<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended August 28, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from . . . . . to. . . . . .
Commission file number 1-9637.
LILLIAN VERNON CORPORATION
--------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2529859
- ---------------------------------- ------------------------------------
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
1 Theall Road, Rye, New York 10580
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
914-925-1200
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Number of shares outstanding of each of the issuer's classes of common stock:
9,152,061 Shares of Common Stock, $.01 par value, as of October 8, 1999.
<PAGE>
LILLIAN VERNON CORPORATION
--------------------------
Form 10-Q
August 28, 1999
Part I. Financial Information Page #
- ----------------------------- ------
Item 1.
Condensed Consolidated Balance Sheets
as of August 28, 1999, August 29, 1998
and February 27, 1999 (unaudited) 3
Consolidated Statements of Operations
for the quarters and six months ended
August 28, 1999 and August 29, 1998 (unaudited) 4
Consolidated Statements of Cash Flows
for the six months ended August 28, 1999
and August 29, 1998 (unaudited) 5
Notes to Consolidated Financial
Statements 6-7
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-12
Item 3.
Quantitative and Qualitative Disclosures
About Market Risk 12
Part II. Other Information 13
- --------------------------
Signatures 14
Page 2 of 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 28, AUGUST 29, FEBRUARY 27,
ASSETS 1999 1998 1999
------ -------------- -------------- -------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $14,278 $398 $31,834
Accounts receivable 11,153 12,340 21,093
Merchandise inventories 44,402 56,164 26,700
Deferred income taxes -- -- 1,355
Prepayments and other current assets 16,097 27,470 9,671
-------------- -------------- -------------
Total current assets 85,930 96,372 90,653
Property, plant and equipment, net (Note 1) 37,190 37,975 37,811
Deferred catalog costs 8,571 11,327 6,192
Other assets 4,354 3,823 3,550
-------------- -------------- -------------
Total $136,045 $149,497 $138,206
-------------- -------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable and accrued expenses $21,614 $19,641 $17,437
Cash overdrafts 1,500 5,596 1,920
Customer deposits 389 543 228
Current portion of long-term debt and lease obligations -- 635 --
Revolving debt -- 10,500 --
Income taxes payable -- -- 1,072
Deferred income taxes 43 335 --
-------------- -------------- -------------
Total current liabilities 23,546 37,250 20,657
Deferred compensation 2,985 3,384 3,049
Deferred income taxes 1,587 2,185 1,236
-------------- -------------- -------------
Total liabilities 28,118 42,819 24,942
-------------- -------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding -- -- --
Common stock, $.01 par value; 100,000,000 shares,
20,000,000 shares, 20,000,000 shares authorized, respectively;
issued - 10,389,674 shares 104 104 104
Additional paid-in capital 31,336 31,148 31,322
Retained earnings 94,896 94,653 100,760
Treasury stock, at cost - 1,201,007 shares, 1,240,659 shares
and 1,231,806 shares, respectively (18,409) (19,227) (18,922)
-------------- -------------- -------------
Total stockholders' equity 107,927 106,678 113,264
-------------- -------------- -------------
Total $136,045 $149,497 $138,206
-------------- -------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
Page 3 of 14
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
---------------------- -----------------------
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues ........................................... $ 35,499 $ 39,510 $ 64,616 $ 71,551
Costs and expenses:
Product and delivery costs ................. 19,221 20,602 33,841 36,144
Selling, general and administrative expenses 19,252 21,885 38,180 42,797
-------- -------- -------- --------
38,473 42,487 72,021 78,941
-------- -------- -------- --------
Operating loss ..................... (2,974) (2,977) (7,405) (7,390)
Net interest income (expense) ...................... 262 (5) 639 278
-------- -------- -------- --------
Loss before income taxes ........... (2,712) (2,982) (6,766) (7,112)
Provision for (benefit from) income taxes:
Current .................................... (2,299) (3,870) (4,252) (5,833)
Deferred ................................... 1,295 2,856 1,749 3,415
-------- -------- -------- --------
(1,004) (1,014) (2,503) (2,418)
-------- -------- -------- --------
Net loss ........................... ($ 1,708) ($ 1,968) ($ 4,263) ($ 4,694)
-------- -------- -------- --------
Net loss per common share - Basic .................. ($ .19) ($ .21) ($ .46) ($ .50)
-------- -------- -------- --------
Net loss per common share - Diluted ................ ($ .19) ($ .21) ($ .46) ($ .50)
-------- -------- -------- --------
Weighted average number of common shares -
Basic and Diluted .......................... 9,195 9,285 9,188 9,325
-------- -------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements
Page 4 of 14
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
AUGUST 28, AUGUST 29,
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($4,263) ($4,694)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 1,221 1,401
Amortization 81 96
(Increase) decrease in accounts receivable 9,940 10,292
(Increase) decrease in merchandise inventories (17,702) (19,229)
(Increase) decrease in prepayments and other current assets (6,426) (17,297)
(Increase) decrease in deferred catalog costs (2,379) (5,405)
(Increase) decrease in other assets (885) (707)
Increase (decrease) in trade accounts payable and accrued expenses 4,177 3,310
Increase (decrease) in customer deposits 161 396
Increase (decrease) in income taxes payable (1,072) (4,581)
Increase (decrease) in deferred compensation (64) (42)
Increase (decrease) in deferred income taxes 1,749 3,415
-------------- --------------
Net cash used in operating activities (15,462) (33,045)
-------------- --------------
Cash flows from investing activities:
Purchases of property, plant and equipment (600) (1,553)
-------------- --------------
Net cash used in investing activities (600) (1,553)
-------------- --------------
Cash flows from financing activities:
Principal payments on long-term debt and capital lease obligations -- (759)
Proceeds from short-term borrowings -- 10,500
Increase (decrease) in cash overdrafts (420) 4,592
Dividends paid (1,471) (1,536)
Payments to acquire treasury stock (258) (5,280)
Reissuance of treasury stock 641 1,355
Other 14 (12)
-------------- --------------
Net cash provided by (used in) financing activities (1,494) 8,860
-------------- --------------
Net decrease in cash and cash equivalents (17,556) (25,738)
-------------- --------------
Cash and cash equivalents at beginning of period 31,834 26,136
-------------- --------------
Cash and cash equivalents at end of period $14,278 $398
-------------- --------------
Supplemental disclosures of cash flow information: Cash paid during the
period for:
Interest $ -- $125
Income taxes 1,376 4,642
</TABLE>
See Notes to Consolidated Financial Statements
Page 5 of 14
<PAGE>
LILLIAN VERNON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The year-end condensed balance sheet data was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. The interim financial statements
furnished with this report reflect all adjustments, consisting only of items of
a normal recurring nature, which are, in the opinion of management, necessary
for the fair statement of the consolidated financial condition and consolidated
results of operations for the interim periods presented. It is suggested that
these financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended February 27, 1999.
1. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
August 28, August 29, February 27,
1999 1998 1999
---------- ---------- ------------
<S> <C> <C> <C>
Land and buildings $32,527 $31,897 $32,507
Machinery and equipment 32,825 30,341 32,577
Furniture and fixtures 3,837 3,602 3,670
Leasehold improvements 1,061 996 896
---------- ---------- ------------
Total property, plant &
equipment, at cost 70,250 66,836 69,650
Less, accumulated depreciation
and amortization 33,060 28,861 31,839
---------- ---------- ------------
Property, plant and equipment-net $37,190 $37,975 $37,811
---------- ---------- ------------
</TABLE>
Page 6 of 14
<PAGE>
2. EARNINGS (LOSS) PER SHARE
-------------------------
Basic and diluted earnings (loss) per share were calculated in accordance
with Statement of Financial Accounting Standards No. 128 as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
---------------------------- ------------------------
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares for
Basic EPS 9,195 9,285 9,188 9,325
Add: incremental shares from
stock option exercises - - - -
-------- -------- --------- --------
Weighted average shares for
Diluted EPS 9,195 9,285 9,188 9,325
-------- -------- --------- --------
</TABLE>
As of August 28, 1999 and August 29, 1998, options on 1,192,000 and
1,064,000 shares of common stock, respectively, were not included in the
calculation of weighted average shares for Diluted EPS because their
effects were antidilutive.
3. Reclassifications
-----------------
Certain reclassifications have been made in the prior year financial
statements to conform with the fiscal 2000 presentation.
Page 7 of 14
<PAGE>
ITEM 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
- -------------------------
Results of Operations
- ---------------------
Quarter Ended August 28, 1999
- -----------------------------
Revenues for the quarter ended August 28, 1999 were $35.5 million, compared to
$39.5 million last year. Reduced volume was the result of a strategic decision
to reduce circulation. Circulation in the quarter was 17% lower than last year,
contributing to an increase in revenue per catalog of 8.1%. The increased
revenue per catalog was due in large part to a significant increase in the
number of new products offered, more targeted circulation and an emphasis on
value pricing. Increased revenue from rental of the Company's mailing lists also
contributed to the higher revenue in the current quarter.
Product and delivery costs in the quarter ended August 28, 1999 of $19.2 million
decreased by $1.4 million, or 6.7% as compared to the second quarter of the
prior year. These costs represented a higher percentage of revenues (54.1%) in
the current quarter than the same period last year (52.1%). Product and delivery
costs include the cost of merchandise sold, and the cost of receiving, filling
and shipping the Company's orders, reduced by shipping and handling fees. The
decrease in costs was primarily due to a decrease in the number of orders
received, while the increase as a percentage of revenue was principally due to
operating fixed costs at the Company's distribution center being absorbed by
lower sales volume. This was partially offset by a higher gross margin.
Selling, general and administrative (SG&A) expenses of $19.3 million, the
largest component of which is the cost of producing, printing and mailing the
Company's catalogs, decreased $2.6 million, or 12.0% during the quarter,
principally because of 17% lower circulation. As a percentage of revenues, SG&A
costs decreased to 54.2% in the quarter, compared to 55.4% last year. The
improvement in SG&A expenses as a percentage of revenues is largely attributable
to better catalog response rates; demand per circulated page rose 16% in the
second quarter this year compared to last year. A Company-wide initiative for
cost cutting also contributed to lower SG&A. In support of the Company's
strategy to expand its online sales and customer base, higher expenses related
to its Internet site were incurred in the second quarter.
Net interest income for the quarter ended August 28, 1999 was $.3 million higher
than the second quarter of the prior year as a result of greater interest earned
on substantially higher cash investments, and lower interest expense in the
current quarter. This was principally due to the repayment of all long term debt
in the third quarter of the prior year, and no short term borrowings being
incurred during the current quarter.
The effective income tax rate was 37% for the current quarter, compared to 34%
in the second quarter of the prior year. The higher rate more closely reflects
the fiscal 1999 annual rate incurred.
Page 8 of 14
<PAGE>
Results of Operations
- ---------------------
Six Months Ended August 28, 1999
- --------------------------------
Revenues for the six months ended August 28, 1999 were $64.6 million, compared
to $71.6 million last year. Revenue per catalog rose 11.5% in the first half as
compared to the same period last year. The reduced volume was the result of a
strategic decision to reduce circulation, which was 19.3% lower in the first
half, compared to the same period last year. The increased revenue per catalog
was due in large part to a significant increase in the number of new products
offered, more targeted circulation and an emphasis on value pricing.
Product and delivery costs of $33.8 million decreased by $2.3 million, or 6.4%
for the six months ended August 28, 1999 as compared to the prior year. These
costs represented a higher percentage of revenues (52.4%) in the current period,
than the same period last year (50.5%). The decrease in costs was primarily due
to a decrease in the number of orders received, while the increase as a
percentage of revenue was primarily due to operating fixed costs at the
Company's distribution center being absorbed by lower sales volume.
Selling, general and administrative (SG&A) expenses of $38.2 million decreased
$4.6 million, or 10.8%, during the current six month period, as compared to last
year, principally because of 19.3% lower circulation. As a percentage of
revenues, SG&A costs decreased to 59.1% in the current period, compared to 59.8%
last year. The improvement in SG&A expenses as a percentage of revenues is
largely attributable to better catalog response rates; demand per circulated
page rose 16% in the current six month period compared to last year. The Company
incurred higher expenses related to its improved Internet site.
Net interest income for the six months ended August 28, 1999 was $.4 million
higher than the same period of the prior year, as a result of greater interest
earned on substantially higher cash investments, and lower interest expense in
the current period. This was principally due to the repayment of all long term
debt in the third quarter of the prior year, and no short term borrowings being
incurred during the current six month period.
The effective income tax rate was 37% for the six months ended August 28, 1999,
compared to 34% in the same period of the prior year. The higher rate more
closely reflects the fiscal 1999 annual rate incurred.
Page 9 of 14
<PAGE>
Financial Condition
- -------------------
The Company's balance sheet and liquidity are strong. Cash and cash equivalents
(including cash overdraft positions) increased $18.0 million as of August 28,
1999, as compared to August 29, 1998; the current ratio improved from 2.59:1 at
August 29, 1998 to 3.65:1 at August 28, 1999. There was neither long term debt
nor short term borrowings outstanding during the current quarter. The Company's
working capital needs have been met with funds generated from operations.
The Company utilized $17.6 million less funds for operating activities in the
current six month period compared to the same period last year, due to lower
catalog costs, lower inventory purchases, and lower income tax payments.
Inventory levels are $11.8 million (21%) lower this year, as compared to last
year. Capital spending was also lower as compared to last year's level, and
there are no significant capital commitments for fiscal 2000. The Company
utilized $5 million less funds for its share repurchase program in the current
six month period, compared to the same period last year. The Company paid
dividends totaling $1.5 million ($.16 per share) during the first six months of
the current year, the same as in the first six months of the prior year.
During the six months ended August 28, 1999, the Company acquired 19,400 shares
of its common stock at a total cost of $.3 million under its current open
market stock repurchase program which was authorized by the Board of Directors
on October 7, 1998, bringing the total shares repurchased since inception of the
new program to 94,400 shares at a total cost of approximately $1.2 million.
Subsequent to the end of the second quarter, (a) at its September 28, 1999
meeting, the Company's Board of Directors authorized the repurchase of an
additional 500,000 shares of the Company's common stock, and (b) through October
7, 1999, the Company repurchased 54,400 shares; the remaining number of shares
available to repurchase at October 7, 1999 was 1,351,200.
Paper Hedge Contract
- --------------------
In prior years, the Company's earnings have been negatively impacted by
significant increases in paper prices. In order to mitigate this risk, the
Company implemented a price protection program beginning in September 1999 by
signing a collar hedge contract with Enron Capital and Trade Resources
Corporation during the second quarter. This four year contract covers the
purchase of 56,000 short tons of paper which the Company uses to produce its
catalogs, and represents approximately 55% - 65% of the Company's projected
catalog production requirements. There is a floor and ceiling to paper prices
within the contract, which expires in August 2003. If paper prices remain within
the range of the contract, there will be no payment to either party to the
contract. If paper prices exceed the established ceiling, the Company will be
reimbursed by the counterparty for the excess. Conversely, if paper prices fall
below the established floor, the Company would pay the counterparty.
Page 10 of 14
<PAGE>
Year 2000 Compliance Program
- ----------------------------
The Company's Year 2000 compliance program is directed primarily towards
ensuring that the Company will be able to continue to perform its critical
functions: (1) process sales orders from and ship merchandise to customers, (2)
order and receive merchandise from vendors, and 3) process payments to vendors,
employees and shareholders. The Company has completed the modification of its
internal computer software applications and systems to function properly with
respect to dates in the Year 2000 and thereafter. The Company utilized both its
in-house staff as well as outside resources to modify its systems. In addition
to internal systems, the Company established procedures to determine that
outside computer software vendors are either already Year 2000 compliant or have
timely dates when they intend to be compliant. The Company also reviewed all
computer hardware such as mid-range, mainframe and personal computers, networks,
telephone switches, voice mail systems, and time clocks, as well as its
distribution and warehouse equipment, and made the necessary modifications to
ensure that it is substantially Year 2000 compliant. The Company also contacted
its various merchandise vendors to inquire as to their Year 2000 readiness, and
is continuing to follow up with those vendors who have not responded to date.
Costs
- -----
The Company's total cost of modifying its computer software applications and
systems to be Year 2000 compliant is approximately $1.5 million. These amounts
have been funded from operating cash flow.
Risks
- -----
The variety and complexity of the Year 2000 issues identified and the proposed
solutions, the Company's dependence on the technical skills of employees and
independent contractors, and especially the representations and readiness of
third parties are among the factors that could cause the Company's efforts to be
less than fully effective. In addition, Year 2000 issues present a number of
risks that are beyond the Company's reasonable control, such as continued
service from outside parties such as utility companies, financial institutions,
and transportation and delivery companies (such as the U.S.
Postal Service and United Parcel Service).
THE COMPANY'S PEAK SELLING SEASON RUNS FROM SEPTEMBER THROUGH MID-DECEMBER;
THEREFORE, DISRUPTION OF ITS BUSINESS AT THE BEGINNING OF CALENDAR YEAR 2000
WOULD BE LESS SIGNIFICANT THAN IF IT HAPPENED DURING ITS PEAK SEASON. The
Company expects to have adequate inventory on hand to service its customers, and
the Company expects to be able to shift its customer delivery operations to
alternative carriers, if necessary. The Company does not rely on any single
supplier for a significant portion of its products, and many of its vendors do
not rely on computerized manufacturing systems. The Company has computerized
telephone systems which process customer phone orders; any interruption in
service by major telephone carriers could have a detrimental impact on the
Company's ability to receive orders and service its customers.
Page 11 of 14
<PAGE>
An assessment of the readiness of Year 2000 compliance of third party entities
with which the Company has relationships is ongoing. The Company has inquired of
significant third party entities as to their readiness with respect to Year 2000
compliance and to date has received indications that many of them are either
compliant or in the process of remediation. The Company will continue to monitor
these third party entities to determine the impact on the business of the
Company and the actions the Company must take, if any, in the event of
non-compliance by any of these third parties. Based upon the Company's
assessment of compliance by third parties, there appears to be no material
business risk posed by any such noncompliance and, therefore, the Company has
not developed a contingency plan.
Although the Company believes that its Year 2000 compliance program is designed
to appropriately identify and address those Year 2000 issues that are subject to
the Company's reasonable control, there can be no assurance that the Company's
efforts in this regard will be fully effective or that Year 2000 issues will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
Forward Looking Statements
- --------------------------
Except for historical information contained herein, this Report on Form 10-Q
contains forward looking statements which are based on the Company's current
expectations and assumptions. Various factors could cause actual results to
differ materially from those set forth in such statements. These factors
include, but are not limited to, the strength of the economy and overall level
of consumer spending, the performance of the Company's products within the
prevailing retail environment, increasing competition in the direct mail
industry, changes in government regulations, dependence on foreign suppliers,
and possible future increases in operating costs, including postage and paper
costs, as well as issues relating to Year 2000 compliance by the Company's
suppliers. For further information, see Part I of Form 10-K for the fiscal year
ended February 27, 1999.
Item 3.
- -------
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
Not Applicable.
Page 12 of 14
<PAGE>
PART II.
OTHER INFORMATION
-----------------
Items 1, 2, 3, and 5 are not applicable and have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------
On July 21, 1999, the Company held its Annual Meeting of Stockholders.
The matters voted upon at the meeting and the results with respect to
each such matter are summarized below:
1. Election of two Directors for a three year term expiring at the
2002 Annual Meeting of Stockholders.
For Withheld
--- --------
Lillian Vernon 8,201,127 737,513
Joel Salon 8,202,195 736,445
2. Approval of the appointment of PricewaterhouseCoopers LLP as the
independent auditors of the Company for the year ending February
26, 2000.
For Against Abstained
--- ------- ---------
8,848,156 1,091 89,393
3. Approval to amend the Certificate of Incorporation to increase
the number of authorized shares of Common Stock $.01 par value to
100 million shares.
For Against Abstained
--- ------- ---------
7,926,781 1,006,840 5,019
4. Approval to amend the 1997 Performance Unit, Restricted Stock,
Non-Qualified Option and Incentive Stock Option Plan to increase
the number of shares reserved thereunder by an additional 750,000
shares of Common Stock, $.01 par value.
For Against Abstained Not Voted
--- ------- --------- ---------
5,258,877 2,147,485 6,677 1,525,601
Item 6. Exhibits and Reports on Form 8-K.
- -------
Exhibit 10.32 - Master Agreement between Registrant and Enron Capital
and Trade Resources Corporation.
Reports on Form 8-K: None.
Page 13 of 14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Lillian Vernon Corporation
Date: October 12, 1999 By: /s/ Richard P. Randall
-------------------------------------
Richard P. Randall
Senior Vice President,
Chief Financial Officer
Page 14 of 14
<PAGE>
(MULTI CURRENCY-CROSS BORDER)
ISDA
International Swap Dealers Association. Inc.
MASTER AGREEMENT
dated as of ... December 15, 1998
......................................................
ENRON CAPITAL & TRADE RESOURCES CORP and LILLIAN VERNON CORPORATION 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) 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.
<PAGE>
(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.
(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:
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(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 (1) 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
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;
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(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,
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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 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 OF DEFAULT AND TERMINATION EVENTS
(a) Events of Default. The occurrence at any time with respect to a party or, if
applicable, any Credit Support Provider of such party or any Specified Entity of
such party of any of the following events constitutes 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 disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
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(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 there is no applicable notice requirement or grace
period) or (3) disaffirms, 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
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(viii) Merger Without Assumption. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with
or into, or transfers all or substantially all its assets to. 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 any 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 of 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
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or amalgamates with, or merges with or into, or transfers all or
substantially all its assets 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 and 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 5(b)(i)(1) 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)(I)
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.
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(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 if there 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
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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 Market 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 (1) 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 W
the Termination Currency Equivalent of the Unpaid Amounts owing
to X less (11) 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.
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(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 converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) Judgments. To the extent permitted-by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (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, acting
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
11
<PAGE>
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 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to 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
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<PAGE>
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:
13
<PAGE>
(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 other jurisdiction.
(c) Service of Process. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for anyreason 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;
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<PAGE>
(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, authorization, 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 bad 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
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<PAGE>
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 agent)
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.
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<PAGE>
"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, organized. managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"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 payer.
"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 parry 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 transaction 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
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<PAGE>
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 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"Termination Event" means an Illegality, a 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 I 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 party is so obliged, it
shall be the average of the Termination Currency Equivalents of the fair market
values reasonably determined by both parties.
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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.
ENRON CAPITAL & TRADE RESOURCES LILLIAN VERNON CORPORATION
CORP.
- ------------------------------------- --------------------------------
(Name of Party) (Name of Party)
By: By:
--------------------------------- -------------------------------
Name: Name:
Title: Title:
Date: Date:
19
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Execution Copy
SCHEDULE
to the
MASTER AGREEMENT
(Multicurrency-Cross Border)
DATED AS OF DECEMBER 15, 1998
BETWEEN
<TABLE>
<CAPTION>
<S> <C>
ENRON CAPITAL & TRADE RESOURCES LILLIAN VERNON CORPORATION, A
CORP., A CORPORATION ORGANIZED UNDER THE LAW CORPORATION ORGANIZED UNDER THE LAW OF THE
OF THE STATE OF DELAWARE ("PARTY A"), AND STATE OF DELAWARE ("PARTY B")
</TABLE>
PART 1. TERMINATION PROVISIONS.
(a) "SPECIFIED ENTITY" means in relation to Party A, none; and in
relation to Party B, none.
(b) The "CROSS DEFAULT" provisions of Section 5(a)(vi) will apply to
Party A, and will apply to Party B.
"THRESHOLD AMOUNT" means: with respect to Party A, U.S. $50,000,000
(or its equivalent in another currency); with respect to Party A's
Credit Support Provider, U.S. $50,000,000 (or its equivalent in another
currency); and with respect to Party B, U.S. $10,000,000 (or its
equivalent in another currency).
The term "Cross Default" shall exclude any default which is not a
payment default and, with respect to a payment default, any default that
directly results solely from: (1) wire transfer difficulties; (2) an
administrative or operational error or omission (so long as sufficient funds are
available); or (3) the general lack of availability, by reason of exchange
controls or other similar government action, of the currency in which the
Specified Indebtedness is denominated. The preceding sentence shall apply only
if (A) funds were available to such party, any Credit Support Provider of such
party, or any applicable Specified Entity of such party, as the case may be, to
enable the party to make the relevant payment when due, and (B) the party makes
the relevant payment within three (3) Local Business Days after such transfer
difficulties have been corrected, the error or omission has been discovered, or
such currency becomes available.
(c) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) as
amended below will apply to Party A and to Party B.
(d) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) will
not apply to Party A or to Party B.
(e) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e): (i)
Loss will apply, and (ii) the Second Method will apply.
(f) "TERMINATION CURRENCY" means United States Dollars.
(g) Section 5(b)(iv) is hereby amended by adding the following phrase
between the closing parenthesis and the semicolon at the end thereof: "provided,
however, that the foregoing action or event shall not constitute a Termination
Event (1) if after such action or event such resulting, surviving, or transferee
entity (which entity is the successor-in-interest to such party) is directly or
indirectly owned or controlled by such party's Credit Support Provider, if any,
and the Credit Support Documents supporting such party's obligations remain in
full force and effect, or (2) so long as in connection with or after such action
or event X or its successor or transferee provides (or causes to be provided) to
the other party ("Y") within two Local Business Days of Y's written demand
therefor Eligible Credit Support in an amount satisfactory to Y in its sole
discretion. If such Eligible Credit Support is provided, it shall be in addition
to any Eligible Credit Support required under the ISDA Credit Support Annex
attached hereto as Annex A, but it shall be otherwise administered under Annex
A"
20
<PAGE>
PART 2. TAX REPRESENTATIONS.
(A) PAYER REPRESENTATIONS. For the purpose of Section 3(e), Party A and
Party B make the following representation:
It is not required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, of any Relevant
Jurisdiction to make any deduction or withholding for or on account of
any Tax from any payment (other than interest under Section 2(e),
6(d)(ii), or 6(e)) to be made by it to the other party under this
Agreement. In making this representation, it may rely on (i) the
accuracy of any representations made by the other party pursuant to
Section 3(f), (ii) the satisfaction of the agreement contained in
Section 4(a)(i) or 4(a)(iii) and the accuracy and effectiveness of any
document provided by the other party pursuant to Section 4(a)(i) or
4(a)(iii), and (iii) the satisfaction of the agreement of the other
party contained in Section 4(d), provided that it shall not be a breach
of this representation where reliance is placed on Clause (ii) and the
other party does not deliver a form or document under Section 4(a)(iii)
by reason of material prejudice to its legal or commercial position.
(B) PAYEE REPRESENTATIONS. For the purpose of Section 3(f), Party A and
Party B make the following representations:
(i) The following representation applies to Party A:
Party A is a corporation organized under the laws of the State of
Delaware.
(ii) The following representation applies to Party B:
Party B is a corporation organized under the laws of the State of
Delaware.
PART 3. AGREEMENT TO DELIVER DOCUMENTS.
(a) Tax forms, documents, or certificates to be delivered are: none.
(b) Other documents to be delivered are:
<TABLE>
<CAPTION>
PARTY REQUIRED TO FORM/DOCUMENT/CERTIFICATE DATE BY WHICH TO BE COVERED BY SECTION
DELIVER DOCUMENT DELIVERED 3(D) REPRESENTATION
<S> <C> <C> <C>
Party A Duly executed Credit Support At the execution of this Yes
Document specified in Part Agreement
4(d)
Party A and Party B Evidence of authority and At the execution of this Yes
specimen signatures with Agreement
respect to the party's and its
Credit Support Provider's (if
any) signatories executing this
Agreement or
any Credit Support Document
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C> <C>
Party A Annual Audited Consolidated Promptly following Yes
Financial Statement of Party demand by Party B, but
A's Credit Support Provider in no event earlier than
certified by independent public 120 days after the end of
accountants each of its fiscal years
Party A Quarterly Unaudited Promptly following Yes
Consolidated Financial demand by Party B,
Statement of Party A's Credit but in no event earlier
Support Provider than 60 days after the
end of each of its first
three fiscal
quarters of each its fiscal
years
Party B Annual Audited Consolidated Promptly following Yes
Financial Statement of Party B demand by Party A,
certified by independent public but in no event earlier
accountants than 120 days after the
end of each of its fiscal
years
Party B Quarterly Unaudited Promptly following Yes
Consolidated Financial demand by Party A,
Statement of Party B but in no event earlier
than 60 days after the
end of each of its fiscal
years
</TABLE>
PART 4. MISCELLANEOUS.
(a) ADDRESSES FOR NOTICES. For the purpose of Section 12(a) of
this Agreement Address for notices or communications to Party A:
<TABLE>
<CAPTION>
<S> <C> <C>
Address: Enron Capital & Trade Resources Corp. Facsimile No.: (713) 646-4816
P.O. Box 4428 Telephone No.: (713) 853-3300
Houston, Texas 77210-4428
Street Address: 1400 Smith Street
(for courier delivery) Houston, Texas 77002
Attn: Director, Documentation Department
</TABLE>
A copy of any notice sent to Party A pursuant to Section 5 or 6 or Annex A must
also be sent to (i) Enron Capital & Trade Resources Corp., Attention: Corporate
Secretary at the above address and facsimile no. (713) 853-2534, and (ii) Enron
Capital & Trade Resources Corp., Attention: Assistant General Counsel, Trading
Group at the above address and facsimile no. (713) 646-4818.
Address for notices or communications to Party B:
<TABLE>
<CAPTION>
<S> <C> <C>
Address: Lillian Vernon Corporation Facsimile No.: (914) 925-1572
Street Address: One Theall Road Telephone No.: (914) 925-1200
(for courier delivery) Rye, New York 10580-1450
Attn.: Richard Randall
</TABLE>
22
<PAGE>
A copy of any notice sent to Party B pursuant to Section 5 or 6 or Annex A must
also be sent to Salon, Marrow & Dyckman, LLP, Attention: Joel Salon, 685 Third
Avenue, New York, New York 60016, facsimile no. (212) 661-3339.
(b) OFFICES; MULTIBRANCH PARTIES. The provisions of Section 10(a) will
be applicable. For the purpose of Section 10(c): Party A is not a Multibranch
Party and Party B is not a Multibranch Party.
(c) CALCULATION AGENT. The Calculation Agent is Party A.
(d) CREDIT SUPPORT DOCUMENTS. Details of any Credit Support Document,
each of which is incorporated by reference in, and made part of, this Agreement
and each Confirmation (unless provided otherwise in a Confirmation) as if set
forth in full in this Agreement or such Confirmation: (i) Guaranty dated as of
the date hereof by Enron Corp. in favor of Party B as beneficiary thereof in the
form attached hereto as Exhibit A, and (ii) ISDA Credit Support Annex attached
hereto as Annex A
(e) CREDIT SUPPORT PROVIDER. (i) Credit Support Provider means in
relation to Party A, Enron Corp., and (ii) Credit Support Provider means in
relation to Party B, none.
(f) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) will not
apply to all Transactions.
(g) GOVERNING LAW. THIS AGREEMENT AND EACH CONFIRMATION WILL BE
GOVERNED BY, AND CONSTRUED, INTERPRETED, AND ENFORCED IN ACCORDANCE WITH, THE
SUBSTANTIVE LAW OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO ITS CHOICE OF LAW
DOCTRINE).
(h) JURISDICTION. Section 13(b) is hereby deleted in its entirety and
replaced with the following:
(b) AGREEMENT TO ARBITRATE: Any claim, counterclaim, demand,
cause of action, dispute, and controversy arising out of or relating to
this Agreement or the relationship established by this Agreement, any
provision hereof, the alleged breach thereof, or in any way relating to
the subject matter of this Agreement, involving the parties and/or
their respective representatives (collectively the "Claims"), even
though some or all of such Claims allegedly are extra-contractual in
nature, whether such Claims sound in contract, tort, or otherwise, at
law or in equity, under state or federal law, whether provided by
statute or the common law, for damages or any other relief, shall be
resolved by binding arbitration.
CONDUCT OF THE ARBITRATION, AND AUTHORITY OF THE ARBITRATORS:
Arbitration shall be conducted in accordance with the rules of
arbitration of the Federal Arbitration Act and, to the extent an issue
is not addressed by the federal law on arbitration, by the Commercial
Arbitration Rules of the American Arbitration Association. The
validity, construction, and interpretation of this agreement to
arbitrate, and all procedural aspects of the arbitration conducted
pursuant hereto shall be decided by the arbitrators. In deciding the
substance of the parties' Claims, the arbitrators shall refer to the
Governing Law. It is agreed that the Arbitrators shall have no
authority to award treble, exemplary or punitive damages of any type
under any circumstances whether or not such damages may be available
under state or federal law, or under the Federal Arbitration Act, or
under the Commercial Arbitration Rules of the American Arbitration
Association, the parties hereby waiving their right, if any, to recover
any such damages.
FORUM FOR THE ARBITRATION AND SELECTION OF ARBITRATORS: The arbitration
proceeding shall be conducted in New York, New York. Within thirty days
of the notice of initiation of the arbitration procedure, each party
shall select one arbitrator. The two arbitrators shall select a third
arbitrator. The third arbitrator shall be a person who has over eight
years professional experience in over-the-counter derivative products
and who has not previously been employed by either party and does not
have a direct or indirect interest in either party or the subject
matter of the arbitration. While the third arbitrator shall be neutral,
the two party-appointed arbitrators are not required to be neutral, and
it shall not be grounds for removal of either of the two partyappointed
arbitrators or for vacating the arbitrators' award that either of such
arbitrators has past or present minimal relationships with the party
that appointed such arbitrator.
23
<PAGE>
CONFIDENTIALITY: To the fullest extent permitted by law, any
arbitration proceeding and the arbitrators award shall be maintained in
confidence by the parties.
PART 5. OTHER PROVISIONS.
(a) CONDITIONS PRECEDENT. The condition precedent set forth in clause
(1) of Section 2(a)(iii) shall not apply to payments owed by a party if the
other party shall have satisfied in full all its payment obligations under
Section 2(a)(i) and shall at the relevant time have no future payment
obligations whether absolute or contingent, under Section 2(a)(i).
(b) REPRESENTATIONS. Section 3 is hereby amended by adding at the
end thereof the following Subparagraphs (g), (h), (i), and (j):
(g) LINE OF BUSINESS. (i) It is entering into this Agreement,
including without limitation, any Credit Support Document to which it
is a party and each Transaction, in conjunction with its line of
business (including financial intermediation services) or the financing
of its business; and (ii) with respect to Options, it is a producer,
processor, commercial user of, or merchant handling, the commodity
subject to the Transaction or the products or byproducts thereof, and
is entering into each Option Transaction solely for purposes related to
its business as such.
(h) ELIGIBLE SWAP PARTICIPANT. It constitutes an "eligible
swap participant" as such term is defined in Rule 35.1(b)(2) of the
Commodity Futures Trading Commission, 17 C.F.R. ss. 35.1(b)(2) (1993).
(i) STANDARDIZATION AND CREDITWORTHINESS. The economic terms
of this Agreement, any Credit Support Document to which it is a party,
and each Transaction have been individually tailored and negotiated by
it; the creditworthiness of the other party was a material
consideration in its entering into or determining the terms of this
Agreement, such Credit Support Document, and such Transaction.
(j) NO RELIANCE. In connection with this Agreement, any Credit
Support Document to which it is a party, and each Transaction: (i) it
is acting as principal; (ii) the other party is not acting as a
fiduciary or financial or investment advisor for it; (iii) it is not
relying upon any representations (whether written or oral) of the other
party other than the representations expressly set forth in this
Agreement and in such Credit Support Document; (iv) it has not been
given by the other party (directly or indirectly through any other
person) any advice, counsel, assurance, guarantee, or representation
whatsoever as to the expected or projected success, profitability,
return, performance, result, effect, consequence, or benefit (either
legal, regulatory, tax, financial, accounting, or otherwise) of this
Agreement, such Credit Support Document, or such Transaction; (v) it
has consulted with its own legal, regulatory, tax, business,
investment, financial, and accounting advisors to the extent it has
deemed necessary, and it has made its own investment, trading, hedging,
and other decisions based upon its own judgment and upon any advice
from such advisors as it has deemed necessary, and not upon any view
expressed by the other party; (vi) its decisions have been the result
of arm's length negotiations between the parties; and (vii) it is
entering into this Agreement, such Credit Support Document, and such
Transaction with a full understanding of all of the risks hereof and
thereof (economic and otherwise), and it is capable of assuming and
willing to assume those risks.
(c) REFERENCE MARKET-MAKERS. The definition of "REFERENCE
MARKET-MAKERS" in Section 14 is hereby amended by deleting clause (b) thereof.
(d) DEFINITIONS. (i) This Agreement, each Confirmation, and each
Transaction are subject to the 1991 ISDA Definitions, as such definitions may be
amended, supplemented, replaced or modified from time to time (collectively, the
"Definitions"), each as published by the International Swaps and Derivatives
Association, Inc. ("ISDA"), and will be governed in all respects by the
Definitions (except that any references to "Swap Transactions" in the!
Definitions will be deemed to be references to "Transactions"). The Definitions
are incorporated by reference in, and made part of, this
24
<PAGE>
Agreement and each relevant Confirmation as if set forth in full in this
Agreement and such Confirmation. In the event of any inconsistency between the
provisions of this Agreement and the Definitions, this Agreement will prevail.
(c) PROCEDURES FOR ENTERING INTO TRANSACTIONS. The parties hereby amend
Section 9(e)(ii) by adding the following sentences at the end thereof.: "On or
promptly following the Trade Date of a Transaction, Party A will send to Party B
a Confirmation. Party B will promptly thereafter confirm the accuracy of, or
request the correction of, such Confirmation. If any dispute shall arise as to
whether an error exists in a Confirmation, the parties shall in good faith make
reasonable efforts to resolve the dispute. If Party B fails to accept or dispute
the Confirmation in the manner set forth above within two Local Business Days
after it was effectively sent to Party B, the Confirmation shall be deemed to
correctly reflect the parties' agreement on the terms of the Transaction
referred to therein, absent manifest error. The requirement of this Section and
elsewhere in this Agreement that the parties exchange Confirmations shall for
all purposes be deemed satisfied by a Confirmation sent and an acknowledgment
deemed given as provided herein."
(f) RECORDING. Each party consents to the recording, at any time and
from time to time, by the other party of any and all communications between
officers or employees of the parties, and waives any further notice of such
recording.
(g) SETOFF. (A) Without affecting or prejudicing the provisions of this
Agreement requiring the calculation and payment of certain net payment amounts
on Scheduled Payment Dates, all payments will be made without setoff or
counterclaim; provided, however, that upon the designation or deemed designation
of an Early Termination Date the Non-defaulting Party or the non-Affected Party
(in either case, "X") may, at its option and in its discretion, setoff, against
any amounts owed to the Defaulting Party or Affected Party (in either case, "Y")
in Dollars or any other currency by X or any Affiliate of X under this Agreement
or otherwise, any amounts owed in Dollars or any other currency by Y to X or any
of its Affiliates (irrespective of place of payment or booking office of the
obligation) under this Agreement or otherwise. The obligations of Y and X under
this Agreement in respect of such amounts shall be deemed satisfied and
discharged to the extent of any such setoff. For this purpose, the amounts
subject to the setoff to the extent necessary may be converted by X into the
Termination Currency at the rate of exchange at which X, acting in a reasonable
manner and in good faith, would be able to purchase the relevant amount of the
currency being converted. X will give Y notice of any setoff effected under this
section as soon as practicable after the setoff is effected provided that
failure to give such notice shall not affect the validity of the setoff. If an
obligation is unascertained, X may in good faith estimate that obligation and
set-off in respect of the estimate, subject to the relevant party accounting to
the other when the obligation is ascertained. Nothing herein shall be effective
to create a charge or other security interest. This setoff provision shall be
without prejudice and in addition to any right of setoff, combination of
accounts, lien or other right to which any party is at any time otherwise
entitled (whether by operation of law, contract or otherwise).
(B) Notwithstanding any provision to the contrary contained in this
Agreement, the Nondefaulting Party or non-Affected Party, as the case may be,
shall not be required to pay to the Defaulting Party or Affected Party any
amount under Section 6(e) until the Non-defaulting Party or non-Affected Party
receives confirmation satisfactory to it in its reasonable discretion (which may
include an unqualified opinion of its counsel) that all other obligations of any
kind whatsoever (whether pursuant to Specified Indebtedness as defined herein or
otherwise) of the Defaulting Party or Affected Party to make any payments to the
Non-defaulting Party or non-Affected Party or any of its Affiliates under this
Agreement or otherwise which are due and payable als of the Early Termination
Date hereof have been fully and finally performed.
(h) EVENTS OF DEFAULT. Each reference in Section 5(a)(vii) to "30" is
hereby amended and replaced with "60".
(i) LIMITATION OF LIABILITY. NO PARTY SHALL BE REQUIRED TO PAY OR BE
LIABLE FOR SPECIAL, PUNITIVE, EXEMPLARY, INCIDENTAL, CONSEQUENTIAL, OR INDIRECT
DAMAGES (WHETHER OR NOT ARISING FROM ITS NEGLIGENCE) TO ANY OTHER PARTY;
PROVIDED, HOWEVER, THAT NOTHING IN THIS PROVISION SHALL AFFECT THE
ENFORCEABILITY OF SECTION 6(E) OF THIS AGREEMENT. IF AND TO THE EXTENT ANY
PAYMENT REQUIRED TO BE MADE PURSUANT TO THIS AGREEMENT IS DEEMED TO CONSTITUTE
LIQUIDATED DAMAGES,
25
<PAGE>
THE PARTIES ACKNOWLEDGE AND AGREE THAT SUCH DAMAGES ARE DIFFICULT OR IMPOSSIBLE
TO DETERMINE AND THAT SUCH PAYMENT IS INTENDED TO BE A REASONABLE APPROXIMATION
OF THE AMOUNT OF SUCH DAMAGES AND NOT A PENALTY.
(j) CONFIDENTIALITY. The contents of this Agreement and all other
documents relating to this Agreement, and any information made available by one
party or its Credit Support Provider to the other party or its Credit Support
Provider with respect to this Agreement is confidential and shall not be
disclosed to any third party (nor shall any public announcement relating to this
Agreement be made by either party), except for such information (i) as may
become generally available to the public, (ii) as may be required or appropriate
in response to any summons, subpoena, or otherwise in connection with any
litigation or to comply with any applicable law, order, regulation, ruling, or
accounting disclosure rule or standard, (iii) as may be obtained from a
non-confidential source that disclosed such information in a manner that did not
violate its obligations to the other party or its Credit Support Provider in
making such disclosure, or (iv) as may be furnished to that party's auditors,
attorneys, advisors or potential transferees under Section 7 which are required
to keep the inforituttion that is disclosed in confidence.
(k) TRANSFER. Section 7 is hereby amended by: (i) adding in the third
line thereof after the word "party," the words "which consent will not be
unreasonably withheld or delayed"; and (ii) adding the following at the end
thereof:
"For purposes of this Section, the non-transferring party's
withholding of consent to a proposed transfer will not be deemed to be
unreasonable if, without limitation: an Event of Default, Potential
Event of Default or Termination Event with respect to the transferring
party or the proposed transferee will exist following such transfer;
the creditworthiness of the proposed transferee is materially weaker
than that of the transferring party immediately prior to such transfer,
unless the transferring party provides a satisfactory guaranty or
credit support to the non-transferring party (or if the transferring
party has a Credit Support Provider and the transfer is to a party
other than such Credit Support Provider, unless such Credit Support
Provider provides a satisfactory Credit Support Document to the
non-transferring party or its existing Credit Support Document remains
in full force and effect); on the next succeeding Scheduled Payment
Date, the non-transferring party will be required to gross up its
payments to the proposed transferee or receive payments from the
proposed transferee net of withholding or deduction that would not
otherwise be required hereunder or under applicable law in the absence
of the proposed transfer; the proposed transferee and its Credit
Support Provider, if any, do not satisfy the criteria that the
non-transferring party applies in deciding whether to offer or make an
extension of credit or to enter into transactions similar to the
Transactions subject to the proposed transfer; or the proposed transfer
would adversely affect the nontransferring party's netting rights
hereunder or under applicable law."
(1) APPLICABLE RATE. The definition of "APPLICABLE RATE" set forth in
Section 14 is hereby amended by adding to the end of Section (b) of the
definition after the word "Rate" the following provision: "; provided, however,
that if the payee is a Defaulting Party for purposes of Section 6(e), then the
rate shall be the Non-default Rate."
PART 6. ADDITIONAL PROVISIONS FOR COMMODITY DERIVATIVES TRANSACTIONS.I
(a) The 1993 ISDA Commodity Derivatives Definitions, as amended,
supplemented, replaced or modified from time to time, (the "Commodity
Definitions") are incorporated by reference in this Agreement and the relevant
Confirmations with respect to "Transactions," as defined by the Commodity
Definitions, in commodities, except as otherwise specifically provided in the
relevant Confirmation. All terms used in this Part 6 that are not otherwise
defined shall have the meanings given to them in the Commodity Definitions.
(b) In lieu of Section 7.4(d) of the Commodity Definitions, the "Market
Disruption Events" specified in Section 7.4(c)(i), (c)(ii), (c)(iii), (c)(iv),
(c)(v) and (c)(viii) of the Commodity Definitions shall apply, except as
otherwise specified in the relevant Confirmation.
(c) Section 7.4(c)(viii) of the Commodi4 Definitions is hereby amended
by the addition of the following at the end thereof:
26
<PAGE>
"For these purposes, a limitation Of Trading on any Commodity
Business Day shall be deemed to be material only if the relevant
Exchange establishes limits on the range within which the price of the
Futures Contract may fluctuate in the first nearby month and the
closing or settlement price of such Futures Contract on such day is at
the upper or lower limit of that range."
(d) Section 7.5(e) of the Commodity Definitions is hereby deleted.
(e) "Additional Market Disruption Events" shall apply only if so
specified in the relevant Confirmation.
(f) The following "Disruption Fallback" specified in Section 7.5(c) of
the Commodity Definitions shall apply, in the following order, except s
otherwise specified in the relevant Confirmation:
(i) "Postponement", with three (3) Commodity Business
Days as the Maximum Days of Disruption;
(ii) "Fallback Reference Price" (if the relevant
parties have specified an alternate Commodity Reference Price
in the Confirmation);
(iii) "Negotiated Fallback (provided that the
reference in Section 7.5(c)(ii) to "fifth Business Day" shall
be amended to be "twelfth Business Day"); and
(iv) The Relevant Price will be determined and
calculated as set forth in the definition of
"Commodity-Reference Dealers", however, notwithstanding any
reference to the number of Specified Prices in such
definition, Party A shall obtain in good faith quotations from
two (2) leading dealers in the relevant market and the price
for that Pricing Date will be the arithmetic me an of the
Specified Prices.
(g) Section 7.1 of the Commodity Definitions is amended by adding
the following new subsection (d) at the end thereof:
(d) PAPER.
(i) Coated Paper.
(A) "34 LB PAPER (COATED NO. 5) - RISI" means that
the price for a Pricing Date will be the Specified Price per
short ton of Coated No. 5 34 lb. papers, stated in U.S.
Dollars, delivered in the eastern U.S., published under the
heading "Table 6: Average Delivered Printing and Writing
Paper Prices For Most Common Transactions: U.S. Dollars Per
Short Ton: Coated Papers" in the issue of the Paper Trader
that reports prices effective on that Pricing Date.
(B) "40 LB PAPER (COATED NO. 5) - RISI" means that
the price for a Pricing Date will be the Specified Price per
sort ton of Coated No. 5 40 lb. papers, stated in U.S.
Dollars, delivered in the eastern U.S , published under the
heading "Table 6: Average Delivered Printing and Writing Paper
Prices For Most Common Transactions: U.S. Dollars Per Short
Ton: Coated Papers" in the issue of the Paper Trader that
reports prices effective on that Pricing Date.
(C) "40 LB PAPER (COATED PUBLICATION) - PULP & PAPER
WEEK" means that the price for a Pricing Date will be the
Specified Prices per short ton of Coated publication, No.5,
40 lb., offset, rolls, stated in U.S. Dollars, delivered in
the eastern U.S., published under the heading "Price Watch:
Paper And Paperboard: Coated publication" in the issue of
Pulp & Paper Week that reports prices effective on that
Pricing Date.
27
<PAGE>
(ii) Uncoated Papers.
(A) "35 LB PAPER (UNCOATED SC-A OFFSET) - RISI" means
that the price for a Pricing Date will be the Specified Price
per short ton of Uncoated 35 lb. SC-A Offset papers, stated in
U.S. Dollars, delivered in the eastern U.S., published under
the heading "Table 6: Average Delivered Printing and Writing
Paper Prices For Most Common Transactions: U.S. Dollars Per
Short Ton: Uncoated Groundwood Papers" in the issue of the
Paper Trader that reports prices effective on that Pricing
Date.
(B) "50 LB PAPER (UNCOATED OFFSET ROLLS) - RISP means
that the price for a Pricing Date will be the Specified Price
per short ton of Uncoated 50 lb Offset Rolls, stated in U.S.
Dollars, delivered in the eastern U.S., published under the
heading "Table 6: Average Delivered Printing and Writing Paper
Prices For Most Common Transactions: U.S. Dollars Per Ton:
Uncoated Freesheet Papers" in the issue of the Paper Trader
that reports prices elective on that Pricing Date.
(iii) Containerboard.
(A) "42 LB PAPER (UNBLEACHED KRAFTLINER) - RISI"
means that the price for a Pricing Date will be the Specified
Price per short ton of 42 Lb. Unbleached Kraftliner
containerboard, stated in U.S. Dollars, published under the
heading "Table 2: Paper Packaging Monthly Price Summary:
Dollars Per Short Ton: Containerboard: 42 Lb. Unbleached
Kraftliner: Eastern U.S." in the issue of the Paper Packaging
Monitor that reports prices effective on that Pricing Date.
(B) "26 LB PAPER (SEMICHEMICAL MEDIUM) - RISI" means
that the price for a Pricing Date will be the Specified Price
per short ton of 26 Lb. Semichemical Medium containerboard,
stated in U.S. Dollars, published under the heading "Table 2:
Paper Packaging Monthly Price Summary: Dollars Per Short Ton:
Containerboard: 26 Lb. Semichemical Medium: (Eastern U.S.)" in
the issue of the Paper Packaging Monitor that reports prices
effective on that Pricing Date.
(iv) Newsprint.
"48.8 GRAM PAPER (NEWSPRINT) - RISI " means that
the price for a Pricing Date will be the Specified Price per
metric ton of Standard 48.8 gram newsprint, stated in U.S.
Dollars, published under the heading "Table 16: Newsprint
Pricing for Standard 48.8 Gram Newsprint: U.S. Dollars Per
Metric Ton, Delivered: Average Contract Transaction Price For
All Buyers: East Coast" in the issue of the Paper Trader that
reports prices effective on that Pricing Date.
(h) Section 7.2(a) of the Commodity Definitions is amended by adding
the following subparagraphs to the end thereof:
(xii) "Paper Trader" means the Paper Trader, or any
successor publication, published by Resource Information
Systems, Inc. or its successor.
(xiii) "Pulp & Paper Week" means the Pulp & Paper
Week, or any successor publication, published by Miller
Freeman Inc. or its successor.
(xiv) "Paper Packaging Monitor" means the Paper
Packaging Monitor, or any successor publication, published by
Resource Information Systems, Inc. or its successor.
28
<PAGE>
(i) For purposes of any Transaction in which paper or pulp is the
relevant Commodity, the phrase "within 30 calendar days" in line 5 of Section
7.3 of the Commodity Definitions shall be replaced by the phrase "within 40
calendar days."
EXECUTED effective as of the date first written above.
ENRON CAPITAL & TRADE RESOURCES LILLIAN VERNON CORPORATION
CORP
By: By:
----------------------------- ------------------------------
Name: Name:
--------------------------- ----------------------------
Title: Title:
--------------------------- ---------------------------
Date: Date:
--------------------------- ----------------------------
ANNEX A ISDA CREDIT SUPPORT ANNEX, including Paragraph 13 thereto
SCHEDULE 1 IRREVOCABLE TRANSFERABLE STANDBY LETTER OF CREDIT
EXHIBIT A FORM OF GUARANTY (PARTY A)
29
<PAGE>
ANNEX A
(BILATERAL FORM) (ISDA AGREEMENTS SUBJECT TO NEW YORK LAW ONLY)
ISDA
INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC.
CREDIT SUPPORT ANNEX
to the Schedule to the
ISDA MASTER AGREEMENT (MULTICURRENCY-CROSS BORDER)
DATED AS OF December 15, 1998
BETWEEN
ENRON CAPITAL & TRADE RESOURCES CORP. and LILLIAN VERNON CORPORATION
- ------------------------------------- ---------------------------
("PARTY A") ("PARTY B")
This Annex supplements, forms part of, and is subject to the above-referenced
Agreement, is part of its Schedule and is a Credit Support Document under this
Agreement with respect to each party.
Accordingly, the parties agree as follows:
PARAGRAPH 1. INTERPRETATION
(a) DEFINITIONS AND INCONSISTENCY. Capitalized terms not otherwise defined
herein or elsewhere in this Agreement have the meanings specified pursuant to
Paragraph 12, and all references in this Annex to Paragraphs are to Paragraphs
of this Annex. In the event of any inconsistency between this Annex and the
other provisions of this Schedule this Annex will prevail, and in the event of
any inconsistency between Paragraph 13 and the other provisions of this Annex,
Paragraph 13 will prevail.
(b) SECURED PARTY AND PLEDGOR. All references in this Annex to the "Secured
Party" will be to either party when acting in that capacity and all
corresponding references to the "Pledgor" will be to the other party when acting
in that capacity; provided. however that if Other Posted Support is held by a
party to this Annex, all references herein to that party as the Secured Party
with respect to that Other Posted Support will be to that party as the
beneficiary thereof and will not subject that support of that party as the
beneficiary thereof to provisions of law generally relating to security
interests and secured parties.
<PAGE>
PARAGRAPH 2. SECURITY INTEREST
Each party, as the Pledgor, hereby pledges to the other party, the Secured
Party, as security for its Obligations, and grants to the Secured Party a first
priority continuing security interest in, lien on and right of Set-off against
all Posted Collateral Transferred to or received by the Party hereunder. Upon
the Transfer by the Secured Party to the Pledgor of Posted Collateral, the
security interest and lien granted hereunder on that Posted Collateral will be
released immediately and, to the extent possible, without any further action by
either party.
PARAGRAPH 3. CREDIT SUPPORT OBLIGATIONS
(a) DELIVERY AMOUNT. Subject to Paragraphs 4 and 5, upon a demand made by the
Secured Party on or promptly following a Valuation Date, if the Delivery Amount
for that Valuation Date equals or exceeds the Pledgor's Minimum Transfer Amount,
then the Pledgor will Transfer to the Secured Party Eligible Credit Support
having a Value as of the date of Transfer at least equal to the applicable
Delivery Amount (rounded pursuant to Paragraph 13). Unless otherwise specified
in Paragraph 13, the "Delivery Amount applicable to the Pledgor for any
Valuation Date will equal the amount by which:
(i) the Credit Support Amount
exceeds
(ii) the Value as of that Valuation Date of all Posted Credit Support
held by the Secured Party.
(b) RETURN AMOUNT Subject to Paragraphs 4 and 5. upon a demand made by the
Pledgor on or promptly following a Valuation Date, if the Return Amount for that
Valuation Date equals or exceeds the Secured Party's Minimum Transfer Amount,
then the Secured Party will Transfer to the Pledgor Posted Credit Support
specified by the Pledgor in that demand having a Value as of the date of
Transfer as close as practicable to the applicable Return Amount (rounded
pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the
"RETURN AMOUNT" applicable to the Secured Party for any Valuation Date will
equal the amount by which:
(i) the Value as of that Valuation Date of all Posted Credit Support
held by the Secured Party
exceeds
(ii) the Credit Support Amount.
"CREDIT SUPPORT AMOUNT" means, unless otherwise specified in Paragraph 13, for
any Valuation Date (i) the Secured Parry's Exposure for that Valuation Date plus
(ii) the aggregate of all Independent Amounts applicable to am Pledgor, if any,
minus (iii) all Independent Amounts applicable to the Secured Party, if any,
minus (iv) the Pledgor's Threshold; provided, however, that the Credit Support
Amount will be deemed to be zero whenever the calculation of Credit Support
Amount yields a number less than zero.
2
<PAGE>
PARAGRAPH 4. CONDITIONS PRECEDENT, TRANSFER TIMING, CALCULATIONS AND
SUBSTITUTIONS
(a) CONDITIONS PRECEDENT. Each Transfer obligation of the Pledgor under
Paragraphs 3 and 5 and of the Secured Party under Paragraphs 3.4(d)(ii), 5 and
6(d) is subject to the conditions precedent that:
(i) no Event of Default, Potential Event of Default or Specified
Condition has occurred and is continuing with respect to the other
party; and
(ii) no Early Termination Date for which any unsatisfied payment
obligations exist has occurred or been designated as the result of an
Event of Default or Specified Condition with respect to the other
party.
(b) TRANSFER TIMING. Subject to Paragraphs 4(a) and 5 and unless otherwise
specified, if a demand for the Transfer of Eligible Credit Support or Posted
Credit Support is made by the Notification Time, then the relevant Transfer will
be made not later than the close of business on the next Local Business Day; if
a demand is made after the Notification Time, then the relevant Transfer will be
made not later than the close of business; on the second Local Business Day
thereafter.
(c) CALCULATION. Ali calculations of Value and Exposure for purposes of
Paragraphs 3 and 6(d) will be made by the Valuation Agent as of the Valuation
Time. The Valuation Agent will notify each party (or the other party. if the
Valuation Agent is a party) of its calculations not later than the Notification
Tune on the Local Business Day following the applicable Valuation Date (or in
the case of Paragraph 6(d), following the date of calculation).
(d) SUBSTITUTIONS.
(i) Unless otherwise specified in Paragraph 13. upon notice to the
Secured Party specifying the items of Posted Credit Support to be
exchanged, the Pledgor may, on any Local Business Day, Transfer to the
Secured Party substitute Eligible Credit Support (the "Substitute
Credit Support"); and
(ii) subject to Paragraph 4(a), the Secured Party will Transfer to the
Pledgor the items of Posted Credit Support specified by the Pledgor in
its notice not later than the Local Business Day following the date on
which the Secured Party receives the Substitute Credit Support. unless
otherwise specified in Paragraph 13 (the "Substitution Date") provided
that the Secured Parry will only be obligated to Transfer posted Credit
Support with a Value as of the date of Transfer of that Posted Credit
Support equal to the Value as of that date of the Substitute Credit
Support.
PARAGRAPH 5. DISPUTE RESOLUTION
If a party (a "Disputing Party") disputes (I) the Valuation Agent's calculation
of a Delivery Amount or a Return Amount or (II) the Value of any Transfer of
Eligible Credit Support or Posted Credit Support, then (1) the Disputing Party
will notify the other party and the Valuation Agent (if the Valuation Agent is
not the other party) not later than the close of business on the Local Business
Day following (X) the date that the demand is made under Paragraph 3 in the case
of (I) above or (Y) the date of Transfer in the case of (II) above, (2) subject
to Paragraph 4(a), the appropriate party will Transfer the undisputed amount to
the other party not later than the close of business on the Local Business Day
following (X) the date that
3
<PAGE>
the demand is made under Paragraph 3 in the case of (I) above or (Y) the date of
Transfer in the case of (II) above, (3) the parties will consult with each other
in an attempt to resolve the dispute and (4) if they fail to resolve the dispute
by the Resolution Time, then:
(i) In the case of a dispute involving a Delivery Amount or Return
Amount, unless otherwise specified in Paragraph 13, the Valuation Agent
will recalculate the Exposure and the Value as of the Recalculation
Date by:
(A) utilizing any calculations of Exposure for the Transactions
(or Swap Transactions) that the parties have agreed are not in
dispute;
(B) calculating the Exposure for the Transactions (or Swap
Transactions) in dispute by seeking four actual quotations at
mid-market from Reference Market-makers for purposes of
calculating Market Quotation, and taking the arithmetic average
of those obtained; provided that if four quotations are not
available for a particular Transaction (or Swap Transaction),
then fewer then four quotations may be used for that Transaction
(or Swap Transaction); and if no quotations am available for a
particular Transaction (or Swap Transaction), then the Valuation
Agent's original calculations will be used for that Transaction
(or Swap Transaction); and
(C) utilizing the procedures specified in Paragraph 13 for
calculating the Value, if disputed, of Posted Credit Support.
(ii) In the case of a dispute involving the Value of any Transfer of
Eligible Credit Support or Posted Credit Support, the Valuation Agent
will recalculate the Value as of the date of Transfer pursuant to
Paragraph 13.
Following a recalculation pursuant to this Paragraph, the Valuation Agent will
notify each party (or the other party, if the Valuation Agent is a party) not
later than the Notification Time on the Local Business Day following the
Resolution Time. The appropriate party will, upon demand following that notice
by the Valuation Agent or a resolution pursuant to (3) above and subject to
Paragraphs 4(a) and 4(b), make the appropriate Transfer.
PARAGRAPH 6. HOLDING AND USING POSTED COLLATERAL
(a) CARE OF POSTED COLLATERAL. Without limiting the Secured Party's rights under
Paragraph 6(c). the Secured Party will exercise reasonable care to assure the
safe custody of all Posted Collateral to the extent required by applicable law,
and in any event the Secured Party will be deemed to have exercised reasonable
care if it exercises at least the same degree of care as it would exercise with
respect to its own property. Except as specified in the preceding sentence, the
Secured Party will have no duty with respect to Posted Collateral, including,
without limitation, any duty to collect any Distributions, or enforce or
preserve any rights pertaining thereto.
(b) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS.
(i) GENERAL. Subject to the satisfaction of any conditions specified in
Paragraph 13 for holding Posted Collateral, the Secured Party will be
entitled to hold Posted Collateral or to
4
<PAGE>
appoint an agent (a "Custodian") to hold Posted Collateral for the
Secured Party. Upon notice by the Secured Party to the Pledgor of the
appointment of a Custodian, the Pledgor's obligations to make any
Transfer will be discharged by making the Transfer to that Custodian.
The holding of Posted Collateral by a Custodian will be deemed to be
the holding of that Posted Collateral by the Secured Party for which
the Custodian is acting.
(ii) FAILURE TO SATISFY CONDITIONS. If the Secured Party or its
Custodian fails to satisfy any conditions for holding Posted
Collateral. then upon a demand made by the Pledgor, the Secured Party
will, riot later than five Local Business Days after the demand,
Transfer or cause its Custodian to Transfer all Posted Collateral held
by it to a Custodian that satisfies those conditions or to the Secured
Party if it satisfies those conditions.
(iii) LIABILITY. The Secured Party will be liable for the acts or
omissions of its Custodian to the same extent that the Secured Party
would be liable hereunder for its own acts or omissions.
(c) USE OF POSTED COLLATERAL. Unless otherwise specified in Paragraph 13 and
without limiting the rights and obligations of the parties under Paragraphs 3,
4(d)(ii). 5. 6(d) and 8. if the Secured Party is not a Defaulting Party or an
Affected Party with respect to a Specified Condition and no Early Termination
Date has occurred or been designated as the result of an Event of Default or
Specified Condition with respect to the Secured Party, than the Secured Party
will, notwithstanding Section 9-207 of the New York Uniform Commercial Code,
have the right to:
(i) sell, pledge, rehypothecate, assign, invest, use, commingle or
otherwise dispose of, or otherwise use in its business any Posted
Collateral it holds. free from any claim or right of any nature
whatsoever of the Pledgor, including any equity or right of redemption
by the Pledgor; and
(ii) register any Posted Collateral in the name of the Secured Party,
its Custodian or a nominee for either.
For purposes of the obligation to Transfer Eligible Credit Support or Posted
Credit Support pursuant to Paragraphs 3 and 5 and any rights or remedies
authorized under this Agreement, the Secured Party will be deemed to continue to
hold all Posted Collateral and to receive Distributions made thereon, regardless
of whether the Secured Party has exercised any rights with respect to any Posted
Collateral pursuant to (i) or (ii) above.
(d) DISTRIBUTIONS AND INTEREST AMOUNT.
(i) DISTRIBUTIONS. Subject to Paragraph 4(a), if the Secured Party
receives or is deemed to receive Distributions on a Local Business Day,
it will Transfer to the Pledgor not later than the following Local
Business Day any Distributions it receives or is deemed to receive to
the extent that a Delivery Amount would not be created or increased by
that Transfer, as calculated by the Valuation Agent (and the date of
calculation will be deemed to be a Valuation Date for this purpose).
(ii) INTEREST AMOUNT. Unless otherwise specified in Paragraph 13 and
subject to Paragraph 4(a), in lieu of any interest, dividends or other
amounts paid or deemed to have been paid with respect to Posted
Collateral in the form of Cash (all of which may be retained by the
Secured
5
<PAGE>
Party), the Secured Party will Transfer to the Pledgor at the times
specified in Paragraph 13 the Interest Amount to the extent that a
Delivery Amount would not be created or increased by that Transfer, as
calculated by the Valuation Agent (and the date of calculation will be
deemed to be a Valuation Date for this purpose). The Interest Amount or
portion thereof not Transferred pursuant to this Paragraph will
constitute Posted Collateral in the form of Cash and will be subject to
the security interest granted under Paragraph 2.
PARAGRAPH 7. EVENTS OF DEFAULT
For purposes of Section 5(a)(iii)(I) of this Agreement, an Event of Default will
exist with respect to a party if:
(i) that party fails (or fails to cause its Custodian) to make, when
due, any Transfer of Eligible Collateral, Posted Collateral or the
Interest Amount, as applicable, required to be made by it and that
failure continues for two Local Business Days after notice of that
failure is given to that party;
(ii) that party fails to comply with any restriction or prohibition
specified in this Annex with respect to any of the rights specified in
Paragraph 6(c) and that failure continues for five Local Business Days
after notice of that failure is given to that party; or
(iii) that parry fails to comply with or perform any agreement or
obligation other than those specified in Paragraphs 7(1) and 7(ii) and
that failure continues for 30 days after notice of that failure is
given to that party.
PARAGRAPH 8. CERTAIN RIGHTS AND REMEDIES
(a) SECURED PARTY'S RIGHTS AND REMEDIES. If at any time (1) an Event of Default
or Specified Condition with respect to the Pledgor has occurred and is
continuing or (2) an Early Termination Date has occurred or been designated as
the result of in Event of Default or Specified Condition with respect to the
Pledgor, then, unless the Pledgor has paid in full all of its Obligations that
am then due, the Secured Party may exercise one or more of the following rights
and remedies:
(i) all rights and remedies available to a secured party under
applicable law with respect to Posted Collateral held by the Secured
Party;
(ii) any other rights and remedies available to the Secured Party under
the terms of Other Posted Support. if any,
(iii) the right to Set-off any amounts payable by the Pledgor with
respect to any Obligations against any Posted Collateral or the Cash
equivalent of any Posted Collateral held by the Secured Party (or any
obligation of the Secured Party to Transfer that Posted Collateral);
and
(iv) the right to liquidate any Posted Collateral held by the Secured
Party through one or more public or private sales or other dispositions
with such notice, if any, as may be required under applicable law, free
from any claim or right of any nature whatsoever of the Pledgor,
including any equity or right of redemption by the Pledgor (with the
Secured Party having the right to
6
<PAGE>
purchase any or all of the Post Collateral to be sold) and to apply the
proceeds (or the Cash equivalent thereof) from the liquidation of the
Posted Collateral to any amounts payable by the Pledgor with respect to
any Obligations in that order as the Secured Party may elect.
Each party acknowledges and agrees that Posted Collateral in the form of
securities may decline speedily in value and is of a type customarily sold on a
recognized market, and, accordingly, the Pledgor is not entitled to prior notice
of any sale of that Posted Collateral by the Secured Party, except any notice
that is required under applicable law and cannot be waived.
(b) PLEDGOR'S RIGHTS AND REMEDIES. If at any time an Early. Termination Date has
occurred or been designated as the result of an Event of Default or Specified
Condition with respect to the Secured Party, then (except in the case of an
Early Termination Date relating to less than all Transactions (or Swap
Transactions) where the Secured Parry has paid in M all of its obligations that
are then due under Section 6(e) of' this Agreement):
(i) the Pledgor may exercise all rights and remedies available to a
pledgor under applicable law with respect to Posted Collateral held by
the Secured Parry;
(ii) the Pledgor may exercise any other rights and remedies available
to the Pledgor under the terms of Other Posted Support, if any;
(iii) the Secured Party will be obligated immediately to Transfer all
Posted Collateral and the Interest Amount to the Pledgor; and
(iv) to the extent that Posted Collateral or the Interest Amount is not
so Transferred pursuant to (iii) above, the Pledgor may:
(A) Set-off any amounts payable by the Pledgor with respect to
any Obligations against any Posted Collateral or the Cash
equivalent of any Posted Collateral held by the Secured Party
(or any obligation of the Secured Party to Transfer that Posted
Co11ateral); and
(B) to the extent that the Pledgor does not Set-off under
(iv)(A) above, withhold payment or any remaining amounts payable
by the Pledgor with respect to any Obligations, up to the Value
of any remaining Posted Collateral held by the Secured Party,
until that Posted Collateral is Transferred to the Pledgor.
(c) DEFICIENCIES AND EXCESS PROCEEDS. The Secured Party will Transfer to the
Pledgor any proceeds and Posted Credit Support remaining after liquidation,
Set-off and for application under Paragraphs B(a) and B(b) after satisfaction in
full of all amounts payable by the Pledgor with respect to any Obligations; the
Pledgor in all events will remain liable for any amounts remaining unpaid after
any liquidation. Set-off and/or application under Paragraphs 8(a) and 8(b).
(d) FINAL RETURNS. When no amounts are or thereafter may become payable by the
Pledgor with respect to any Obligations (except for any potential liability
under Section 2(d) of this Agreement). the Secured Party will, Transfer to the
Pledgor all Posted Credit Support and the Interest Amount. if any.
7
<PAGE>
PARAGRAPH 9. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated as of each date on which it, as the Pledgor, Transfers Eligible
Collateral) that:
(i) it has the power to grant a security interest in and lien on any
Eligible Collateral it Transfers as the Pledgor and has taken all
necessary actions to authorize the granting of that security interest
and lien;
(ii) it is the sole owner of or otherwise has the right to Transfer all
Eligible Collateral it Transfers to the Secured Party hereunder, free
and clear of any security interest, lien, encumbrance or other
restrictions other than the security interest and lien granted under
Paragraph 2;
(iii) upon the Transfer of any Eligible Collateral to the Secured Party
under the terms of this Annex, the Secured Party will have a valid and
perfected first priority security interest therein (assuming that any
central clearing corporation or any third-party financial intermediary
or other entity not within the control of the Pledgor involved in the
Transfer of that Eligible Collateral gives the notices and takes the
action required of it under applicable law for perfection of that
interest); and
(iv) the performance by it of its obligations under this Amex will not
result in the creation of any security interest, lien or other
encumbrance on any Posted Collateral other than the security interest
and lien granted under Paragraph 2.
PARAGRAPH 10. EXPENSES
(a) GENERAL. Except as otherwise provided in Paragraphs 10(b) and 10(c), each
party will pay its own costs and expenses in connection with performing its
obligations under this Annex and neither parry will be liable for any costs and
expenses incurred by the other party in connection herewith.
(b) POSTED CREDIT SUPPORT. The Pledgor will promptly pay when due all taxes,
assessments or charges of any nature that are imposed with respect to Posted
Credit Support held by the Secured Party upon becoming aware of the same,
regardless of whether any portion of that Posted Credit Support is subsequently
disposed of under Paragraph 6(c), except for those taxes, assessments and
charges that result from the exercise of the Secured Party's rights under
Paragraph 6(c).
(c) LIQUIDATION APPLICATION OF POSTED CREDIT SUPPORT. All reasonable costs and
expenses incurred by or on behalf of the Secured Party or the Pledgor in
connection with the liquidation and/or application of any Posted Credit Support
under Paragraph 8 will be payable, on demand and pursuant to the Expenses
Section of this Agreement, by the Defaulting Party or. if them is no Defaulting
Party. equally by the parties.
PARAGRAPH 11. MISCELLANEOUS
(a) DEFAULT INTEREST. A Secured Party that falls to make. when due, any
Transfer of Posted Collateral or the Interest Amount will be obligated to pay
the Pledgor (to the extent permitted under
8
<PAGE>
applicable law) an amount equal to interest at the Default Rate multiplied by
the Value of the items of property that were required to be Transferred, from
(and including) the date that Posted Collateral or Interest Amount was required
to be Transferred to (but excluding) the date of Transfer of that Posted
Collateral or Interest Amount. This interest will be calculated on the basis of
daily compounding and the actual number of days elapsed.
(b) FURTHER ASSURANCES. Promptly following a demand made by a party, the other
party will execute, deliver, file and record any financing statement, specific
assignment or other document and take any other action that may be necessary or
desirable and reasonably requested by that party to create. preserve, perfect or
validate any security interest or lien granted under Paragraph 2, to enable that
party to exercise or enforce its rights under this Annex with respect to Posted
Credit Support or an Interest Amount or to effect or document a release of a
security interest on Posted Collateral or an Interest Amount.
(c) FURTHER PROTECTION. The Pledgor will promptly give notice to the Secured
Party of, and defend against any suit, action, proceeding or lien that involves
Posted Credit Support Transferred by the Pledgor or that could adversely affect
the security interest and lien granted by it under Paragraph 2, unless that
suit, action, proceeding or lien results from the exercise of the Secured
Party's rights under Paragraph 6(c).
(d) GOOD FAITH AND COMMERCIALLY REASONABLE MANNER. Performance of all
obligations under this Annex, including, but not limited to, all calculations,
valuations and determinations made by either party, will. be made in good faith
and in a commercially reasonable manner.
(e) DEMANDS AND NOTICES. All demands and notices made by a party under this
Annex will be made as specified in the Notices Section of this Agreement, except
as otherwise provided in Paragraph 13.
(f) SPECIFICATIONS OF CERTAIN MATTERS. Anything referred to in this Amex as
being specified in Paragraph 13 also may be specified in one or more
Confirmations or other documents and this Annex will be construed accordingly.
PARAGRAPH 12. DEFINITIONS
As used in this Annex:
"Cash" means the lawful currency of the United States of America.
"Credit Support Amount" has the meaning specified in Paragraph 3.
"Custodian" has the meaning specified in Paragraphs 6(b)(i) and 13.
"Delivery Amount" has the meaning specified in Paragraph 3(a).
"Disputing Party" has the meaning specified in Paragraph 5.
"Distributions" means with respect to Posted Collateral other than Cash, all
principal, interest and other payments and distributions of cash or other
property with respect thereto, regardless of whether the
9
<PAGE>
Secured Party has disposed of that Posted Collateral under Paragraph 6(c).
Distributions will not include any item of property acquired by the Secured
Party upon any disposition or liquidation of Posted Collateral or, with respect
to any Posted Collateral in the form of Cash, any distributions on that
collateral, unless otherwise specified herein.
"Eligible Collateral" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"Eligible Credit Support" means Eligible Collateral and Other Eligible Support.
"Exposure" means for any Valuation Date or other date for which Exposure is
calculated and subject to Paragraph 5 in the case of a dispute, the amount if
any, that would be payable to a party that is the Secured Party by the other
party (expressed as a positive number) or by a party that is the Secured Party
to the other party (expressed as a negative number) pursuant to Section
6(e)(ii)(2)(A) of this Agreement as if all Transactions (or Swap Transactions)
were being terminated as of the relevant Valuation Time; provided that Market
Quotation will be determined by the Valuation Agent using its estimates at
mid-market of the amounts that would be paid for Replacement Transactions (as
that term is defined in the definition of "Market Quotation').
"Independent Amount" means, with respect to a party, the amount specified as
such for that party in Paragraph 13; if no amount is specified, zero.
"Interest Amount" means, with respect to an Interest Period. the aggregate sum
of the amounts of interest calculated for each day in that Interest Period on
the principal amount of Posted Collateral in the form of Cash held by the
Secured Party on that day, determined by the Secured Party for each such day as
follows:
(x) the amount of that Cash on that day; multiplied by
(y) the Interest Rate in effect for that day; divided by
(z) 360.
"Interest Period" means the period from (and including) the last Local Business
Day on which an Interest Amount was Transferred (or, if no Interest Amount his
yet been Transferred, the Local Business Day an which Posted Collateral in the
form of Cash was Transferred to or received by the Secured Party) to (but
excluding) the Local Business Day on which the current Interest Amount is to be
Transferred.
"Interest Rate" means the rate specified in Paragraph 13.
"Local Business Day", unless otherwise specified in Paragraph 13, has the
meaning specified in the Definitions Section or this Agreement, except that
references to a payment in clause (b) thereof will be deemed to include a
Transfer under this Annex.
"Minimum Transfer Amount" means, with respect to a party. the amount specified
as such for that party in Paragraph 13; if no amount is specified, zero.
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<PAGE>
"Notification Time" has the meaning specified in Paragraph 13.
"Obligations" means, with respect to a parry, all present and future obligations
of that party under this Agreement and any additional obligations specified for
that party in Paragraph 13.
"Other Eligible Support" means. with respect to a party, the items, if any,
specified as such for that patty in Paragraph 13.
"Other Posted Support" means all Other Eligible Support Transferred to the
Secured Patty that remains in effect for the benefit of that Secured Party.
"Pledgor" means either party, when that party (i) receives a demand for or is
required to Transfer Eligible Credit Support under Paragraph 3(a) or (ii) has
Transferred Eligible Credit Support under Paragraph 3(a).
"Posted Collateral" means all Eligible Collateral. other property.
Distributions, and all proceeds thereof that have been Transferred to or
received by the Secured Party under this Annex and not Transferred to the
Pledgor pursuant to Paragraph 3(b), 4(d)(ii) or 6(d)(i) or released by the
Secured Party under Paragraph 8. Any Interest Amount or portion thereof not
Transferred pursuant to Paragraph 6(d)(ii) will constitute Posted Collateral in
the form of Cash.
"Posted Credit Support" means Posted Collateral and Other Posted Support.
"Recalculation Date means the Valuation Date that gives rise to the dispute
under Paragraph 5; provided, however. that if a subsequent Valuation Date occurs
under Paragraph 3 prior to the resolution of the dispute, then the
"Recalculation Date" means the most recent Valuation Date under Paragraph 3.
"Resolution Tune" has the meaning specified in Paragraph 13.
"Return Amount" has the meaning specified in Paragraph 3(b).
"Secured Party" means either party, when that party (i) makes a demand for or is
entitled to receive Eligible Credit Support under Paragraph 3(a) or (ii) holds
or is deemed to hold Posted Credit Support.
"Specified Condition" means, with respect to a party, any event specified as
such for that party in Paragraph 13.
"Substitute Credit Support" has the meaning specified in Paragraph 4(d)(i).
'Substitution Date" has the meaning specified in Paragraph 4(d)(H).
"Threshold" means, with respect to a party, the amount specified as such for
that party in Paragraph 13; if no amount is specified, zero.
"Transfer" means, with respect to any Eligible Credit Support. Posted Credit
Support or Interest Amount and in accordance with the instructions of the
Secured Party, Pledgor or Custodian, as applicable:
11
<PAGE>
(i) in the case of Cash, payment or delivery by wire transfer into one
or more bank accounts specified by the recipient;
(ii) in the case of certificated securities that cannot be paid or
delivered by book-entry, payment or delivery in appropriate physical
form to the recipient or its account accompanied by any duly executed
instruments of transfer, assignments in blank, transfer tax stamps and
any other documents necessary to constitute a legally valid transfer to
the recipient;
(iii) in the case of securities that can be paid or delivered by
book-entry, the giving of written instructions to the relevant
depository institution or other entity specified by the recipient.
together with a written copy thereof to the recipient, sufficient if
complied with to result in a legally effective transfer of the relevant
interest to the recipient; and
(iv) in the case of Other Eligible Support or Other Posted Support as
specified in Paragraph 13.
"Valuation Agent" his the meaning specified in Paragraph 13.
"Valuation Date" means each date specified in or otherwise determined pursuant
to Paragraph 13.
"Valuation Percentage" means, for any item of Eligible Collateral, the
percentage specified in Paragraph 13.
"Valuation Time" has the meaning specified in Paragraph 13.
"Value" means for any Valuation Date or other date for which Value is calculated
and subject to Paragraph 5 in the case of a dispute, with respect to:
(i) Eligible Collateral or Posted Collateral that is:
(A) Cash, the amount thereof; and
(B) a security, the bid price obtained by the Valuation Agent
multiplied by the applicable Valuation Percentage, if any;
(ii) Posted Collateral that consists of items that are not specified
as Eligible Collateral, zero; and
(iii) Other Eligible Support and Other Posted Support, as specified in
Paragraph 13.
12
<PAGE>
ANNEX A
PARAGRAPH 13
TO THE
CREDIT SUPPORT ANNEX
DATED AS OF DECEMBER 15, 1998
BETWEEN
<TABLE>
<CAPTION>
<S> <C>
ENRON CAPITAL & TRADE RESOURCES LILLIAN VERNON CORPORATION, a
CORP., a corporation organized under the law of corporation organized under the law of the State
the State of Delaware ("Party A") and of Delaware ("Party B")
</TABLE>
PARAGRAPH 13. ELECTIONS AND VARIABLES.
(a) INTEREST FOR "OBLIGATIONS". The term "OBLIGATIONS" as used in this
Annex includes the following additional obligations:
With respect to Party A: None.
With respect to Party B: None.
(b) CREDIT SUPPORT OBLIGATIONS.
(i) DELIVERY AMOUNT, RETURN AMOUNT, AND CREDIT SUPPORT AMOUNT.
(A) "DELIVERY AMOUNT" has the meaning specified in Paragraph
3(a).
(B) "RETURN AMOUNT" has the meaning specified in Paragraph 3(b).
(C) "CREDIT SUPPORT AMOUNT" has the meaning specified in
Paragraph 3.
(ii) ELIGIBLE COLLATERAL. The following items will qualify as "ELIGIBLE
COLLATERAL" for the party specified.
<TABLE>
<CAPTION>
PARTY A PARTY B VALUATION
PERCENTAGE
<S> <C> <C> <C> <C>
(A) Cash [X] [X] 100%
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(B) Negotiable debt obligations [ ] [ ] 98%
issued by the U.S. Treasury
Department having an original
maturity at issuance of not more
than one year ("Government
Obligations")
(C) Other: None
</TABLE>
(iii) OTHER ELIGIBLE SUPPORT. The following items will qualify as
"OTHER ELIGIBLE SUPPORT" for the party specified:
<TABLE>
<CAPTION>
PARTY A PARTY B VALUATION
PERCENTAGE
<S> <C> <C> <C>
Letters of Credit 100% of the Value of the Other Eligible
Support unless a Letter of Credit Default
shall apply with respect to such Letter of
Credit in whicih case the Valuation
Percentage shall be 0.
</TABLE>
(iv) THRESHOLDS
(A) "INDEPENDENT AMOUNT" means with respect to Party A: U.S. $0.
"INDEPENDENT AMOUNT" means with respect to Party B: U.S. $0.
(B) "THRESHOLD" means with respect to Party A, U.S. $10,000,000
and with respect to Party B, U.S. $5,000,000; provided, however,
that the Threshold for a party shall be zero upon the occurrence
and during the continuance of a Material Adverse Change or an
Event of Default or Potential Event of Default with respect to
such party.
(C) "MINIMUM TRANSFER AMOUNT" means with respect to Party A:
U.S. $ 1.
"MINIMUM TRANSFER AMOUNT" means with respect to Party B:
U.S. $1.
(D) ROUNDING. The Delivery Amount will be rounded up to the
nearest integral multiple of U.S. $250,000 and the Return Amount
will be rounded down to the nearest integral multiple of U.S.
$250,000.
(c) VALUATION AND TIMING.
(i) "VALUATION AGENT" means, for purposes of Paragraph 3, the party
making the demand under Paragraph 3; for purposes of Paragraph 4(d),
the Secured Party for purposes of calculating
14
<PAGE>
the Value of the Substitute Credit Support and Posted Credit Support
involved in the substitution; for purposes of Paragraph 5, the Secured
Party; and for purposes of Paragraph 6(d), the Secured Party receiving
or deemed to receive the Distributions or the Interest Amount, as
applicable; provided, however, that in all cases, if an Event of
Default or Potential Event of Default or Specified Condition has
occurred and is continuing with respect to the party designated as the
Valuation Agent, then in such case, and for so long as the Event of
Default or Potential Event of Default or Specified Condition continues,
the other party shall be the Valuation Agent.
(ii) "VALUATION DATE" means any Local Business Day.
(iii) "VALUATION TIME" means:
[ ] the close of business in the city of the Valuation Agent on the
Valuation Date or date of calculation, as applicable;
[X] the close of business in the city of the Valuation Agent on the
Local Business Day before the Valuation Date or date of
calculation, as applicable;
provided that the calculations of Value and Exposure will be made as of
approximately the same time on the same date.
(iv) "NOTIFICATION TIME" means 10:00 a.m., New York time, on a Local
Business Day:
(d) CONDITIONS PRECEDENT AND SECURED PARTY'S RIGHTS AND REMEDIES. The
following Termination Event(s) will be a "SPECIFIED CONDITION" for the
party specified (that party being the Affected Party if the Termination
Event occurs with respect to that party):
<TABLE>
<CAPTION>
SPECIFIED CONDITION PARTY A PARTY B
<S> <C> <C>
Illegality [X] [X]
Tax Event [X] [X]
Tax Event Upon Merger [X] [X]
Credit Event Upon Merger [X] [X]
Additional Termination Event(s) None None
</TABLE>
(e) SUBSTITUTION.
(i) "SUBSTITUTION DATE" has the meaning specified in
Paragraph 4(d)(ii).
(ii) CONSENT. If specified here as applicable, then the Pledgor must
obtain the Secured Party's consent for any substitution pursuant to
Paragraph 4(d): Inapplicable.
15
<PAGE>
(f) DISPUTE RESOLUTION.
(i) "RESOLUTION TIME" means 1:00 p.m., New York time, on the third
Local Business Day following the date on which notice of the dispute is
given under Paragraph 5.
(ii) VALUE. For the purpose of Paragraphs 5(i)(C) and 5(ii), the Value
of Posted Credit Support as of the relevant calculation date will be
calculated as follows:
(1) With respect to cash, the face amount thereof; and
(2) With respect to any Government Obligations, the sum of
(A)(x) the mean of the high bid and low asked prices quoted on
such date by two principal market makers of recognized national
standing (each a "PRINCIPAL MARKET MAKER") for such Government
Obligations chosen by the Valuation
Agent, or (y) if quotations are not available from two Principal Market
Makers for such date, the mean of such high bid and low asked prices as
of the day next preceding such date, on which such quotations were
available, plus (B) the accrued interest on such Government Obligations
(except to the extent Transferred to a party pursuant to any applicable
provision of this Annex or included in the applicable price referred to
in (A) of this clause (2)) as of such date, multiplied by the
applicable Valuation Percentage.
(iii) ALTERNATIVE: The provisions of Paragraph 5 will apply except to
the following extent; pending the resolution of a dispute, Transfer of
the undisputed Value of Eligible Credit Support or Posted Credit
Support involved in the relevant demand will be due as provided in
Paragraph 5 if the demand is given by the Notification Time but will be
due on the second Local Business Day after the demand if the demand is
given after the Notification Time.
(iv) The provisions of Paragraph 5(i)(B) are hereby amended by
inserting the following immediately before the word "and" in line 5
thereof:
provided that if no quotation from a Reference Market-maker is
available for such Transaction (or Swap Transaction), then quotations
of rates or prices from one or more leading participants in the
relevant market (selected in good faith) may be used for such
Transaction (or Swap Transaction);
(g) HOLDING AND USING POSTED COLLATERAL.
(i) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS. Party A and its
Custodian will be entitled to hold Posted Collateral pursuant to
Paragraph 6(b); provide that the following conditions applicable to it
are satisfied:
(1) Party A is not a Defaulting Party and Party A's Credit
Support Provider has a Credit Rating and the lowest Credit
Rating for Party A's Credit Support Provider is "BBB-" or higher
by S&P.
16
<PAGE>
(2) Posted Collateral may be held only in the following
jurisdictions: Any jurisdiction within the United States.
Party B and its Custodian will be entitled to hold Posted Collateral
pursuant to Paragraph 6(b); provide that the following conditions
applicable to it are satisfied:
(1) Party B is not a Defaulting Party and a Material Adverse
Change has not occurred with respect to Party B.
(2) Posted Collateral may be held only in the following
jurisdictions: Any jurisdiction in the United States.
If a party is not eligible to hold Posted Collateral pursuant to
this Section, then it shall be considered a "Downgraded Party"
(as defined in Section 13(g)(ii)) and Posted Collateral shall be
maintained in accordance with Sections 13(g)(ii) and 13(h)(iii).
(ii) USE OF POSTED COLLATERAL. The provisions of Paragraph 6(c) will
apply to the parties; provide however, that if a party is not eligible
to hold Posted Collateral pursuant to Section 13(g)(i) (such party
shall be the "DOWNGRADED PARTY" and the event that caused it to be
ineligible to hold Posted Collateral shall be a "CREDIT RATING EVENT"),
then:
(1) the provisions of Paragraph 6(c) will not apply with respect
to the Downgraded Party as the Secured Party; and
(2) the Downgraded Party shall be required to deliver (or cause
to be delivered) not later than the close of business on the
second Local Business Day following such Credit Rating Event all
Posted Collateral in its possession or held on its behalf to a
commercial bank or trust company organized under the law of the
United States or a political subdivision thereof, with a Credit
Rating of at least "A-" in the case of S&P or "A3" in the case
of Moody's ("QUALIFIED INSTITUTION"), approved by the
non-Downgraded Party (which approval shall not be unreasonably
withheld) to a segregated, safekeeping or custody account
("COLLATERAL ACCOUNT") within such Qualified Institution with
the title of the Collateral Account indicating that the property
contained therein is being held as Posted Collateral for the
Downgraded Party. The Qualified Institution shall serve as
Custodian with respect to the Posted Collateral in the
Collateral Account, and shall hold such Posted Collateral in
accordance with the terms of this Annex and for the security
interest of the Downgraded Party and, subject to such security
interest, for the ownership of the non-Downgraded Party.
(iii) For purposes of Section 5(a)(iii) of this Agreement, failure by a
party to comply with any of the obligations under this Section 13(g)
will constitute an Event of Default with respect to such party if the
failure continues for two (2) Local Business Days after notice of the
failure is given to that party.
17
<PAGE>
(h) DISTRIBUTIONS AND INTEREST AMOUNT.
(i) INTEREST RATE. The "INTEREST RATE" will be: Federal Funds
Overnight Rate as from time to time in effect.
(ii) TRANSFER OF INTEREST AMOUNT. The Transfer of the Interest Amount
will be made on the last Local Business Day of each calendar month and
on any Local Business Day that Posted Collateral in the form of Cash is
Transferred to the Pledgor pursuant to Paragraph 3(b).
(iii) ALTERNATIVE TO INTEREST AMOUNT. The provisions of Paragraph
6(d)(ii) will apply except as modified below.
(A) If the provisions of Paragraph 6(c) do not apply to a party
as a result of a Credit Rating Event described in Paragraph
13(g)(ii), the provisions of Paragraphs 6(d)(i) and 6(d)(ii)
will not apply, Posted Collateral consisting of Government
Obligations, if any, including all Distributions with respect to
such Posted Collateral, shall be maintained in the Collateral
Account by the Qualified Institution pursuant to Section
13(g)(ii), and the investment of the Posted Collateral
consisting of Cash shall be governed in accordance with the
following provisions:
The Qualified Institution holding the Posted Collateral will
invest and reinvest or procure the investment and reinvestment
of the Posted Collateral in accordance with the written
instructions of the Pledgor, subject to the approval of such
instructions by the Secured Party (which approval shall not be
unreasonably withheld), provided that the Secured Party shall
not be required to so invest or reinvest or procure such
investment or reinvestment if an Event of Default or Potential
Event of Default or Specified Condition with respect to the
Pledgor shall have occurred and be continuing. The Secured Party
shall have no responsibility for any losses resulting from any
investment or reinvestment effected in accordance with the
Pledgor's instructions.
For purposes of Section 5(a)(iii) of this Agreement, failure by
a party to comply with any of the obligations under this Section
13(h)(iii)(A) will constitute an Event of Default with respect
to such party if the failure continues for two (2) Local
Business Days after notice of the failure is given to that
party.
(B) If Transfer of an Interest Amount (or any portion thereof)
to a Pledgor on any day would result in, or increase, a Delivery
Amount (treating the day as a Valuation Day, as provided in
Paragraph 6(d)(ii)) but the Pledgor would nonetheless have no
obligation to make a Transfer pursuant to Paragraph 3 (a) on
that day if it were a Valuation Day (because the Delivery Amount
is lower than the Pledgor's Minimum Transfer Amount or
otherwise), the Secured Party will be required to Transfer that
Interest Amount (or portion thereof) to the Pledgor,
notwithstanding anything to the contrary in Paragraph 6(d)(ii).
(i) ADDITIONAL REPRESENTATION(S) AND COVENANTS.
Each party represents and covenants to the other party (which representations
and covenants will be deemed to be repeated as of each date on which it, as the
Pledgor, Transfers Eligible Credit Support (or,
18
<PAGE>
in the case of after-acquired Eligible Credit Support, at the time the other
party or its agent acquires rights therein), and which covenants will be deemed
to apply at all times) that with respect to the issuance, renewal, substitution,
or increase (as the case may be) of a Letter of Credit, such Letter of Credit is
the legal, valid, and binding obligation of the issuer thereof, enforceable in
accordance with its terms.
(j) OTHER ELIGIBLE SUPPORT AND OTHER POSTED SUPPORT.
(i) "VALUE" with respect to Other Eligible Support and Other Posted
Support means: The stated amount then available under the Letter of
Credit to be unconditionally drawn by the Secured Parry.
(ii) "TRANSFER" with respect to Other Eligible Support and Other Posted
Support means: For purposes of Paragraph 3(a), delivery of the Letter
of Credit by the Pledgor to the Secured Party at the address specified
in this Annex or delivery of an executed amendment to such Letter of
Credit (extending the term or increasing the amount available to the
Secured Party thereunder) by the Pledgor to the Secured Party at the
address specified in this Annex; and for purposes of Paragraph 3(b),
return of the Letter of Credit by the Secured Party to the Pledgor, at
the address specified in this Annex, or delivery of an executed
amendment to the Letter of Credit in form and substance satisfactory to
the Pledgor, reducing the amount available to the Secured Party
thereunder by the Pledgor to the Secured Party at the address specified
in this Annex.
(iii) All Other Eligible Support and Other Posted Support consisting of
Letters of Credit shall be issued and maintained in accordance with the
provisions set forth in Exhibit A and Schedule I attached hereto.
(k) DEMANDS AND NOTICES.
All demands, specifications, and notices under this Annex will be made pursuant
to the Notices Section of this Agreement.
(l) ADDRESSES FOR TRANSFERS.
Party A: To be provided in notice requesting delivery/return of
Eligible Credit Support/Posted Credit Support.
Party B: To be provided in notice requesting delivery/return of
Eligible Credit Support/Posted Credit Support.
(m) OTHER PROVISIONS.
(i) Paragraph 12 of this Annex is hereby amended by adding the
following:
"CREDIT RATING" means with respect to a party (or its Credit Support
Provider, as the case may be) or entity, on any date of determination,
the respective ratings then assigned to such party's (or its Credit
Support Provider's, as the case may be) or entity's unsecured, senior
long-term debt or
19
<PAGE>
deposit obligations (not supported by third party credit enhancement)
by S&P, Moody's or the other specified rating agency or agencies.
"FEDERAL FUNDS OVERNIGHT RATE" means, for the relevant determination
date the rate opposite the caption "Federal Funds (Effective)" as set
forth in the weekly statistical release designated as H.15 (519), or
any successor publication, published by the Board of Governors of the
Federal Reserve System.
"FUNDED DEBT" means indebtedness of Party B and its consolidated
subsidiaries, if any, which by its terms matures more than one year
from the date as of which any calculation of Funded Debt is made.
"GAAP" means generally accepted accounting principles that are
generally accepted in the country in which the applicable party is
organized and on a basis consistent with prior periods.
"LETTER OF CREDIT" means an irrevocable, transferable, standby letter
of credit, issued by a major U.S. commercial bank or foreign bank with
a U.S. branch office with a Credit Rating of at least "A-" by S&P or
"A3" by Moody's, utilizing the form set forth in Schedule I attached
hereto, with such changes to the terms in that form as the issuing bank
may require and as may be acceptable to the party in whose favor the
letter of credit is issued. Each Letter of Credit shall be a Credit
Support Document.
"MATERIAL ADVERSE CHANGE" means (a) with respect to Party A, its Credit
Support Provider's Credit Rating is below " BBB-" by S&P; or (b) with
respect to Party B, it shall have any of the following occur at any
time: (i) the ratio of its Funded Debt to Net Worth is more than 1 to
1, or (ii) its Net Worth falls below U.S. $85,000,000.
"MOODY'S" means Moody's Investors Service, Inc. or its successor.
"NET WORTH" means total assets of Party B and its consolidated
subsidiaries, if any (exclusive of intangible assets), minus the total
liabilities, each as would be reflected on a consolidated balance sheet
of Party B prepared in accordance with GAAP.
"S&P" means the Standard & Poor's Rating Group (a division of
McGraw-Hill, Inc.) or its successor.
(ii) Paragraph 6(d)(i) is hereby amended by adding the following
sentence:
"Subject to Paragraph 4(a) and only to the extent contemplated in the
previous sentence, a Secured Party receives or is deemed to receive
Distributions on a day that is not a Local Business Day, or after its
close of business on a Local Business Day, it will Transfer
Distributions to the Pledger on the second following Local Business
Day."
20
<PAGE>
EXHIBIT A
TO PARAGRAPH 13
OF ANNEX A
LETTER OF CREDIT PROVISIONS
1. LETTERS OF CREDIT. Posted Credit Support provided by one party ("X") for the
benefit of the other ("Y") in the form of a Letter of Credit shall be subject to
the following provisions.
(a) Any Letter of Credit shall be delivered by X to such address as Y
shall specify and shall be maintained for the benefit of Y or its
designee. X or the issuer of the Letter of Credit shall (i) renew or
cause the renewal of each outstanding Letter of Credit on a timely
basis as provided in the relevant Letter of Credit, (ii) if the bank
that issued an outstanding Letter of Credit has indicated its intent
not to renew such Letter of Credit, provide a substitute Letter of
Credit at least twenty (20) Local Business Days prior to the expiration
of the outstanding Letter of Credit, and (iii) if a bank issuing a
Letter of Credit shall fail to honor Y's properly documented request to
draw on an outstanding Letter of Credit, provide for the benefit of Y a
substitute Letter of Credit that is issued by a bank acceptable to Y,
other than the bank failing to honor the outstanding Letter of Credit,
within two (2) Local Business Days after such refusal.
(b) Upon the occurrence of a Letter of Credit Default, X agrees to
deliver a substitute Letter of Credit to Y on or before the second
Local Business Day after written demand by Y (or on or before the fifth
Local Business Day without the requirement for any demand if only
clause (i) under the definition of Letter of Credit Default applies).
"LETTER OF CREDIT DEFAULT" shall mean with respect to an outstanding
Letter of Credit, the occurrence of any of the following events: (i)
the issuer of such Letter of Credit shall fail to maintain a Credit
Rating of at least "A-" by S&P or "A3" by Moody's; (ii) the issuer of
the Letter of Credit shall fail to comply with or perform its
obligations under such Letter of Credit if such failure shall be
continuing after the lapse of any applicable grace period; (iii) the
issuer of such Letter of Credit shall disaffirm, disclaim, repudiate or
reject, in whole or in part, or challenge the validity of, such Letter
of Credit; (iv) such Letter of Credit shall expire or terminate, or
shall fail or cease to be in full force and effect at any time during
the term of this Agreement; or (v) any event analogous to an event
specified in Section 5(a)(vii) of this Agreement shall occur with
respect to the issuer of such Letter of Credit; provided, however ,
that no Letter of Credit Default shall occur in any event with respect
to a Letter of Credit after the time such Letter of Credit is required
to be canceled or returned to X in accordance with the terms of this
Agreement.
(c) As one method of providing additional Posted Credit Support, X may
increase the amount of an outstanding Letter of Credit or establish one
or more additional Letters of Credit.
(d) (i) A Letter of Credit shall provide that Y may draw upon the
Letter of Credit in an amount that is equal to all amounts that
are due and owing from X but have not been paid to Y within the
time allowed for such payments under this Agreement. A Letter of
Credit shall provide that a drawing may be made on the Letter of
Credit upon submission to the bank issuing the Letter of Credit
of one or more certificates of Y in accordance with specific
requirements of the Letter of Credit.
21
<PAGE>
(ii) If X shall fail to renew, substitute, or sufficiently
increase the amount of an outstanding Letter of Credit (as the
case may be), or establish one or more additional Letters of
Credit, or otherwise provide sufficient Posted Credit Support,
then Y may draw on the entire, undrawn portion of any
outstanding Letter of Credit upon submission to the bank issuing
such Letter of Credit of one or more certificates in accordance
with specific requirements of the Letter of Credit. Cash
proceeds received from drawing upon the Letter of Credit shall
be deemed Eligible Credit Support and shall be maintained in
accordance with this Annex. Notwithstanding Y's receipt of Cash
under the Letter of Credit, X shall remain liable to Y for any
failure to Transfer sufficient Eligible Credit Support to Y in
accordance with the terms of this Annex.
(e) If a party's Credit Support Provider shall furnish a Letter of
Credit hereunder, the amount otherwise required under such Letter of
Credit may at the option of such Credit Support Provider be reduced by
the amount of any Letter of Credit established by such party (but only
for such time as such party's Letter of Credit shall be in effect). In
the event a party shall be required to furnish a Letter of Credit
hereunder, the amount otherwise required under such Letter of Credit
may at the option of such party be reduced by the amount of any Letter
of Credit established by such party's Credit Support Provider (but only
for such time as such Credit Support Provider's Letter of Credit shall
be in effect).
(f) Upon or at any time after the occurrence or deemed occurrence of an
Early Termination Date as a result of an Event of Default or a
Termination Event and the failure of X to make all payments due and
owing to Y in accordance with the terms of this Agreement, Y may draw
on any outstanding Letter of Credit in an amount equal to such amounts
owing to it. X shall remain liable for any amounts owing to Y and
remaining unpaid after the application of the amounts so drawn by Y.
(g) The provisions of this Exhibit A shall constitute agreements for
all purposes of this Agreement and this Annex, including Section
5(a)(iii) of this Agreement.
22
<PAGE>
SCHEDULE 1
----------
IRREVOCABLE TRANSFERABLE STANDBY LETTER OF CREDIT FORMAT
DATE OF ISSUANCE: ____________________________
[Address]
Re: Credit No. _________________
We hereby establish our Irrevocable Transferable Standby Letter of
Credit in your favor for the account of _____________________________ (the
"Account Party"), for the aggregate amount not exceeding
_____________________________ United States Dollars ($___________) , available
to you at sight upon demand at our counters at (Location ) on or before the
expiration hereof against presentation to us of one or more of the following
statements, dated and signed by a representative of the beneficiary:
1. "Account Party has not provided a substitute Letter of Credit or
alternate security in accordance with the terms and provisions
(including any applicable notice or grace period or both) of the Master
Agreement dated as of _________________, 19___ , between beneficiary
and Account Party, as the same may have been amended (the "Master
Agreement") and/or this letter of credit has twenty (20) days or less
until expiry".
or
2. "Account Party has failed to pay to the beneficiary in accordance with
the terms and provisions of the Master Agreement".
The amount which may be drawn by you under this Letter of Credit shall be
automatically reduced by the amount of any drawings paid through the Issuing
Bank referencing this Letter of Credit No. _. Partial drawings are permitted
hereunder.
This Letter of Credit shall expire ________________ (___) days from the
date of issuance, but shall automatically extend without amendment for
additional _________________ (___)-day periods from such expiration date and
from subsequent expiration dates, if you, as beneficiary, and the Account Party
have not received due notice of our intention not to renew ninety (90) days
prior to any such expiration date.
We hereby agree with you that documents drawn under and in compliance
with the terms of this Letter of Credit shall be duly honored upon presentation
as specified.
This Letter of Credit shall be governed by the Uniform Customs and
Practices for Documentary Credits, 1993 Revision, International Chamber of
Commerce Publication No. 500 (the "UCP"), except to the extent that the terms
hereof are inconsistent with the provisions of the UCP, including but not
limited to Articles 13(b) and 17 of the UCP, in which case the terms of this
Letter of Credit shall govern.
In the event of an Act of God, riot, civil commotion, insurrection, war
or any other cause beyond our control that interrupts our business
(collectively, an "Interruption Event") and causes the place for
23
<PAGE>
presentation of this Letter of Credit to be closed for business on the last day
for presentation, the expiry date of this Letter of Credit ,will be
automatically extended without amendment to a date thirty (30) calendar days
after the place for presentation reopens for business.
This Letter of Credit is transferable, and we hereby consent to such
transfer, but otherwise may not be amended, changed or modified without the
express written consent of the Beneficiary, the Issuing Bank and the Account
Party.
[BANK SIGNATURE]
24
<PAGE>
EXHIBIT A
ENRON CORP.
Guaranty
--------
This Guaranty (the "Guaranty"), dated as of December 15, 1998, is made
and entered into by ENRON CORP., an Oregon corporation ("Guarantor").
WITNESSETH:
WHEREAS, LILLIAN VERNON CORPORATION, a Delaware corporation
("Counterparty") and ENRON CAPITAL & TRADE RESOURCES CORP. ("ECT"), a wholly
owned direct subsidiary of Guarantor, are contemplating entering into a Master
Agreement of even date herewith, a copy of which is attached hereto as Exhibit A
(such Master Agreement, as the same may from time to time be modified, amended
and supplemental, shall be referred to herein as the "Contract"); and
WHEREAS, Guarantor will directly or indirectly benefit from the
transactions to be entered into between ECT and Counterparty;
NOW THEREFORE, in consideration of Counterparty entering into the
Contract, Guarantor hereby covenants and agrees as follows:
1. GUARANTY. Subject to the provisions hereof, (a) Guarantor hereby
irrevocably and unconditionally guarantees the timely payment when due of the
obligations of ECT (the "Obligations") to Counterparty under the Contract, and
(b) to the extent that ECT shall fail to pay any Obligations, Guarantor shall
promptly pay to Counterparty the amount due. This Guaranty shall constitute a
guarantee of payment and not of collection. The liability of Guarantor under the
Guaranty shall be subject to the following:
(a) Guarantor's liability hereunder shall be and is
specifically limited to payments expressly required to be made
under the Contract (even if such payments are deemed to be
damages) and, except to the extent specifically provided in
the Contract, in no event shall Guarantor be subject hereunder
to consequential, exemplary, equitable, loss of profits,
punitive, tort, or any other damages, costs, or attorney's
fees.
(b) The aggregate amount covered by this Guaranty shall not
exceed U.S. $10,000,000.
2. DEMANDS AND NOTICE. If ECT fails or refuses to pay any Obligations,
Counterparty shall notify ECT in writing of the manner in which ECT has failed
to pay and demand that payment be made by ETC. If ECT's failure or refusal to
pay continues for a period of fifteen (15) days after the date of Counterparty's
notice to ECT, and Counterparty has elected to exercise its rights under this
Guaranty, Counterparty shall make a demand upon Guarantor (hereinafter referred
to as a "Payment Demand"). A Payment Demand shall be in writing and shall
reasonably and briefly specify in what manner and what amount ECT has failed to
pay and an explanation of why such payment is due, with a specific statement
that Counterparty is calling upon Guarantor to pay under this Guaranty. A
Payment Demand satisfying
25
<PAGE>
the foregoing requirements shall be required with respect to Obligations before
Guarantor is required to pay such Obligations hereunder and shall be deemed
sufficient notice to Guarantor that it must pay the Obligations. A single
written Payment Demand shall be effective as to any specific default during the
continuance of such default, until ECT or Guarantor has cured such default, and
additional written demands concerning such default shall not be required until
such default is cured.
3. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
that:
(a) it is a corporation duly organized and validly existing
under the laws of the State of Oregon and has the corporate
power and authority to execute, deliver and carry out the
terms and provisions of the Guaranty;
(b) no authorization, approval, consent or order of, or
registration or filing with, any court or other governmental
body having jurisdiction over Guarantor is required on the
part of Guarantor for the execution and delivery of this
Guaranty; and
(c) this Guaranty, when executed and delivered, will
constitute a valid and legally binding agreement of Guarantor,
except as the enforceability of this Guaranty may be limited
by the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors' rights generally and by general principles of
equity.
4. SETOFFS AND COUNTERCLAIMS. Without limiting Guarantor's own defenses
and rights hereunder, Guarantor reserves to itself all rights, setoffs,
counterclaims and other defenses to which ECT or any other affiliate of
Guarantor is or may be entitled to arising from or out of the Contract or
otherwise, except for defenses arising out of the bankruptcy, insolvency,
dissolution or liquidation of ETC.
5. AMENDMENT OF GUARANTY. No term or provision of this Guaranty shall
be amended, modified, altered, waived or supplemented except in a writing signed
by Guarantor and Counterparty.
6. WAIVERS. Guarantor hereby waives (a) notice of acceptance of this
Guaranty; (b) presentment and demand concerning the liabilities of Guarantor,
except as expressly hereinabove set forth; and (c) any right to require that any
action or proceeding be brought against ECT or any other person, or except as
expressly hereinabove set forth, to require that Counterparty seek enforcement
of any performance against ECT or any other person, prior to any action against
Guarantor under the terms hereof.
Except as to applicable statutes of limitation, no delay of
Counterparty in the exercise of, or failure to exercise, any rights hereunder
shall operate as a waiver of such rights, a waiver of any other rights or a
release of Guarantor from any obligations hereunder.
Guarantor consents to the renewal, compromise, extension, acceleration
or other changes in the time of payment of or other changes in the terms of the
Obligations, or any part thereof or any changes or modifications to the terms of
the Contract.
26
<PAGE>
Guarantor may terminate this Guaranty by providing written notice of
such termination to Counterparty and upon the effectiveness of such termination,
Guarantor shall have no further liability hereunder, except as provided in the
last sentence of this paragraph. No such termination shall be effective until
five (5) business days after receipt by Counterparty of such termination notice.
No such termination shall affect Guarantor's liability with respect to any
Transaction (as defined in the Contract) entered into prior to the time the
termination is effective, which Transaction shall remain guaranteed pursuant to
the terms of this Guaranty.
7. NOTICE. Any Payment Demand, notice, request, instruction,
correspondence or other document to be given hereunder by any party to another
(herein collectively called "Notice") shall be in writing and delivered
personally or mailed by certified mail, postage prepaid and return receipt
requested, or by telegram or telecopier, as follows:
To Counterparty: Lillian Vernon Corporation
One Theall Road
Rye, New York 10580
Attn: Richard Randall
Fax No.: (914) 925-1572
To Guarantor: Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attn: Vice President, Finance
and Treasurer
Fax No.: (713) 646-3422
A copy of any notice sent to Guarantor pursuant hereto must also be sent to the
above address to: Enron Capital & Trade Resources Corp., (i) Attention:
Corporate Secretary, Fax No. (713) 853-2534, and (ii) Attention: Assistant
General Counsel, Trading Group, Fax No. (713) 646-4818.
Notice given by personal delivery or mail shall be effective upon
actual receipt. Notice given by telegram or telecopier shall be effective upon
actual receipt if received during the recipient's normal business hours, or at
the beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. All Notices by telegram or
telecopier shall be confirmed promptly after transmission in writing by
certified mail or personal delivery. Any party may change any address to which
Notice is to be given to it by giving notice as provided above of such change of
address.
8. MISCELLANEOUS. THIS GUARANTY SHALL IN ALL RESPECTS BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS. This Guaranty shall be binding upon
Guarantor, its successors and assigns and inure to the benefit of and be
enforceable by Counterparty, its successors and assigns. The Guaranty embodies
the entire agreement and understanding between Guarantor and Counterparty and
supersedes all prior agreements and understandings relating to the subject
matter hereof. The headings in this Guaranty are for purposes of reference only,
and shall not affect the meaning hereof.
27
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty on
_________________, 199__, but it is effective as of the date first above
written.
ENRON CORP.
By: ________________________
Name:
Title:
28
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<PAGE>
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<PERIOD-END> AUG-28-1999
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0
0
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