EXHIBIT 99.3
------------
ISDA
International Swaps and Derivatives Association, Inc.
CREDIT SUPPORT ANNEX
to the Schedule to the
ISDA MASTER AGREEMENT
dated as of May 28, 2004
between
DEUTSCHE BANK AG,
("Party A")
and
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
("Party B")
This Credit Support Annex supplements, forms part of, and is subject to, the
above-referenced Agreement, is part of its Schedule and is a Credit Support
Document under this Agreement with respect to each party.
Accordingly, the parties agree as follows:
PARAGRAPH 1. Interpretation
(a) DEFINITIONS AND INCONSISTENCY. Capitalized terms not otherwise defined
herein or elsewhere in this Agreement have the meanings specified
pursuant to Paragraph 12, and all references in this Annex to
Paragraphs are to Paragraphs of this Annex. In the event of any
inconsistency between this Annex and the other provisions of this
Schedule, this Annex will prevail, and in the event of any
inconsistency between Paragraph 13 and the other provisions of this
Annex, Paragraph 13 will prevail.
(b) SECURED PARTY AND PLEDGOR. All references in this Annex to the "Secured
Party" will be to either party when acting in that capacity and all
corresponding references to the "Pledgor" will be to the other party
when acting in that capacity; PROVIDED, HOWEVER, that if Other Posted
Support is held by a party to this Annex, all references herein to that
party as the Secured Party with respect to that Other Posted Support
will be to that party as the beneficiary thereof and will not subject
that support or that party as the beneficiary thereof to provisions of
law generally relating to security interests and secured parties.
PARAGRAPH 2. Security Interest
Each party, as the Pledgor, hereby pledges to the other party, as the Secured
Party, as security for its Obligations, and grants to the Secured Party a first
priority continuing security interest in, lien on and right of Set-off against
all Posted Collateral Transferred to or received by the Secured Party hereunder.
Upon the Transfer by the Secured Party to the Pledgor of Posted Collateral, the
security interest and lien granted hereunder on that Posted Collateral will be
released immediately and, to the extent possible, without any further action by
either party.
PARAGRAPH 3. CREDIT SUPPORT OBLIGATIONS
(a) DELIVERY AMOUNT. Subject to Paragraphs 4 and 5, upon a demand made by the
Secured Party on or promptly following a Valuation Date, if the Delivery
Amount for that Valuation Date equals or exceeds the Pledgor's Minimum
Transfer Amount, then the Pledgor will Transfer to the Secured Party
Eligible Credit Support having a Value as of the date of Transfer at least
equal to the applicable Delivery Amount (rounded pursuant to Paragraph 13).
Unless otherwise specified in Paragraph 13, the "Delivery Amount"
applicable to the Pledgor for any Valuation Date will equal the amount by
which:
(i) the Credit Support Amount exceeds
(ii) the Value as of that Valuation Date of all Posted Credit Support held
by the Secured Party.
(b) RETURN AMOUNT. Subject to Paragraphs 4 and 5, upon a demand made by the
Pledgor on or promptly following a Valuation Date, if the Return Amount for
that Valuation date equals or exceeds the Secured Party's Minimum Transfer
Amount, then the Secured Party will Transfer to the Pledgor Posted Credit
Support specified by the Pledgor in that demand having a Value as of the
date of Transfer as close as practicable to the applicable Return Amount
(rounded pursuant to Paragraph 13). Unless otherwise specified in Paragraph
13, the "RETURN AMOUNT" applicable to the Secured Party for any Valuation
Date will equal the amount by which:
(i) the Value as of that Valuation Date of all Posted Credit Support held
by the Secured Party exceeds
(ii) the Credit Support Amount.
"CREDIT SUPPORT AMOUNT" means, unless otherwise specified in Paragraph 13,
for any Valuation Date (i) the Secured Party's Exposure for that Valuation
Date plus (ii) the aggregate of all Independent Amounts applicable to the
Pledgor, if any, minus (iii) all Independent Amounts applicable to the
Secured Party, if any, minus (iv) the Pledgor's Threshold; PROVIDED,
HOWEVER, that the Credit Support Amount will be deemed to be zero whenever
the calculation of Credit Support Amount yields a number less than zero.
PARAGRAPH 4. CONDITIONS PRECEDENT, TRANSFER TIMING, CALCULATIONS AND
SUBSTITUTIONS
(a) CONDITIONS PRECEDENT. Each Transfer obligation of the Pledgor under
Paragraphs 3 and 5 and of the Secured Party under Paragraphs 3, 4(d)(ii), 5
and 6(d) is subject to the conditions precedent that:
(i) no Event of Default, Potential Event of Default or Specified Condition
has occurred and is continuing with respect to the other party; and
(ii) no Early Termination Date for which any unsatisfied payment
obligations exist has occurred or been designated as the result of an Event
of Default or Specified Condition with respect to the other party.
(b) TRANSFER TIMING. Subject to Paragraphs 4(a) and 5 and unless otherwise
specified, if a demand for the Transfer of Eligible Credit Support or
Posted Credit Support is made by the Notification Time, then the relevant
Transfer will be made not later than the close of business on the next
Local Business Day; if a demand is made after the Notification Time, then
the relevant Transfer will be made not later than the close of business on
the second Local Business Day thereafter.
(c) CALCULATIONS. All calculations of Value and Exposure for purposes of
Paragraphs 3 and 6(d) will be made by the Valuation Agent as of the
Valuation Time. The Valuation Agent will notify each party (or the other
party, if the Valuation Agent is a party) of its calculations not later
than the Notification Time on the Local Business Day following the
applicable Valuation Date (or in the case of Paragraph 6(d), following the
date of calculation).
(d) SUBSTITUTIONS.
(i) Unless otherwise specified in Paragraph 13, upon notice to the Secured
Party specifying the items of Posted Credit Support to be exchanged, the
Pledgor may, on any Local Business Day, Transfer to the Secured Party
substitute Eligible Credit Support (the "Substitute Credit Support"); and
(ii) subject to Paragraph 4(a), the Secured Party will Transfer to the
Pledgor the items of Posted Credit Support specified by the Pledgor in its
notice not later than the Local Business Day following the date on which
the Secured Party receives the Substitute Credit Support, unless otherwise
specified in Paragraph 13 (the "Substitution Date"); provided that the
Secured Party will only be obligated to Transfer Posted Credit Support with
a Value as of the date of Transfer of that Posted Credit Support equal to
the Value as of that date of the Substitute Credit Support.
2
PARAGRAPH 5. DISPUTE RESOLUTION
If a party (a "Disputing Party") disputes (I) the Valuation Agent's calculation
of a Delivery Amount or a Return Amount or (II) the Value of any Transfer of
Eligible Credit Support or Posted Credit Support, then (1) the Disputing Party
will notify the other party and the Valuation Agent (if the Valuation Agent is
not the other party) not later than the close of business on the Local Business
Day following (X) the date that the demand is made under Paragraph 3 in the case
of (I) above or (Y) the date of Transfer in the case of (II) above, (2) subject
to Paragraph 4(a), the appropriate party will Transfer the undisputed amount to
the other party not later than the close of business on the Local Business Day
following (X) the date that the demand is made under Paragraph 3 in the case of
(I) above or (Y) the date of Transfer in the case of (II) above, (3) the parties
will consult with each other in an attempt to resolve the dispute and (4) if
they fail to resolve the dispute by the Resolution Time, then:
(i) In the case of a dispute involving a Delivery Amount or Return Amount,
unless otherwise specified in Paragraph 13, the Valuation Agent will
recalculate the Exposure and the Value as of the Recalculation Date by:
(A) utilizing any calculations of Exposure for the Transaction (or
Swap Transactions) that the parties have agreed are not in dispute;
(B) calculating the Exposure for the Transactions (or Swap
Transactions) in dispute by seeking four actual quotations at
mid-market from Reference Market-makers for purposes of calculating
Market Quotation, and taking the arithmetic average of those
obtained; provided that if four quotations are not available for a
particular Transaction (or Swap Transaction), then fewer than four
quotations may be used for that Transaction (or Swap Transaction),
and if no quotations are available for a particular Transaction (or
Swap Transaction), then the Valuation Agent's original calculations
will be used for that Transaction (or Swap Transaction); and
(C) utilizing the procedures specified in Paragraph 13 for
calculating the Value, if disputed, of Posted Credit Support.
(ii) In the case of a dispute involving the Value of any Transfer of
Eligible Credit Support or Posted Credit Support, the Valuation Agent will
recalculate the Value as of the date of Transfer pursuant to Paragraph 13.
Following a recalculation pursuant to this Paragraph, the Valuation Agent will
notify each party (or the other party, if the Valuation Agent is a party) not
later than the Notification Time on the Local Business Day following the
Resolution Time. The appropriate party will, upon demand following that notice
by the Valuation Agent or a resolution pursuant to (3) above and subject to
Paragraphs 4(a) and 4(b), make the appropriate Transfer.
PARAGRAPH 6. HOLDING AND USING POSTED COLLATERAL
(a) CARE OF POSTED COLLATERAL. Without limiting the Secured Party's rights
under Paragraph 6(c), the Secured Party will exercise reasonable care to
assure the safe custody of all Posted Collateral to the extent required by
applicable law, and in any event the Secured Party will be deemed to have
exercised reasonable care if it exercises at least the same degree of care
as it would exercise with respect to its own property. Except as specified
in the preceding sentence, the Secured Party will have no duty with respect
to Posted Collateral, including, without limitation, any duty to collect
any Distributions, or enforce or preserve any rights pertaining thereto.
(b) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS.
(i) GENERAL. Subject to the satisfaction of any conditions specified in
Paragraph 13 for holding Posted Collateral, the Secured Party will be
entitled to hold Posted Collateral or to appoint an agent (a "Custodian")
to hold Posted Collateral for the Secured Party. Upon notice by the Secured
Party to the Pledgor of the appointment of a Custodian, the Pledgor's
obligations to make any Transfer will be discharged by making the Transfer
to that Custodian. The holding of Posted Collateral by a Custodian will be
deemed to be the holding of that Posted Collateral by the Secured Party for
which the Custodian is acting.
(ii) FAILURE TO SATISFY CONDITIONS. If the Secured Party or its Custodian
fails to satisfy any conditions for holding Posted Collateral, then upon a
demand made by the Pledgor, the Secured Party will, not later than five
Local Business Days after the demand, Transfer or cause its Custodian to
Transfer all Posted Collateral held by it to a Custodian that satisfies
those conditions or to the Secured Party if it satisfies those conditions.
3
(iii) LIABILITY. The Secured Party will be liable for the acts or omissions
of its Custodian to the same extent that the Secured Party would be liable
hereunder for its own acts or omissions.
(c) USE OF POSTED COLLATERAL. Unless otherwise specified in Paragraph 13 and
without limiting the rights and obligations of the parties under Paragraphs
3, 4(d)(ii), 5, 6(d) and 8, if the Secured Party is not a Defaulting Party
or an Affected Party with respect to a Specified Condition and no Early
Termination Date has occurred or been designated as the result of an Event
of Default or Specified Condition with respect to the Secured Party, then
the Secured Party will, notwithstanding Section 9-207 of the New York
Uniform Commercial Code, have the right to:
(i) sell, pledge, rehypothecate, assign, invest, use, commingle or
otherwise dispose of, or otherwise use in its business any Posted
Collateral it holds, free from any claim or right of any nature whatsoever
of the Pledgor, including any equity or right of redemption by the Pledgor;
and
(ii) register any Posted Collateral in the name of the Secured Party, its
Custodian or a nominee for either.
For purposes of the obligation to Transfer Eligible Credit Support or Posted
Credit Support pursuant to Paragraphs 3 and 5 and any rights or remedies
authorized under this Agreement, the Secured Party will be deemed to continue to
hold all Posted Collateral and to receive Distributions made thereon, regardless
of whether the Secured Party has exercised any rights with respect to any Posted
Collateral pursuant to (i) or (ii) above.
(d) DISTRIBUTIONS AND INTEREST AMOUNT.
(i) DISTRIBUTIONS. Subject to Paragraph 4(a), if the Secured Party receives
or is deemed to receive Distributions on a Local Business Day, it will
Transfer to the Pledgor not later than the following Local Business Day any
Distributions it receives or is deemed to receive to the extent that a
Delivery Amount would not be created or increased by that Transfer, as
calculated by the Valuation Agent (and the date of calculation will be
deemed to be a Valuation Date for this purpose).
(ii) INTEREST AMOUNT. Unless otherwise specified in Paragraph 13 and
subject to Paragraph 4(a), in lieu of any interest, dividends or other
amounts paid or deemed to have been paid with respect to Posted Collateral
in the form of Cash (all of which may be retained by the Secured Party),
the Secured Party will Transfer to the Pledgor at the times specified in
Paragraph 13 the Interest Amount to the extent that a Delivery Amount would
not be created or increased by that Transfer, as calculated by the
Valuation Agent (and the date of calculation will be deemed to be a
Valuation Date for this purpose). The Interest Amount or portion thereof
not Transferred pursuant to this Paragraph will constitute Posted
Collateral in the form of Cash and will be subject to the security interest
granted under Paragraph 2.
PARAGRAPH 7. EVENTS OF DEFAULT
For purposes of Section 5(a)(iii)(l) of this Agreement, an Event of Default will
exist with respect to a party if:
(i) that party fails (or fails to cause its Custodian) to make, when due,
any Transfer of Eligible Collateral, Posted Collateral or the Interest
Amount, as applicable, required to be made by it and that failure continues
for two Local Business Days after notice of that failure is given to that
party;
(ii) that party fails to comply with any restriction or prohibition
specified in this Annex with respect to any of the rights specified in
Paragraph 6(c) and that failure continues for five Local Business Days
after notice of that failure is given to that party; or
(iii) that party fails to comply with or perform any agreement or
obligation other than those specified in Paragraphs 7(i) and 7(ii) and that
failure continues for 30 days after notice of that failure is given to that
party.
4
PARAGRAPH 8. CERTAIN RIGHTS AND REMEDIES
(a) SECURED PARTY'S RIGHTS AND REMEDIES. If at any time (1) an Event of Default
or Specified Condition with respect to the Pledgor has occurred and is
continuing or (2) an Early Termination Date has occurred or been designated
as the result of an Event of Default or Specified Condition with respect to
the Pledgor, then, unless the Pledgor has paid in full all of its
Obligations that are then due, the Secured Party may exercise one or more
of the following rights and remedies:
(i) all rights and remedies available to a secured party under applicable
law with respect to Posted Collateral held by the Secured Party;
(ii) any other rights and remedies available to the Secured Party under the
terms of Other Posted Support, if any;
(iii) the right to Set-off any amounts payable by the Pledgor with respect
to any Obligations against any Posted Collateral or the Cash equivalent of
any Posted Collateral held by the Secured Party (or any obligation of the
Secured Party to Transfer that Posted Collateral); and
(iv) the right to liquidate any Posted Collateral held by the Secured Party
through one or more public or private sales or other dispositions with such
notice, if any, as may be required under applicable law, free from any
claim or right of any nature whatsoever of the Pledgor, including any
equity or right of redemption by the Pledgor (with the Secured Party having
the right to purchase any or all of the Posted Collateral to be sold) and
to apply the proceeds (or the Cash equivalent thereof) from the liquidation
of the Posted Collateral to any amounts payable by the Pledgor with respect
to any obligations in that order as the Secured Party may elect.
Each party acknowledges and agrees that Posted Collateral in the form of
securities may decline speedily in value and is of a type customarily sold on a
recognized market, and, accordingly, the Pledgor is not entitled to prior notice
of any sale of that Posted Collateral by the Secured Party, except any notice
that is required under the applicable law and cannot be waived.
(b) PLEDGOR'S RIGHTS AND REMEDIES. If at any time an Early Termination Date has
occurred or been designated as the result of an Event of Default or
Specified Condition with respect to the Secured Party, then (except in the
case of an Early Termination Date relating to less than all Transactions
(or Swap Transactions) where the Secured Party has paid in full all of its
obligations that are then under Section 6(e) of this Agreement):
(i) the Pledgor may exercise all rights and remedies available to a pledgor
under applicable law with respect to Posted Collateral held by the Secured
Party;
(ii) the Pledgor may exercise any other rights and remedies available to
the Pledgor under the terms of Other Posted Support, if any;
(iii) the Secured Party will be obligated immediately to Transfer all
Posted Collateral and the Interest Amount to the Pledgor; and
(iv) to the extent that Posted Collateral or the Interest Amount is not so
Transferred pursuant to (iii) above, the Pledgor may:
(A) Set-off any amounts payable by the Pledgor with respect to any
Obligations against any Posted Collateral or the Cash equivalent of
any Posted Collateral held by the Secured Party (or any obligation of
the Secured Party to Transfer that Posted Collateral); and
(B) to the extent that the Pledgor does not Set-off under (iv)(A)
above, withhold payment of any remaining amounts payable by the
Pledgor with respect to any Obligations, up to the Value of any
remaining Posted Collateral held by the Secured Party, until that
Posted Collateral is Transferred to the Pledgor.
(c) DEFICIENCIES AND EXCESS PROCEEDS. The Secured Party will Transfer to the
Pledgor any proceeds and Posted Credit Support remaining after liquidation,
Set-off and/or application under Paragraphs 8(a) and 8(b) after
satisfaction in full of all amounts payable by the Pledgor with respect to
any Obligations; the Pledgor in all events will remain liable for any
amounts remaining unpaid after any liquidation, Set-off and/or application
under Paragraphs 8(a) and 8(b).
(d) FINAL RETURNS. When no amounts are or thereafter may become payable by the
Pledgor with respect to any Obligations (except for any potential liability
under Section 2(d) of this Agreement), the Secured Party will Transfer to
the Pledgor all Posted Credit Support and the Interest Amount, if any.
5
PARAGRAPH 9. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated as of each date on which it, as the Pledgor, Transfers Eligible
Collateral) that:
(i) it has the power to grant a security interest in and lien on any
Eligible Collateral it Transfers as the Pledgor and has taken all necessary
actions to authorize the granting of that security interest and lien;
(ii) it is the sole owner of or otherwise has the right to Transfer all
Eligible Collateral it Transfers to the Secured Party hereunder, free and
clear of any security interest, lien, encumbrance or other restrictions
other than the security interest and lien granted under Paragraph 2;
(iii) upon the Transfer of any Eligible Collateral to the Secured Party
under the terms of this Annex, the Secured Party will have a valid and
perfected first priority security interest therein (assuming that any
central clearing corporation or any third-party financial intermediary or
other entity not within the control of the Pledgor involved in the Transfer
of that Eligible Collateral gives the notices and takes the action required
of it under applicable law for perfection of that interest); and
(iv) the performance by it of its obligations under this Annex will not
result in the creation of any security interest, lien or other encumbrances
on any Posted Collateral other than the security interest and lien granted
under Paragraph 2.
PARAGRAPH 10. EXPENSES
(a) GENERAL. Except as otherwise provided in Paragraphs 10(b) and 10(c), each
party will pay its own costs and expenses in connection with performing its
obligations under this Annex and neither party will be liable for any costs
and expenses incurred by the other party in connection herewith.
(b) POSTED CREDIT SUPPORT. The Pledgor will promptly pay when due all taxes,
assessments or charges of any nature that are imposed with respect to
Posted Credit Support held by the Secured Party upon becoming aware of the
same, regardless of whether any portion of that Posted Credit Support is
subsequently disposed of under Paragraph 6(c), except for those taxes,
assessments and charges that result from the exercise of the Secured
Party's rights under Paragraph 6(c).
(c) LIQUIDATION/APPLICATION OF POSTED CREDIT SUPPORT. All reasonable costs and
expenses incurred by or on behalf of the Secured Party or the Pledgor in
connection with the liquidation and/or application of any Posted Credit
Support under Paragraph 8 will be payable, on demand and pursuant to the
Expenses Section of this Agreement, by the Defaulting Party or, if there is
no Defaulting Party, equally by the parties.
PARAGRAPH 11. MISCELLANEOUS
(a) DEFAULT INTEREST. A Secured Party that fails to make, when due, any
Transfer of Posted Collateral or the Interest Amount will be obligated to
pay the Pledgor (to the extent permitted under applicable law) an amount
equal to interest at the Default Rate multiplied by the Value of the items
of property that were required to be Transferred, from (and including) the
date that Posted Collateral or Interest Amount was required to be
Transferred to (but excluding) the date of Transfer of that Posted
Collateral or Interest Amount. This Interest will be calculated on the
basis of daily compounding and the actual number of days elapsed.
(b) FURTHER ASSURANCES. Promptly following a demand made by a party, the other
party will execute, deliver, file and record any financing statement,
specific assignment or other document and take any other action that may be
necessary or desirable and reasonably requested by that party to create,
preserve, perfect or validate any security interest or lien granted under
Paragraph 2, to enable that party to exercise or enforce its rights under
this Annex with respect to Posted Credit Support or an Interest Amount or
to effect or document a release of a security interest on Posted Collateral
or an Interest Amount.
(c) FURTHER PROTECTION. The Pledgor will promptly give notice to the Secured
Party of, and defend against, any suit, action, proceeding or lien that
involves Posted Credit Support Transferred by the Pledgor or that could
adversely affect the security interest and lien granted by it under
Paragraph 2, unless that suit, action, proceeding or lien results from the
exercise of the Secured Party's rights under Paragraph 6(c).
6
(d) GOOD FAITH AND COMMERCIALLY REASONABLE MANNER. Performance of all
obligations under this Annex, including, but not limited to, all
calculations, valuations and determinations made by either party, will be
made in good faith and in a commercially reasonable manner.
(e) DEMANDS AND NOTICES. All demands and notices made by a party under this
Annex will be made as specified in the Notices Section of this Agreement,
except as otherwise provided in Paragraph 13.
(f) SPECIFICATIONS OF CERTAIN MATTERS. Anything referred to in this Annex as
being specified in Paragraph 13 also may be specified in one or more
Confirmations or other documents and this Annex will be construed
accordingly.
PARAGRAPH 12. DEFINITIONS
As used in this Annex: -
"CASH" means the lawful currency of the United States of America.
"CREDIT SUPPORT AMOUNT" has the meaning specified in Paragraph 3.
"CUSTODIAN" has the meaning specified in Paragraphs 6(b)(i) and 13.
"DELIVERY AMOUNT" has the meaning specified in Paragraph 3(a).
"DISPUTING PARTY" has the meaning specified in Paragraph 5.
"DISTRIBUTIONS" means with respect to Posted Collateral other than Cash, all
principal, interest and other payments and distributions of cash or other
property with respect thereto, regardless of whether the Secured Party has
disposed of that Posted Collateral under Paragraph 6(c). Distributions will not
include any item of property acquired by the Secured Party upon any disposition
or liquidation of Posted Collateral or, with respect to any Posted Collateral in
the form of Cash, any distributions on that collateral, unless otherwise
specified herein.
"ELIGIBLE COLLATERAL" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"ELIGIBLE CREDIT SUPPORT" means Eligible Collateral and Other Eligible Support.
"EXPOSURE" means for any Valuation Date or other date for which Exposure is
calculated and subject to Paragraph 5 in the case of a dispute, the amount, if
any, that would be payable to a party that is the Secured Party by the other
party (expressed as a positive number) or by a party that is the Secured Party
to the other party (expressed as a negative number) pursuant to Section
6(e)(ii)(2)(A) of this Agreement as if all Transactions (or Swap Transactions)
were being terminated as of the relevant Valuation Time: provided that Market
Quotation will be determined by the Valuation Agent using its estimates at
mid-market of the amounts that would be paid for Replacement Transactions (as
that term is defined in the definition of "Market Quotation").
"INDEPENDENT AMOUNT" means, with respect to a party, the amount specified as
such for that party in Paragraph 13; if no amount is specified, zero.
"INTEREST AMOUNT" means, with respect to an Interest Period, the aggregate sum
of the amounts of interest calculated for each day in that Interest Period on
the principal amount of Posted Collateral in the form of Cash held by the
Secured Party on that day, determined by the Secured Party for each such day as
follows:
(x) the amount of that Cash on that day; multiplied by
(y) the Interest Rate in effect for that day; divided by
(z) 365.
"INTEREST PERIOD" means the period from (and including) the last Local Business
Day on which an Interest Amount was Transferred (or, if no Interest Amount has
yet been Transferred, the Local Business Day on which Posted Collateral in the
form of Cash was Transferred to or received by the Secured Party) to (but
excluding) the Local Business Day on which the current Interest Amount is to be
Transferred.
"INTEREST RATE" means the rate specified in Paragraph 13.
"LOCAL BUSINESS DAY" unless otherwise specified in Paragraph 13, has the meaning
specified in the Definitions Section of this Agreement, except that references
to a payment in clause (c) thereof will be deemed to include a Transfer under
this Annex.
7
"MINIMUM TRANSFER AMOUNT" means, with respect to a party, the amount specified
as such for that party in Paragraph 13; if no amount is specified, zero.
"NOTIFICATION TIME" has the meaning specified in Paragraph 13.
"OBLIGATIONS" means, with respect to a party, all present and future obligations
of that party under this Agreement and any additional obligations specified for
that party in Paragraph 13.
"OTHER ELIGIBLE SUPPORT" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"OTHER POSTED SUPPORT" means all Other Eligible Support Transferred to the
Secured Party that remains in effect for the benefit of that Secured Party.
"PLEDGOR" means either party, when that party (i) receives a demand for or is
required to Transfer Eligible Credit Support under Paragraph 3(a) or (ii) has
Transferred Eligible Credit Support under Paragraph 3(a).
"POSTED COLLATERAL" means all Eligible Collateral, other property,
Distributions, and all proceeds thereof that have been Transferred to or
received by the Secured Party under this Annex and not Transferred to the
Pledgor pursuant to Paragraph 3(b), 4(d)(ii) or 6(d)(i) or released by the
Secured Party under Paragraph 8. Any Interest Amount or portion thereof not
Transferred pursuant to Paragraph 6(d)(ii) will constitute Posted Collateral in
the form of Cash.
"POSTED CREDIT SUPPORT" means Posted Collateral and Other Posted Support.
"RECALCULATION DATE" means the Valuation Date that gives rise to the dispute
under Paragraph 5; PROVIDED, however, that if a subsequent Valuation Date occurs
under Paragraph 3 prior to the resolution of the dispute, then the
"Recalculation Date" means the most recent Valuation Date under Paragraph 3.
"RESOLUTION TIME" has the meaning specified in Paragraph 13.
"RETURN AMOUNT" has the meaning specified in Paragraph 3(b).
"SECURED PARTY" means either party, when that party (i) makes a demand for or is
entitled to receive Eligible Credit Support under Paragraph 3(a) or (ii) holds
or is deemed to hold Posted Credit Support.
"SPECIFIED CONDITION" means, with respect to a party, any event specified as
such for that party in Paragraph 13.
"SUBSTITUTE CREDIT SUPPORT" has the meaning specified in Paragraph 4(d)(i).
"SUBSTITUTION DATE" has the meaning specified in Paragraph 4(d)(ii).
"THRESHOLD" means, with respect to a party, the amount specified as such for
that party in Paragraph 13; if no amount is specified, zero.
"TRANSFER" means, with respect to any Eligible Credit Support, Posted Credit
Support or Interest Amount and in accordance with the instructions of the
Secured Party, Pledgor or Custodian, as applicable:
(i) in the case of Cash, payment or delivery by wire transfer into one or
more bank accounts specified by the recipient;
(ii) in the case of certificated securities that cannot be paid or
delivered by book-entry, payment or delivery in appropriate physical form
to the recipient or its account accompanied by any duly executed
instruments of transfer, assignments in blank, transfer tax stamps and any
other documents necessary to constitute a legally valid transfer to the
recipient;
(iii) in the case of securities that can be paid or delivered by
book-entry, the giving of written instructions to the relevant depository
institution or other entity specified by the recipient, together with a
written copy thereof to the recipient, sufficient if complied with to
result in a legally effective transfer of the relevant interest to the
recipient; and
(iv) in the case of Other Eligible Support or Other Posted Support, as
specified in Paragraph 13.
8
"VALUATION AGENT" has the meaning specified in Paragraph 13.
"VALUATION DATE" means each date specified in or otherwise determined pursuant
to Paragraph 13.
"VALUATION PERCENTAGE" means, for any item of Eligible Collateral, the
percentage specified in Paragraph 13.
"VALUATION TIME" has the meaning specified in Paragraph 13.
"VALUE" means for any Valuation Date or other date for which Value is calculated
and subject to Paragraph 5 in the case of a dispute, with respect to:
(i) Eligible Collateral or Posted Collateral that is:
(A) Cash, the amount thereof; and
(B) a security, the bid price obtained by the Valuation Agent
multiplied by the applicable Valuation Percentage, if any;
(ii) Posted Collateral that consists of items that are not specified as
Eligible Collateral, zero; and
(iii) Other Eligible Support and Other Posted Support, as specified in
Paragraph 13.
PARAGRAPH 13. ELECTIONS AND VARIABLES
As used in this Paragraph 13, "PART 6" means Part 6 of the Schedule to this
Agreement.
(a) SECURITY INTEREST FOR "OBLIGATIONS". The term "OBLIGATIONS" as used in
this Annex includes the following additional obligations:
(i) with respect to Party A, not applicable; and
(ii) with respect to Party B, "Obligations" means any and all
present and future obligations of Party B under or in
connection with this Agreement and the other Secured Trading
Line Documents.
(b) CREDIT SUPPORT OBLIGATIONS.
(i) This Annex is amended to delete the definition of (and all
references to) "Credit Support Amount" therein. This Annex is
further amended by restating Paragraph 3 thereof to read in
its entirety as follows:
"PARAGRAPH 3. CREDIT SUPPORT OBLIGATIONS
(a) DELIVERY AMOUNT.
(1) WITH RESPECT TO TEMPORARY RESERVE COLLATERAL.
-----------------------------------------------
Subject to Paragraphs 4 and 5, upon a demand
made by Party A on or promptly following a
Calculation Date, if the Cash Deficiency Amount
for such Calculation Date specified in the
related Calculation Date Collateral Notice
delivered pursuant to clause (j)(3) of Part 6
equals or exceeds Party B's Minimum Transfer
Amount, then Party B will Transfer to Party A
Eligible Collateral or Other Eligible Support
(collectively, "ELIGIBLE CREDIT SUPPORT") having
a Value as of the date of Transfer at least
equal to such Cash Deficiency Amount (for such
purposes, a "DELIVERY AMOUNT"), rounded pursuant
to Paragraph 13.
(2) WITH RESPECT TO INTRA-YEAR COLLATERAL. Subject
------------------------------------------------
to Paragraphs 4 and 5, upon a demand made by
Party A on or promptly following an Intra-Year
Deficiency Date, Party B will Transfer to Party
A Eligible Credit Support having a Value as of
the date of Transfer at least equal to the
Intra-Year Deficiency Amount specified in the
notice relating to such Intra-Year Deficiency
Date delivered to Party B pursuant to clause (k)
of Part 6 (for such purposes, a "DELIVERY
AMOUNT"), rounded pursuant to Paragraph 13.
9
(b) RETURN AMOUNT.
(1) WITH RESPECT TO TEMPORARY RESERVE COLLATERAL.
------------------------------------------------
Subject to Paragraphs 4 and 5, upon a demand
made by Party B on or promptly following a Local
Business Day on which Eligible Properties
pledged to Party A pursuant to clause (j)(3)(B)
of Part 6 become Qualified Mortgaged Properties
(each, a "MORTGAGE QUALIFICATION DATE"), if the
Forward Value of such Qualified Mortgaged
Properties DIVIDED BY the Minimum Reserve
Collateral Ratio (for such purposes, a "RETURN
AMOUNT") equals or exceeds Party A's Minimum
Transfer Amount, then Party A will Transfer to
Party B Posted Credit Support specified by Party
B in that demand that is Temporary Reserve
Collateral having a Value as of the date of
Transfer as close as practicable to such Return
Amount (rounded pursuant to Paragraph 13).
(2) WITH RESPECT TO INTRA-YEAR COLLATERAL. Subject
------------------------------------------------
to Paragraphs 4 and 5, upon a demand made by
Party B on or promptly following a Local
Business Day, if the Intra-Year Excess Amount
(for such purposes, a "RETURN AMOUNT") equals or
exceeds Party A's Minimum Transfer Amount, then
Party A will Transfer to Party B Posted Credit
Support specified by Party B in that demand that
is Intra-Year Collateral having a Value as of
the date of Transfer as close as practicable to
such Return Amount (rounded pursuant to
Paragraph 13)."
(ii) ELIGIBLE COLLATERAL. The following items will qualify as
"ELIGIBLE COLLATERAL":
Cash
(iii) OTHER ELIGIBLE SUPPORT. The following items will qualify
as "OTHER ELIGIBLE SUPPORT":
Letters of Credit issued in favor of Party A on the
terms set forth in Part 6 and this Annex.
(iv) THRESHOLDS.
(A) "INDEPENDENT AMOUNT" means: Inapplicable
(B) "THRESHOLD" means: Inapplicable
(C) "MINIMUM TRANSFER AMOUNT" means:
(1) with respect to Party A, U.S.$250,000; PROVIDED
that the Minimum Transfer Amount for Party A
shall be zero upon the occurrence and during the
continuance of an Event of Default, Potential
Event of Default, Termination Event, Additional
Termination Event or Specified Condition with
respect to such party; and
(2) with respect to Party B, U.S.$250,000; PROVIDED
that the Minimum Transfer Amount for Party B
shall be zero upon the occurrence and during the
continuance of an Event of Default, Potential
Event of Default, Termination Event, Additional
Termination Event or Specified Condition with
respect to such party.
(D) ROUNDING. The Delivery Amounts and Return Amounts
will be rounded up and down respectively to the
nearest integral multiple of U.S.$10,000.
10
(c) VALUATION AND TIMING.
(i) "VALUATION AGENT" means the Calculation Agent.
(ii) "VALUATION DATE" means:
(1) for purposes of Paragraph 3(a) (Delivery Amounts):
(x) for Temporary Reserve Collateral, each
Calculation Date; and
(y) for Intra-Year Collateral, each Intra-Year
Determination Date; and
(2) for purposes of Paragraph 3(b) (Return Amounts):
(x) for Temporary Reserve Collateral, each Mortgage
Qualification Date; and
(y) for Intra-Year Collateral, each Local Business
Day.
(iii) "VALUE" has the meaning given to it in the Agreement.
(iv) "VALUATION TIME" means the close of business on the Local
Business Day before the Valuation Date or date of calculation,
as applicable, PROVIDED that the calculations of Value and
Delivery Amount or Return Amount (as the case may be) will be
made as of approximately the same time on the same date.
(v) "NOTIFICATION TIME" means 1:00 p.m., New York time, on a Local
Business Day.
(vi) TRANSFER TIMING. Notwithstanding anything to the contrary in
this Annex (including Paragraph 3(b) or Paragraph 4(b)), the
Secured Party shall not be obligated to Transfer to the
Pledgor Posted Credit Support except on the dates and in the
amounts required pursuant to the terms of Part 6.
(vii) CALCULATIONS. Paragraph 4(c) of this Annex is restated to read
in its entirety as follows:
"All calculations of Delivery Amounts and Return Amounts for
purposes of Intra-Year Collateral and Paragraph 6(d) will be
made by the Valuation Agent as of the Valuation Time. The
Valuation Agent will notify each party (or the other party, if
the Valuation Agent is a party) of its calculations not later
than the Notification Time on the Local Business Day following
the applicable Valuation Date (or in the case of Paragraph
6(d), following the date of calculation).
(d) CONDITIONS PRECEDENT AND SECURED PARTY'S RIGHTS AND REMEDIES. Each
Termination Event specified below with respect to a party will be a
"SPECIFIED CONDITION" for that party (the specified party being the
Affected Party if a Termination Event or Additional Termination Event
occurs with respect to that party):
PARTY A PARTY B
Illegality [X] [X]
Force Majeure Event [X] [X]
Tax Event [ ] [ ]
Tax Event Upon Merger [ ] [ ]
Credit Event Upon Merger [X] [X]
(e) SUBSTITUTION.
(i) "SUBSTITUTION DATE" has the meaning specified in Paragraph
4(d)(ii).
(ii) ADDITIONAL SUBSTITUTION CONDITIONS. In addition to any other
conditions regarding substitutions of Posted Credit Support
for other Eligible Credit Support set forth in this Annex,
substitutions of collateral are subject to the terms and
conditions set forth in Part 6.
11
(f) DISPUTE RESOLUTION.
(i) "RESOLUTION TIME" means 1:00 p.m., New York time, on the Local
Business Day following the date on which the notice is given
that gives rise to a dispute under Paragraph 5.
(ii) VALUE. For the purpose of Paragraph 5(ii), the Value of Posted
Credit Support will be calculated in accordance with the
requirements of Part 6.
(iii) ALTERNATIVE. The provisions of Paragraph 5 will apply, except
to the following extent:
(A) pending the resolution of a dispute, Transfer of the
undisputed Value of Eligible Credit Support or Posted
Credit Support involved in the relevant demand will
be due as provided in Paragraph 5 if the demand is
given by the Notification Time, but will be due on
the second Local Business Day after the demand if the
demand is given after the Notification Time; and
(B) the Disputing Party need not comply with the
provisions of Paragraph 5(II)(2) if the amount to be
Transferred does not exceed the Disputing Party's
Minimum Transfer Amount.
(iv) AMENDMENT. Paragraphs 5(i) and (ii) of this Annex are amended
to read in their entirety as follows:
"(i) In the case of a dispute involving a Delivery Amount
or Return Amount that is dependent in whole or in
part upon a determination of the Natural Gas
Mark-to-Market Amount for any Valuation Date, unless
otherwise specified in Paragraph 13, the Valuation
Agent will recalculate the Natural Gas Mark-to-Market
Amount and the Value as of the Recalculation Date by:
(A) utilizing any calculations of Natural Gas
Mark-to-Market Amount for the Transactions
that the parties have agreed are not in
dispute; and
(B) calculating that part of the Natural Gas
Mark-to-Market Amount attributable to the
Transactions in dispute by seeking four
actual quotations at mid-market from third
parties for purposes of calculating the
relevant Close-out Amount, and taking the
arithmetic average of those obtained;
PROVIDED that if four quotations are not
available for a particular Transaction, then
fewer than four quotations may be used for
that Transaction, and if no quotations are
available for a particular Transaction, then
the Valuation Agent's original calculations
will be used for the Transaction.
(ii) In the case of a dispute involving the Value of any
Transfer of Eligible Credit Support or Posted Credit
Support, the Valuation Agent will recalculate the
Value as of the date of Transfer pursuant to Part 6."
(g) HOLDING AND USING POSTED COLLATERAL.
(i) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS. Party A and
its Custodian will be entitled to hold Posted Collateral
pursuant to Paragraph 6(b); PROVIDED that the following
conditions applicable to it are satisfied:
(A) Party A is not a Defaulting Party.
(B) Posted Collateral may be held only in the following
jurisdictions: New York.
Initially, the Custodian for Party A is Deutsche Bank AG, New
York Branch.
(ii) USE OF POSTED COLLATERAL. The provisions of Paragraph 6(c)
will apply to Party A, but only with respect to Posted
Collateral that is Cash.
12
(h) DISTRIBUTIONS AND INTEREST AMOUNT.
(i) INTEREST RATE. The "INTEREST RATE" will be, with respect to
Eligible Collateral in the form of Cash, for any day, the rate
opposite the caption "Federal Funds (Effective)" for such day
as published for such day in Federal Reserve Publication
H.15(519) or any successor publication as published by the
Board of Governors of the Federal Reserve System. No Interest
Rate will apply to any other Eligible Collateral.
(ii) TRANSFER OF INTEREST AMOUNT. The Transfer of the Interest
Amount will be made on the first Local Business Day of each
calendar month and on any Local Business Day that Posted
Collateral in the form of Cash is Transferred to the Pledgor
pursuant to Paragraph 3(b).
(iii) ALTERNATIVE TO INTEREST AMOUNT. The provisions of Paragraph
6(d)(ii) will apply.
(i) OTHER ELIGIBLE SUPPORT AND OTHER POSTED SUPPORT.
(i) "VALUE" with respect to Other Eligible Support and Other
Posted Support shall be the "Value" thereof determined in
accordance with the definition of such term in Part 6.
(ii) "TRANSFER" means, with respect to Letters of Credit:
(1) for purposes of Paragraph 3(a) (Delivery Amounts),
delivery of a Letter of Credit by Party B to Party A
at the address specified in this Annex or delivery of
an executed amendment to such Letter of Credit, in
form and substance satisfactory to Party A, by Party
B to Party A at the address specified in this Annex;
and
(2) for purposes of Paragraph 3(b) (Return Amounts),
return of a Letter of Credit by Party A to Party B,
at the address specified in this Annex, or delivery
of an executed amendment to such Letter of Credit, at
the address specified in this Annex.
(j) DEMANDS AND NOTICES. All demands, specifications and notices under this
Annex will be made pursuant to the Notices Section of this Agreement,
unless otherwise specified here:
Party A: Deutsche Bank AG
60 Wall Street
New York, NY 10005
Attention: Collateral Management and Valuations
Party B: Chesapeake Exploration Limited Partnership
6100 N. Western Avenue
Oklahoma City, OK 73118
Attention: Cash Manager
(k) ADDRESSES FOR TRANSFERS OF CASH:
Party A: Deutsche Bank AG, New York Branch
New York, NY
ABA: 026003780
Account No.: To be advised
Reference: To be advised
Party B: Bank of Oklahoma, N.A.
Oklahoma City, OK
ABA: 103900036
Account No.: 814109493
13
(l) OTHER PROVISIONS.
(i) LIMIT ON SECURED PARTY'S LIABILITY. The Secured Party will not
be liable for any losses or damages that the Pledgor may
suffer as a result of any failure by the Secured Party to
perform, or any delay by it in performing, any of its
obligations under this Annex if the failure or delay results
from circumstances beyond the reasonable control of the
Secured Party or its Custodian, such as interruption or loss
of computer or communication services, labor disturbance,
natural disaster or local or national emergency.
(ii) FURTHER ASSURANCES. If the Pledgor fails (a) to execute and
deliver to the Secured Party such financing statements,
assignments, or other documents or (b) to do such other things
relating to the Posted Collateral as the Secured Party may
reasonably request in order to protect and maintain its
security interest in the Posted Collateral and to protect,
preserve, and realize upon the Posted Collateral, then the
Secured Party is hereby authorized by the Pledgor (but not
required) to complete and execute such financing statements,
assignments, and other documents as the Secured Party deems
appropriate for such purposes. The Pledgor hereby appoints the
Secured Party, during the term of this Agreement, as the
Pledgor's agent and attorney-in-fact to complete and execute
such financing statements, assignments and other documents and
to perform all other acts which the Secured Party may deem
appropriate to protect and maintain its security interest in
the Posted Collateral and to protect, preserve, and realize
upon the Posted Collateral. The power-of-attorney granted
herein to the Secured Party is coupled with an interest and is
irrevocable during the term of this Agreement.
(iii) AGREEMENT AS TO SINGLE SECURED PARTY AND PLEDGOR. Party A and
Party B agree that, notwithstanding anything to the contrary
in the recital to this Annex, Paragraph 1(b) or Paragraph 2 or
the definitions in Paragraph 12, (a) the term "SECURED PARTY"
as used in this Annex means only Party A, (b) the term
"PLEDGOR" as used in this Annex means only Party B, (c) only
Party B makes the pledge and grant in Paragraph 2, the
acknowledgment in the final sentence of Paragraph 8(a) and the
representations in Paragraph 9, (d) only Party B will be
required to make Transfers of Eligible Credit Support
hereunder (it being understood that Party A will be required
to make Transfers of Posted Credit Support at the times and to
the extent required hereunder) and (e) Paragraph 7 shall apply
to Party B only and shall not apply to Party A.
(iv) MODIFICATIONS TO THIS ANNEX. The following amendments are made
to this Annex:
(A) References throughout this Annex to "Swap Transactions"
are deleted.
(B) The definition of "Exposure" in Paragraph 12 of this
Annex is hereby deleted.
(C) SET-OFF. For purposes of Paragraphs 2 and 8 of this
Annex, the reference to "Set-off" shall mean that the
party shall have the right to set-off any amount
payable by the Pledgor to the Secured Party with
respect to any Obligation (whether matured or
unmatured, whether or not contingent and irrespective
of the currency, place of payment or booking office
of the sum or obligation), PROVIDED that no Posted
Credit Support may be set off against Obligations
owing to Party A under the Credit Agreement.
(v) ADDITIONAL EXPENSES. Notwithstanding Paragraph 10, the costs
and expenses (including but not limited to the reasonable
costs, expenses and external attorney's fees of Party A) of
establishing, renewing, substituting, canceling, increasing
and reducing the amount of one or more Letters of Credit shall
be borne by Party B.
(vi) LETTER OF CREDIT PROVISIONS. Each posting of a Letter of
Credit by Party B hereunder shall be subject to the terms and
conditions set forth in Part 6, including clause (t) thereof.
[signature page follows]
14
DEUTSCHE BANK AG CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP
By: Chesapeake Operating, Inc.,
By: /s/ GREGORY COLLETT its general partner
-----------------------------
Name: Gregory Collett
Title: Vice President and
Counsel
By: /s/ MARTHA A. BURGER
--------------------------
Name: Martha A. Burger
Title: Treasurer
By: /s/ CARLO CARLTON
-----------------------------
Name: Carlo Carlton
Title: Vice President and
Counsel
15