File No. 70-8143
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
POST-EFFECTIVE AMENDMENT NO. 1
to
FORM U-1
APPLICATION OR DECLARATION
under
the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
- --------------------------------------------------
National Fuel Gas Company National Fuel Gas
30 Rockefeller Plaza Distribution Corporation
New York, New York 10112 10 Lafayette Square
Buffalo, New York 14203
Penn-York Energy Corporation National Fuel Gas Supply
10 Lafayette Square Corporation
Buffalo, New York 14203 10 Lafayette Square
Buffalo, New York 14203
Seneca Resources Corporation Empire Exploration, Inc.
10 Lafayette Square 10 Lafayette Square
Buffalo, New York 14203 Buffalo, New York 14203
Utility Constructors, Inc.
10 Lafayette Square
Buffalo, New York 14203
(Names of companies filing this statement
and addresses of principal executive offices)
- ----------------------------------------------------
NATIONAL FUEL GAS COMPANY
(Name of top registered holding company)
---------------------------------------------
Philip C. Ackerman Clive D. Conley, Esq.
Senior Vice President Reid & Priest
National Fuel Gas Company 40 West 57th Street
10 Lafayette Square New York, New York 10019
Buffalo, New York 14203
(Names and addresses of agents for service)
<PAGE>
Item 1. Description of Proposed Transaction.
Item 1 of the Application/Declaration filed on January 29, 1993,
as amended, in this File No. 70-8143, is hereby amended by adding the
following paragraphs to the end thereof:
"National has developed a long-term financing plan
which may include entering into one or more interest rate swap
agreements ("swaps") in notional amounts aggregating not in excess of $350
millionat any one time outstanding. By this Application/Declaration, National
is seeking authority to enter into one or more swaps, plus one or more
derivative instruments, such as interest rate caps, interest rate floors,
interest rate collars and options, with one or more counterparties from
time to time through December 31, 1994, in notional amounts aggregating not
in excess of $350 million at any one time outstanding.
National already has certain authority to enter into
swaps with notional amount not in excess of $200 million pursuant to the
SEC order granted in connection with National's short-term borrowing and
system Money Pool arrangements (File No. 70-8297, Release No. 35-25964
dated December 29, 1993). However, this Application/Declaration requests
additional authority to enter into swaps that hedge National's long-term
debt, as described in Strategy 1 and Strategy 2 below. The aggregate
notional amount of all such derivative transactions (swaps, interest
rate caps, floors, collars and options) that relate to both long-term
debt and short-term debt, in this file and File No. 70-8297, will not
exceed $350 million. National has not engaged in any swap
transactions pursuant to the December 29, 1993 order (File No. 70-8297) as of
May 20, 1994. All derivative transactions will be directly related to then
outstanding long or short-term debt.
National proposes to use two different swap strategies. Under
one swap strategy ("Strategy 1"), National would agree to make payments of
interest to a counterparty, payable periodically. The interest would be
payable at a variable or floating rate index and would be calculated on a
notional (i.e., principal) amount. In return, the counterparty would agree
to make payments to National based upon the same notional amount and at an
agreed upon fixed interest rate. This would be a "floating-to-fixed swap"
on National's part. Under another swap strategy ("Strategy 2"), National
and the counterparty may exchange roles. National would pay a fixed
interest rate and receive a variable interest rate on a notional amount.
This would be a "fixed-to-floating swap" on National's part.
Currently, most swap counterparties are banks, which generally
act as dealers (principals) rather than brokers (agents). The
counterparties themselves sometimes represent all or part of the opposite
side of a swap transaction. Otherwise, the counterparties enter into one
or more transactions with other entities, to create the opposite side of a
swap transaction, generally intending to make a profit on the spread.
Strategy 1
----------
National proposes to enter into Strategy 1 swaps
from time to time (i) in order to reduce the interest costs of existing
high cost debt and/or (ii) in order to reduce the interest cost of new
long-term debt issuances for part or all of their terms. A reduction in
interest cost may occur because, by using a Strategy 1 swap, National
functionally converts some or all of the fixed interest rate payments on
long-term debt to floating rate payments that vary in relation to a short-term
debt index. A Strategy 1 swap would reduce the issuer's interest costs of
the Debenture or MTNs' associated with the swap for the term of such a swap
as long as the short-term index used in the swap to determine the
floating rate paid by the issuer remains the same, decreases, or rises
modestly. If the short-term index rises during the term of the swap, the
interest costs saved by the issuer would decrease until the short-term index
is equal to the fixed rate received by the issuer. If the short-term
index rises above the fixed rate received by the issuer, debt costs to the
issuer would be higher than they would be without using a Strategy 1 swap.
Each time National issues Debentures of MTNs, the proceeds are
lent to one or more of the Subsidiaries at an all in cost that
is equal to the coupon on the debt plus the amortization of the
underwriters' or agents' fees. The loans are documented by intercompany notes
from the Subsidiaries to National. All the interest costs of both
long-term and short-term debt is borne by the subsidiaries. In accordance
with National's current policy of not assuming any cost of debt, or the above
costs of issuance of debt, the gains and the losses of doing a swap
should be assumed by the subsidiary. National would enter into a swap
in connection with an underlying subsidiary note only after determining it
to be in the best interest of the subsidiary at the time of consummation of
the swap.
A Strategy 1 swap is used to convert the existing
fixed payments made by the subsidiary of National to floating payments for
part or all of the term of the debt. National would decide on which
subsidiary's debt to match against a swap under Strategy 1 based on the current
cost of the debt, the term remaining for the debt, whether the debt
is redeemable, availability of all regulatory approvals to do the
swap against the underlying debt and the individual needs of the
subsidiary. The effective net interest payments or receipts realized by
National will be passed along to the subsidiaries of National that hold the
underlying debt. None of the payments or receipts will be retained by National.
No principal payments are made by either party either upon
initiation or termination of a Strategy 1 swap.
Each Strategy 1 swap would be associated with one or more
specific fixed rate Debenture(s) or MTN(s). More than one Strategy 1 swap
could be associated with one specific Debenture or MTN, but the aggregate
notional amount of swaps (Strategy 1 and Strategy 2 and swaps authorized
under the Money Pool) would not exceed $350 million at any one time
outstanding. Each Strategy 1 swap would have a term (which may range from
1 month to 40 years) that is less than or equal to the remaining maturity
of the Debenture or MTN it is associated with. National may from time to
time enter into a Strategy 1 swap or swaps with a counterparty whereby
National would pay a floating interest rate based on indices such as LIBOR
(The "London Interbank Deposit Offered Rate"), the Federal Funds rate,
certificate of deposit indices or commercial paper indices (H.15 CP index
or any other commercial paper index). National would in return receive a
fixed interest rate. The fixed interest rate would be the Treasury yield
for the corresponding term of the swap plus a swap spread that is based on
the "forward curve" which is a market expectation of the movement of the
floating rate index used in the swap in the future relative to the United
States Treasury Securities rates. There will be no maximum interest rate
respecting payments that National may make under the Strategy 1 swaps
unless National purchases an interest rate cap.
National's effective net interest payments or receipts under a
Strategy 1 swap will be allocated to the subsidiary of National that holds
the unsecured subsidiary note that corresponds to the Debenture or MTN
associated with the Strategy 1 swap. If more than one subsidiary holds
unsecured notes that correspond to the specific Debenture or MTN, the net
interest payments and receipts of the Strategy 1 swap will be allocated in
proportion to the amounts of unsecured notes outstanding for each
subsidiary, provided all subsidiaries have the necessary legal authority to
make and receive such payments. (If a subsidiary lacks such authority, the
notional amount of the swap will not exceed the principal amount of the
note or notes issued by the subsidiaries that have the necessary legal
authority, and the payments and receipts will only be allocated to those
subsidiaries.) Thus, the subsidiaries realize all the savings (costs)
associated with the Strategy 1 swap. Unsecured subsidiary notes may be
issued pursuant to the Application/Declaration in this file to National by
Distribution, Supply, Seneca, Penn-York, Empire and Utility Constructors.
The allocation of the net interest payments or receipts of the Strategy 1
swap to the subsidiary will be made at each reset date of the respective
floating rate index. The subsidiary that holds the unsecured note that
corresponds to the Debenture or MTN associated with the Strategy 1 swap
would be obligated to execute an unsecured note or an agreement with
National to make the floating rate payments (and receive the fixed rate
receipts) at each reset date of the floating rate index.
The hypothetical example below, based upon market rates prevalent
on March 25, 1994, illustrates the savings that National and hence its
subsidiaries could achieve by using a Strategy 1 swap. Assume National has
the following Existing Debenture
Principal $50,000,000
Interest 7.5%
Remaining term 30 years
Proceeds were lent to Supply
Strategy 1 Swap
Notional amount $50,000,000
Term 2 years (4 reset periods,
first one beginning today)
National pays Floating rate equal to
6-month LIBOR (currently at
4.25%)
National receives fixed rate equal to 5.27%.
Savings realized by National at first reset
(pay 4.25%, receive 5.27%) @1.02% $255,000
Savings realized by National for the term of swap(1)
_________________
[FN](1) (Assuming that the 6-month LIBOR is constant over the
2-year period of the swap.)[/FN]
@ 1.02% $1,020,000
The pre-tax savings would be allocated in their entirety to Supply, which
holds the subsidiary note for the underlying Debenture.
Therefore, the effective interest cost on the 30-year issue would
be 6.48% (versus 7.50% without the swap) for 2 years of its term.
In this example, National would realize a pre-tax savings of
$255,000 at the first reset date of the swap. Reset dates sometimes begin
on the date at which the swap is entered into, or a later date, and then
follow at agreed upon intervals. For Strategy 1 swaps, pre-tax savings or
costs at reset dates will depend upon how the floating rate index changes,
and therefore upon how the floating rate of interest paid by National
changes. Thus, for example, if 6-month LIBOR increases to 5% at the time
of the second reset in this example, the pre-tax savings realized would be
reduced to $67,500. $67,500 = (5.27% - 5% ) X ($50,000,000 [divided by] 2).
Should 6-month LIBOR be higher than 5.27% at the time of such reset,
National would incur an additional cost. For example, if 6-month LIBOR
instead increased to 5.50% at the time of the second reset, National (and
hence Supply) would incur a pre-tax cost of $57,500.
The accounting entries on National and Supply's books for the
Strategy 1 swap transaction described in the above example (at the first
reset date only and assuming flat interest rates) will be as follows, for a
one-month period:
National Fuel Gas Company and Subsidiaries
------------------------------------------
Accounting Entries
------------------
Strategy 1 Swap
---------------
National Fuel Gas Company
-------------------------
Entry No. 1
Accrued Interest Expense $312,500
Interest Payable $312,500
To record accrued interest expense on $50,000,000 7 1/2% Debentures for the
month of April 1994.
Entry No. 2
Interest Receivable $42,500
Accrued Interest Expense $42,500
To record the net proceeds on $50,000,000 swap (pay 4.25%, receive 5.27%)
for the month of April 1994.
Entry No. 3
Accounts Receivable
Associated Companies $270,000
Interest Income $270,000
To charge subsidiary company with net interest cost on $50,000,000
unsecured subsidiary note minus net swap savings (cost) for the month of
April 1994.
Subsidiary Company
------------------
Entry No. 4
Accrued Interest Expense $270,000
Accounts Payable
Associated Companies $270,000
To record interest expense on $50,000,000 unsecured subsidiary note plus
net swap savings (cost) for the month of April 1994.
Entry No. 5
Accrued Income Taxes $94,500
Federal Income Tax Expense $94,500
To record federal income taxes for the month of April 1994.
National Fuel Gas Company and Subsidiaries
------------------------------------------
Elimination Entries
-------------------
Entry No. 6
Interest Income $270,000
Interest Expense $270,000
To record elimination entries for the month of April 1994.
A Strategy 1 swap transaction, if material, would be reported as
a footnote to the financial statements of National in accordance with the
Generally Accepted Accounting Principles. The transaction will not have an
impact on the balance sheet of National.
National will not enter into a Strategy 1 swap unless the
estimated savings at the time of initiation of the swap (derived from the
net difference between the interest to be paid by National and the interest
to be received by National under the Strategy 1 swap using current market
rates) is, on an after-tax basis, greater than the transaction and
ancillary costs of the Strategy 1 swap.
National may also use other derivative strategies from time to
time in conjunction with a Strategy 1 swap. Such derivative strategies may
include interest rate caps, interest rate floors, interest rate collars(2)
_________________
[FN](2) (An interest rate collar occurs when National buys a
cap and sells a floor.)[/FN]
and options. Depending on how low the interest rate cap is set or how high
the interest rate floor is set, National may pay or receive an upfront fee,
and/or share with the counterparty a portion of the savings realized on the
spread between the capped rate and the floating rate.
Caps, collars and floors would enable National to manage the
interest rate risks associated with floating rate payment obligations.
Such an obligation could be incurred if National issues a floating rate MTN
or Debenture or initiates a Strategy 1 swap.
National would determine whether to use caps, floors, collars or
options at the time that National enters into a Strategy 1 swap or at any
time during the term of the swap. The decision on whether to use any of
the derivatives listed above, would depend on National's view of, the
expected interest rate movements during the term of the swap, the expected
risks of loss due to the swap, and the cost of buying a cap, floor, collar
or option.
The payments or receipts associated with a cap, collar, floor or
option will be allocated to the subsidiary that holds the underlying
obligation.
It is anticipated that each Strategy 1 swap would provide that
each party may terminate or "unwind" the agreement with the other party's
consent, by making early termination payments and/or as may otherwise be
set forth in an agreement as described below. Termination payments would
be determined in accordance with the formula provided in the agreement
between the parties, such as the one provided in the International Swap
Dealers Association Master Agreement filed as Exhibit B-4 to this
Application/Declaration, unless the parties negotiated different payment
arrangements. Termination payments are dependent upon market conditions
and could be substantial at times. Termination payments or the costs to
"unwind" a swap would depend on the movement of the interest rates for the
short term index used in the swap after the swap is consummated. If
National enters into a Strategy 1 swap where National pays a floating rate
and receives a fixed rate, the fixed rate of the swap is calculated as the
rate of interest that sets the net present value of the forward curve for
the short-term index to zero, plus the bid/ask spread. The bid/ask spread
for a swap can vary from 1 to 10 basis points depending on the market demand
for the swap at that time.
If the interest rates had moved exactly as the forward curve had
predicted, during the term of the swap, the termination or "unwind" cost
for the swap would be zero. If the interest rates move higher than
predicted by the forward curve, National would incur a cost to "unwind".
This cost would be equal to the present value of the forward curve (at the
time the termination takes place) for the short-term index for the
remaining term of the swap, discounted at the interest rate of the Treasury
zero-coupon bond having the same term as the remaining term of the swap.
Here again a bid/ask spread based on market conditions would be
added/subtracted from the "unwind" cost. If the interest rates had moved
lower than the forward curve had predicted, National would receive the
"unwind" cost, calculated as described in the above paragraph.
It would be very difficult to determine a dollar figure for such
a termination since the calculations depend entirely on the movement of
interest rates and the implied forward curve at the time of termination.
However, termination or "unwind" costs (or receipts) are not expected to
exceed 10% of the notional amount in most cases. Termination payments (or
receipts) associated with Strategy 1 swaps would be allocated to the
subsidiary that executed the note or agreement to National regarding the
payment obligations of the terminated swap.
Strategy 2
----------
National could from time to time combine new or existing floating
rate debt (such as the floating rate short-term debt issued from time to
time pursuant to National's short-term borrowing and system Money Pool
arrangements (File No. 70-8297, Release No. 35-25964 dated December 29,
1993)) with a fixed-to-floating interest rate swap (Strategy 2 swap).
National would enter into a Strategy 2 swap with a counterparty whereby
National would pay a fixed interest rate based on the forward curve.
National would in return receive a floating interest rate based on such
indices as LIBOR, the Federal Funds rate, certificate of deposit indices or
commercial paper indices (H.15 CP index or any other commercial paper
index). No principal payments are made or received by either counterparty
upon either the initiation or termination of an interest rate swap,
including a Strategy 2 swap.
The hypothetical example below, based upon market rates prevalent
on April 8, 1994, illustrates the nature of a Strategy 2 swap and the
savings that might be associated with using it.
Amount of short-term debt $50,000,000
Interest paid on short-term debt
(using current H.15 CP index
plus credit spread of National-
estimated at 3.87%) $161,250 per month
Strategy 2 Swap
Notional amount of swap $50,000,000
Term of swap 5 years (60 resets)
At each reset, (every month)
National pays a fixed rate @6.853% $285,542 per month
National receives H.15 CP index
currently 3.72% $155,000 per month
Total cost of using a swap
($285,542 + 161,250 - 155,000) $291,792
National would enter into a Strategy 2 swap, and not reduce its
short-term debt, as opposed to issuing a 5-year MTN or Debenture and
reducing short-term debt, only if the costs associated with the swap,
including transaction costs,(3)
_________________
[FN](3) (Transaction costs may include any intermediary fees,
credit spreads, and legal and other costs associated with using a
Strategy 2 swap versus a Debenture or MTN, such as extra bank fees
due to same or lost opportunities for bond or short-term debt rating
upgrades.)[/FN]
were less than the costs of issuing the long-term debt.
For example, if National issued a MTN having the same term as the
above swap (5 years) with the following terms:
Principal amount of debt issued $50,000,000
Effective all-in interest cost(4) 7.14%
-----------------
[FN](4) (Effective all-in interest cost means the coupon rate
of interest for the MTN plus the agent/underwriter fee allocated
over the life of the MTN.)[/FN]
Monthly interest cost(5) $297,500
-----------------
[FN](5) (Monthly interest is used to compare the cost of the
MTN to the swap because the swap resets monthly.)[/FN]
The net savings to National by using a swap for
each reset are ($297,500 - 291,792) $ 5,708
Total net savings to National by using the swap
over the 5-year period (undiscounted
and pre-tax)(6) $342,480
-----------------
[FN](6) (Assuming that the H.15 CP index and National's
short-term debt costs move in unison for the term of the swap.)[/FN]
National would save 18.9 basis points(7)
-----------------
[FN](7) (The savings do not include the transaction costs.
Please see footnote 3 for more details concerning transaction
costs.)[/FN]
in interest cost calculated on a semi-annual bond basis by
using the above swap and retaining short-term debt instead of issuing the
above MTN.
In the example above, the subsidiary of National which is
allocated the cost of the swap will save $5,708 per month (each reset), for
a total of $342,480 over a period of 5 years, by keeping the short-term
debt levels constant and using the above swap to fix a particular interest
rate for the long-term, instead of issuing the above MTN, as long as the
H.15 CP index and National's short-term debt costs move in unison.
In the above example, if the interest cost of National's
short-term debt does not move in unison with H.15 CP index, National may
incur additional costs or it may save more, depending on how the two
interest rates change in relation to one another.
For example, if the short-term interest cost for National
increased to 4.00% at the time of a subsequent reset, and the H.15 CP index
increased to 3.95%, the savings to National would be calculated as follows:
Interest paid on short-term debt @ 4.00% $166,667 per month
Strategy 2 Swap
National pays a fixed rate @ 6.853% $285,542 per month
National receives H.15 CP index
@ 3.95% $164,583 per month
Total cost of using a swap
($285,542 + 166,667 - 164,583) $287,626
Net savings to National for this
reset ($297,500 - 287,626) $ 9,874
National saved $9,874 for this reset versus $5,708 for the
previous reset because National's short-term borrowing rates did not
increase as much as the H.15 CP index did.
This savings can also decrease, or National may incur an
additional cost, if at the time of a subsequent reset the difference
between National's short-term interest costs and the H.15 CP index
increases. For example, if National's short-term interest rate is then
4.25% and H.15 CP index is then 3.90%, the net cost to National at the
reset is $2,625. $300,125 (payments) - $297,500 (receipts) = $2,625.
National does not expect the relative differences between
short-term borrowing rates and the H.15 CP index to vary substantially over
time (i.e., by more than 10 basis points in either direction), unless
National is downgraded by the bond rating agencies. There is a possibility
that such a downgrade may erase the savings for the rest of the term of the
swap or until National is upgraded by the bond rating agencies.
The accounting entries for the Strategy 2 swap transaction will
be as follows on the books of National and the affected subsidiary, using
the first Strategy 2 example above, for a one-month period:
National Fuel Gas Company and Subsidiaries
------------------------------------------
Accounting Entries
------------------
Strategy 2 Swap
---------------
National Fuel Gas Company
-------------------------
Entry No. 1
Accrued Interest Expense $161,250
Interest Payable $161,250
To accrue interest on $50,000,000 short-term debt at 3.87% for the month of
April 1994.
Entry No. 2
Accrued Interest Expense $119,292
Interest Payable $119,292
To record net interest expense on $50,000,000 swap (pay 6.853%, receive
3.72%) for the month of April 1994.
Entry No. 3
Accounts Receivable
Associated Companies $291,792
Interest Income $291,792
To charge subsidiary company with net interest on $50,000,000 short-term
subsidiary note for the month of April 1994.
Subsidiary Company
------------------
Entry No. 4
Accrued Interest Expense $291,792
Accounts Payable
Associated Companies $291,792
To record interest expense on $50,000,000 short-term debt for the month of
April 1994.
Entry No. 5
Accrued Income Taxes $102,127
Federal Income Tax Expense $102,127
To record federal income taxes for the month of April 1994.
National Fuel Gas Company and Subsidiaries
------------------------------------------
Elimination Entries
-------------------
Entry No. 6
Interest Income $291,792
Interest Expense $291,792
To record elimination entries for the month of April 1994.
The Strategy 2 swap, if material, would be reported as a footnote
to the financial statements of National in accordance with the Generally
Accepted Accounting Principles. The transaction would not be reflected on
National's balance sheet.
National believes that, by using a Strategy 2 swap, it may be
able to reduce its effective interest costs, versus issuing a New MTN or
Debenture. National will not enter into a Strategy 2 swap unless the
estimated after-tax cost of the swap (including any intermediary fees,
credit spreads, and legal and other costs associated with using a Strategy
2 swap versus a Debenture or MTN, such as extra bank fees due to same or
lost opportunities for bond or short-term debt rating upgrades) are lower
than the after-tax costs of issuing a new MTN or Debenture (including any
issuance and legal costs) of the same maturity.
In no event, under any Strategy 2 swap, will National enter into
a swap contract in which the effective fixed rate of interest paid by
National, inclusive of any intermediary fee, would exceed by more than 2.0%
per annum, at the time of entering into any Strategy 2 swap contract, the
yield on direct obligations of the United States Government as published by
the Federal Reserve (i.e., Treasury Bonds, Notes and Bills) with maturities
comparable to the maturity of such Strategy 2 swap contract.
The notional amount for the Strategy 2 swaps will not exceed the
difference of a) $350,000,000 and b) the aggregate principal amount of New
Debentures and New MTNs outstanding. The current amount of New MTNs
outstanding is $30,000,000. The aggregate notional amount of all the swaps
initiated pursuant to any orders issued in this file (Strategy 1 and
Strategy 2 swaps) and swaps initiated pursuant to the SEC's order in File
No. 70-8297, relating to National's short-term borrowings and system Money
Pool arrangement, will not exceed $350 million. The term for any Strategy
2 swaps will range from 9 months to 40 years.
Each time National issues Debentures or MTNs, the proceeds are
lent to one or more of the Subsidiaries at an all in cost that is equal to
the coupon on the debt plus the amortization of the underwriters' or agents'
fees. The loans are documented by intercompany notes from the Subsidiaries
to National. All the interest costs of both long-term and short-term debt
is borne by the subsidiaries. In accordance with National's current policy
of not assuming any cost of debt, or the above costs of issuance of debt,
the gains and the losses of doing a swap should be assumed by the
subsidiary. National would enter into a swap in connection with an
underlying subsidiary note only after determining it to be in the best
interest of the subsidiary at the time of consummation of the swap.
Since a Strategy 2 swap would be used in lieu of issuing new MTNs
or Debentures, the subsidiary that would have received the proceeds of
issuing long-term debt would be the one which would receive the costs
(savings) of the swap. The costs associated with the short-term debt that
is not repaid as a result of using this swap strategy would be allocated to
the subsidiary that would have paid interest associated with the MTNs or
Debentures that would otherwise have been issued. The fixed rate payments
and the floating rate receipts of the Strategy 2 swap would be allocated to
the same subsidiary to which the costs associated with the short-term debt
are assigned. Subsidiaries that could receive the Strategy 2 allocations
from National include Distribution, Supply, Seneca, Penn-York, Empire and
Utility Constructors. The subsidiary that would receive the cost
allocations related to a Strategy 2 swap (short-term debt principal and
interest payments, fixed rate payments under the swap and floating rate
receipts under the swap) would be obligated to execute an unsecured note or
an agreement with National to make the interest payments (and receive the
floating rate interest) at each reset date of the floating rate index.
It is anticipated that each Strategy 2 swap would provide that
each party may terminate or "unwind" the agreement with the other party's
consent and/or with early termination payments. Termination payments would
be determined in accordance with the formula provided in the agreement
between the parties, such as the one provided in the International Swap
Dealers Association Master Agreement filed as Exhibit B-4 to this
Application/Declaration, unless the parties negotiated different payment
arrangements. Termination payments are dependent upon market conditions
and could be substantial at times. The methodology for calculating the
cost of "unwinding" a Strategy 2 swap would be the same as that used for a
Strategy 1 swap. Termination payments for a Strategy 2 swap could be
functionally compared to a premium that is paid to the bondholders, for
redeeming or discharging high cost debt. Termination or "unwind" costs
(or receipts) are not expected to exceed 10% of the notional amount
in most cases. Termination payments (or receipts) for Strategy 2 swaps
would be allocated to the subsidiary that executed the note or agreement to
National regarding the payment obligations of the terminated swap.
National may also use other derivative strategies from time to
time in conjunction with a Strategy 2 swap. Such derivative strategies may
include interest rate caps, interest rate floors, interest rate collars and
options. Depending on how low the interest rate cap is set or how high the
interest rate floor is set, National may pay or receive an upfront fee,
and/or share with the counterparty a portion of the savings realized on the
spread between the capped rate and the floating rate.
The payments or receipts associated with a cap, collar floor or
option will be allocated to the subsidiary that holds the underlying
obligation.
Since a swap is essentially an exchange of interest payment
obligations of National and a counterparty, National will neither receive
nor pay any proceeds (i.e., principal) from any swaps."
Item 2. Fee, Commissions and Expenses.
Item 2 is hereby amended by adding the following at the end
thereof:
"The estimated fees and expenses for the proposed interest rate
swaps, other than fees required for guaranteeing payment obligations, are
set forth in Exhibit I-1 hereto."
Item 4. Regulatory Approval.
Item 4 is hereby amended by adding the following at the end
thereof:
"No State regulatory authority has jurisdiction over the proposed
swap transactions except that the Public Service Commission of New York and
the Pennsylvania Public Utility Commission have jurisdiction over the
allocation of costs and benefits to Distribution associated with the swap
transactions. National will file the Applications or Petitions (or
amendments to current applications or petitions) requesting the approval of
such commissions, should National decide to do a swap and allocate the
costs to Distribution."
Item 5. Procedure.
Item 5 is hereby amended by adding the following at the end
thereof:
"National respectfully requests that the Commission's order
herein be entered pursuant to Rule 23 as soon as practicable.
If a hearing be ordered, National waives a recommended decision
by a Hearing Officer, or any other responsible officer of the Commission,
agrees that the Office of Public Utility Regulation may assist in the
preparation of the Commission's decision and requests that there be no
waiting period between the issuance of the Commissions supplemental order
and the date on which it becomes effective."
Item 6. Exhibits and Financial Statements.
Item 6 is hereby amended by adding the following exhibits at the
end thereof:
"B-4 Form of Proposed Swap Agreement
(*)F-4 Opinion of Reid & Priest, Counsel for National
(*)F-5 Opinion of Stryker, Tams & Dill, New Jersey
Counsel for National
(*)F-6 Opinion of Richard M. DiValerio, Counsel for Distribution,
Supply, Penn-York, Senera, Empire, and Utility Constructors
H-2 Suggested form of notice of proposed transactions
I-1 Schedule of Estimated Fees and Expenses in
Connection with the Proposed Interest Rate Swaps."
-----------------
[FN](*) (To be supplied by amendment.)[/FN]
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned companies have duly
caused this amendment to be signed on their behalf by the undersigned
thereunto duly authorized.
NATIONAL FUEL GAS COMPANY
By /s/ Joseph P. Pawlowski
-------------------------
Joseph P. Pawlowski
Treasurer
NATIONAL FUEL GAS
DISTRIBUTION CORPORATION
By /s/ Gerald T. Wehrlin
-------------------------
Gerald T. Wehrlin
Senior Vice President,
Controller
SENECA RESOURCES CORPORATION
By /s/ Gerald T. Wehrlin
-------------------------
Gerald T. Wehrlin
Secretary, Treasurer and
Controller
NATIONAL FUEL GAS SUPPLY
CORPORATION
By /s/ Joseph P. Pawlowski
-------------------------
Joseph P. Pawlowski
Treasurer
PENN-YORK ENERGY CORPORATION
By /s/ Joseph P. Pawlowski
-------------------------
Joseph P. Pawlowski
Treasurer
EMPIRE EXPLORATION, INC.
By /s/ Joseph P. Pawlowski
-------------------------
Joseph P. Pawlowski
Treasurer
UTILITY CONSTRUCTORS, INC.
By /s/ Joseph P. Pawlowski
-------------------------
Joseph P. Pawlowski
Treasurer
DATED: May 20, 1994
<PAGE>
(MULTICURRENCY--CROSS BORDER) EXHIBIT B-4
-----------
ISDA(registered mark)
INTERNATIONAL SWAP DEALERS ASSOCIATION, INC.
MASTER AGREEMENT
dated as of __________________
_____________________________ and
have entered and/or anticipate entering into one or more transactions (each
a "Transaction") that are or will be governed by this Master Agreement,
which includes the schedule (the "Schedule"), and the documents and other
confirming evidence (each a "Confirmation") exchanged between the parties
confirming those Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master
Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the
provisions of the Schedule and the other provisions of this Master
Agreement the Schedule will prevail. In the event of any inconsistency
between the provisions of any Confirmation and this Master Agreement
(including the Schedule), such Confirmation will prevail for the purpose of
the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on
the fact that this Master Agreement and all Confirmations form a single
agreement between the parties (collectively referred to as this
"Agreement"), and the parties would not otherwise enter into any
Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the
relevant Confirmation or otherwise pursuant to this Agreement, in
freely transferable funds and in the manner customary for payments in
the required currency. Where settlement is by delivery (that is,
other than by payment), such delivery will be made for receipt on the
due date in the manner customary for the relevant obligation unless
otherwise specified in the relevant Confirmation or elsewhere in this
Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is
subject to (1) the condition precedent that no Event of Default or
Potential Event of Default with respect to the other party has
occurred and is continuing, (2) the condition precedent that no Early
Termination Date in respect of the relevant Transaction has occurred
or been effectively designated and (3) each other applicable condition
precedent specified in this Agreement.
Copyright (c) 1992 by International Swap Dealers Associations, Inc.
<PAGE>
(b) CHANGE OF ACCOUNT. Either party may change its account for receiving
a payment or delivery by giving notice to the other party at least five
Local Business Days prior to the scheduled date for the payment or delivery
to which such change applies unless such other party gives timely notice of
a reasonable objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to
make payment of any such amount will be automatically satisfied and
discharged and, if the aggregate amount that would otherwise have been
payable by one party exceeds the aggregate amount that would otherwise have
been payable by the other party, replaced by an obligation upon the party
by whom the larger aggregate amount would have been payable to pay to the
other party the excess of the larger aggregate amount over the smaller
aggregate amount.
The parties may elect in respect of two or more Transactions that a net
amount will be determined in respect of all amounts payable on the same
date in the same currency in respect of such Transactions, regardless of
whether such amounts are payable in respect of the same Transaction. The
election may be made in the Schedule or a Confirmation by specifying that
subparagraph (ii) above will not apply to the Transactions identified as
being subject to the election, together with the starting date (in which
case subparagraph (ii) above will not, or will cease to, apply to such
Transactions from such date). This election may be made separately for
different groups of Transactions and will apply separately to each pairing
of Offices through which the parties make and receive payments or
deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS UP. All payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such
deduction or withholding is required by any applicable law, as
modified by the practice of any relevant governmental revenue
authority, then in effect. If a party is so required to deduct or
withhold, then that party ("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to
be deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y
under this Section 2(d)) promptly upon the earlier of determining
that such deduction or withholding is required or receiving
notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y,
evidencing such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax pay to Y, in addition to
the payment to which Y is otherwise entitled under this
Agreement, such additional amount as is necessary to ensure that
the net amount actually received by Y (free and clear of
Indemnifiable Taxes, whether assessed against X or Y) will equal
the full amount Y would have received had no such deduction or
withholding been required. However, X will not be required to
pay any additional amount to Y to the extent that it would not be
required to be paid but for:--
(A) the failure by Y to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d);
or
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure
would not have occurred but for (I) any action taken by a
taxing authority, or brought in a court of competent
jurisdiction, on or after the date on which a Transaction is
entered into (regardless of whether such action is taken or
brought with respect to a party to this Agreement) or (11) a
Change in Tax Law.
(ii) LIABILITY. IF:--
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to make
any deduction or withholding in respect of which X would not be
required to pay an additional amount to Y under Section
2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the
liability resulting from such Tax, Y will promptly pay to X the amount
of such liability (including any related liability for interest, but
including any related liability for penalties only if Y has failed to
comply with or perform any agreement contained in Section 4(a)(i),
4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment
obligation will, to the extent permitted by law and subject to Section
6(c), be required to pay interest (before as well as after judgment) on the
overdue amount to the other party on demand in the same currency as such
overdue amount, for the period from (and including) the original due date
for payment to (but excluding) the date of actual payment, at the Default
Rate. Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed. If, prior to the occurrence or
effective designation of an Early Termination Date in respect of the
relevant Transaction, a party defaults in the performance of any obligation
required to be settled by delivery, it will compensate the other party on
demand if and to the extent provided for in the relevant Confirmation or
elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be
deemed to be repeated by each party on each date on which a Transaction is
entered into and, in the case of the representations in Section 3(f), at
all times until the termination of this Agreement) that:--
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organized and validly existing under the laws
of the jurisdiction of its organization or incorporation and, if
relevant under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement and any obligations it
has under any Credit Support Document to which it is a party and has
taken all necessary action to authorize such execution, delivery and
performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and
performance do not violate or conflict with any law applicable to it,
any provision of its constitutional documents, any order or judgment
of any court or other agency of government applicable to it or any of
its assets or any contractual restriction binding on or affecting it
or any of its assets;
(iv) CONSENTS. All governmental and other consents that are required
to have been obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party have been obtained and
are in full force and effect and all conditions of any such consents
have been complied with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and
any Credit Support Document to which it is a party constitute its
legal, valid and binding obligations, enforceable in accordance with
their respective terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally and subject, as to enforceability, to
equitable principles of general application (regardless of whether
enforcement is sought in a proceeding in equity or at law)).
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has
occurred and is continuing and no such event or circumstance would occur as
a result of its entering into or performing its obligations under this
Agreement or any Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it 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 Agreement or any
Credit Support Document to which it is a party or its ability to perform
its obligations under this Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is
identified for the purpose of this Section 3(d) in the Schedule is, as of
the date of the information, true, accurate and complete in every material
respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(e) is
accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(f) is
accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may
have any obligation under this Agreement or under any Credit Support
Document to which it is a party:--
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or,
in certain cases under subparagraph (iii) below, to such government or
taxing authority as the other party reasonably directs:-
(i) any forms, documents or certificates relating to taxation
specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any
Confirmation; and
(iii) upon reasonable demand by such other party, any form or
document that may be required or reasonably requested in writing in
order to allow such other party or its Credit Support Provider to make
a payment under this Agreement or any applicable Credit Support
Document without any deduction or withholding for or on account of any
Tax or with such deduction or withholding at a reduced rate (so long
as the completion, execution or submission of such form or document
would not materially prejudice the legal or commercial position of the
party in receipt of such demand), with any such form or document to be
accurate and completed in a manner reasonably satisfactory to such
other party and to be executed and to be delivered with any reasonably
required certification,
in each case by the date specified in the Schedule or such Confirmation or,
if none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORIZATIONS. It will use all reasonable efforts to
maintain in full force and effect all consents of any governmental or other
authority that are required to be obtained by it with respect to this
Agreement or any Credit Support Document to which it is a party and will
use all reasonable efforts to obtain any that may become necessary in the
future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to
comply would materially impair its ability to perform its obligations under
this Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon
learning of such failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp
Tax levied or imposed upon it or in respect of its execution or performance
of this Agreement by a jurisdiction in which it is incorporated, organized,
managed and controlled, or considered to have its seat, or in which a
branch or office through which it is acting for the purpose of this
Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the
other party against any Stamp Tax levied or imposed upon the other party or
in respect of the other party's execution or performance of this Agreement
by any such Stamp Tax Jurisdiction which is not also a Stamp Tax
Jurisdiction with respect to the other party.
5. EVENTS OR DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any
Specified Entity of such party of any of the following events constitutes
an event of default (an "Event of Default") with respect to such party:--
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when
due, any payment under this Agreement or delivery under Section
2(a)(i) or 2(e) required to be made by it if such failure is not
remedied on or before the third Local Business Day after notice of
such failure is given to the party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) or to give notice of a Termination Event or any agreement or
obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied
with or performed by the party in accordance with this Agreement if
such failure is not remedied on or before the thirtieth day after
notice of such failure is given to the party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support
Document or the failing or ceasing of such Credit Support
Document to be in full force and effect for the purpose of this
Agreement (in either case other than in accordance with its
terms) prior to the satisfaction of all obligations of such party
under each Transaction to which such Credit Support Document
relates without the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirm,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been
made or repeated by the party or any Credit Support Provider of such
party in this Agreement or any Credit Support Document proves to have
been incorrect or misleading in any material respect when made or
repeated or deemed to have been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit
Support Provider of such party or any applicable Specified Entity of
such party (1) defaults under a Specified Transaction and after giving
effect to any applicable notice requirement or grace period, there
occurs a liquidation of, an acceleration of obligations under, or an
early termination of, that Specified Transaction, (2) defaults, after
giving effect to any applicable notice requirement or grace period, in
making any payment or delivery due on the last payment, delivery or
exchange date of, or any payment on early termination of, a Specified
Transaction (or such default continues for at least three Local
Business Days if here is no applicable notice requirement or grace
period) or (3) disaffirm, disclaims, repudiates or rejects, in whole
or in part, a Specified Transaction (or such action is taken by any
person or entity appointed or empowered to operate it or act on its
behalf);
(vi) CROSS DEFAULT. If Cross Default is specified in the Schedule as
applying to the party the occurrence or existence of (1) a default,
event of default or other similar condition or event (however
described) in respect of such party, any Credit Support Provider of
such party or any applicable Specified Entity of such party under one
or more agreements or instruments relating to Specified Indebtedness
of any of them (individually or collectively) in an aggregate amount
of not less than the applicable Threshold Amount (as specified in the
Schedule) which has resulted in such Specified Indebtedness becoming,
or becoming capable at such time of being declared, due and payable
under such agreements or instruments, before it would otherwise have
been due and payable or (2) a default by such party, such Credit
Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof
in an aggregate amount of not less than the applicable Threshold
Amount under such agreements or instruments (after giving effect to
any applicable notice requirement or grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such
party or any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to
pay its debts or fails or admits in writing its inability
generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the
benefit of its creditors; (4) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or insolvency
law or other similar law affecting creditors' rights, or a
petition is presented for its winding-up or liquidation, and, in
the case of any such proceeding or petition instituted or
presented against it, such proceeding or petition (A) results in
a judgment of insolvency or bankruptcy or the entry of an order
for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its
winding-up, official management or liquidation (other than
pursuant to a consolidation, amalgamation or merger); (6) seeks
or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee, custodian
or other similar official for it or for all or substantially all
its assets; (7) has a secured party take possession of all or
substantially all its assets or has a distress, execution,
attachment, sequestration or other legal process levied, enforced
or sued on or against all or substantially all its assets and
such secured party maintains possession, or any such process is
not dismissed, discharged, stayed or restrained, in each case
within 30 days thereafter; (8) causes or is subject to any event
with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events
specified in clauses (1) to (7) (inclusive); or (9) takes any
action in furtherance of, or indicating its consent to, approval
of, or acquiescence in, any of the foregoing acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges
with or into, or transfers all or substantially all its asset to,
another entity and, at the time of such consolidation, amalgamation,
merger or transfer:--
(1) the resulting, surviving or transferee entity fails to
assume all the obligations of such party or such Credit Support
Provider under this Agreement or any Credit Support Document to
which it or its predecessor was a party by operation of law or
pursuant to an agreement reasonably satisfactory to the other
party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its obligations
under this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a
party or, if applicable any Credit Support Provider of such party or any
Specified Entity of such party of any event specified below constitutes an
Illegality if the event is specified in (i) below, a Tax Event if the event
is specified in (ii) below or a Tax Event Upon Merger if the event is
specified in (iii) below, and, if specified to be applicable, a Credit
Event Upon Merger if the event is specified pursuant to (iv) below or an
Additional Termination Event if the event is specified pursuant to (v)
below:--
(i) ILLEGALITY. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into,
or due to the promulgation of, or any change in, the interpretation by
any court, tribunal or regulatory authority with competent
jurisdiction of any applicable law after such date, it becomes
unlawful (other than as a result of a breach by the party of Section
4(b)) for such party (which will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in
respect of such Transaction or to comply with any other material
provision of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party
(or such Credit Support Provider) has under any Credit Support
Document relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of whether such action
is taken or brought with respect to a party to this Agreement) or (y)
a Change in Tax Law, the party (which will be the Affected Party)
will, or there is a substantial likelihood that it will, on the next
succeeding Scheduled Payment Date (1) be required to pay to the other
party an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is
required to be deducted or withheld for or on account of a Tax (except
in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no
additional amount is required to be paid in respect of such Tax under
Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or
(B));
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on
the next succeeding Scheduled Payment Date will either (1) be required
to pay an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has
been deducted or withheld for or on account or any Indemnifiable Tax
in respect of which the other party is not required to pay an
additional amount (other than by reason of Section 2(d)(i)(4)(A) or
(B)), in either case as a result of a party consolidating or
amalgamating with, or merging with or into, or transferring all or
substantially all its assets to, another entity (which will be the
Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of
X consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its asset to, another entity and
such action does not constitute an event described in Section
5(a)(viii) but the creditworthiness of the resulting, surviving or
transferee entity is materially weaker than that of X, such Credit
Support Provider or such Specified Entity, as the case may be,
immediately prior to such action (and, in such event, X or its
successor or transferee, as appropriate, will be the Affected Party);
or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying,
the occurrence of such event (and, in such event, the Affected Party
or Affected Parties shall be as specified for such Additional
Termination Event in the Schedule or such Confirmation).
(c) EVENT OF DEFAULT ANT ILLEGALITY. If an event or circumstance which
would otherwise constitute or give rise to an Event of Default also
constitutes an Illegality, it will be treated as an Illegality and will not
constitute an Event of Default
6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an
Event of Default with respect to a party (the "Defaulting Party") has
occurred and is then continuing, the other party (the "Non-defaulting
Party") may, by not more than 20 days notice to the Defaulting Party
specifying the relevant Event of Default, designate a day not earlier than
the day such notice is effective as an Early Termination Date in respect of
all outstanding Transactions. If, however, "Automatic Early Termination" is
specified in the Schedule as applying to a party, then an Early Termination
Date in respect of all outstanding Transactions will occur immediately upon
the occurrence with respect to such party of an Event of Default specified
in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto,
(8), and as of the time immediately preceding the institution of the
relevant proceeding or the presentation of the relevant petition upon the
occurrence with respect to such party of an Event of Default specified in
Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality
under Section S(b)(i)(l) or a Tax Event occurs and there is only one
Affected Party, or if a Tax Event Upon Merger occurs and the Burdened
Party is the Affected Party, the Affected Party will, as a condition
to its right to designate an Early Termination Date under Section
6(b)(iv), use all reasonable efforts (which will not require such
party to incur a loss, excluding immaterial, incidental expenses) to
transfer within 20 days after it gives notice under Section 6(b)(i)
all its rights and obligations under this Agreement in respect of the
Affected Transactions to another of its Offices or Affiliates so that
such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days
after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be
subject to and conditional upon the prior written consent of the other
party, which consent will not be withheld if such other party's
policies in effect at such time would permit it to enter into
transactions with the transferee on the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section
5(b)(i)( 1 ) or a Tax Event occurs and there are two Affected Parties,
each party will use all reasonable efforts to reach agreement within
30 days after notice thereof is given under Section 6(b)(i) on action
to avoid that Termination Event.
(iv) RIGHT TO TERMINATE. IF:--
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected with
respect to all Affected Transactions within 30 days after an
Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event
Upon Merger occurs and the Burdened Party is not the Affected
Party,
either party in the case of an Illegality, the Burdened Party in the case
of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event
or an Additional Termination Event if there is more than one Affected
Party, or the party which is not the Affected Party in the case of a Credit
Event Upon Merger or an Additional Termination Event if there is only one
Affected Party may, by not more than 20 days notice to the other party and
provided that the relevant Termination Event is then continuing, designate
a day not earlier than the day such notice is effective as an Early
Termination Date in respect of all Affected Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and
will provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving
details of the relevant account to which any amount payable to it is
to be paid. In the absence of written confirmation from the source of
a quotation obtained in determining a Market Quotation, the records of
the party obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of
any Early Termination Date under Section 6(e) will be payable on the
day that notice of the amount payable is effective (in the case of an
Early Termination Date which is designated or occurs as a result of an
Event of Default) and on the day which is two Local Business Days
after the day on which notice of the amount payable is effective (in
the case of an Early Termination Date which is designated as a result
of a Termination Event). Such amount will be paid together with (to
the extent permitted under applicable law) interest thereon (before as
well as after judgment) in the Termination Currency, from (and
including) the relevant Early Termination Date to (but excluding) the
date such amount is paid, at the Applicable Rate. Such interest will
be calculated on the basis of daily compounding and the actual number
of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs,
the following provisions shall apply based on the parties' election in the
Schedule of a payment measure, either "Market Quotation" or "Loss", and a
payment method, either the "First Method" or the "Second Method". If the
parties fail to designate a payment measure or payment method in the
Schedule, it will be deemed that "Market Quotation" or the "Second Method",
as the case may be, shall apply. The amount, if any, payable in respect of
an Early Termination Date and determined pursuant to this Section will be
subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an
Event of Default:--
(1) First Method and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the
sum of the Settlement Amount (determined by the Non-defaulting
Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to
the Non-defaulting Party over (B) the Termination Currency
Equivalent of the Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply,
the Defaulting Party will pay to the Non-defaulting Party, if a
positive number, the Non-defaulting Party's Loss in respect of
this Agreement.
(3) Second Method and Marker Quotation. If the Second Method
and Market Quotation apply, an amount will be payable equal to
(A) the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated Transactions
and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party less (B) the Termination
Currency Equivalent of the Unpaid Amounts owing to the Defaulting
Party. If that amount is a positive number, the Defaulting Party
will pay it to the Non-defaulting Party; if it is a negative
number, the Non-defaulting Party will pay the absolute value of
that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss
apply, an amount will be payable equal to the Non-defaulting
Party's Loss in respect of this Agreement. If that amount is a
positive number, the Defaulting Party will pay it to the
Non-defaulting Party; if it is a negative number, the
Non-defaulting Party will pay the absolute value of that amount
to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4),
if Loss applies, except that, in either case, references to the
Defaulting Party and to the Non-defaulting Party will be deemed
to be references to the Affected Party and the party which is not
the Affected Party, respectively, and, if Loss applies and fewer
than all the Transactions are being terminated, Loss shall be
calculated in respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine
a Settlement Amount in respect of the Terminated
Transactions, and an amount will be payable equal to (I) the
sum of (a) one-half of the difference between the Settlement
Amount of the party with the higher Settlement Amount ("X")
and the Settlement Amount of the party with the lower
Settlement Amount ("Y") and (b) the Termination Currency
Equivalent of the Unpaid Amounts owing to X less (II) the
Termination Currency Equivalent of the Unpaid Amounts owing
to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable equal
to one-half of the difference between the Loss of the party
with the higher Loss ("X") and the Loss of the party with
the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X;
if it is a negative number, X will pay the absolute value of that
amount to Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies
in respect of a party, the amount determined under this Section 6(e)
will be subject to such adjustments as are appropriate and permitted
by law to reflect any payments or deliveries made by one party to the
other under this Agreement (and retained by such other party) during
the period from the relevant Early Termination Date to the date for
payment determined under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation
applies an amount recoverable under this Section 6(e) is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for
the loss of bargain and the loss of protection against future risks
and except as otherwise provided in this Agreement neither party will
be entitled to recover any additional damages as a consequence of such
losses.
7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of
the other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of
all or substantially all its assets to, another entity (but without
prejudice to any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be
void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this
Agreement will be made in the relevant currency specified in this Agreement
for that payment (the "Contractual Currency"). To the extent permitted by
applicable law, any obligation to make payments under this Agreement in the
Contractual Currency will not be discharged or satisfied by any tender in
any currency other than the Contractual Currency, except to the extent such
tender results in the actual receipt by the party to which payment is owed,
acting in a reasonable manner and in good faith in convening the currency
so tendered into the Contractual Currency, of the full amount in the
Contractual Currency of all amounts payable in respect of this Agreement.
If for any reason the amount in the Contractual Currency so received falls
short of the amount in the Contractual Currency payable in respect of this
Agreement, the party required to make the payment will, to the extent
permitted by applicable law, immediately pay such additional amount in the
Contractual Currency as may be necessary to compensate for the shortfall.
If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount
of such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment
or order expressed in a currency other than the Contractual Currency is
rendered (i) for the payment of any amount owing in respect of this
Agreement, (ii) for the payment of any amount relating to any early
termination in respect of this Agreement or (iii) in respect of a judgment
or order of another court for the payment of any amount described in (i) or
(ii) above, the party seeking recovery, after recovery in full of the
aggregate amount to which such party is entitled pursuant to the judgment
or order, will be entitled to receive immediately from the other party the
amount of any shortfall of the Contractual Currency received by such party
as a consequence of sums paid in such other currency and will refund
promptly to the other party any excess of the Contractual Currency received
by such party as a consequence of sums paid in such other currency if such
shortfall or such excess arises or results from any variation between the
rate of exchange at which the Contractual Currency is converted into the
currency of the judgment or order for the purposes of such judgment or
order and the rate of exchange at which such party is able, in a reasonable
manner and in good faith in converting the currency received into the
Contractual Currency, to purchase the Contractual Currency with the amount
of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and
costs of exchange payable in connection with the purchase of or conversion
into the Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law,
these indemnities constitute separate and independent obligations from the
other obligations in this Agreement, will be enforceable as separate and
independent causes of action, will apply notwithstanding any indulgence
granted by the party to which any payment is owed and will not be affected
by judgment being obtained or claim or proof being made for any other sums
payable in respect of this Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss
had an actual exchange or purchase been made.
9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and
supersedes all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing
evidenced by a facsimile transmission) and executed by each of the parties
or confirmed by an exchange of telexes or electronic messages on an
electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive
the termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the
rights, powers, remedies and privileges provided in this Agreement are
cumulative and not exclusive of any rights, powers, remedies and privileges
provided by-law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts
(including by facsimile transmission), each of which will be deemed an
original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts
(including by facsimile transmission) or be created by an exchange of
telexes or by an exchange of electronic messages on an electronic
messaging system, which in each case will be sufficient for all
purposes to evidence a binding supplement to this Agreement. The
parties will specify therein or through another effective means that
any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right,
power or privilege in respect of this Agreement will not be presumed to
operate as a waiver, and a single or partial exercise of any right, power
or privilege will not be presumed to preclude any subsequent or further
exercise, of that right, power or privilege or the exercise of any other
right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken
into consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section l0(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or
home office represents to the other party that, notwithstanding the place
of booking office or jurisdiction of incorporation or organization of such
party, the obligations of such party are the same as if it had entered into
the Transaction through its head or home office. This representation will
be deemed to be repeated by such party on each date on which a Transaction
is entered into.
(b) Neither party may change the Office through which it makes and
receives payments or deliveries for the purpose of a Transaction without
the prior written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office
through which it makes and receives payments or deliveries with respect to
a Transaction will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other
party for and against all reasonable out-of-pocket expenses, including
legal fees and Stamp Tax, incurred by such other party by reason of the
enforcement and protection of its rights under this Agreement or any Credit
Support Document to which the Defaulting Party is a party or by reason of
the early termination of any Transaction, including, but not limited to,
costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice
or other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date
it is delivered;
(ii) if sent by telex; on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that
transmission is received by a responsible employee of the recipient in
legible form (it being agreed that the burden of proving receipt will
be on the sender and will not be met by a transmission report
generated by the sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas)
or the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt,
as applicable, is not a Local Business Day or that communication is
delivered (or attempted) or received, as applicable, after the close of
business on a Local Business Day, in which case that communication shall be
deemed given and effective on the first following day that is a Local
Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change
the address, telex or facsimile number or electronic messaging system
details at which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings
relating to this Agreement (Proceedings), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and
the United States District Court located in the Borough of Manhattan
in New York City, if this Agreement is expressed to be governed by the
laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any
claim that such Proceedings have been brought in an inconvenient forum
and further waives the right to object, with respect to such
Proceedings, that such court does not have any jurisdiction over such
party.
Nothing in this Agreement precludes either party from bringing Proceedings
in any other jurisdiction (outside, if this Agreement is expressed to be
governed by English law, the Contracting States, as defined in Section 1(3)
of the Civil Jurisdiction and Judgments Act 1982 or any modification,
extension or re-enactment thereof for the time being in force) nor will the
bringing of Proceedings in any one or more jurisdictions preclude the
bringing of Proceedings in any jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and
on its behalf, service of process in any Proceedings. If for any reason
any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute
process agent acceptable to the other party. The parties irrevocably
consent to service of process given in the manner provided for notices in
Section 12. Nothing in this Agreement will affect the right of either
party to serve process in any other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues
and assets (irrespective of their use or intended use), all immunity on the
grounds of sovereignty or other similar grounds from (i) suit, (ii)
jurisdiction of any court, (iii) relief by way of injunction, order for
specific performance or for recovery of property, (iv) attachment of its
assets (whether before or after judgment) and (v) execution or enforcement
of any judgment to which it or its revenues or assets might otherwise be
entitled in any Proceedings in the courts of any jurisdiction and
irrevocably agrees, to the extent permitted by applicable law, that it will
not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b)
with respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose,
"control" of any entity or person means ownership of a majority of the
voting power of the entity or person.
"APPLICABLE RATE" means:--
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any law (or in the
application or official interpretation of any law) that occurs on or after
the date on which the relevant Transaction is entered into.
"CONSENT" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is
specified as such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if
it were to fund or of funding the relevant amount plus 1% per annum.
"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with
Section 6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be
imposed in respect of a payment under this Agreement but for a present or
former connection between the jurisdiction of the government or taxation
authority imposing such Tax and the recipient of such payment or a person
related to such recipient (including, without limitation, a connection
arising from such recipient or related person being or having been a
citizen or resident of such jurisdiction, or being or having been
organized, present or engaged in a trade or business in such jurisdiction,
or having or having had a permanent establishment or fixed place of
business in such jurisdiction, but excluding a connection arising solely
from such recipient or related person having executed, delivered, performed
its obligations or received a payment under, or enforced, this Agreement or
a Credit Support Document).
"LAW" includes any treaty, law, rule or regulation (as modified, in the
case of tax matters, by the practice of any relevant governmental revenue
authority) and "LAWFUL" and "UNLAWFUL" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which
commercial banks are open for business (including dealings in foreign
exchange and foreign currency deposits) (a) in relation to any obligation
under Section 2(a)(i), in the place(s) specified in the relevant
Confirmation or, if not so specified, as otherwise agreed by the parties in
writing or determined pursuant to provisions contained, or incorporated by
reference, in this Agreement (b) in relation to any other payment, in the
place where the relevant account is located and, if different, in the
principal financial centre, if any, of the currency of such payment, (c) in
relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address
for notice provided by the recipient and, in the case of a notice
contemplated by Section 2(b), in the place where the relevant new account
is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant
locations for performance with respect to such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to
be its total losses and costs (or gain, in which case expressed as a
negative number) in connection with this Agreement or that Terminated
Transaction or group of Terminated Transactions, as the case may be,
including any loss of bargain, cost of funding or, at the election of such
party but without duplication, loss or cost incurred as a result of its
terminating, liquidating, obtaining or reestablishing any hedge or related
trading position (or any gain resulting from any of them). Loss includes
losses and costs (or gains) in respect of any payment or delivery required
to have been made (assuming satisfaction of each applicable condition
precedent) on or before the relevant Early Termination Date and not made,
except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or
6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will
determine its Loss as of the relevant Early Termination Date, or, if that
is not reasonably practicable, as of the earliest date thereafter as is
reasonably practicable. A party may (but need not) determine its Loss by
reference to quotations of relevant rates or prices from one or more
leading dealers in the relevant markets.
"MARKET QUOTATION" means, with respect to one or more Terminated
Transactions and a party making the determination, an amount determined on
the basis of quotations from Reference Market-makers. Each quotation will
be for an amount, if any, that would be paid to such party (expressed as a
negative number) or by such party (expressed as a positive number) in
consideration of an agreement between such party (taking into account any
existing Credit Support Document with respect to the obligations of such
party) and the quoting Reference Market-maker to enter into a transaction
(the "Replacement Transaction") that would have the effect of preserving
for such party the economic equivalent of any payment or delivery (whether
the underlying obligation was absolute or contingent and assuming the
satisfaction of each applicable condition precedent) by the parties under
Section 2(a)(i) in respect of such Terminated Transaction or group of
Terminated Transactions that would, but for the occurrence of the relevant
Early Termination Date, have been required after that date. For this
purpose, Unpaid Amounts in respect of the Terminated Transaction or group
of Terminated Transactions are to be excluded but, without limitation, any
payment or delivery that would, but for the relevant Early Termination
Date, have been required (assuming satisfaction of each applicable
condition precedent) after that Early Termination Date is to be included.
The Replacement Transaction would be subject to such documentation as such
party and the Reference Market-maker may, in good faith, agree. The party
making the determination (or its agents) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable
as of the same day and time (without regard to different time zones) on or
as soon as reasonably practicable after the relevant Early Termination
Date. The day and time as of which those quotations are to be obtained
will be selected in good faith by the party obliged to make a determination
under Section 6(e), and, if each party is so obliged, after consultation
with the other. If more than three quotations are provided, the Market
Quotation will be the arithmetic mean of the quotations, without regard to
the quotations having the highest and lowest values. If exactly three such
quotations are provided, the Market Quotation will be the quotation
remaining after disregarding the highest and lowest quotations. For this
purpose, if more than one quotation has the same highest value or lowest
value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation
in respect of such Terminated Transaction or group of Terminated
Transactions cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof
or evidence of any actual cost) to the Non-defaulting Party (as certified
by it) if it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's
head or home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of
notice or the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria
that such party applies generally at the time in deciding whether to offer
or to make an extension of credit and (b) to the extent practicable, from
among such dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions
(a) in which the party is incorporated, organised, managed and controlled
or considered to have its seat, (b) where an Office through which the party
is acting for purposes of this Agreement is located, (c) in which the party
executes this Agreement and (d) in relation to any payment, from or through
which such payment is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to
be made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of
retention or withholding or similar right or requirement to which the payer
of an amount under Section 6 is entitled or subject (whether arising under
this Agreement, another contract, applicable law or otherwise) that is
exercised by, or imposed on, such paper.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early
Termination Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of
Terminated Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference
to any Unpaid Amounts) for each Terminated Transaction or group of
Terminated Transactions for which a Market Quotation cannot be determined
or would not (in the reasonable belief of the party making the
determination) produce a commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation
(whether present or future, contingent or otherwise, as principal or surety
or otherwise) in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter
entered into between one party to this Agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party)
and the other party to this Agreement (or any Credit Support Provider of
such other party or any applicable Specified Entity of such other party)
which is a rate swap transaction, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap, equity or
equity index option, bond option, interest rate option, foreign exchange
transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency
option or any other similar transaction (including any option with respect
to any of these transactions), (b) any combination of these transactions
and (c) any other transactions identified as a Specified Transaction in
this Agreement or the relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge,
assessment or fee of any nature (including interest, penalties and
additions thereto) that is imposed by any government or other taxing
authority in respect of any payment under this Agreement other than a
stamp, registration, documentation or similar tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date
(a) if resulting from a Termination Event, all Affected Transactions and
(b) if resulting from an Event of Default, all Transactions (in either
case) in effect immediately before the effectiveness of the notice
designating that Early Termination Date (or, if "Automatic Early
Termination" applies, immediately before that Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount
denominated in the Termination Currency, such Termination Currency amount
and, in respect of any amount denominated in a currency other than the
Termination Currency (the "Other Currency"), the amount in the Termination
Currency determined by the party making the relevant determination as being
required to purchase such amount of such Other Currency as at the relevant
Early Termination Date, or, if the relevant Market Quotation or Loss (as
the case may be), is determined as of a later date, that later date, with
the Termination Currency at the rate equal to the spot exchange rate of the
foreign exchange agent (selected as provided below) for the purchase of
such Other Currency with the Termination Currency at or about ll:00 a.m.
(in the city in which such foreign exchange agent is located) on such date
as would be customary for the determination of such a rate for the purchase
of such Other Currency for value on the relevant Early Termination Date or
that later date. The foreign exchange agent will, if only one party is
obliged to make a determination under Section 6(e), be selected in good
faith by that party and otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon
Merger or, if specified to be applicable, a Credit Event Upon Merger or an
Additional Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of
the cost (without proof or evidence of any actual cost) to each party (as
certified by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early
Termination Date, the aggregate of (a) in respect of all Terminated
Transactions, the amounts that became payable (or that would have become
payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on
or prior to such Early Termination Date and which remain unpaid as at such
Early Termination Date and (b) in respect of each Terminated Transaction,
for each obligation under Section 2(a)(i) which was (or would have been but
for Section 2(a)(iii)) required to be settled by delivery to such party on
or prior to such Early Termination Date and which has not been so settled
as at such Early Termination Date, an amount equal to the fair market value
of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but excluding)
such Early Termination Date, at the Applicable Rate. Such amounts of
interest will be calculated on the basis of daily compounding and the
actual number of days elapsed. The fair market value of any obligation
referred to in clause (b) above shall be reasonably determined by the party
obliged to make the determination under Section 6(e) or, if each Company is
so obliged, it shall be the average of the Termination Currency Equivalents
of the fair market values reasonably determined by both parties:
IN WITNESS WHEREOF the parties have executed this document on the
respective dates specified below with effect from the date specified on the
first page of this document.
(Name of Party) (Name of Party)
By: By:
Name: Name:
Title: Title:
Date: Date:
<PAGE>
EXHIBIT H-2
-----------
[Suggested Form of Notice of Proposed
Transaction for Publication in the Federal Register]
National Fuel Gas Company ("National"), 30 Rockefeller Plaza, New
York, New York 10112, a registered holding company, and its wholly owned
subsidiary companies, National Fuel Gas Distribution Corporation, National
Fuel Gas Supply Corporation, Seneca Resources Corporation, Penn-York Energy
Corporation, Empire Exploration, Inc. and Utility Constructors, Inc.
(collectively, "Subsidiaries"), all located at 10 Lafayette Square,
Buffalo, New York 14203, have filed an amendment to their Form U-1
Application and Declaration (File No. 70-8143).
Pursuant to File No. 70-8143 National received authority to issue
and sell, through December 31, 1994, in one or more transactions, up to an
aggregate principal amount of $350 million in any combination of (a)
debentures ("Debentures") and (b) medium-term notes ("MTNs") and to loan
the proceeds from the sale of such Debentures and MTNs to the Subsidiaries
pursuant to the terms described therein.
National further seeks authority to enter into one or more
interest rate swap agreements ("swaps"), plus one or more derivative
instruments, such as interest rate caps, interest rate floors, interest
rate collars and options, with one or more counterparties from time to time
through December 31, 1994, in notional amounts aggregating not in excess of
$350 million at any one time outstanding.
National already has certain authority to enter into swaps with a
notional amount not in excess of $200 million in connection with its short-
term debt pursuant to File No. 70-8297. National now requests additional
authority to enter into swaps that hedge National's long-term debt. The
aggregate notional amount of all such derivative transactions (swaps,
interest rate caps, floors and collars) that relate to both long-term debt
and short-term debt will not exceed $350 million.
The effective net interest payments or receipts realized by
National will be passed along to the subsidiaries of National that hold the
underlying debt. None of the interest payments or receipts will be
retained by National.
The swaps would provide that National may terminate the
agreements with the consent of the other party and/or with early
termination payments.
<PAGE>
Exhibit I-1
-----------
Schedule of Estimated Fees and Expenses in Connection with the
Proposed Interest Rate Swaps
Counsel Fees:
Reid & Priest $ 15,000
__________
Stryker, Tams & Dill (N. J. Counsel) 5,000
__________
TOTAL $ 20,000
__________
__________
<PAGE>
