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EXHIBIT 3
[MERRILL LYNCH LOGO]
TOTAL RETURN SWAP
INDICATIVE TERMS AND CONDITIONS
FOR DISCUSSION PURPOSES ONLY
Date: December 28, 2000
General Terms
Trade Date: TBD, expected to be December 29th.
Party A: Merrill Lynch, Pierce, Fenner & Smith (MLPFS)
Party B: WESTGATE ENTERPRISES III, LLC
Transaction Description: Party B enters into a long total return swap on
the Equity Basket (see Appendix A), whereby Party
B receives the total positive return, if any, and
pays the total negative return, if any, plus the
Floating Amount Payment, Transaction Fees and
Early Termination Fee (if applicable).
Basket: As specified in Annex A.
Documentation: ISDA Master Agreement with Credit Support Annex
and Transaction Confirmation
Original Notional Amount: USD $56,800,000 (to be determined on trade date).
The sum of the values for the Shares of each
Issuer as the product of 1) Relevant Price and 2)
Number of Shares comprised in the Basket. The
Additional Transaction Fees will apply to
guaranteed VWAP execution. Party B may not assign,
transfer or deliver stock to ML to effect or
subsequently amend the transaction.
Relevant Price: Relevant Price for Original Notional Amount shall
be the amount determined by Party A to be the
market price, subject to prior price range
approval of Party B.
Maturity: TDB (expected to be Trade Date plus 15 months)
Transfer: Notwithstanding the provisions of Section 7 of the
Master Agreement, Party B may, with Party A's
prior written consent, assign and delegate its
rights and obligations under this Transaction to
an Institutional dealer in the US Equity
Derivatives market acceptable to Merrill Lynch in
its sole discretion (such consent not to be
unreasonably withheld).
Acknowledgments: Party B acknowledges and understands that the
Transaction is cash settled and does not provide
Party B with any right to acquire shares in the
Equity Basket from Party A.
Market Impact of Hedge: Party B acknowledges and understands that the
proprietary trading and other activities and
transactions of Party A and its affiliates,
including purchases and sales of the shares in the
Equity basket in connection with this Transaction
may adversely affect the Initial price, Final
price and/or the closing price of the shares in
the Equity Basket.
Equity Amounts Payable
Equity Amount Payer: Party A
Equity Payment Date: Monthly valuation date -- reset date plus 3
business days
Valuation Dates: Close of business on the last day of each month
per Bloomberg
Equity Notional Reset: Applicable
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Type of Return: Total Return, which includes dividends and
extraordinary dividends (subject to dilution and
concentration adjustments)
Initial Price: TBD, based upon Relevant Price
Final Price: Average of the closing price of the last 5 days of
trading as reported by Bloomberg, up to and including
the maturity date
Floating Amounts Payable
Floating Amount Payer: Party B
Floating Amount
Payment Date: Equity Payment Dates
Floating Rate Option: USD Libor BUA
Designated Maturity 1 month
Compounding: Not Applicable
Spread: Plus 62.5 basis points
Relevant Fees
Transaction Fee: Transaction Fee will be composed of the following (all
fees are indicated on a per share basis):
NASDAQ traded stock in which MLPF&S makes a market:
USD 0.00 per share
NASDAQ traded stock in which MLPF&S does not make a
market: USD 0.03 per share
NSYE and AMEX traded stock: USD 0.03 per share
Other: As negotiated
Transaction Fee will apply to initial transaction, any
partial or full terminations and any basket
modifications. Transaction Fees are payable as
incurred and will be debited 3 days following relevant
transaction date.
Early Termination Fee: Party B will pay a Early Termination Fee for any net
partial terminations or full termination that reduces
the New Aggregate Notional Amount below the Original
Notional Amount prior to Trade Date plus 180 days. The
Early Termination Fee will equal:
[(Original Notional Amount - New Aggregate Notional
Amount) x (180 - {Early Termination Date - Trade
Date})/360] x Spread
Credit Provisions
Initial Collateral
Equity Requirement: 35% of Credit Basket Notional Amount + 100% of No
Credit Basket Notional Amount.
Minimum Collateral
Amount: Initial Collateral Equity Requirement
Threshold Amount: USD 500,000
Credit Re-set: Initial Collateral Equity Requirement will reset
monthly, based upon the new Credit Basket and No
Credit Basket. Where the Credit Basket equals stocks
>$5 per share and 2.5 million shares of KM (it being
understood that additional shares of KM may not be
added to the Credit Basket without the consent of
Party A). This will constitute the new Initial
Collateral Equity Requirement.
Movement of Shares: Upon monthly re-set, shares in the No Credit Basket
with closing price levels per Bloomberg above $10 per
share will be deemed to be part of the Credit Basket.
Additions/Deletions to
Credit Basket: In accordance with the terms set out in this term
sheet, Party B may designate stocks to be added to or
subtracted from the Credit and No Credit Basket with
respect to which the notional amount is
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determined. Net additions will not exceed $10 million over the term of the
contract without the prior written consent of Party A. Concentration limits
may apply to any such additions.
Maintenance Collateral
Equity Amount: If,
[(LMV of Credit Basket x.65) +
(Credit Basket Notional Amount x .35)]> =
Credit Basket Notional Amount - 500,000
Then
USD 0.00
Else
USD [Credit Basket Notional Amount -
{(LMV of Credit Basket x .65) +
(Credit Basket Notional Amount x .35)}]
Delivery Amount: Maintenance Collateral Equity Amount
Eligible Collateral: Cash or Treasuries
Other: The underlying composition of the aggregate Credit
and the No Credit Baskets shall not, as a result
of additions or deletions thereto by Party II, (i)
be changed more than 3 times per calendar quarter
or (ii) other than due to additions or deletions
of stocks comprising greater than 10% of the
Initial Notional Value, turnover more than 20% per
month.
Turnover: Turnover is defined as additions and deletions
from the initial aggregate Credit and No Credit
Baskets excluding any Terminations of this
transaction on account of a merger event.
Non-Reliance: Each party represents to the other party that it
is acting for its own account, and has made its
own independent decisions to enter into this
Transaction and as to whether this transaction is
appropriate or proper for it based on its own
judgment and upon advice from such advisors as it
has deemed necessary. It is not relying on any
communication (written or oral) of the other party
as tax, legal or investment advice or as a
recommendation to enter into this Transaction, it
being understood that information and explanations
related to the terms and conditions of this
Transaction shall not be considered investment
advice or a recommendation to enter into this
Transaction. No communication (written or oral)
received from the other party shall be deemed to
be an assurance or guarantee as to the expected
results of this Transaction.
Upon execution of this Transaction (which shall occur only via telephonic
agreement between the parties), this term sheet shall serve as the agreement
between Party A and Party B until a formal confirmation can be executed, which
the Parties agree to complete promptly after the execution hereof. Party B
represents and warrants that it is legally and financially able to enter into
the above transaction and that the signatory to this document is authorized to
transact on Party B's behalf.
For WESTGATE ENTERPRISES III, LLC Date Print Name Title
By: /s/ Kenneth J. Abdalla Kenneth J. Abdalla
-------------------------- ------------------- ----------
For Merrill Lynch Date Print Name Title
By: /s/ Cheryl A. Dennerlein 12/29/2000 Cheryl A. Dennerlein
---------------------------- -------------------- ---------
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Appendix A
EQUITY BASKET
Credit Basket
<TABLE>
<CAPTION>
TICKER(R) CURRENT PRICE SHARES DOLLARS
--------- ------------- ------ -------
<S> <C> <C> <C>
ACTU 21.69 93,000 $ 2,016,938
AMZN 17.38 30,000 $ 521,250
BOBJ $ 59.69 9,000 $ 537,188
BVSN $ 12.94 191,000 $ 2,471,063
CA $ 20.38 137,500 $ 2,801,563
CMRC $ 27.94 45,000 $ 1,257,188
CPWR $ 6.59 80,000 $ 527,500
CTXS $ 24.19 30,000 $ 725,625
INFA 45.125 30,000 $ 1,353,750
INSP $ 8.53 72,000 $ 614,250
KM $ 5.06 2,500,000 $12,656,250
LGTO $ 7.50 702,400 $ 5,268,000
MSFT $ 44.56 74,500 $ 3,319,906
MVC $ 11.75 50,000 $ 587,500
RMDY $ 17.31 300,000 $ 5,193,750
SBYN $ 8.84 110,000 $ 972,813
SYMC 35.25 17,000 $ 599,250
VIGN $ 19.44 313,700 $ 6,097,544
VRTS $ 95.44 6,000 $ 572,625
WEBM $ 93.44 12,000 $ 1,121,250
YHOO $ 31.00 27,000 $ 837,000
----------------------------------------------
Credit Basket Total $50,052,200
----------------------------------------------
</TABLE>
NO CREDIT BASKET
<TABLE>
<CAPTION>
TICKER(R) CURRENT PRICE SHARES DOLLARS
--------- ------------- ------ -------
<S> <C> <C> <C>
ACRU $3.00 130,000 $ 390,000
ALLR $5.22 100,000 $ 521,875
AOLA $2.91 245,000 $ 712,031
ARIS $1.06 400,000 $ 425,000
BRIO $4.56 600,500 $ 2,739,781
EXAP $1.19 550,000 $ 653,125
INTW $0.56 90,000 $ 50,625
NEON $5.50 100,000 $ 550,000
PCLN $1.31 100,000 $ 131,250
SBAS $2.19 250,000 $ 546,875
SFTW $0.09 200,000 $ 18,750
--------------------------------------------
No Credit Basket Total $ 6,739,313
--------------------------------------------
EQUITY BASKET TOTAL $56,791,513
</TABLE>
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