respect of a Transaction for which a Floating Price
is a price announced or published by an exchange, a day that is a trading day on
that exchange or (b) in respect of a Transaction for which a Floating Price is
not a price announced or published by an exchange, a day in respect of which the
relevant price source published the relevant price.
"Transaction" means all swap, option or other financially-settled derivative
transactions between the parties.
"Underlying Transaction" means in respect of a Swaption, a transaction, the
terms of which are identified in the Confirmation, which Underlying Transaction
will not become effective unless the right to cause that Underlying Transaction
to become effective has been timely exercised or deemed exercised.
"Written Confirmation" means, if specified to be applicable in the Confirmation
or if demanded by Seller (which demand may be given orally, including by
telephone, or in writing) a written confirmation delivered promptly by Buyer,
confirming the substance of the Notice of Exercise.
Page 4 of 4
Annex A
8
Deal No. VH0969.1
[ENRON LOGO] ENRON NORTH AMERICA
CORP.
X.X. Xxx 0000
Xxxxxxx XX 00000-0000
(000) 000-0000
Fax (000) 000-0000
CONFIRMATION
(SWAP)
Date: June 14, 2001
To: National Energy Group, Inc. ("Counterparty")
Attention: Document Department
Fax No.: 000-000-0000
From: Enron North America Corp ("ENA")
Re: Commodity Swap VH0969.1
The purpose of this letter agreement (together with the General Terms and
Conditions of Confirmation as set forth in Annex A and any other attachments
hereto, collectively the "Confirmation") is to confirm the terms and conditions
of the transaction entered into between us on the Trade Date specified below
(the "Transaction") whereby we accepted your offer to enter into the
Transaction. The terms of the particular Transaction to which this Confirmation
relates are as follows:
GENERAL TERMS:
Notional Quantity per
Determination Period: 28,000 MMBtu per month
Commodity: Natural Gas
Commodity Unit: MMBtu (One Million British Thermal Units)
Trade Date: June 14, 2001
Effective Date: July 01, 2001
Termination Date: December 31, 2001
Determination Period(s): Each calendar month beginning with July 01,
2001 and ending on December 31, 2001.
Payment Date(s): The last Business Day of the month following
the month during which the Floating Price is
determinable (i.e. for the Determination
Period of July, 2001, the Payment Date shall
be August 31, 2001)
FIXED AMOUNT DETAILS:
Fixed Price Payor: ENA
Fixed Price: US Dollars $2.46000 per MMBtu
FLOATING AMOUNT DETAILS:
1
9
Deal No. VH0969.1
Floating Price Payor: Counterparty
Floating Price: The Houston Ship Channel/Beaumont, Texas
index (large packages only) price for
delivery during the applicable
Determination Period in the "Delivered
Spot-Gas Price" section located in the
first issue of Inside F.E.R.C.'s Gas
Market Report published during the
applicable Determination Period
CONTRACTUAL CURRENCY: US Dollars
GOVERNING LAW: Texas
GENERAL TERMS AND CONDITIONS
OF CONFIRMATIONS: The general terms and conditions
contained in Annex A attached hereto and
made a part hereof apply and are
incorporated herein by reference
CREDIT OR OTHER SPECIAL PROVISIONS: Not Applicable
For the purposes of the calculations of the Floating Price(s), all numbers
shall be rounded as follows: Floating Price(s) relating to commodities quoted in
(i) gallons shall be rounded to five places, (ii) MMBtu's shall be rounded to
four places, (iii) barrels shall be rounded to three places and (iv) gigajoules
shall be rounded to four places. If the number after the final number is five
(5) or greater then the final number shall be increased by one (1), and if the
number after the final number is less than five (5) then the final number shall
remain unchanged.
This Confirmation is a complete and binding agreement between you and us as
to the Transaction. Until a Master Agreement is executed by you and us, all
currently existing swap, option or other financially-settled derivative
transactions between the parties shall be governed by the terms and conditions
set forth in any Annex attached hereto. All such swap, option or other
financially-settled derivative transactions, shall constitute a single
integrated agreement between you and us, it being acknowledged that the parties
are relying upon the fact that all such swap, option or other
financially-settled derivative transactions will form a single agreement and
that the parties would not otherwise enter into any transactions. The terms and
conditions contained in any Annex attached hereto are incorporated into this
Confirmation, and in the event of any inconsistency between any Annex and this
letter agreement, this letter agreement shall govern. Upon execution by you and
us of a Master Agreement, this Confirmation will supplement, form a part of, and
be subject to the Master Agreement. In the event of any inconsistency between
this Confirmation and the Master Agreement, the Master Agreement shall govern
except as expressly set forth herein.
If this Confirmation correctly sets forth the terms of the Transaction
that we have entered into, please promptly confirm in a reply to us by signing
below and sending this Confirmation (or copy hereof) to us (or notifying us of
any bona fide error that would require revision in order to accurately reflect
our agreement on the Transaction) by facsimile transmission within two Business
Days after your receipt of this Confirmation. If you fail to so reply within
such time period, the terms hereof will constitute binding and conclusive
evidence of the Transaction. We look forward to receiving your prompt reply.
Sincerely,
Enron North America Corp. National Energy Group, Inc.
2
10
Deal No. VH0969.1
By: /s/ XXX XXXXXX By: /s/ XXXX X. XXXX
-----------------------------------
Name: Xxx Xxxxxx Name: Xxxx X. Xxxx
-----------------------------------
Title: Agent and Attorney-in-Fact Title: Vice President of Product Marketing
-----------------------------------
Date: June 26, 2001 Date: July 5, 2001
-----------------------------------
COUNTERPARTY: AFTER YOU HAVE CONFIRMED TRANSACTION, PLEASE RETURN TO ENA,
ATTENTION: DIRECTOR OF DOCUMENTATION AT FAX NO (000) 000-0000
ADDRESS FOR NOTICES TO ENA: PAYMENT ACCOUNT INFORMATION FOR ENA:
0000 Xxxxx Xx See invoice for wire instructions
Xxxxxxx, XX 00000-0000
Attention: Director, Documentation Dept
Fax: (000) 000-0000
Phone: (000) 000-0000
With a copy of any notice given pursuant to Section 3 or 4 of Annex A or
Annex B, if any, to:
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attn.: Assistant General Counsel, Trading Group
Fax: (000) 000-0000
ADDRESS FOR NOTICES TO COUNTERPARTY: PAYMENT ACCOUNT INFORMATION FOR
COUNTERPARTY:
Address: 0000 Xxx Xxxxxx Xxxxxx Xxxx Xxx, Xxxxx X.X., Xxxxxx, XX
-------------------------- --------------------------------
0000 Xxxxxxxxxx Xxxxxx ABA 000000000
----------------------------------- --------------------------------
Xxxxxx XX 00000 For the Account of National
----------------------------------- Energy Group, Inc.
Attention: Xxxx X. Xxxx --------------------------------
------------------------ Account No. 0000000000
Fax: (000) 000-0000 --------------------------------
------------------------------
Phone: (000) 000-0000 X000 Tax I.D.# 00-0000000
---------------------------- --------------------------------
COUNTERPARTY: PLEASE PROVIDE ABOVE REQUESTED INFORMATION IF NOT PROVIDED
PREVIOUSLY OR IF CHANGES HAVE OCCURRED
3
11
ENA/U.S. COUNTERPARTY
REVISION OF 03/02/00
ANNEX A
GENERAL TERMS AND CONDITIONS
This Annex A supplements, forms part of, and is incorporated into the
Confirmation to which this Annex A is attached. Until a Master Agreement is
executed by the parties, this Annex A will set forth the general terms and
conditions governing all Transactions between the parties except as otherwise
specified in a Confirmation to a Transaction.
1. REPRESENTATIONS. Each of ENA and Counterparty represents and warrants to the
other that (a) Authority/Taxation (i) the execution, delivery and performance
of this Confirmation have been duly authorized by all necessary corporate or
other organization action on its part, (ii) this Confirmation is its legally
valid and binding obligation, enforceable against it in accordance with its
terms, (iii) it is a United States person (as such term is defined in Section
7701 of the Internal Revenue Code), and (iv) during the term hereof, it will
not be doing business in any jurisdiction that imposes any withholding tax or
similar levy on any payment made or received by it under this Confirmation; and
(b) Eligible Swap Participant (i) it constitutes an "eligible swap participant"
as such term is defined in 17 C.F.R. Section 35.1(b)(2), and (ii) this
Confirmation constitutes a "swap agreement" within the meaning of 17 C.F.R.
Section 35.1(b)(1); and (c) Line of Business (i) it is entering into this
Confirmation in conjunction with its line of business (including financial
intermediation services) or the financing of its business; and (ii) solely with
respect to Options, it is a producer, processor, commercial user of, or
merchant handling, the commodity subject to this Confirmation or the products
or byproducts thereof, and it has entered into this Confirmation solely for
purposes related to its business as such; and (d) No Reliance (i) the other
party to this Confirmation (1) is not acting as a fiduciary or financial,
investment or commodity trading advisor for it, and (2) has not given to it
(directly or indirectly through any other person) any assurance, guaranty or
representation whatsoever as to the merits (either legal, regulatory, tax,
financial, accounting or otherwise) of this Confirmation or the expected
performance or result of this Confirmation; and (ii) in connection with the
negotiation and execution of this Confirmation, (1) it is acting as a principal
(and not as an agent or in any other capacity, fiduciary or otherwise), (2) it
is not relying upon any advice, counsel or representations (whether written or
oral) of the other party other than the representations expressly set forth in
this Confirmation, (3) it has made and will make its own decisions regarding
the entering into of this Confirmation based upon its own judgment and upon the
advice from such professional advisors as it deemed, or will deem, necessary to
consult, (4) all of its decisions regarding this Confirmation have been the
result of arm's length negotiations between the parties, and (5) it has a full
understanding of all the terms, conditions and risks (economic and otherwise)
of this Confirmation, and it is capable of assuming and willing to assume
(financially and otherwise) those risks; and (e) Absence of Litigation there is
not pending or, to its knowledge, threatened against it or any of its
Affiliates 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
Confirmation or any Credit Support Document to which it or its Affiliates is a
party or its or its Affiliates ability to perform their respective obligations
under this Confirmation or such Credit Support Document.
2. PAYMENTS. For each Determination Period, on the applicable Payment Date with
respect to (a) a SWAP, (i) if the Floating Amount is greater than the Fixed
Amount for the relevant Determination Period, the Floating Price Payor shall
pay the Fixed Price Payor the amount by which the Floating Amount exceeds the
Fixed Amount, and (ii) if the Floating Amount is less than the Fixed Amount,
the Fixed Price Payor shall pay the Floating Price Payor the amount by which
the Fixed Amount exceeds the Floating Amount; (b) an OPTION (other than a
Swaption) that has been properly exercised by the Buyer, the Seller shall pay
the Buyer the Cash Settlement Amount (if any) for the relevant Determination
Period (Buyer may exercise the rights granted pursuant to the Option only by
giving a Notice of Exercise on a Business Day during the Exercise Period
(unless Automatic Exercise is specified to apply in the Confirmation);
otherwise the Option shall expire); (c) a COLLAR, (i) if the Floating Amount is
greater than the Cap Amount, the Floating Price Payor will pay to the Fixed
Price Payor the amount by which the Floating Amount exceeds the Cap Amount, and
(ii) if the Floating Amount is less than the Floor Amount, the Fixed Price
Payor shall pay to the Floating Price Payor the amount by which the Floating
Amount is less than the Floor Amount; (d) a SWAPTION that has been properly
exercised by the Buyer, all payments payable under the Underlying Transaction
shall be made by the relevant party in the manner specified for a Swap in this
Section (Buyer shall exercise Swaption in accordance with the Option
procedures); and (e) the TOTAL PREMIUM (if any) for an Option, Collar or
Swaption, the Total Premium is due and payable by the Buyer or Premium Payor
(as the case may be) to the other party on the Premium Payment Date(s).
For the purposes of the calculations of the Floating Price(s), all numbers
shall be rounded as follows: Floating Price(s) relating to commodities quoted
in (i) gallons, shall be rounded to five places, (ii) Mmbtu's shall be rounded
to four places, and (iii) barrels and megawatt hours shall be rounded to three
places.
Each payment will be made in the Contractual Currency (specified in the
Confirmation or if not specified, in U.S. Dollars) via wire transfer in
immediately available funds on the relevant Payment Date (or if not a Business
Day, on the next Business Day). If amounts are not paid when due, they shall
bear interest daily until paid in full at the Interest Rate on the basis of the
actual number of days elapsed, and on the basis of a year of 365/366 days. If
the Payment Dates for two or more Transactions between the parties fall on the
same day in the same currency, if each party is required to make a payment to
the other on such Payment Date, such amounts with respect to each party shall be
aggregated, and the party owing the greater aggregate amount shall pay to the
other party the difference between the amounts owed.
3. EVENTS OF DEFAULT. An event of default ("Event of Default") shall mean with
respect to a party (the "Defaulting Party") any of the following: (a) the
failure by the Defaulting Party to make, when due, any payment required under
this Confirmation if such failure is not remedied within three Business Days
after notice of such failure is given to the Defaulting Party; (b) any
representation or warranty made by the Defaulting Party in this Confirmation
shall prove to have been false or misleading in any material respect; (c) the
breach by the Defaulting Party of any other covenant or agreement set forth in
this Confirmation (other than the obligation to make payment) and such failure
is not cured within ten Business Days after it is given notice thereof; (d) the
institution, with respect to the Defaulting Party, of a bankruptcy,
reorganization, moratorium, liquidation or similar insolvency proceeding or
other relief under any bankruptcy or insolvency law affecting creditors' rights
or a petition is presented or instituted for its winding-up or liquidation
(and, if such a proceeding is instituted against the party, it remains
undismissed for 30 days); (e) the Defaulting Party consolidates or amalgamates
with, or merges into or with, or transfers substantially all of its assets to
another entity and (y) the resulting entity fails to assume all of the
obligations of the Defaulting Party under this Confirmation or (z) the
resulting entity's creditworthiness is materially weaker than that of the
Defaulting Party; or (f) an event of default occurs (howsoever determined)
under any other Transaction between the parties.
Page 1 of 4
Annex A
12
4. REMEDIES. If an Event of Default shall have occurred and shall be continuing
the non-defaulting party may, in its sole discretion, by no more than 20 days
notice to the Defaulting Party designate a day no earlier than the day such
notice is effective as an early termination date ("Early Termination Date"). On
the Early Termination Date, all obligations under all Transactions with respect
to all Determination Periods which would have ended after the Early Termination
Date shall be terminated, except as provided below. If an Early Termination
Date has been designated, the non-defaulting party shall in good faith
calculate its Gains or Losses and Costs resulting from the termination of the
parties' obligations under all Transactions with respect to all Payment Dates
which would have occurred after the Early Termination Date had the Early
Termination Date not occurred. The non-defaulting party shall aggregate such
Gains, Losses and Costs with respect to all Transactions into a single net
amount and notify the Defaulting Party of the net amount owed or owing. If the
non-defaulting party's aggregate Losses and Costs exceed its aggregate Gains,
the Defaulting Party shall, within five Business Days of receipt of such
notice, pay the net amount to the non-defaulting party, which amount shall bear
interest at the Interest Rate from the Early Termination Date until paid. If
the non-defaulting party's aggregate Gains exceed its Losses and Costs, if any,
resulting from the Event of Default, subject to the provisions of Section 5
herein, the non-defaulting party shall pay the net amount to the Defaulting
Party on the Payment Date for the first next succeeding Determination Period.
As used herein with respect to each party: (a) "Costs" shall mean, with respect
to such party, brokerage fees, commissions and other similar transaction costs
and expenses reasonably incurred by such a party either in terminating any
arrangement pursuant to which it has hedged its obligations or entering into
new arrangements which replace a Transaction; (b) "Gains" shall mean, with
respect to a party, an amount equal to the present value of the economic
benefit, if any, (exclusive of costs) to it resulting from the termination of
its obligations with respect to a Transaction, determined in a commercially
reasonable manner; and (c) "Losses" shall mean an amount equal to the present
value of the economic loss, if any, (exclusive of Costs) to it resulting from
the termination of its obligations with respect to a Transaction, determined in
a commercially reasonable manner. NO PARTY SHALL BE REQUIRED TO PAY SPECIAL,
EXEMPLARY, PUNITIVE, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES (WHETHER OR
NOT ARISING FROM A PARTY'S NEGLIGENCE) TO THE OTHER PARTY, EXCEPT TO THE EXTENT
THAT THE PAYMENTS REQUIRED TO BE MADE PURSUANT TO THE CONFIRMATION ARE DEEMED
TO BE SUCH DAMAGES. IF AND TO THE EXTENT ANY PAYMENT MADE PURSUANT TO THE
CONFIRMATION IS DEEMED TO CONSTITUTE LIQUIDATED DAMAGES, THE PARTIES
ACKNOWLEDGE AND AGREE THAT DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE AND
THAT SUCH PAYMENT CONSTITUTES A REASONABLE APPROXIMATION OF THE AMOUNT OF SUCH
DAMAGES, AND NOT A PENALTY.
5. SETOFF. In the event of an occurrence of an Early Termination Date, the
non-defaulting party shall be entitled, at its option and in its discretion, to
set-off against any amounts owed to the Defaulting Party by the non-defaulting
party or any of its Affiliates under this Confirmation or otherwise any amounts
payable by the Defaulting Party to the non-defaulting party or any of its
Affiliates under this Confirmation or otherwise. This Section shall be without
prejudice and in addition to any right of setoff, combination of accounts, lien
or other right to which any party is at any time otherwise entitled (whether by
operation of law, contract or otherwise). Notwithstanding any provision to the
contrary contained in this Confirmation, the non-defaulting party shall not be
required to pay to the Defaulting Party any amount under this Confirmation
until the non-defaulting party receives confirmation satisfactory to it in its
reasonable discretion that all obligations of any kind whatsoever of the
Defaulting Party to make any payments to the non-defaulting party or any of its
Affiliates under this Confirmation or otherwise which are due and payable as of
the Early Termination Date hereof have been fully and finally performed.
6. MISCELLANEOUS. This Confirmation shall (a) be governed by, interpreted and
construed in accordance with the laws of the jurisdiction (excluding conflict
of laws principles) specified in this Confirmation for the governing law, and
if no such specification is made, the governing law shall be the laws of the
State of Texas (excluding conflict of laws principles); (b) be binding upon and
inure of the benefit of the parties and their respective successors and
(effective upon scheduled delivery day) permitted assigns; however, except for
any assignments by a party to an Affiliate of such party (y) who is in the same
tax jurisdiction as such party and (z) whose creditworthiness is not materially
weaker than that of such party, neither party shall have the power to assign or
otherwise transfer all or any of its rights or obligations under this
Confirmation without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed, and any purported
assignment or transfer in violation of this provision shall be void and of no
force and effect; and (c) contain the entire agreement between the parties and
supersede all prior oral or written communications or agreements relating to
the subject matter. All notices in connection with this Confirmation may be
given during normal business hours by hand delivery (effective upon attempted
delivery), overnight mail service (effective upon scheduled weekday delivery
day) or telefacsimile (effective upon receipt of evidence, including
telefacsimile evidence, that telefacsimile was received), as specified in this
Confirmation or as may be subsequently designated by effective notice. This
Confirmation may be executed in counterparts (including by telefacsimile), each
of which when executed and delivered shall be deemed to be an original
instrument and all of which when taken together shall constitute one and the
same agreement. Any party in default hereunder shall reimburse the other party,
on demand, for actual, reasonable out-of-pocket expenses (and any interest
thereon at the Interest Rate), including, without limitation, reasonable legal
fees and expenses incurred by the other party during the occurrence and
continuation of such default in connection with the enforcement of, or the
preservation of its rights in respect of this Transaction.
Any dispute relating to this Confirmation shall be resolved by binding
arbitration conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association ("AAA") and governed by the Federal
Arbitration Act ("FAA"). Each party shall select one arbitrator within 30 days
of a notice for arbitration and the two arbitrators shall select a third
neutral arbitrator with at least eight years professional experience in
over-the-counter derivative transactions. Only damages allowed pursuant to this
Confirmation may be awarded and the arbitrators shall have no authority to
award treble, exemplary or punitive damages of any kind under any circumstances
regardless of whether such damages may be available under the governing law for
this Confirmation and/or the FAA or AAA. The arbitration shall be conducted in
New York City, New York, if New York law governs this Confirmation, otherwise
in Houston, Texas and such arbitration, and any related award shall be
confidential.
The contents of this Confirmation and all other documents relating to this
Confirmation or Annex B, if any, and any information made available by one
party or its Credit Support Provider, if any, to the other party or its Credit
Support Provider, if any, with respect to this Confirmation is confidential and
shall not be disclosed to any third party (nor shall any public announcement be
made by either party), except for such information (1) as may become generally
available to the public, (2) as may be required or appropriate in response to
any summons, subpoena, or otherwise in connection with any litigation or to
comply with any applicable law, order, regulation, ruling or accounting
disclosure rule or standard, (3) as may be obtained from a non-confidential
source that disclosed such information in a manner that did not violate its
obligations to the non-disclosing party or its Credit Support Provider, if any,
in making such disclosure, or (4) as may be furnished to the disclosing party's
Affiliates, and to each of such person's auditors, attorneys, advisors or
Page 2 of 4
Annex A
13
lenders which are required to keep the information that is disclosed in
confidence.
If any term, provision, covenant, or condition of this Confirmation, or the
application thereof to any party or circumstance, shall be held to be invalid
or unenforceable (in whole or in part) for any reason, the remaining terms,
provisions, covenants, and conditions hereof shall continue in full force and
effect as if this Confirmation had been executed with the invalid or
unenforceable portion eliminated, so long as this Confirmation as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter of this Confirmation and the deletion of such
portion of this Confirmation will not substantially impair the respective
benefits or expectations of the parties to this Confirmation; provided,
however, that this severability provision shall not be applicable if any
provision of Section 2, 3 or 4 (or any definition or provision in Section 8 to
the extent it relates to, or is used in or in connection with any such Section)
shall be so held to be invalid or unenforceable.
7. MARKET DISRUPTION. If a Market Disruption Event has occurred and is
continuing on any Trading Day, the Floating Price for such Trading Day shall be
determined pursuant to the Floating Price Source specified in this Confirmation
for the first Trading Day thereafter on which no Market Disruption Event
exists; provided, however, if the Floating Price is not so determined within
three Business Days after the first Trading Day on which the Market Disruption
Event occurred or existed, then the Floating Price shall be determined by
reference to the Alternative Floating Price Source specified in this
Confirmation, if any, which is not subject to a Market Disruption Event. If no
Alternative Floating Price Source is available or has been specified, and the
Market Disruption Event continues for more than three Business Days, then the
parties shall negotiate in good faith to agree on a Floating Price (or a method
for determining a Floating Price), and if the parties have not so agreed on or
before the twelfth Business Day following the first Trading Day on which the
Market Disruption Event occurred or existed, then the Floating Price shall be
determined in good faith by ENA, by taking the average of two or more dealer
quotes.
8. GENERAL DEFINITIONS. Terms used, but not defined in this Annex, are used
with the meanings provided in Annex B attached hereto, if any or in the
Confirmation. As used in this Annex:
"Affiliate" shall mean in relation to any party, any entity controlled,
directly or indirectly, by the party, any entity that controls, directly or
indirectly, the party or any entity directly or indirectly under common control
with the party. Control means ownership of a majority of the voting power of
such entity or party.
"American" means a style of Option pursuant to which the right(s) granted are
exercisable on any Business Day during an Exercise Period that consists of more
than one day.
"Asian" means a style of Option pursuant to which the right(s) granted are
exercisable only on the one day designated as the Exercise Period in the
Confirmation, and the Floating Price for which is the unweighted arithmetic
average (or such other specified method of averaging) of the Floating Prices
for the Trading Days referenced in the Floating Price Source (unless otherwise
specified in the Confirmation).
"Automatic Exercise" means, if specified to be applicable in the Confirmation,
that if at the close of the Exercise Period the Option has not been exercised,
it will be deemed exercised as of that time. If Automatic Exercise is specified
to be applicable and the Exercise Period is specified to be inapplicable in the
Confirmation, the Option (including Swaptions) shall be deemed exercised on the
first day of the first Determination Period.
"Business Day" means a day on which commercial banks are open for business in
Xxx Xxxx, Xxx Xxxx, Xxxxxxx, Xxxxx and in the cities where the parties'
addresses are located as specified in the Confirmation.
"Call" means an Option entitling Buyer to receive after exercise the Cash
Settlement Amount on the applicable Payment Date(s) if the Floating Price
exceeds the Strike Price.
"Cap Amount" means an amount equal to the product of (a) the Notional Quantity
per Determination Period multiplied by (b) the Cap Price, or as otherwise
provided in the Confirmation.
"Cash Settlement Amount" means, in respect of an Option, an amount (if any)
that is payable by Seller on the applicable Payment Date(s) and is determined
as provided in the Confirmation governing such Option.
"Determination Period" means each period from and including the first date
specified as being included in that Determination Period to and including the
last date specified as being included in that Determination Period. If such
period is a calendar month, the period commences on the first day of the month
and it ends on the last day of the month.
"European" means a style of Option pursuant to which the right(s) granted are
exercisable only on the one day designated as the Exercise Period in the
Confirmation, if any.
"Fixed Amount" means an amount equal to the product of (a) the Notional
Quantity per Determination Period multiplied by (b) the Fixed Price, or as
otherwise provided in the Confirmation.
"Floating Amount" means an amount equal to the product of (a) the Notional
Quantity per Determination Period multiplied by (b) the Floating Price, or as
otherwise provided in the Confirmation.
"Floor Amount" means an amount equal to the product of (a) the Notional
Quantity per Determination Period multiplied by (b) the Floor Price, or as
otherwise provided in the Confirmation.
"Interest Rate" means (a) with respect to a non-defaulting party, a per annum
rate of interest equal to the prime lending rate as may from time to time be
published in The Wall Street Journal under "Money Rates" and (b) with respect
to a Defaulting Party, a per annum rate of interest equal to two percent (2%)
over such prime lending rate; provided, however, in either case the Interest
Rate may never exceed the maximum lawful rate under applicable law.
"Market Disruption Event" means, with respect to a Floating Price Source, any
of the following events (the existence of which shall be determined in good
faith by ENA): (a) the failure of the Floating Price Source to announce or
publish information necessary for determining the Floating Price; (b) the
failure of trading to commence or the permanent discontinuation or material
suspension of trading in the relevant futures contract, options contract or
commodity on the exchange or market (e.g., NYMEX) acting as the Floating Price
Source (the "Exchange"); (c) the temporary or permanent discontinuance or
unavailability or any relevant Floating Price Source; (d) the temporary or
permanent closing of any Exchange acting as the Floating Price Source; (e) the
imposition of trading limits by the Exchange such that there are limits on the
range within which the price of the relevant commodity may fluctuate in the
prompt month and the closing or settlement price of such commodity on such day
is at the upper or lower limit of that range; (f) a material change in the
formula for or the method of determining the Floating Price; or (g) a material
change in the content, composition or constitution of the relevant commodity.
"Notice of Exercise" means, in respect of an Option (or Swaption), irrevocable
notice given by Buyer to Seller (which may be given orally,
Page 3 of 4
Annex A
14
including by telephone, unless otherwise specified in the Confirmation) of
exercise of the right(s) granted pursuant to the Option during the hours
specified in the Confirmation (if no hours are specified, then prior to noon
Central time) on any Business Day during the Exercise Period.
"Option" means a Transaction that is a Call, Cap, Floor, Put, Swaption or is
identified in the relevant Confirmation as an Option.
"Put" means an Option entitling Buyer to receive after exercise the Cash
Settlement Amount on the applicable Payment Date(s) if the Strike Price exceeds
the Floating Price.
"Swaption" means an Option to cause an Underlying Transaction to become
effective.
"Trading Day" means (a) in respect of a Transaction for which a Floating Price
is a price announced or published by an exchange, a day that is a trading day on
that exchange or (b) in respect of a Transaction for which a Floating Price is
not a price announced or published by an exchange, a day in respect of which the
relevant price source published the relevant price.
"Transaction" means all swap, option or other financially-settled derivative
transactions between the parties.
"Underlying Transaction" means in respect of a Swaption, a transaction, the
terms of which are identified in the Confirmation, which Underlying Transaction
will not become effective unless the right to cause that Underlying Transaction
to become effective has been timely exercised or deemed exercised.
"Written Confirmation" means, if specified to be applicable in the Confirmation
or if demanded by Seller (which demand may be given orally, including by
telephone, or in writing) a written confirmation delivered promptly by Buyer,
confirming the substance of the Notice of Exercise.
Page 4 of 4
Annex A
15
Deal No. VH0982.1
[ENRON LOGO] ENRON NORTH AMERICA
CORP.
X.X. Xxx 0000
Xxxxxxx XX 00000-0000
(000) 000-0000
Fax (000) 000-0000
CONFIRMATION
(SWAP)
Date: June 14, 2001
To: National Energy Group, Inc. ("Counterparty")
Attention: Document Department
Fax No.: 000-000-0000
From: Enron North America Corp. ("ENA")
Re: Commodity Swap VH0982.1
The purpose of this letter agreement (together with the General Terms and
Conditions of Confirmation as set forth in Annex A and any other attachments
hereto, collectively the "Confirmation") is to confirm the terms and conditions
of the transaction entered into between us on the Trade Date specified below
(the "Transaction") whereby we accepted your offer to enter into the
Transaction. The terms of the particular Transaction to which this Confirmation
relates are as follows:
GENERAL TERMS:
Notional Quantity per
Determination Period: 37,000 MMBtu per month
Commodity: Natural Gas
Commodity Unit: MMBtu (One Million British Thermal Units)
Trade Date: June 14, 2001
Effective Date: January 01, 2002
Termination Date: December 31, 2002
Determination Period(s): Each calendar month beginning with January
01, 2002 and ending on December 31, 2002.
Payment Date(s): The last Business Day of the month following
the month during which the Floating Price is
determinable (i.e. for the Determination
Period of July, 2001, the Payment Date shall
be August 31, 2001)
FIXED AMOUNT DETAILS:
Fixed Price Payor: ENA
Fixed Price: US Dollars $2.70000 per MMBtu
FLOATING AMOUNT DETAILS:
1
16
Deal No. VH0982.1
Floating Price Payor: Counterparty
Floating Price: The Houston Ship Channel/Beaumont, Texas
index (large packages only) price for
delivery during the applicable
Determination Period in the "Delivered
Spot-Gas Price" section located in the
first issue of Inside F.E.R.C.'s Gas
Market Report published during the
applicable Determination Period
CONTRACTUAL CURRENCY: US Dollars
GOVERNING LAW: Texas
GENERAL TERMS AND CONDITIONS
OF CONFIRMATIONS: The general terms and conditions
contained in Annex A attached hereto and
made a part hereof apply and are
incorporated herein by reference
CREDIT OR OTHER SPECIAL PROVISIONS: Not Applicable
For the purposes of the calculations of the Floating Price(s), all numbers
shall be rounded as follows: Floating Price(s) relating to commodities quoted in
(i) gallons shall be rounded to five places, (ii) MMBtu's shall be rounded to
four places, (iii) barrels shall be rounded to three places and (iv) gigajoules
shall be rounded to four places. If the number after the final number is five
(5) or greater then the final number shall be increased by one (1), and if the
number after the final number is less than five (5) then the final number shall
remain unchanged.
This Confirmation is a complete and binding agreement between you and us as
to the Transaction. Until a Master Agreement is executed by you and us, all
currently existing swap, option or other financially-settled derivative
transactions between the parties shall be governed by the terms and conditions
set forth in any Annex attached hereto. All such swap, option or other
financially-settled derivative transactions, shall constitute a single
integrated agreement between you and us, it being acknowledged that the parties
are relying upon the fact that all such swap, option or other
financially-settled derivative transactions will form a single agreement and
that the parties would not otherwise enter into any transactions. The terms and
conditions contained in any Annex attached hereto are incorporated into this
Confirmation, and in the event of any inconsistency between any Annex and this
letter agreement, this letter agreement shall govern. Upon execution by you and
us of a Master Agreement, this Confirmation will supplement, form a part of, and
be subject to the Master Agreement. In the event of any inconsistency between
this Confirmation and the Master Agreement, the Master Agreement shall govern
except as expressly set forth herein.
If this Confirmation correctly sets forth the terms of the Transaction that
we have entered into, please promptly confirm in a reply to us by signing below
and sending this Confirmation (or a copy hereof) to us (or notifying us of any
bona fide error that would require revision in order to accurately reflect our
agreement on the Transaction) by facsimile transmission within two Business Days
after your receipt of this Confirmation. If you fail to so reply within such
time period, the terms hereof will constitute binding and conclusive evidence of
the Transaction. We look forward to receiving your prompt reply.
Sincerely,
Enron North America Corp. National Energy Group, Inc.
2
17
Deal No. VH0982.1
By: /s/ XXX XXXXXX By: /s/ XXXX X. XXXX
-----------------------------------
Name: Xxx Xxxxxx Name: Xxxx X. Xxxx
-----------------------------------
Title: Agent and Attorney-in-Fact Title: Vice President of Product Marketing
-----------------------------------
Date: June 26, 2001 Date: July 5, 2001
-----------------------------------
COUNTERPARTY: AFTER YOU HAVE CONFIRMED TRANSACTION, PLEASE RETURN TO ENA,
ATTENTION: DIRECTOR OF DOCUMENTATION AT FAX NO (000) 000-0000
ADDRESS FOR NOTICES TO ENA: PAYMENT ACCOUNT INFORMATION FOR ENA:
0000 Xxxxx Xx See invoice for wire instructions
Xxxxxxx, XX 00000-0000
Attention: Director, Documentation Dept
Fax: (000) 000-0000
Phone: (000) 000-0000
With a copy of any notice given pursuant to Section 3 or 4 of Annex A or
Annex B, if any, to:
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attn.: Assistant General Counsel, Trading Group
Fax: (000) 000-0000
ADDRESS FOR NOTICES TO COUNTERPARTY: PAYMENT ACCOUNT INFORMATION FOR
COUNTERPARTY:
Address: 0000 Xxx Xxxxxx Xxxxxx Xxxx Xxx, Xxxxx X.X., Xxxxxx, XX
-------------------------- --------------------------------
0000 Xxxxxxxxxx Xxxxxx ABA 000000000
----------------------------------- --------------------------------
Xxxxxx XX 00000 For the Account of National
----------------------------------- Energy Group, Inc.
Attention: Xxxx X. Xxxx --------------------------------
------------------------ Account No. 0000000000
Fax: (000) 000-0000 --------------------------------
------------------------------
Phone: (000) 000-0000 X000 Tax I.D.# 00-0000000
---------------------------- --------------------------------
COUNTERPARTY: PLEASE PROVIDE ABOVE REQUESTED INFORMATION IF NOT PROVIDED
PREVIOUSLY OR IF CHANGES HAVE OCCURRED
3
18
ENA/U.S. COUNTERPARTY
REVISION OF 03/02/00
ANNEX A
GENERAL TERMS AND CONDITIONS
This Annex A supplements, forms part of, and is incorporated into the
Confirmation to which this Annex A is attached. Until a Master Agreement is
executed by the parties, this Annex A will set forth the general terms and
conditions governing all Transactions between the parties except as otherwise
specified in a Confirmation to a Transaction.
1. REPRESENTATIONS. Each of ENA and Counterparty represents and warrants to the
other that (a) Authority/Taxation (i) the execution, delivery and performance
of this Confirmation have been duly authorized by all necessary corporate or
other organization action on its part, (ii) this Confirmation is its legally
valid and binding obligation, enforceable against it in accordance with its
terms, (iii) it is a United States person (as such term is defined in Section
7701 of the Internal Revenue Code), and (iv) during the term hereof, it will
not be doing business in any jurisdiction that imposes any withholding tax or
similar levy on any payment made or received by it under this Confirmation; and
(b) Eligible Swap Participant (i) it constitutes an "eligible swap participant"
as such term is defined in 17 C.F.R. Section 35.1(b)(2), and (ii) this
Confirmation constitutes a "swap agreement" within the meaning of 17 C.F.R.
Section 35.1(b)(1); and (c) Line of Business (i) it is entering into this
Confirmation in conjunction with its line of business (including financial
intermediation services) or the financing of its business; and (ii) solely with
respect to Options, it is a producer, processor, commercial user of, or
merchant handling, the commodity subject to this Confirmation or the products
or byproducts thereof, and it has entered into this Confirmation solely for
purposes related to its business as such; and (d) No Reliance (i) the other
party to this Confirmation (1) is not acting as a fiduciary or financial,
investment or commodity trading advisor for it, and (2) has not given to it
(directly or indirectly through any other person) any assurance, guaranty or
representation whatsoever as to the merits (either legal, regulatory, tax,
financial, accounting or otherwise) of this Confirmation or the expected
performance or result of this Confirmation; and (ii) in connection with the
negotiation and execution of this Confirmation, (1) it is acting as a principal
(and not as an agent or in any other capacity, fiduciary or otherwise), (2) it
is not relying upon any advice, counsel or representations (whether written or
oral) of the other party other than the representations expressly set forth in
this Confirmation, (3) it has made and will make its own decisions regarding
the entering into of this Confirmation based upon its own judgment and upon the
advice from such professional advisors as it deemed, or will deem, necessary to
consult, (4) all of its decisions regarding this Confirmation have been the
result of arm's length negotiations between the parties, and (5) it has a full
understanding of all the terms, conditions and risks (economic and otherwise)
of this Confirmation, and it is capable of assuming and willing to assume
(financially and otherwise) those risks; and (e) Absence of Litigation there is
not pending or, to its knowledge, threatened against it or any of its
Affiliates 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
Confirmation or any Credit Support Document to which it or its Affiliates is a
party or its or its Affiliates ability to perform their respective obligations
under this Confirmation or such Credit Support Document.
2. PAYMENTS. For each Determination Period, on the applicable Payment Date with
respect to (a) a SWAP, (i) if the Floating Amount is greater than the Fixed
Amount for the relevant Determination Period, the Floating Price Payor shall
pay the Fixed Price Payor the amount by which the Floating Amount exceeds the
Fixed Amount, and (ii) if the Floating Amount is less than the Fixed Amount,
the Fixed Price Payor shall pay the Floating Price Payor the amount by which
the Fixed Amount exceeds the Floating Amount; (b) an OPTION (other than a
Swaption) that has been properly exercised by the Buyer, the Seller shall pay
the Buyer the Cash Settlement Amount (if any) for the relevant Determination
Period (Buyer may exercise the rights granted pursuant to the Option only by
giving a Notice of Exercise on a Business Day during the Exercise Period
(unless Automatic Exercise is specified to apply in the Confirmation);
otherwise the Option shall expire); (c) a COLLAR, (i) if the Floating Amount is
greater than the Cap Amount, the Floating Price Payor will pay to the Fixed
Price Payor the amount by which the Floating Amount exceeds the Cap Amount, and
(ii) if the Floating Amount is less than the Floor Amount, the Fixed Price
Payor shall pay to the Floating Price Payor the amount by which the Floating
Amount is less than the Floor Amount; (d) a SWAPTION that has been properly
exercised by the Buyer, all payments payable under the Underlying Transaction
shall be made by the relevant party in the manner specified for a Swap in this
Section (Buyer shall exercise Swaption in accordance with the Option
procedures); and (e) the TOTAL PREMIUM (if any) for an Option, Collar or
Swaption, the Total Premium is due and payable by the Buyer or Premium Payor
(as the case may be) to the other party on the Premium Payment Date(s).
For the purposes of the calculations of the Floating Price(s), all numbers
shall be rounded as follows: Floating Price(s) relating to commodities quoted
in (i) gallons, shall be rounded to five places, (ii) Mmbtu's shall be rounded
to four places, and (iii) barrels and megawatt hours shall be rounded to three
places.
Each payment will be made in the Contractual Currency (specified in the
Confirmation or if not specified, in U.S. Dollars) via wire transfer in
immediately available funds on the relevant Payment Date (or if not a Business
Day, on the next Business Day). If amounts are not paid when due, they shall
bear interest daily until paid in full at the Interest Rate on the basis of the
actual number of days elapsed, and on the basis of a year of 365/366 days. If
the Payment Dates for two or more Transactions between the parties fall on the
same day in the same currency, if each party is required to make a payment to
the other on such Payment Date, such amounts with respect to each party shall
be aggregated, and the party owing the greater aggregate amount shall pay to
the other party the difference between the amounts owed.
3. EVENTS OF DEFAULT. An event of default ("Event of Default") shall mean with
respect to a party (the "Defaulting Party") any of the following: (a) the
failure by the Defaulting Party to make, when due, any payment required under
this Confirmation if such failure is not remedied within three Business Days
after notice of such failure is given to the Defaulting Party; (b) any
representation or warranty made by the Defaulting Party in this Confirmation
shall prove to have been false or misleading in any material respect; (c) the
breach by the Defaulting Party of any other covenant or agreement set forth in
this Confirmation (other than the obligation to make payment) and such failure
is not cured within ten Business Days after it is given notice thereof; (d) the
institution, with respect to the Defaulting Party, of a bankruptcy,
reorganization, moratorium, liquidation or similar insolvency proceeding or
other relief under any bankruptcy or insolvency law affecting creditors' rights
or a petition is presented or instituted for its winding-up or liquidation
(and, if such a proceeding is instituted against the party, it remains
undismissed for 30 days); (e) the Defaulting Party consolidates or amalgamates
with, or merges into or with, or transfers substantially all of its assets to
another entity and (y) the resulting entity fails to assume all of the
obligations of the Defaulting Party under this Confirmation or (z) the
resulting entity's creditworthiness is materially weaker than that of the
Defaulting Party; or (f) an event of default occurs (howsoever determined)
under any other Transaction between the parties.
Page 1 of 4
Annex A
19
4. REMEDIES. If an Event of Default shall have occurred and shall be continuing
the non-defaulting party may, in its sole discretion, by no more than 20 days
notice to the Defaulting Party designate a day no earlier than the day such
notice is effective as an early termination date ("Early Termination Date"). On
the Early Termination Date, all obligations under all Transactions with respect
to all Determination Periods which would have ended after the Early Termination
Date shall be terminated, except as provided below. If an Early Termination
Date has been designated, the non-defaulting party shall in good faith
calculate its Gains or Losses and Costs resulting from the termination of the
parties' obligations under all Transactions with respect to all Payment Dates
which would have occurred after the Early Termination Date had the Early
Termination Date not occurred. The non-defaulting party shall aggregate such
Gains, Losses and Costs with respect to all Transactions into a single net
amount and notify the Defaulting Party of the net amount owed or owing. If the
non-defaulting party's aggregate Losses and Costs exceed its aggregate Gains,
the Defaulting Party shall, within five Business Days of receipt of such
notice, pay the net amount to the non-defaulting party, which amount shall bear
interest at the Interest Rate from the Early Termination Date until paid. If
the non-defaulting party's aggregate Gains exceed its Losses and Costs, if any,
resulting from the Event of Default, subject to the provisions of Section 5
herein, the non-defaulting party shall pay the net amount to the Defaulting
Party on the Payment Date for the first next succeeding Determination Period.
As used herein with respect to each party: (a) "Costs" shall mean, with respect
to such party, brokerage fees, commissions and other similar transaction costs
and expenses reasonably incurred by such a party either in terminating any
arrangement pursuant to which it has hedged its obligations or entering into
new arrangements which replace a Transaction; (b) "Gains" shall mean, with
respect to a party, an amount equal to the present value of the economic
benefit, if any, (exclusive of costs) to it resulting from the termination of
its obligations with respect to a Transaction, determined in a commercially
reasonable manner; and (c) "Losses" shall mean an amount equal to the present
value of the economic loss, if any, (exclusive of Costs) to it resulting from
the termination of its obligations with respect to a Transaction, determined in
a commercially reasonable manner. NO PARTY SHALL BE REQUIRED TO PAY SPECIAL,
EXEMPLARY, PUNITIVE, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES (WHETHER OR
NOT ARISING FROM A PARTY'S NEGLIGENCE) TO THE OTHER PARTY, EXCEPT TO THE EXTENT
THAT THE PAYMENTS REQUIRED TO BE MADE PURSUANT TO THE CONFIRMATION ARE DEEMED
TO BE SUCH DAMAGES. IF AND TO THE EXTENT ANY PAYMENT MADE PURSUANT TO THE
CONFIRMATION IS DEEMED TO CONSTITUTE LIQUIDATED DAMAGES, THE PARTIES
ACKNOWLEDGE AND AGREE THAT DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE AND
THAT SUCH PAYMENT CONSTITUTES A REASONABLE APPROXIMATION OF THE AMOUNT OF SUCH
DAMAGES, AND NOT A PENALTY.
5. SETOFF. In the event of an occurrence of an Early Termination Date, the
non-defaulting party shall be entitled, at its option and in its discretion, to
set-off against any amounts owed to the Defaulting Party by the non-defaulting
party or any of its Affiliates under this Confirmation or otherwise any amounts
payable by the Defaulting Party to the non-defaulting party or any of its
Affiliates under this Confirmation or otherwise. This Section shall be without
prejudice and in addition to any right of setoff, combination of accounts, lien
or other right to which any party is at any time otherwise entitled (whether by
operation of law, contract or otherwise). Notwithstanding any provision to the
contrary contained in this Confirmation, the non-defaulting party shall not be
required to pay to the Defaulting Party any amount under this Confirmation
until the non-defaulting party receives confirmation satisfactory to it in its
reasonable discretion that all obligations of any kind whatsoever of the
Defaulting Party to make any payments to the non-defaulting party or any of its
Affiliates under this Confirmation or otherwise which are due and payable as of
the Early Termination Date hereof have been fully and finally performed.
6. MISCELLANEOUS. This Confirmation shall (a) be governed by, interpreted and
construed in accordance with the laws of the jurisdiction (excluding conflict
of laws principles) specified in this Confirmation for the governing law, and
if no such specification is made, the governing law shall be the laws of the
State of Texas (excluding conflict of laws principles); (b) be binding upon and
inure of the benefit of the parties and their respective successors and
(effective upon scheduled delivery day) permitted assigns; however, except for
any assignments by a party to an Affiliate of such party (y) who is in the same
tax jurisdiction as such party and (z) whose creditworthiness is not materially
weaker than that of such party, neither party shall have the power to assign or
otherwise transfer all or any of its rights or obligations under this
Confirmation without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed, and any purported
assignment or transfer in violation of this provision shall be void and of no
force and effect; and (c) contain the entire agreement between the parties and
supersede all prior oral or written communications or agreements relating to
the subject matter. All notices in connection with this Confirmation may be
given during normal business hours by hand delivery (effective upon attempted
delivery), overnight mail service (effective upon scheduled weekday delivery
day) or telefacsimile (effective upon receipt of evidence, including
telefacsimile evidence, that telefacsimile was received), as specified in this
Confirmation or as may be subsequently designated by effective notice. This
Confirmation may be executed in counterparts (including by telefacsimile), each
of which when executed and delivered shall be deemed to be an original
instrument and all of which when taken together shall constitute one and the
same agreement. Any party in default hereunder shall reimburse the other party,
on demand, for actual, reasonable out-of-pocket expenses (and any interest
thereon at the Interest Rate), including, without limitation, reasonable legal
fees and expenses incurred by the other party during the occurrence and
continuation of such default in connection with the enforcement of, or the
preservation of its rights in respect of this Transaction.
Any dispute relating to this Confirmation shall be resolved by binding
arbitration conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association ("AAA") and governed by the Federal
Arbitration Act ("FAA"). Each party shall select one arbitrator within 30 days
of a notice for arbitration and the two arbitrators shall select a third
neutral arbitrator with at least eight years professional experience in
over-the-counter derivative transactions. Only damages allowed pursuant to this
Confirmation may be awarded and the arbitrators shall have no authority to
award treble, exemplary or punitive damages of any kind under any circumstances
regardless of whether such damages may be available under the governing law for
this Confirmation and/or the FAA or AAA. The arbitration shall be conducted in
New York City, New York, if New York law governs this Confirmation, otherwise
in Houston, Texas and such arbitration, and any related award shall be
confidential.
The contents of this Confirmation and all other documents relating to this
Confirmation or Annex B, if any, and any information made available by one
party or its Credit Support Provider, if any, to the other party or its Credit
Support Provider, if any, with respect to this Confirmation is confidential and
shall not be disclosed to any third party (nor shall any public announcement be
made by either party), except for such information (1) as may become generally
available to the public, (2) as may be required or appropriate in response to
any summons, subpoena, or otherwise in connection with any litigation or to
comply with any applicable law, order, regulation, ruling or accounting
disclosure rule or standard, (3) as may be obtained from a non-confidential
source that disclosed such information in a manner that did not violate its
obligations to the non-disclosing party or its Credit Support Provider, if any,
in making such disclosure, or (4) as may be furnished to the disclosing party's
Affiliates, and to each of such person's auditors, attorneys, advisors or
Page 2 of 4
Annex A
20
lenders which are required to keep the information that is disclosed in
confidence.
If any term, provision, covenant, or condition of this Confirmation, or the
application thereof to any party or circumstance, shall be held to be invalid
or unenforceable (in whole or in part) for any reason, the remaining terms,
provisions, covenants, and conditions hereof shall continue in full force and
effect as if this Confirmation had been executed with the invalid or
unenforceable portion eliminated, so long as this Confirmation as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter of this Confirmation and the deletion of such
portion of this Confirmation will not substantially impair the respective
benefits or expectations of the parties to this Confirmation; provided,
however, that this severability provision shall not be applicable if any
provision of Section 2, 3 or 4 (or any definition or provision in Section 8 to
the extent it relates to, or is used in or in connection with any such Section)
shall be so held to be invalid or unenforceable.
7. MARKET DISRUPTION. If a Market Disruption Event has occurred and is
continuing on any Trading Day, the Floating Price for such Trading Day shall be
determined pursuant to the Floating Price Source specified in this Confirmation
for the first Trading Day thereafter on which no Market Disruption Event
exists; provided, however, if the Floating Price is not so determined within
three Business Days after the first Trading Day on which the Market Disruption
Event occurred or existed, then the Floating Price shall be determined by
reference to the Alternative Floating Price Source specified in this
Confirmation, if any, which is not subject to a Market Disruption Event. If no
Alternative Floating Price Source is available or has been specified, and the
Market Disruption Event continues for more than three Business Days, then the
parties shall negotiate in good faith to agree on a Floating Price (or a method
for determining a Floating Price), and if the parties have not so agreed on or
before the twelfth Business Day following the first Trading Day on which the
Market Disruption Event occurred or existed, then the Floating Price shall be
determined in good faith by ENA, by taking the average of two or more dealer
quotes.
8. GENERAL DEFINITIONS. Terms used, but not defined in this Annex, are used
with the meanings provided in Annex B attached hereto, if any or in the
Confirmation. As used in this Annex:
"Affiliate" shall mean in relation to any party, any entity controlled,
directly or indirectly, by the party, any entity that controls, directly or
indirectly, the party or any entity directly or indirectly under common control
with the party. Control means ownership of a majority of the voting power of
such entity or party.
"American" means a style of Option pursuant to which the right(s) granted are
exercisable on any Business Day during an Exercise Period that consists of more
than one day.
"Asian" means a style of Option pursuant to which the right(s) granted are
exercisable only on the one day designated as the Exercise Period in the
Confirmation, and the Floating Price for which is the unweighted arithmetic
average (or such other specified method of averaging) of the Floating Prices
for the Trading Days referenced in the Floating Price Source (unless otherwise
specified in the Confirmation).
"Automatic Exercise" means, if specified to be applicable in the Confirmation,
that if at the close of the Exercise Period the Option has not been exercised,
it will be deemed exercised as of that time. If Automatic Exercise is specified
to be applicable and the Exercise Period is specified to be inapplicable in the
Confirmation, the Option (including Swaptions) shall be deemed exercised on the
first day of the first Determination Period.
"Business Day" means a day on which commercial banks are open for business in
Xxx Xxxx, Xxx Xxxx, Xxxxxxx, Xxxxx and in the cities where the parties'
addresses are located as specified in the Confirmation.
"Call" means an Option entitling Buyer to receive after exercise the Cash
Settlement Amount on the applicable Payment Date(s) if the Floating Price
exceeds the Strike Price.
"Cap Amount" means an amount equal to the product of (a) the Notional Quantity
per Determination Period multiplied by (b) the Cap Price, or as otherwise
provided in the Confirmation.
"Cash Settlement Amount" means, in respect of an Option, an amount (if any)
that is payable by Seller on the applicable Payment Date(s) and is determined
as provided in the Confirmation governing such Option.
"Determination Period" means each period from and including the first date
specified as being included in that Determination Period to and including the
last date specified as being included in that Determination Period. If such
period is a calendar month, the period commences on the first day of the month
and it ends on the last day of the month.
"European" means a style of Option pursuant to which the right(s) granted are
exercisable only on the one day designated as the Exercise Period in the
Confirmation, if any.
"Fixed Amount" means an amount equal to the product of (a) the Notional
Quantity per Determination Period multiplied by (b) the Fixed Price, or as
otherwise provided in the Confirmation.
"Floating Amount" means an amount equal to the product of (a) the Notional
Quantity per Determination Period multiplied by (b) the Floating Price, or as
otherwise provided in the Confirmation.
"Floor Amount" means an amount equal to the product of (a) the Notional
Quantity per Determination Period multiplied by (b) the Floor Price, or as
otherwise provided in the Confirmation.
"Interest Rate" means (a) with respect to a non-defaulting party, a per annum
rate of interest equal to the prime lending rate as may from time to time be
published in The Wall Street Journal under "Money Rates" and (b) with respect
to a Defaulting Party, a per annum rate of interest equal to two percent (2%)
over such prime lending rate; provided, however, in either case the Interest
Rate may never exceed the maximum lawful rate under applicable law.
"Market Disruption Event" means, with respect to a Floating Price Source, any
of the following events (the existence of which shall be determined in good
faith by ENA): (a) the failure of the Floating Price Source to announce or
publish information necessary for determining the Floating Price; (b) the
failure of trading to commence or the permanent discontinuation or material
suspension of trading in the relevant futures contract, options contract or
commodity on the exchange or market (e.g., NYMEX) acting as the Floating Price
Source (the "Exchange"); (c) the temporary or permanent discontinuance or
unavailability or any relevant Floating Price Source; (d) the temporary or
permanent closing of any Exchange acting as the Floating Price Source; (e) the
imposition of trading limits by the Exchange such that there are limits on the
range within which the price of the relevant commodity may fluctuate in the
prompt month and the closing or settlement price of such commodity on such day
is at the upper or lower limit of that range; (f) a material change in the
formula for or the method of determining the Floating Price; or (g) a material
change in the content, composition or constitution of the relevant commodity.
"Notice of Exercise" means, in respect of an Option (or Swaption), irrevocable
notice given by Buyer to Seller (which may be given orally,
Page 3 of 4
Annex A
21
including by telephone, unless otherwise specified in the Confirmation) of
exercise of the right(s) granted pursuant to the Option during the hours
specified in the Confirmation (if no hours are specified, then prior to noon
Central time) on any Business Day during the Exercise Period.
"Option" means a Transaction that is a Call, Cap, Floor, Put, Swaption or is
identified in the relevant Confirmation as an Option.
"Put" means an Option entitling Buyer to receive after exercise the Cash
Settlement Amount on the applicable Payment Date(s) if the Strike Price exceeds
the Floating Price.
"Swaption" means an Option to cause an Underlying Transaction to become
effective.
"Trading Day" means (a) in respect of a Transaction for which a Floating Price
is a price announced or published by an exchange, a day that is a trading day on
that exchange or (b) in respect of a Transaction for which a Floating Price is
not a price announced or published by an exchange, a day in respect of which the
relevant price source published the relevant price.
"Transaction" means all swap, option or other financially-settled derivative
transactions between the parties.
"Underlying Transaction" means in respect of a Swaption, a transaction, the
terms of which are identified in the Confirmation, which Underlying Transaction
will not become effective unless the right to cause that Underlying Transaction
to become effective has been timely exercised or deemed exercised.
"Written Confirmation" means, if specified to be applicable in the Confirmation
or if demanded by Seller (which demand may be given orally, including by
telephone, or in writing) a written confirmation delivered promptly by Buyer,
confirming the substance of the Notice of Exercise.
Page 4 of 4
Annex A
