-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, WAm/nKv1E648KVDirjRWcUOjQnoEw94bWsnOOS+SPuJs9TTCVOj3BrWd7WkynC1i NmSig0E+GSN3xWS81JSruQ== 0000950120-94-000027.txt : 19940523 0000950120-94-000027.hdr.sgml : 19940523 ACCESSION NUMBER: 0000950120-94-000027 CONFORMED SUBMISSION TYPE: POS AMC PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19940520 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL FUEL GAS CO CENTRAL INDEX KEY: 0000070145 STANDARD INDUSTRIAL CLASSIFICATION: 4924 IRS NUMBER: 131086010 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: POS AMC SEC ACT: 1935 Act SEC FILE NUMBER: 070-08143 FILM NUMBER: 94529729 BUSINESS ADDRESS: STREET 1: 30 ROCKEFELLER PLZ CITY: NEW YORK STATE: NY ZIP: 10112 BUSINESS PHONE: 2125417533 POS AMC 1 POST-EFFECTIVE AMENDMENT NO. 1 TO FORM U-1 File No. 70-8143 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. POST-EFFECTIVE AMENDMENT NO. 1 to FORM U-1 APPLICATION OR DECLARATION under the PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 - -------------------------------------------------- National Fuel Gas Company National Fuel Gas 30 Rockefeller Plaza Distribution Corporation New York, New York 10112 10 Lafayette Square Buffalo, New York 14203 Penn-York Energy Corporation National Fuel Gas Supply 10 Lafayette Square Corporation Buffalo, New York 14203 10 Lafayette Square Buffalo, New York 14203 Seneca Resources Corporation Empire Exploration, Inc. 10 Lafayette Square 10 Lafayette Square Buffalo, New York 14203 Buffalo, New York 14203 Utility Constructors, Inc. 10 Lafayette Square Buffalo, New York 14203 (Names of companies filing this statement and addresses of principal executive offices) - ---------------------------------------------------- NATIONAL FUEL GAS COMPANY (Name of top registered holding company) --------------------------------------------- Philip C. Ackerman Clive D. Conley, Esq. Senior Vice President Reid & Priest National Fuel Gas Company 40 West 57th Street 10 Lafayette Square New York, New York 10019 Buffalo, New York 14203 (Names and addresses of agents for service) Item 1. Description of Proposed Transaction. Item 1 of the Application/Declaration filed on January 29, 1993, as amended, in this File No. 70-8143, is hereby amended by adding the following paragraphs to the end thereof: "National has developed a long-term financing plan which may include entering into one or more interest rate swap agreements ("swaps") in notional amounts aggregating not in excess of $350 millionat any one time outstanding. By this Application/Declaration, National is seeking authority to enter into one or more swaps, plus one or more derivative instruments, such as interest rate caps, interest rate floors, interest rate collars and options, with one or more counterparties from time to time through December 31, 1994, in notional amounts aggregating not in excess of $350 million at any one time outstanding. National already has certain authority to enter into swaps with notional amount not in excess of $200 million pursuant to the SEC order granted in connection with National's short-term borrowing and system Money Pool arrangements (File No. 70-8297, Release No. 35-25964 dated December 29, 1993). However, this Application/Declaration requests additional authority to enter into swaps that hedge National's long-term debt, as described in Strategy 1 and Strategy 2 below. The aggregate notional amount of all such derivative transactions (swaps, interest rate caps, floors, collars and options) that relate to both long-term debt and short-term debt, in this file and File No. 70-8297, will not exceed $350 million. National has not engaged in any swap transactions pursuant to the December 29, 1993 order (File No. 70-8297) as of May 20, 1994. All derivative transactions will be directly related to then outstanding long or short-term debt. National proposes to use two different swap strategies. Under one swap strategy ("Strategy 1"), National would agree to make payments of interest to a counterparty, payable periodically. The interest would be payable at a variable or floating rate index and would be calculated on a notional (i.e., principal) amount. In return, the counterparty would agree to make payments to National based upon the same notional amount and at an agreed upon fixed interest rate. This would be a "floating-to-fixed swap" on National's part. Under another swap strategy ("Strategy 2"), National and the counterparty may exchange roles. National would pay a fixed interest rate and receive a variable interest rate on a notional amount. This would be a "fixed-to-floating swap" on National's part. Currently, most swap counterparties are banks, which generally act as dealers (principals) rather than brokers (agents). The counterparties themselves sometimes represent all or part of the opposite side of a swap transaction. Otherwise, the counterparties enter into one or more transactions with other entities, to create the opposite side of a swap transaction, generally intending to make a profit on the spread. Strategy 1 ---------- National proposes to enter into Strategy 1 swaps from time to time (i) in order to reduce the interest costs of existing high cost debt and/or (ii) in order to reduce the interest cost of new long-term debt issuances for part or all of their terms. A reduction in interest cost may occur because, by using a Strategy 1 swap, National functionally converts some or all of the fixed interest rate payments on long-term debt to floating rate payments that vary in relation to a short-term debt index. A Strategy 1 swap would reduce the issuer's interest costs of the Debenture or MTNs' associated with the swap for the term of such a swap as long as the short-term index used in the swap to determine the floating rate paid by the issuer remains the same, decreases, or rises modestly. If the short-term index rises during the term of the swap, the interest costs saved by the issuer would decrease until the short-term index is equal to the fixed rate received by the issuer. If the short-term index rises above the fixed rate received by the issuer, debt costs to the issuer would be higher than they would be without using a Strategy 1 swap. Each time National issues Debentures of MTNs, the proceeds are lent to one or more of the Subsidiaries at an all in cost that is equal to the coupon on the debt plus the amortization of the underwriters' or agents' fees. The loans are documented by intercompany notes from the Subsidiaries to National. All the interest costs of both long-term and short-term debt is borne by the subsidiaries. In accordance with National's current policy of not assuming any cost of debt, or the above costs of issuance of debt, the gains and the losses of doing a swap should be assumed by the subsidiary. National would enter into a swap in connection with an underlying subsidiary note only after determining it to be in the best interest of the subsidiary at the time of consummation of the swap. A Strategy 1 swap is used to convert the existing fixed payments made by the subsidiary of National to floating payments for part or all of the term of the debt. National would decide on which subsidiary's debt to match against a swap under Strategy 1 based on the current cost of the debt, the term remaining for the debt, whether the debt is redeemable, availability of all regulatory approvals to do the swap against the underlying debt and the individual needs of the subsidiary. The effective net interest payments or receipts realized by National will be passed along to the subsidiaries of National that hold the underlying debt. None of the payments or receipts will be retained by National. No principal payments are made by either party either upon initiation or termination of a Strategy 1 swap. Each Strategy 1 swap would be associated with one or more specific fixed rate Debenture(s) or MTN(s). More than one Strategy 1 swap could be associated with one specific Debenture or MTN, but the aggregate notional amount of swaps (Strategy 1 and Strategy 2 and swaps authorized under the Money Pool) would not exceed $350 million at any one time outstanding. Each Strategy 1 swap would have a term (which may range from 1 month to 40 years) that is less than or equal to the remaining maturity of the Debenture or MTN it is associated with. National may from time to time enter into a Strategy 1 swap or swaps with a counterparty whereby National would pay a floating interest rate based on indices such as LIBOR (The "London Interbank Deposit Offered Rate"), the Federal Funds rate, certificate of deposit indices or commercial paper indices (H.15 CP index or any other commercial paper index). National would in return receive a fixed interest rate. The fixed interest rate would be the Treasury yield for the corresponding term of the swap plus a swap spread that is based on the "forward curve" which is a market expectation of the movement of the floating rate index used in the swap in the future relative to the United States Treasury Securities rates. There will be no maximum interest rate respecting payments that National may make under the Strategy 1 swaps unless National purchases an interest rate cap. National's effective net interest payments or receipts under a Strategy 1 swap will be allocated to the subsidiary of National that holds the unsecured subsidiary note that corresponds to the Debenture or MTN associated with the Strategy 1 swap. If more than one subsidiary holds unsecured notes that correspond to the specific Debenture or MTN, the net interest payments and receipts of the Strategy 1 swap will be allocated in proportion to the amounts of unsecured notes outstanding for each subsidiary, provided all subsidiaries have the necessary legal authority to make and receive such payments. (If a subsidiary lacks such authority, the notional amount of the swap will not exceed the principal amount of the note or notes issued by the subsidiaries that have the necessary legal authority, and the payments and receipts will only be allocated to those subsidiaries.) Thus, the subsidiaries realize all the savings (costs) associated with the Strategy 1 swap. Unsecured subsidiary notes may be issued pursuant to the Application/Declaration in this file to National by Distribution, Supply, Seneca, Penn-York, Empire and Utility Constructors. The allocation of the net interest payments or receipts of the Strategy 1 swap to the subsidiary will be made at each reset date of the respective floating rate index. The subsidiary that holds the unsecured note that corresponds to the Debenture or MTN associated with the Strategy 1 swap would be obligated to execute an unsecured note or an agreement with National to make the floating rate payments (and receive the fixed rate receipts) at each reset date of the floating rate index. The hypothetical example below, based upon market rates prevalent on March 25, 1994, illustrates the savings that National and hence its subsidiaries could achieve by using a Strategy 1 swap. Assume National has the following Existing Debenture Principal $50,000,000 Interest 7.5% Remaining term 30 years Proceeds were lent to Supply Strategy 1 Swap Notional amount $50,000,000 Term 2 years (4 reset periods, first one beginning today) National pays Floating rate equal to 6-month LIBOR (currently at 4.25%) National receives fixed rate equal to 5.27%. Savings realized by National at first reset (pay 4.25%, receive 5.27%) @1.02% $255,000 Savings realized by National for the term of swap(1) _________________ [FN](1) (Assuming that the 6-month LIBOR is constant over the 2-year period of the swap.)[/FN] @ 1.02% $1,020,000 The pre-tax savings would be allocated in their entirety to Supply, which holds the subsidiary note for the underlying Debenture. Therefore, the effective interest cost on the 30-year issue would be 6.48% (versus 7.50% without the swap) for 2 years of its term. In this example, National would realize a pre-tax savings of $255,000 at the first reset date of the swap. Reset dates sometimes begin on the date at which the swap is entered into, or a later date, and then follow at agreed upon intervals. For Strategy 1 swaps, pre-tax savings or costs at reset dates will depend upon how the floating rate index changes, and therefore upon how the floating rate of interest paid by National changes. Thus, for example, if 6-month LIBOR increases to 5% at the time of the second reset in this example, the pre-tax savings realized would be reduced to $67,500. $67,500 = (5.27% - 5% ) X ($50,000,000 [divided by] 2). Should 6-month LIBOR be higher than 5.27% at the time of such reset, National would incur an additional cost. For example, if 6-month LIBOR instead increased to 5.50% at the time of the second reset, National (and hence Supply) would incur a pre-tax cost of $57,500. The accounting entries on National and Supply's books for the Strategy 1 swap transaction described in the above example (at the first reset date only and assuming flat interest rates) will be as follows, for a one-month period: National Fuel Gas Company and Subsidiaries ------------------------------------------ Accounting Entries ------------------ Strategy 1 Swap --------------- National Fuel Gas Company ------------------------- Entry No. 1 Accrued Interest Expense $312,500 Interest Payable $312,500 To record accrued interest expense on $50,000,000 7 1/2% Debentures for the month of April 1994. Entry No. 2 Interest Receivable $42,500 Accrued Interest Expense $42,500 To record the net proceeds on $50,000,000 swap (pay 4.25%, receive 5.27%) for the month of April 1994. Entry No. 3 Accounts Receivable Associated Companies $270,000 Interest Income $270,000 To charge subsidiary company with net interest cost on $50,000,000 unsecured subsidiary note minus net swap savings (cost) for the month of April 1994. Subsidiary Company ------------------ Entry No. 4 Accrued Interest Expense $270,000 Accounts Payable Associated Companies $270,000 To record interest expense on $50,000,000 unsecured subsidiary note plus net swap savings (cost) for the month of April 1994. Entry No. 5 Accrued Income Taxes $94,500 Federal Income Tax Expense $94,500 To record federal income taxes for the month of April 1994. National Fuel Gas Company and Subsidiaries ------------------------------------------ Elimination Entries ------------------- Entry No. 6 Interest Income $270,000 Interest Expense $270,000 To record elimination entries for the month of April 1994. A Strategy 1 swap transaction, if material, would be reported as a footnote to the financial statements of National in accordance with the Generally Accepted Accounting Principles. The transaction will not have an impact on the balance sheet of National. National will not enter into a Strategy 1 swap unless the estimated savings at the time of initiation of the swap (derived from the net difference between the interest to be paid by National and the interest to be received by National under the Strategy 1 swap using current market rates) is, on an after-tax basis, greater than the transaction and ancillary costs of the Strategy 1 swap. National may also use other derivative strategies from time to time in conjunction with a Strategy 1 swap. Such derivative strategies may include interest rate caps, interest rate floors, interest rate collars(2) _________________ [FN](2) (An interest rate collar occurs when National buys a cap and sells a floor.)[/FN] and options. Depending on how low the interest rate cap is set or how high the interest rate floor is set, National may pay or receive an upfront fee, and/or share with the counterparty a portion of the savings realized on the spread between the capped rate and the floating rate. Caps, collars and floors would enable National to manage the interest rate risks associated with floating rate payment obligations. Such an obligation could be incurred if National issues a floating rate MTN or Debenture or initiates a Strategy 1 swap. National would determine whether to use caps, floors, collars or options at the time that National enters into a Strategy 1 swap or at any time during the term of the swap. The decision on whether to use any of the derivatives listed above, would depend on National's view of, the expected interest rate movements during the term of the swap, the expected risks of loss due to the swap, and the cost of buying a cap, floor, collar or option. The payments or receipts associated with a cap, collar, floor or option will be allocated to the subsidiary that holds the underlying obligation. It is anticipated that each Strategy 1 swap would provide that each party may terminate or "unwind" the agreement with the other party's consent, by making early termination payments and/or as may otherwise be set forth in an agreement as described below. Termination payments would be determined in accordance with the formula provided in the agreement between the parties, such as the one provided in the International Swap Dealers Association Master Agreement filed as Exhibit B-4 to this Application/Declaration, unless the parties negotiated different payment arrangements. Termination payments are dependent upon market conditions and could be substantial at times. Termination payments or the costs to "unwind" a swap would depend on the movement of the interest rates for the short term index used in the swap after the swap is consummated. If National enters into a Strategy 1 swap where National pays a floating rate and receives a fixed rate, the fixed rate of the swap is calculated as the rate of interest that sets the net present value of the forward curve for the short-term index to zero, plus the bid/ask spread. The bid/ask spread for a swap can vary from 1 to 10 basis points depending on the market demand for the swap at that time. If the interest rates had moved exactly as the forward curve had predicted, during the term of the swap, the termination or "unwind" cost for the swap would be zero. If the interest rates move higher than predicted by the forward curve, National would incur a cost to "unwind". This cost would be equal to the present value of the forward curve (at the time the termination takes place) for the short-term index for the remaining term of the swap, discounted at the interest rate of the Treasury zero-coupon bond having the same term as the remaining term of the swap. Here again a bid/ask spread based on market conditions would be added/subtracted from the "unwind" cost. If the interest rates had moved lower than the forward curve had predicted, National would receive the "unwind" cost, calculated as described in the above paragraph. It would be very difficult to determine a dollar figure for such a termination since the calculations depend entirely on the movement of interest rates and the implied forward curve at the time of termination. However, termination or "unwind" costs (or receipts) are not expected to exceed 10% of the notional amount in most cases. Termination payments (or receipts) associated with Strategy 1 swaps would be allocated to the subsidiary that executed the note or agreement to National regarding the payment obligations of the terminated swap. Strategy 2 ---------- National could from time to time combine new or existing floating rate debt (such as the floating rate short-term debt issued from time to time pursuant to National's short-term borrowing and system Money Pool arrangements (File No. 70-8297, Release No. 35-25964 dated December 29, 1993)) with a fixed-to-floating interest rate swap (Strategy 2 swap). National would enter into a Strategy 2 swap with a counterparty whereby National would pay a fixed interest rate based on the forward curve. National would in return receive a floating interest rate based on such indices as LIBOR, the Federal Funds rate, certificate of deposit indices or commercial paper indices (H.15 CP index or any other commercial paper index). No principal payments are made or received by either counterparty upon either the initiation or termination of an interest rate swap, including a Strategy 2 swap. The hypothetical example below, based upon market rates prevalent on April 8, 1994, illustrates the nature of a Strategy 2 swap and the savings that might be associated with using it. Amount of short-term debt $50,000,000 Interest paid on short-term debt (using current H.15 CP index plus credit spread of National- estimated at 3.87%) $161,250 per month Strategy 2 Swap Notional amount of swap $50,000,000 Term of swap 5 years (60 resets) At each reset, (every month) National pays a fixed rate @6.853% $285,542 per month National receives H.15 CP index currently 3.72% $155,000 per month Total cost of using a swap ($285,542 + 161,250 - 155,000) $291,792 National would enter into a Strategy 2 swap, and not reduce its short-term debt, as opposed to issuing a 5-year MTN or Debenture and reducing short-term debt, only if the costs associated with the swap, including transaction costs,(3) _________________ [FN](3) (Transaction costs may include any intermediary fees, credit spreads, and legal and other costs associated with using a Strategy 2 swap versus a Debenture or MTN, such as extra bank fees due to same or lost opportunities for bond or short-term debt rating upgrades.)[/FN] were less than the costs of issuing the long-term debt. For example, if National issued a MTN having the same term as the above swap (5 years) with the following terms: Principal amount of debt issued $50,000,000 Effective all-in interest cost(4) 7.14% ----------------- [FN](4) (Effective all-in interest cost means the coupon rate of interest for the MTN plus the agent/underwriter fee allocated over the life of the MTN.)[/FN] Monthly interest cost(5) $297,500 ----------------- [FN](5) (Monthly interest is used to compare the cost of the MTN to the swap because the swap resets monthly.)[/FN] The net savings to National by using a swap for each reset are ($297,500 - 291,792) $ 5,708 Total net savings to National by using the swap over the 5-year period (undiscounted and pre-tax)(6) $342,480 ----------------- [FN](6) (Assuming that the H.15 CP index and National's short-term debt costs move in unison for the term of the swap.)[/FN] National would save 18.9 basis points(7) ----------------- [FN](7) (The savings do not include the transaction costs. Please see footnote 3 for more details concerning transaction costs.)[/FN] in interest cost calculated on a semi-annual bond basis by using the above swap and retaining short-term debt instead of issuing the above MTN. In the example above, the subsidiary of National which is allocated the cost of the swap will save $5,708 per month (each reset), for a total of $342,480 over a period of 5 years, by keeping the short-term debt levels constant and using the above swap to fix a particular interest rate for the long-term, instead of issuing the above MTN, as long as the H.15 CP index and National's short-term debt costs move in unison. In the above example, if the interest cost of National's short-term debt does not move in unison with H.15 CP index, National may incur additional costs or it may save more, depending on how the two interest rates change in relation to one another. For example, if the short-term interest cost for National increased to 4.00% at the time of a subsequent reset, and the H.15 CP index increased to 3.95%, the savings to National would be calculated as follows: Interest paid on short-term debt @ 4.00% $166,667 per month Strategy 2 Swap National pays a fixed rate @ 6.853% $285,542 per month National receives H.15 CP index @ 3.95% $164,583 per month Total cost of using a swap ($285,542 + 166,667 - 164,583) $287,626 Net savings to National for this reset ($297,500 - 287,626) $ 9,874 National saved $9,874 for this reset versus $5,708 for the previous reset because National's short-term borrowing rates did not increase as much as the H.15 CP index did. This savings can also decrease, or National may incur an additional cost, if at the time of a subsequent reset the difference between National's short-term interest costs and the H.15 CP index increases. For example, if National's short-term interest rate is then 4.25% and H.15 CP index is then 3.90%, the net cost to National at the reset is $2,625. $300,125 (payments) - $297,500 (receipts) = $2,625. National does not expect the relative differences between short-term borrowing rates and the H.15 CP index to vary substantially over time (i.e., by more than 10 basis points in either direction), unless National is downgraded by the bond rating agencies. There is a possibility that such a downgrade may erase the savings for the rest of the term of the swap or until National is upgraded by the bond rating agencies. The accounting entries for the Strategy 2 swap transaction will be as follows on the books of National and the affected subsidiary, using the first Strategy 2 example above, for a one-month period: National Fuel Gas Company and Subsidiaries ------------------------------------------ Accounting Entries ------------------ Strategy 2 Swap --------------- National Fuel Gas Company ------------------------- Entry No. 1 Accrued Interest Expense $161,250 Interest Payable $161,250 To accrue interest on $50,000,000 short-term debt at 3.87% for the month of April 1994. Entry No. 2 Accrued Interest Expense $119,292 Interest Payable $119,292 To record net interest expense on $50,000,000 swap (pay 6.853%, receive 3.72%) for the month of April 1994. Entry No. 3 Accounts Receivable Associated Companies $291,792 Interest Income $291,792 To charge subsidiary company with net interest on $50,000,000 short-term subsidiary note for the month of April 1994. Subsidiary Company ------------------ Entry No. 4 Accrued Interest Expense $291,792 Accounts Payable Associated Companies $291,792 To record interest expense on $50,000,000 short-term debt for the month of April 1994. Entry No. 5 Accrued Income Taxes $102,127 Federal Income Tax Expense $102,127 To record federal income taxes for the month of April 1994. National Fuel Gas Company and Subsidiaries ------------------------------------------ Elimination Entries ------------------- Entry No. 6 Interest Income $291,792 Interest Expense $291,792 To record elimination entries for the month of April 1994. The Strategy 2 swap, if material, would be reported as a footnote to the financial statements of National in accordance with the Generally Accepted Accounting Principles. The transaction would not be reflected on National's balance sheet. National believes that, by using a Strategy 2 swap, it may be able to reduce its effective interest costs, versus issuing a New MTN or Debenture. National will not enter into a Strategy 2 swap unless the estimated after-tax cost of the swap (including any intermediary fees, credit spreads, and legal and other costs associated with using a Strategy 2 swap versus a Debenture or MTN, such as extra bank fees due to same or lost opportunities for bond or short-term debt rating upgrades) are lower than the after-tax costs of issuing a new MTN or Debenture (including any issuance and legal costs) of the same maturity. In no event, under any Strategy 2 swap, will National enter into a swap contract in which the effective fixed rate of interest paid by National, inclusive of any intermediary fee, would exceed by more than 2.0% per annum, at the time of entering into any Strategy 2 swap contract, the yield on direct obligations of the United States Government as published by the Federal Reserve (i.e., Treasury Bonds, Notes and Bills) with maturities comparable to the maturity of such Strategy 2 swap contract. The notional amount for the Strategy 2 swaps will not exceed the difference of a) $350,000,000 and b) the aggregate principal amount of New Debentures and New MTNs outstanding. The current amount of New MTNs outstanding is $30,000,000. The aggregate notional amount of all the swaps initiated pursuant to any orders issued in this file (Strategy 1 and Strategy 2 swaps) and swaps initiated pursuant to the SEC's order in File No. 70-8297, relating to National's short-term borrowings and system Money Pool arrangement, will not exceed $350 million. The term for any Strategy 2 swaps will range from 9 months to 40 years. Each time National issues Debentures or MTNs, the proceeds are lent to one or more of the Subsidiaries at an all in cost that is equal to the coupon on the debt plus the amortization of the underwriters' or agents' fees. The loans are documented by intercompany notes from the Subsidiaries to National. All the interest costs of both long-term and short-term debt is borne by the subsidiaries. In accordance with National's current policy of not assuming any cost of debt, or the above costs of issuance of debt, the gains and the losses of doing a swap should be assumed by the subsidiary. National would enter into a swap in connection with an underlying subsidiary note only after determining it to be in the best interest of the subsidiary at the time of consummation of the swap. Since a Strategy 2 swap would be used in lieu of issuing new MTNs or Debentures, the subsidiary that would have received the proceeds of issuing long-term debt would be the one which would receive the costs (savings) of the swap. The costs associated with the short-term debt that is not repaid as a result of using this swap strategy would be allocated to the subsidiary that would have paid interest associated with the MTNs or Debentures that would otherwise have been issued. The fixed rate payments and the floating rate receipts of the Strategy 2 swap would be allocated to the same subsidiary to which the costs associated with the short-term debt are assigned. Subsidiaries that could receive the Strategy 2 allocations from National include Distribution, Supply, Seneca, Penn-York, Empire and Utility Constructors. The subsidiary that would receive the cost allocations related to a Strategy 2 swap (short-term debt principal and interest payments, fixed rate payments under the swap and floating rate receipts under the swap) would be obligated to execute an unsecured note or an agreement with National to make the interest payments (and receive the floating rate interest) at each reset date of the floating rate index. It is anticipated that each Strategy 2 swap would provide that each party may terminate or "unwind" the agreement with the other party's consent and/or with early termination payments. Termination payments would be determined in accordance with the formula provided in the agreement between the parties, such as the one provided in the International Swap Dealers Association Master Agreement filed as Exhibit B-4 to this Application/Declaration, unless the parties negotiated different payment arrangements. Termination payments are dependent upon market conditions and could be substantial at times. The methodology for calculating the cost of "unwinding" a Strategy 2 swap would be the same as that used for a Strategy 1 swap. Termination payments for a Strategy 2 swap could be functionally compared to a premium that is paid to the bondholders, for redeeming or discharging high cost debt. Termination or "unwind" costs (or receipts) are not expected to exceed 10% of the notional amount in most cases. Termination payments (or receipts) for Strategy 2 swaps would be allocated to the subsidiary that executed the note or agreement to National regarding the payment obligations of the terminated swap. National may also use other derivative strategies from time to time in conjunction with a Strategy 2 swap. Such derivative strategies may include interest rate caps, interest rate floors, interest rate collars and options. Depending on how low the interest rate cap is set or how high the interest rate floor is set, National may pay or receive an upfront fee, and/or share with the counterparty a portion of the savings realized on the spread between the capped rate and the floating rate. The payments or receipts associated with a cap, collar floor or option will be allocated to the subsidiary that holds the underlying obligation. Since a swap is essentially an exchange of interest payment obligations of National and a counterparty, National will neither receive nor pay any proceeds (i.e., principal) from any swaps." Item 2. Fee, Commissions and Expenses. Item 2 is hereby amended by adding the following at the end thereof: "The estimated fees and expenses for the proposed interest rate swaps, other than fees required for guaranteeing payment obligations, are set forth in Exhibit I-1 hereto." Item 4. Regulatory Approval. Item 4 is hereby amended by adding the following at the end thereof: "No State regulatory authority has jurisdiction over the proposed swap transactions except that the Public Service Commission of New York and the Pennsylvania Public Utility Commission have jurisdiction over the allocation of costs and benefits to Distribution associated with the swap transactions. National will file the Applications or Petitions (or amendments to current applications or petitions) requesting the approval of such commissions, should National decide to do a swap and allocate the costs to Distribution." Item 5. Procedure. Item 5 is hereby amended by adding the following at the end thereof: "National respectfully requests that the Commission's order herein be entered pursuant to Rule 23 as soon as practicable. If a hearing be ordered, National waives a recommended decision by a Hearing Officer, or any other responsible officer of the Commission, agrees that the Office of Public Utility Regulation may assist in the preparation of the Commission's decision and requests that there be no waiting period between the issuance of the Commissions supplemental order and the date on which it becomes effective." Item 6. Exhibits and Financial Statements. Item 6 is hereby amended by adding the following exhibits at the end thereof: "B-4 Form of Proposed Swap Agreement (*)F-4 Opinion of Reid & Priest, Counsel for National (*)F-5 Opinion of Stryker, Tams & Dill, New Jersey Counsel for National (*)F-6 Opinion of Richard M. DiValerio, Counsel for Distribution, Supply, Penn-York, Senera, Empire, and Utility Constructors H-2 Suggested form of notice of proposed transactions I-1 Schedule of Estimated Fees and Expenses in Connection with the Proposed Interest Rate Swaps." ----------------- [FN](*) (To be supplied by amendment.)[/FN] SIGNATURES ---------- Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned companies have duly caused this amendment to be signed on their behalf by the undersigned thereunto duly authorized. NATIONAL FUEL GAS COMPANY By /s/ Joseph P. Pawlowski ------------------------- Joseph P. Pawlowski Treasurer NATIONAL FUEL GAS DISTRIBUTION CORPORATION By /s/ Gerald T. Wehrlin ------------------------- Gerald T. Wehrlin Senior Vice President, Controller SENECA RESOURCES CORPORATION By /s/ Gerald T. Wehrlin ------------------------- Gerald T. Wehrlin Secretary, Treasurer and Controller NATIONAL FUEL GAS SUPPLY CORPORATION By /s/ Joseph P. Pawlowski ------------------------- Joseph P. Pawlowski Treasurer PENN-YORK ENERGY CORPORATION By /s/ Joseph P. Pawlowski ------------------------- Joseph P. Pawlowski Treasurer EMPIRE EXPLORATION, INC. By /s/ Joseph P. Pawlowski ------------------------- Joseph P. Pawlowski Treasurer UTILITY CONSTRUCTORS, INC. By /s/ Joseph P. Pawlowski ------------------------- Joseph P. Pawlowski Treasurer DATED: May 20, 1994 EX-99 2 EXHIBIT B-4 - FORM OF MASTER AGREEMENT (MULTICURRENCY--CROSS BORDER) EXHIBIT B-4 ----------- ISDA(registered mark) INTERNATIONAL SWAP DEALERS ASSOCIATION, INC. MASTER AGREEMENT dated as of __________________ _____________________________ and have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions. Accordingly, the parties agree as follows:-- 1. INTERPRETATION (a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement. (b) INCONSISTENCY. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction. (c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions. 2. OBLIGATIONS (a) GENERAL CONDITIONS. (i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. (ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement. (iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement. Copyright (c) 1992 by International Swap Dealers Associations, Inc. (b) CHANGE OF ACCOUNT. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change. (c) NETTING. If on any date amounts would otherwise be payable:-- (i) in the same currency; and (ii) in respect of the same Transaction, by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries. (d) DEDUCTION OR WITHHOLDING FOR TAX. (i) GROSS UP. All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct or withhold, then that party ("X") will:-- (1) promptly notify the other party ("Y") of such requirement; (2) pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y; (3) promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and (4) if such Tax is an Indemnifiable Tax pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:-- (A) the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or (B) the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (11) a Change in Tax Law. (ii) LIABILITY. IF:-- (1) X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4); (2) X does not so deduct or withhold; and (3) a liability resulting from such Tax is assessed directly against X, then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)). (e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement. 3. REPRESENTATIONS Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:-- (a) BASIC REPRESENTATIONS. (i) STATUS. It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing; (ii) POWERS. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorize such execution, delivery and performance; (iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (iv) CONSENTS. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) OBLIGATIONS BINDING. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). (b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party. (c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document. (d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect. (e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true. (f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true. 4. AGREEMENTS Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:-- (a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs:- (i) any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation; (ii) any other documents specified in the Schedule or any Confirmation; and (iii) upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification, in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable. (b) MAINTAIN AUTHORIZATIONS. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future. (c) COMPLY WITH LAWS. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party. (d) TAX AGREEMENT. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure. (e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organized, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party's execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party. 5. EVENTS OR DEFAULT AND TERMINATION EVENTS (a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:-- (i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party; (ii) BREACH OF AGREEMENT. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party; (iii) CREDIT SUPPORT DEFAULT. (1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed; (2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or (3) the party or such Credit Support Provider disaffirm, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document; (iv) MISREPRESENTATION. A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if here is no applicable notice requirement or grace period) or (3) disaffirm, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf); (vi) CROSS DEFAULT. If Cross Default is specified in the Schedule as applying to the party the occurrence or existence of (1) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period); (vii) BANKRUPTCY. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:-- (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or (viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its asset to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:-- (1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement. (b) TERMINATION EVENTS. The occurrence at any time with respect to a party or, if applicable any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below or a Tax Event Upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:-- (i) ILLEGALITY. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):-- (1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or (2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction; (ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (1) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B)); (iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the next succeeding Scheduled Payment Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or withheld for or on account or any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii); (iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its asset to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or (v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation). (c) EVENT OF DEFAULT ANT ILLEGALITY. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default 6. EARLY TERMINATION (a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8). (b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT. (i) NOTICE. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require. (ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under Section S(b)(i)(l) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist. If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i). Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party's policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed. (iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)( 1 ) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event. (iv) RIGHT TO TERMINATE. IF:-- (1) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or (2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party, either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. (c) EFFECT OF DESIGNATION. (i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing. (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e). (d) CALCULATIONS. (i) STATEMENT. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation. (ii) PAYMENT DATE. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss", and a payment method, either the "First Method" or the "Second Method". If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off. (i) EVENTS OF DEFAULT. If the Early Termination Date results from an Event of Default:-- (1) First Method and Market Quotation. If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. (2) First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party's Loss in respect of this Agreement. (3) Second Method and Marker Quotation. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (ii) TERMINATION EVENTS. If the Early Termination Date results from a Termination Event:-- (1) One Affected Party. If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions. (2) Two Affected Parties. If there are two Affected Parties:-- (A) if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y") and (b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y; and (B) if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y"). If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y. (iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii). (iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 7. TRANSFER Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that:-- (a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and (b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e). Any purported transfer that is not in compliance with this Section will be void. 8. CONTRACTUAL CURRENCY (a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the "Contractual Currency"). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in convening the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess. (b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term "rate of exchange" includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency. (c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement. (d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss had an actual exchange or purchase been made. 9. MISCELLANEOUS (a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto. (b) AMENDMENTS. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system. (c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction. (d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by-law. (e) COUNTERPARTS AND CONFIRMATIONS. (i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original. (ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation. (f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege. (g) HEADINGS. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement. 10. OFFICES; MULTIBRANCH PARTIES (a) If Section l0(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organization of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office. This representation will be deemed to be repeated by such party on each date on which a Transaction is entered into. (b) Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party. (c) If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation. 11. EXPENSES A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection. 12. NOTICES (a) EFFECTIVENESS. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:-- (i) if in writing and delivered in person or by courier, on the date it is delivered; (ii) if sent by telex; on the date the recipient's answerback is received; (iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine); (iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or (v) if sent by electronic messaging system, on the date that electronic message is received, unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day. (b) CHANGE OF ADDRESSES. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it. 13. GOVERNING LAW AND JURISDICTION (a) GOVERNING LAW. This Agreement will be governed by and construed in accordance with the law specified in the Schedule. (b) JURISDICTION. With respect to any suit, action or proceedings relating to this Agreement (Proceedings), each party irrevocably:-- (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any jurisdiction. (c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party's Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law. (d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 14. DEFINITIONS As used in this Agreement:-- "ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b). "AFFECTED PARTY" has the meaning specified in Section 5(b). "AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions. "AFFILIATE" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person. "APPLICABLE RATE" means:-- (a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate; (b) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate; (c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and (d) in all other cases, the Termination Rate. "BURDENED PARTY" has the meaning specified in Section 5(b). "CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into. "CONSENT" includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control consent. "CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b). "CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as such in this Agreement. "CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule. "DEFAULT RATE" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. "DEFAULTING PARTY" has the meaning specified in Section 6(a). "EARLY TERMINATION DATE" means the date determined in accordance with Section 6(a) or 6(b)(iv). "EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable, in the Schedule. "ILLEGALITY" has the meaning specified in Section 5(b). "INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document). "LAW" includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and "LAWFUL" and "UNLAWFUL" will be construed accordingly. "LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction. "LOSS" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. "MARKET QUOTATION" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agents) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined. "NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount. "NON-DEFAULTING PARTY" has the meaning specified in Section 6(a). "OFFICE" means a branch or office of a party, which may be such party's head or home office. "POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city. "RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made. "SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction. "SET-OFF" means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such paper. "SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination Date, the sum of:-- (a) the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and (b) such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result. "SPECIFIED ENTITY" has the meaning specified in the Schedule. "SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money. "SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transactions identified as a Specified Transaction in this Agreement or the relevant confirmation. "STAMP TAX" means any stamp, registration, documentation or similar tax. "TAX" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax. "TAX EVENT" has the meaning specified in Section 5(b). "TAX EVENT UPON MERGER" has the meaning specified in Section 5(b). "TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date). "TERMINATION CURRENCY" has the meaning specified in the Schedule. "TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the "Other Currency"), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Termination Currency at or about ll:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties. "TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event. "TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts. "UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each Company is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties: IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document. (Name of Party) (Name of Party) By: By: Name: Name: Title: Title: Date: Date: EX-99 3 EXHIBIT H-2 - FORM OF NOTICE OF PROPOSED TRANSACTION EXHIBIT H-2 ----------- [Suggested Form of Notice of Proposed Transaction for Publication in the Federal Register] National Fuel Gas Company ("National"), 30 Rockefeller Plaza, New York, New York 10112, a registered holding company, and its wholly owned subsidiary companies, National Fuel Gas Distribution Corporation, National Fuel Gas Supply Corporation, Seneca Resources Corporation, Penn-York Energy Corporation, Empire Exploration, Inc. and Utility Constructors, Inc. (collectively, "Subsidiaries"), all located at 10 Lafayette Square, Buffalo, New York 14203, have filed an amendment to their Form U-1 Application and Declaration (File No. 70-8143). Pursuant to File No. 70-8143 National received authority to issue and sell, through December 31, 1994, in one or more transactions, up to an aggregate principal amount of $350 million in any combination of (a) debentures ("Debentures") and (b) medium-term notes ("MTNs") and to loan the proceeds from the sale of such Debentures and MTNs to the Subsidiaries pursuant to the terms described therein. National further seeks authority to enter into one or more interest rate swap agreements ("swaps"), plus one or more derivative instruments, such as interest rate caps, interest rate floors, interest rate collars and options, with one or more counterparties from time to time through December 31, 1994, in notional amounts aggregating not in excess of $350 million at any one time outstanding. National already has certain authority to enter into swaps with a notional amount not in excess of $200 million in connection with its short- term debt pursuant to File No. 70-8297. National now requests additional authority to enter into swaps that hedge National's long-term debt. The aggregate notional amount of all such derivative transactions (swaps, interest rate caps, floors and collars) that relate to both long-term debt and short-term debt will not exceed $350 million. The effective net interest payments or receipts realized by National will be passed along to the subsidiaries of National that hold the underlying debt. None of the interest payments or receipts will be retained by National. The swaps would provide that National may terminate the agreements with the consent of the other party and/or with early termination payments. EX-99 4 EXHIBIT I-1 - SCHEDULE OF ESTIMATED FEES AND EXPENSES Exhibit I-1 ----------- Schedule of Estimated Fees and Expenses in Connection with the Proposed Interest Rate Swaps Counsel Fees: Reid & Priest $ 15,000 __________ Stryker, Tams & Dill (N. J. Counsel) 5,000 __________ TOTAL $ 20,000 __________ __________ -----END PRIVACY-ENHANCED MESSAGE-----