Special Expiration Price Options Master Agreement
CDC Securities ("CDCS"), as agent for CDC Derivatives Inc., a United States
Broker-Dealer that is registered with and regulated by the U.S. Securities and
Exchange Commission (the "Issuer"), anticipates entering into one or more
Special Expiration Price Options ("Options" or "Special Expiration Price
Options") with the party specified as Purchaser on the signature page hereto
(the "Purchaser" or "you"). This Master Agreement sets forth the terms and
conditions under which the Issuer will sell such Options to you. Each Special
Expiration Price Option you purchase will be confirmed by a transaction
confirmation (each a "Confirmation") that will contain the specific terms of
that particular option, as set forth in greater detail in Section 2 below. Any
Special Expiration Price Option you purchase will be subject to all of the
general terms and conditions set forth in this Master Agreement, all the
specific terms contained in the related Confirmation and the Client Agreement
you enter with CDCS. In the event of any conflict between the terms of this
Master Agreement and the Client Agreement, the terms of this Master Agreement
shall govern.
1. ORAL AND WRITTEN AGREEMENTS ARE BINDING. We may agree orally or in
writing to enter into, exercise, or amend any Option, and such oral or written
agreements will be binding on both of us, subject to the qualifications set
forth in Section 2 below. Any other amendments or modifications must be in
writing as specified in Section 25.
2. CONFIRMATIONS, WORKSHEETS AND PERIODIC REPORTS. CDCS, as agent for
Issuer, will deliver to you by fax or email a confirmation, and a worksheet each
time a Special Expiration Price Option is established, or modified as set forth
in Section 17 resulting in a change to either the Special Expiration Price,
Special Expiration Allowance, any Exercise Price, the Expiration Date,
Amortizable Premium, Unamortizable Premium, or Contingent Premium, detailing the
Option Terms and any additional terms with respect to a relevant Option that you
and Issuer have agreed upon. You will also be sent a Confirmation and a
worksheet following any full or partial exercise, or when the Option is
cashed-in, canceled, terminated or expires. If you believe that such
confirmation does not accurately reflect the agreement between us, you must
notify CDCS as agent for Issuer immediately, and in any event before the next
Trading Day. ABSENT SUCH TIMELY NOTIFICATION, THE CONFIRMATION AND IF,
APPLICABLE, WORKSHEET WILL BE DEEMED TO ACCURATELY REFLECT OUR AGREEMENT. In the
event of a discrepancy or alleged discrepancy, you and Issuer agree that the
taped or electronic records of your communications maintained by Issuer or its
agent (and made reasonably available to you) will constitute dispositive
evidence of the agreement between you and Issuer.
CDCS, as agent for Issuer, also will deliver to you periodic reports
that reflect the Market Value of the Option based on the prices determined in
accordance with the method described in Section 7(b) below in the Primary
Trading Market for the Reference Asset on the close of business on the current
Trading Day, gains and losses on the Option, current strike prices, Amortizable
Premium, Unamortizable Premium, and other relevant information relating to the
period covered by the report. If the Reference Asset is a basket or index, the
periodic report will include prices of each instrument in the basket or index
and the weight of each instrument
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relative to the basket or index. Copies of such periodic reports maintained by
CDCS will be the official record of activity of the Option, unless you promptly
notify CDCS, as agent for Issuer, of any discrepancies, in which case the
official record may be supplemented as required to resolve any such discrepancy.
3. SPECIFIC TERMS WE WILL AGREE ON WHEN ENTERING INTO AN OPTION. When
entering into an Option you and we will agree on the following terms (the
"Option Terms"):
(a) The "Reference Asset", which is the stipulated financial
instrument(s) underlying an Option, and the number of units of such Reference
Asset. The Reference Asset could be, but is not limited to, U.S. or foreign
equity securities, fixed income instruments, currencies, indices, baskets of
financial instruments, commodities, derivative instruments, oan combination of
the aforementioned. In the event of a Pair Option (as defined below), the
Reference Asset will be divided into two parts, one consisting of the financial
instruments underlying the call portion of the Pair Option (the "Pair Long
Portfolio") and one underlying the put portion of the Pair Option (the "Pair
Short Portfolio").
(b) Whether the relevant Special Expiration Price Option shall
constitute a right to buy (such right a "call", and the Option a "Call Option"),
sell (such right a "put" and the Option a "Put Option"), or simultaneously buy
and sell (such Option a "Pair Option") units of the Reference Asset;
(c) Whether the Option is "American Style" that may be exercised
on any Trading Day prior to the Scheduled Expiration Date, or "European Style",
that may only be exercised on the Scheduled Expiration Date. Any Option, whether
American Style or European Style, will be cancelled before its full term in the
event of a Special Expiration Event, absent a ▇▇▇▇-to-Market as described in
Section 7 below, and may be terminated following an Early Termination Event.
Unless otherwise agreed at the time we enter into the Option, the Option shall
be American Style.
(d) The "Exercise Price", which is the reference price against
which the value of the Option will be measured upon exercise, cash-in,
expiration, or termination. The Exercise Price of the Option will be either (i)
the average net market price (net of any fees) at wIssue purchases or sells the
underlying Reference Asset or derivative instrument in establishing Issuer's
hedge positions for the Option, or (ii) a price determined pursuant to a method
agreed to between you and Issuer at the time of entering into the Option. If the
Reference Asset underlying the Option is a basket or index, the Exercise Price
will be aggregate of the average net market prices at which Issuer purchases or
sells each of the financial instruments included in the Reference Asset to
establish a hedge.
(e) The "Special Expiration Price" or, in the event of a Pair
Option, the "Special Expiration Allowance", that will be used in determining
whether a Special Expiration Event has occurred, as set forth in Section 7.
Unless otherwise agreed (i) the Special Expiration Price will be calculated in
terms of a percentage of the Exercise Price (for example 5% below the
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Exercise Price for a Call Option or 3% above the Exercise Price for a Put
Option); and (ii Special Expiration Allowance for a Pair Option will be
calculated as an aggregate of the amount below the Exercise Price for the Pair
Long Portfolio and an amount above the Exercise Price for the Pair Short
Portfolio. Both the Special Expiration Price and Special Expiration Allowance,
will be expressed as a dollar amount, rounded to the nearer ▇▇▇▇▇. The Special
Expiration Price and the Special Expiration Allowance may be subject to further
terms and conditions mutually agreed upon by you and Issuer.
(f) The "▇▇▇▇-to-Market Continuation Premium", which is the
premium you must pay as specified in Section 7 to avoid cancellation and
"▇▇▇▇-to-market" the Option to following a Special Expiration Event. The
▇▇▇▇-to-Market Continuation Premium is not amortized over the life of the
Option. Unless otherwise agreed at the time you agree the Option to be
"marked-to-market," the Continuation Premium will be equal to the difference
between the Current Market Price of the Reference Asset and the Special
Expiration Price plus an additional 0.5% of the Exercise Price in the case of a
Put Option or a Call Option, or plus an additional 0.5% of the greater of the
Exercise Price relating to the Pair Long Portfolio or the Exercise Price
relating to the Pair Short Portfolio in the case of a Pair Option.
(g) The "Amortizable Premium", which is a premium that is
amortized at the Amortization Rate on a daily basis over the life of the Option.
The Amortizable Premium is due and payable on the Business Day after the Option
is issued, and any portion of the Amortizable Premium that has not been
amortized at the time the Option expires, is cashed-in, exercised or terminated
will be returned to you. The Amortizable Premium will be expressed as a
percentage of the aggregate market value of the Reference Asset units underlying
the Option. The dollar amount of the Amortizable Premium is calculated by
multiplying the agreed upon percentage by the costs of the aggregate units of
the Reference Asset underlying the Option. For example, if the average cost of
the applicable Reference Asset (for purposes of this example, consisting of a
single stock) is $31 per share, the dollar amount of a 9% Amortizable Premium on
one twelve month call option contract on 100 shares would be $279 (9% of $3100).
(h) The "Amortization Rate" at which the Amortizable Premium will
amortize, expressed as an actual over actual percentage rate.
(i) The "Unamortizable Premium", which is an additional premium
related to the aggregate market value of the underlying Reference Asset at the
time the Option is issued. The Unamortizable Premium is due and payable on the
Business Day after the Option is issued. The Unamortizable Premium will be used
to offset any transaction costs or losses incurred by Issuer in liquidating the
hedge following exercise, cash-in, cancellation, expiration, or termination of
the Option. In the event the Option is exercised or expires, Issuer will return
any unused portion of the Unamortizable Premium to you promptly after the hedge
has been liquidated. In the event the Option is cancelled, Issuer may, at its
discretion, return any unused portion of Unamortizable Premium to you promptly
after the hedge has been liquidated. CDCS, as agent for Issuer, will deliver to
you a closing confirmation that reflects the liquidation price(s) with respect
to the hedge and the amount of the Unamortizable Premium used to offset Issuer's
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liquidation costs or losses, if any. Unless otherwise agreed at the time the
Option is entered into, the Unamortizable Premium will be zero.
(j) The "Contingent Premium", which is an additional premium due
on the Business Day following the cancellation or expiration of the Option in
the event the Option is either cancelled or allowed to expire worthless by the
Purchaser. It can be either a fixed dollar amount or a percentage of the market
value of the underlying Reference Asset. Issuer may, at its discretion,
determine that an amount less than the originally negotiated Contingent Premium,
if any, is due or return any portion of the Contingent Premium that Issuer deems
appropriate when the Option is cancelled or expires. Unless otherwise agreed at
the time the Option is entered into, the Contingent Premium will be zero.
(k) Any "Hedging Fees", which are fees agreed upon by you and
Issuer that Issuer may charge you for establishing any hedge in connection with
entering into or modifying an Option, or for liquidating any hedge upon the
exercise, termination, cash-in, or eof an Option (but not if the Option is
cancelled). The portion of such fees relating to the establishment of a hedge
will be reflected in the Exercise Price of the Option. The portion of such fees
relating to the liquidation of a hedge will be reflected in the final Market
Value of the Option.
(l) The "Scheduled Expiration Date", which is the date on which
an Option that has not previously been exercised, cancelled, cashed-in, or
terminated will either be automatically exercised or expire worthless. Such
Option will be automatically exercised if, at 3:00 P.M. Eastern Time on the
Scheduled Expiration Date (the "Scheduled Expiration Time"), the Market Value of
such Option (as defined in Section 6(d)) is greater than zero (referred ta
"in-the-money"). In all other circumstances, such Option will expire worthless.
4. EXERCISE and UNWIND ("CASH-IN"). (a) Any Option that is "in the
money" and that has not previously been cancelled, exercised, cashed-in,
terminated, or expired will be automatically exercised at the Scheduled
Expiration Time. An American Style Option that has not previously been
cancelled, exercised, cashed-in, terminated, or expired may be exercised prior
to the Scheduled Expiration Date, in whole or in part (except for Pair Options,
which only may be exercised in their entirety), by providing notice as set forth
in Section 5 below. Unless otherwise specified in such notice, an exercise
notice will be deemed effective when given, if the notice is given prior to 3:00
P.M. Eastern Time on any Business Day, and otherwise on the opening of business
on the next following Business Day.
(b) Subject to Issuer's approval, which may be withheld in its
sole discretion, you may unwind ("cash-in") an Option that has not previously
been cancelled, exercised, cashed-in, terminated, or expired, by providing
notice as set forth in Section 5 below. Unless you and Issuer agree otherwise,
the Settlement for a cashed-in Option will be the same as for a cash-settled
Option.
5. EXERCISE, CASH-IN, AND ▇▇▇▇-TO-MARKET NOTICES. (a) Any notice of
exercise, cash-in or agreement to pay the ▇▇▇▇-to-Market Continuation Premium
must
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be made to ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, or ▇▇▇▇▇▇ ▇▇▇▇▇▇ at
CDCS, prior to 3:00 P.M. Eastern Time, using one of the following phone numbers:
PHONE: (▇▇▇) ▇▇▇-▇▇▇▇ or (▇▇▇) ▇▇▇-▇▇▇▇
No notice of exercise, cash-in or agreement to pay the
▇▇▇▇-to-Market Continuation Premium will be deemed to be given until you notify
CDCS, as agent for Issuer, by telephone as described above, regardless of
whether Issuer or CDCS has received a facsimile notification.
(b) Issuer may change the notice provisions of this Section 5 at
any time by sending a written notice via fax or email to the address you most
recently provided to CDCS, and any such change will be effective three Business
Days after being sent by Issuer or CDCS, as agent for Issuer.
6. SETTLEMENT. (a) If the Option is physically settled, settlement will
take place 3 Trading Days following the date on which the Option was exercised
by (i) the Physically Settling Party delivering the relevant Reference Asset
underlying the exercised portion of the Option to the other party against
payment of the Exercise Price, and (ii) Issuer returning the remaining portion
of the Amortizable Premium, plus any unused portion of the Unamortizable Premium
to you. The "Physically Settling Party" will be Issuer with respect to the long
portfolio portion of a Pair Option or where the relevant Option is a Call
Option, and it will be you with respect to the short portfolio portion of a Pair
Option or where the relevant Option is a Put Option.
(b) If any portion of an Option is cash-settled, Issuer will
promptly proceed to liquidate its hedge relating to the exercised portion of the
Option. Settlement will take place one Trading Day following the day on which
such liquidation is complete by Issuer paying the Market Value relating to the
exercised portion of the Option to you in readily available fto the account set
forth on the signature page hereof or pursuant to such other payment
instructions as provided by you to CDCS, as agent for Issuer, prior to
settlement.
(c) All payments will be made in U.S. dollars unless another
currency is specified in the initial Option Confirmation.
(d) The "Market Value" of a Special Expiration Price Option is as
follows:
(i) For a Put Option, the Market Value is equal to the sum
of the following, if positive: (A) the Exercise Price less the Current
Market Price for the underlying Reference Asset, (B) the remaining
portion of the Amortizable Premium, and (C) any unused portion of the
Unamortizable Premium. Otherwise the Market Value is Zero.
(ii) For a Call Option, the Market Value is equal to the
sum of the following, if positive: (A) the Current Market Price of the
underlying Reference Asset less the Exercise Price, (B) the remaining
portion of the Amortizable Premium, and
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(C) any unused portion of the Unamortizable Premium. Otherwise the
Market Value is Zero.
(iii) For a Pair Option, the Market Value is the sum of
the following, if positive: (A) the Current Market Price of the Pair
Long Portfolio less the Exercise Price of the Pair Long Portfolio, (B)
the Exercise Price of the Pair Short Portfolio less the Current Market
Price of the Pair Short Portfolio, (C) the remaining portion of the
Amortizable Premium, and (D) any unused portion of the Unamortizable
Premium. Otherwise the Market Value is Zero.
The "Current Market Price" is calculated by Issuer based on the price it
actually receives or pays for the underlying Reference Asset in liquidating its
hedge following exercise, cash-in or termination of the Option. If Issuer is
unable to liquidate its hedge for any reason, or in the case of a cash-settled
Option the agreed-upon formula cannot be applied, Issuer will determine the
Current Market Price based on the closing prices in the Primary Trading Market
for the Reference Asset or, if no trading market exists, based on a reasonable
method of appraising the value of the Reference Asset.
7. SPECIAL EXPIRATION. (a) The Special Expiration Options will be
cancelled, and will become worthless, if a Special Expiration Event occurs at
any time during regular business hours on any Trading Day during the life of the
Option, unless you timely agree to pay, and timely pay, the ▇▇▇▇-to-Market
Continuation Premium (such timely notice and payment referred to as a
"▇▇▇▇-to-Market" or simply a "▇▇▇▇").
(i) Your agreement to pay the ▇▇▇▇-to-Market Continuation
Premium will be timely if you either (i) prior to the occurrence of a relevant
Special Expiration Event instruct, either by means of standing instructions or
otherwise, Issuer to ▇▇▇▇-to-Market the Option following such Special Expiration
Event; or (ii) no later than 15 minutes after the occurrence of the relevant
Special Expiration Event, notify Issuer in the manner set forth in Section 5
that you will timely pay the agreed upon ▇▇▇▇-to-Market Continuation Premium.
(ii) You must pay the ▇▇▇▇-to-Market Continuation Premium
to CDC IXIS no later than by 4:00 P.M. Eastern Time on the Business Day
following the occurrence of the relevant Special Expiration Event. Failure to
make such payment may, at Issuer's sole discretion, result in immediate
cancellation of the relevant Option and permits Issuer to terminate all other
outstanding Options hereunder.
(iii) You are solely responsible for monitoring your
Options, and all values and amounts relevant to determine whether a Special
Expiration Event has occurred. Issuer may make a reasonable attempt at notifying
you promptly if a Special Expiration Event occurs, and may specify the proposed
▇▇▇▇-to-Market Continuation Premium and a calculation of the proposed "▇▇▇▇"
amount, but is not obligated to do so, and is not responsible for any failure or
delay in notifying you.
(iv) A "Special Expiration Event" will occur:
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(1) in the case of a Call Option, if the value of
the Reference Asset hits, or falls below, the Special
Expiration Price (also referred to as a "down and out").
(2) In the case of a Put Option, if the value of
the Reference Asset hits, or exceeds the Special
Expiration Price (also referred to aa "up and out").
(3) In the case of a Pair Option, if the amount of
loss in the aggregate value of the Reference Asset equals
or exceeds the Special Expiration Allowance (also referred
to as an "out").
(b) Issuer will monitor the current market value of the underlying
Reference Asset on the Primary Trading Market for that Reference Asset on a
continuous basis during each Trading Day to determine whether a Special
Expiration Event has been triggered. If the Reference Asset is a basket or an
index, Issuer will calculate the current value of the Reference Asset on an
aggregate basis. If the Primary Trading Market for the Reference Asset is a
centralized auction "Specialist" market (e.g. the New York Stock Exchange) the
current value of the Reference Asset will be determined by the price at which
the Primary Trading Market reports a trade for the Reference Asset. Unless
otherwise agreed between Issuer and you, if the Primary Trading Market is a
multi-dealer market (e.g. NASDAQ National Market), the current value of the
Reference Asset will be determined by the inside offer for the Reference Asset
underlying a Put Option or comprising the Pair Short Portfolio, and the current
inside bid for the Reference Asset underlying a Call Option or comprising the
Pair Long Portfolio. In the case of a basket Issuer will use the appropriate
method for calculating the current market value of each component of the basket,
based on the market in which it trades as described above. If a Market
Disruption Event occurs, Issuer will determine the value of the Reference Asset
based on a reasonable appraisal method.
(c) In the event of a ▇▇▇▇-to-Market, Issuer will make the
following adjustments to the Option:
(i) for a Call Option, both the Exercise Price and the
Special Expiration Price will be reduced by the paid ▇▇▇▇-to-Market
Continuation Premium amount.
(ii) for a Put Option, both the Exercise Price and the
Special Expiration Price will be increased by the paid ▇▇▇▇-to-Market
Continuation Premium amount.
(iii) for a Pair Option, the absolute value of the Special
Expiration Allowance will be increased by the paid ▇▇▇▇-to-Market
Continuation Premium amount, the Exercise Price of the Pair Long
Portfolio and the Exercise Price of the Pair Short Portfolio will be
reduced and increased, respectively, so that the aggregate net change
in their Exercise Prices is equivalent to the paid ▇▇▇▇-to-Market
Continuation Premium
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amount, and such adjustment to the Exercise Prices will be allocated on
a pro-rata basis based on the relative values of the original Exercise
Prices.
8. EARLY TERMINATION EVENTS.
(a) Each of the following events shall constitute an "Early
Termination Event", provided, however, that it will not constitute an Early
Termination Event if Issuer fails to pay or deliver, or Early Termination Event
or other similar condition or event, as the cmay be, arises solely (i) out of a
wire transfer problem or an operational or administrative eor omission (so long
as the required funds or property required to make that payment or delivery were
otherwise available to Issuer), or (ii) from the general unavailability of the
relevant currency due to exchange controls or other similar governmental action,
but in either case only if the payment or delivery is made within three Business
Days after the problem has been corrected, the error or omission has been
discovered or the currency becomes generally available:
(1) Failure to Pay or Deliver. Failure by either party to
make, when due, any payment or delivery required under this
Agreement
(2) Breach of Agreement. Failure by either party to comply
with or perform any agreement or obligation (other than an
obligation to make any payment or delivery or to give notice of
an Early Termination Event) if such failure is not remedied by
the fifth day after notice of such failure is given to the party;
(3) Misrepresentation. A representation made or repeated
or deemed to have been made proves to have been incorrect or
misleading in any material respect when made or repeated or
deemed to have been made;
(4) Bankruptcy. Either party: (i) is dissolved; (ii)
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; (iii) makes a general assignment for the benefit
of its creditors; (iv) 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 has a resolution
passed for its winding-up, official management or liquidation;
(v) seeks or becomes subject to the appointment of an
administrator, liquidator, conservator, receiver, trustee
custodian or other similar official; (vi) has a secured party
take possession of a substantial part of its assets or has a
distress, execution, attachment, or other legal process levied,
enforced or sued on or against a substantial part of its assets;
or (vii) causes or is subject to any event similar to those
listed above; or tany action in furtherance of, or indicating its
consent to, or approval of any of those acts or events.
(5) Merger Without Assumption. The Purchaser consolidates
with, mergers with or into, or transfers all or substantially all
its assets to, or reorganizes or reincorporates into or as,
another entity and, at the time of such event, the
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resulting, surviving or transferee entity fails to assume all of
such party's obligations under this Agreement, each Confirmation,
and the Client Agreement.
(6) Illegality; Impracticability. The occurrence of any
event that makes it illegal or impracticable for any financial
instrument that ca Reference Asset underlying any Option to be
traded, bought or sold on any exchange or in any other organized
market, due to any force majeure event, any change in applicable
laws or regulations, or any other event that would impact the
ability to transfer or hedge the Reference Asset. If such event
affects one omore but not all, instruments in a larger basket or
index that constitutes the Reference Asset, the Purchaser may
elect (i) to terminate the Option, or (ii) to eliminate the
affected instrument(s) from the basket or index and substitute
another sby the Purchaser that is acceptable to Issuer. If the
Purchaser elects to substitute another instrument or instruments,
Issuer will adjust the Exercise Price and Special Expiration
Price accordingly in a manner acceptable to Issuer and the
Purchaser.
(b) If an Early Termination Event occurs (or an event that would
be an Early Termination Event with the passage of time or the giving of notice)
with respect to a party, that party will, promptly upon becoming aware of it,
notify the other party, specifying the nature of the event and such other
information about the event as the other party may reasonably require.
The party with respect to which the Early Termination Event occurs will, on
demand, indemnify and hold harmless the other party for and against all
reasonable out-of-pocket expenses, including legal fees and related taxes and
expenses, incurred by such other party by reason oth enforcement and protection
of its rights under this Agreement, or by reason of the early termination of any
Option, including, but not limited to, costs of collection.
(c) Upon the occurrence, with respect to the Purchaser, of an
Early Termination Event described in SubSection (a)(4) above, all Options under
this Agreement will terminate immediately upon such occurrence. Upon the
occurrence of any other Early Termination Event, Issuer may, by notice to the
Purchaser, terminate all Options under this Agreement, and all such Options will
be terminated as of the time and date of such termination notice. With respect
to each such terminated Option, the Purchaser will be entitled to the Market
Value of the Option, if any, as of the date of termination. Unless you and
Issuer agree otherwise, the Settlement for an Option which is terminated early
will be the same as for a cash-settled Option.
9. ADJUSTMENT EVENTS. If any takeover offer, delisting, bankruptcy,
nationalization or corporate actions (such as distributions, ordinary and
extraordinary dividends, reclassification of shares, merger, material asset
sale) or similar event (each an "Adjustment Event") occurs, is announced, or in
the reasonable opinion of Issuer is likely to occur, with respect to any issuer
of the underlying Reference Asset that in Issuer's reasonable opinion could
have a material effect on the nature of the Reference Asset, its volatility,
their trading market or other material characteristics, Issuer may make an
appropriate adjustment of the terms of the Option or may (except for an
Adjustment Event arising solely due to ordinary dividends and ordinary
distributions), in its sole discretion, terminate the Option.
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10. CALCULATION OF AMOUNTS AND VALUES. Upon the occurrence of an
Adjustment Event, Issuer will determine and adjust, as applicable, the Exercise
Price, the Special Expiration Price, the Special Expiration Allowance, the
Market Value of the Option at the time of such Adjustment Event, the current
market value of the underlying Reference Asset, and any other calculations or
determinations necessary to effect the economic objectives of the Special
Expiration Price Option.
11. SET-OFF. Issuer shall be entitled to set off any amount that it owes
Purchaser against any obligations Purchaser may have to it, whenever arising,
including any contingent obligations. In addition, Issuer shall have any other
rights which it may otherwise have by reason of set-off, combination of
accounts, lien or other right to which any party is at any time otherwise
entitled (whether by operation of law, contract or otherwise).
12. CONDITIONS PRECEDENT TO PAYMENT. Absent the occurrence of an Early
Termination Event, each party's obligation to make a payment to the other party
is subject to (i) the condition precedent that no Early Termination Event with
respect to the other phas occurred and is continuing; and (ii) the condition
precedent that the other party has made all payments due from it.
13. DEDUCTION OR WITHHOLDING FOR TAX - GROSS-UP. All payments under this
Agreement shall be subject to any required deduction or withholding for or on
account of any tax.
14. ADDITIONAL AGREEMENTS OF PURCHASER. Purchaser agrees with CDCS that,
so long as either party has or may have any obligation under this Agreement:
(a) Furnish Specified Information. Purchaser will deliver to
Issuer or, where appropriate, to any relevant government or taxing authority,
such financial information, legal authority information, or tax status
information, as Issuer reasonably directs.
(b) Compliance With Laws. Purchaser will comply in all
material respects with all applicable laws and rules to which Purchaser may be
subject.
(c) Compliance with Representations. Purchaser will not take any
action during the term of this Agreement or any Option that makes any of
Purchaser's representations, warranties or agreements untrue, incorrect, or
incomplete. If any of these do become untrue, incorrect, or incomplete,
Purchaser will immediately give oral and written notice to Issuer.
(d) Non-Contravention. None of Purchaser's organizational
documents, or any other document or agreement governing Purchaser's conduct will
prohibit, or will be amended to prohibit, Purchaser from entering into options
or transactions in any cash market instruments on which any Options are based.
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15. PURCHASER'S REPRESENTATIONS. The Purchaser represents and warrants
to Issuer (which representations will be deemed to be repeated on each date an
Ois purchased or is outstanding, or any payment is made with respect thereto) as
follows:
(a) The Purchaser is duly organized and validly existing under
the laws of the jurisdiction of its organization and is in good standing.
(b) The Purchaser is duly authorized to execute and deliver this
Agreement, to enter the Options contemplated hereunder and to perform its
obligations hereunder and has taken all necessary actions to authorize such
execution, delivery and performance. Such execution, delivery and performance do
not violate or conflict with any law applicable to the Purchaser, any provision
of its constitutional documents or any order, judgment or contractual
restriction binding on or affecting it or any of its assets. The person
executing this Agreement on the Purchaser's behalf is authorized to do so on its
behalf.
(c) All governmental and other consents that are required to have
been obtained by the Purchaser with respect to this Agreement have been obtained
and are in full force and effect.
(d) Purchaser's obligations under this Agreement constitute its
legal, vand binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy or similar laws).
(e) There is not pending nor, to its knowledge, threatened
against the Purchaser, any action, suit or proceeding 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 its ability to perform its obligations under this Agreement.
(f) All applicable information that is furnished in writing by or
on behalf of the Purchaser is, as of the date of the information, true, accurate
and complete in every material respect.
(g) The Purchaser is an "accredited investor" as the term is
defined in Regulation D under the Securities Act of 1933, as Amended (the
"Securities Act").
(h) Purchaser is an "eligible contract participant" within the
meaning of the Commodity Exchange Act, as amended.
(i) Purchaser is entering into each Option as principal and not
as agent or in any other capacity, fiduciary or otherwise and no other person
has an interest herein.
(j) The Purchaser is not, and will not become, an Affiliate
(within the meaning of Rule 144 of the Securities Act, which defines an
Affiliate as "a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer") with respect to the issuer of any Reference Asset underlying any
Option. The Purchaser does not posses any material non-public information
regarding the
11
issuer of any such Reference Asset nor did it posses any such information at
the time placing any order with respect to the Option.
(k) The Purchaser is not subject to the terms of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), Section 4975 of
the Internal Revenue Code of 1986, as amended (the "Code"), or materially
similar provisions of any other law.
(l) The Purchaser understands that:
(i) the Special Expiration Price Options are not
registered under the Securities Act and can only be sold pursuant to an
exemption from registration;
(ii) the Special Expiration Price Options are not listed
on any stock exchange;
(iii) the obligations under these Options are not
protected by any government or private entity, including the U.S.
Federal Deposit Insurance Cor the Securities Investor Protection
Corporation;
(iv) Special Expiration Options are associated with a
high degree of risk, including the risk that they may be worthless
and that the Purchaser may lose all premium payments if a Special
Expiration Event is triggered at any time during the life of the
Option; and
(v) the Securities Investor Protection Act of 1970, as
amended, does not protect the Purchaser.
(m) The Purchaser will not enter into a Special Expiration Price
Option contract if its financial status would be materially affected by losing
all of the Premium ath Unamortizable Premium for the Option.
(n) The Purchaser's financial status is such that it has the
means to exercise the Options purchased by it, should it decide to do so.
(o) The Purchaser has considerable prior experience trading
securities and is sophisticated with respect to trading options in particular,
and has undertaken such investigation and has been provided with and has
evaluated such documents and information as it has deemed necessary to enable it
to make an informed and intelligent decision with respect to the execution,
delivery and performance of this Agreement.
(p) The Purchaser has, (i) consulted, to the extent it deemed
necessary, with independent financial, tax, and legal advisors of its own
choosing and made its investment, hedging, and trading decisions with respect to
each Option based solely on its own judgment and the advice of such advisors,
and not obtained or relied upon any representations, assurances, or advice by
Issuer or CDCS as to expected profitability, success, tax treatment or other
benefits of the Option; (ii) determined that the economic terms of the Option
reflect the terms of similar
12
transactions in the relevant market; and (iii) not deemed any communication
received from Issuer or CDCS, as its agent, a guarantee or assurance as to the
expected results of the Option.
(q) The Purchaser has read this letter in its entirety,
understood it, and agrees to be bound by the terms and conditions set forth
herein.
16. MARKET DISRUPTION EVENTS. A "Market Disruption Event" is a
suspension or material limitation on the trading of the underlying Reference
Asset in the Primary Trading Market for the instrument. If Issuer determines in
good faith that there has been a Market Disruption Event, Issuer may, in its
discretion, postpone calculation of the Market Value of an Option until the next
Business Day on which no Market Disruption Event exists. If the Market
Disruption Event affects one or more, but not all, instruments in a larger
basket or index that constitutes the Reference Asset, Issuer may postpone
calculation of the Market Value oif it determines in good faith that the Market
Disruption Event will substantially or materially affect such calculation.
17. NEGOTIATED MODIFICATIONS OF THE OPTIONS. You and Issuer may agree
from time to time to make modifications to the Options purchased by you from the
Issuer pursuant to this Agreement, which modifications may include, without
limitation, any changes in the composition of the Reference Asset underlying
such Option, Scheduled Expiration Date, Amortizable Premium, Contingent Premium,
Exercise Price, Special Expiration Price or Special Expiration Allowance. Issuer
retains the sole right to accept or reject the request to make any
modifications. Any modifications mutually agreed upon will be subject to the
terms of this Agreement and will be reflected in a Confirmation and a worksheet.
18. CDCS AS AGENT. You hereby acknowledge that CDCS is acting as
Issuer's agent under this Agreement and each Option hereunder. CDCS will send
you Confirmations, Worksheets and transaction reports on behalf of Issuer, and
if you have any questions regarding this Agreement or any Option, you should
direct them to CDCS. However, CDCS is not acting as a principal and bears no
responsibility for Issuer's obligations under the Options.
19. BUSINESS DAY. A "Business Day" is any day, except for Saturday and
Sunday and other days on which banking institutions in the city of New York are
authorized or required by law or executive order to remain closed.
20. PRIMARY TRADING MARKET AND TRADING DAY. The "Primary Trading Market"
for the underlying Reference Asset is the principal trading market for such
Reference Asset or any portion thereof (as determined by the Issuer). A "Trading
Day" is any day that is (or, but for the occurrence of a Market Disruption
Event, would have been) a trading day in the Primary Trading Market other then a
day on which trading in any such market is scheduled to close prior to its
regular closing time.
21. 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. All
Options are entered into in reliance
13
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 Options.
22. NOTICES. Except as otherwise set forth in this Agreement, notice
shall mean an actual notice by telephone, facsimile and/or email. Such notice
shall be deemed effective as of such time when either (i) notice has been
actually delivered by telephone; (ii) where a nis sent via facsimile following
reasonable efforts of a telephonic notice, at the time the facsimile machine has
generated a "good transmission" report recording time and date sent and fax
number of recipient; or (iii) where a notice is sent via email following
reasonable efforts of a telephonic notice, at the time the email message is
sent, provided that no error message to the effect that the message is not
deliverable within a reasonable time after it is sent has been generated. The
address for notices shall be as set out on the signature page, unless a party
provides notice to the other party of different notice information with respect
to it.
23. ASSIGNMENT. Neither this Agreement nor any interest or obligation in
or under this Agreement, nor any Option may be transferred by either party
without the prior written consent of the other party.
24. RECORDED CONVERSATIONS. Each party (or its agents) may
electronically record any of its telephone conversations with the other party or
with any of the other party's agents relating to the matters referred to in this
Agreement or any Option. Each party hereby consents to such recording and
understands that any such recordings may be submitted in evidence in any
proceeding relating to this Agreement or any Option.
25. 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.
26. WAIVER OF RIGHTS; REMEDIES CUMULATIVE. No failure or delay by any
party in exercising any right or power hereunder or under any Option shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and rof the parties are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have.
27. COUNTERPARTS. This Agreement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract.
28. SEVERABILITY. If any provision of this Agreement is invalid, illegal
or unenforceable in any jurisdiction then, to the fullest extent permitted by
law, (i) such provision shall, as to such jurisdiction, be ineffective to the
extent (but only to the extent) of such invalidity, illegality or
unenforceability, (ii) the other provisions hereof shall remain in full force
14
and effect in such jurisdiction and shall be liberally construed in favor of
Issuer in order to carry out the intentions of the parties thereto as nearly as
may be possible and (iii) the invalidity, illegality or unenforceability of any
such provision in any jurisdiction shall not affect the validity, legality or
enforceability of such provision in any other jurisdiction.
29. HEADINGS. The headings used herein are for convenience of reference
only, are not part of this Agreement and shall not affect the construction of,
or be taken into consideration in interpreting, this Agreement.
30. GOVERNING LAW; JURISDICTION; SERVICE OF PROCESS. This Agreement
shall be construed in accordance with and governed by the law of the State of
New York.
(a) Each party irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any relevant appellate
court, in any action or proceeding arising out of or rto this Agreement or any
Option, or for recognition or enforcement of any judgment, and each party hereto
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State court
or, to the extent permitted by law, in such Federal court. Each party hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement or any Option
shall affect any right that Issuer may otherwise have to bring any action or
proceeding relating to this Agreement or any Option against the Purchaser or its
properties in the cof any jurisdiction.
(b) Each party irrevocably and unconditionally waives, to the
fullest eit may legally and effectively do so, any objection that it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or any Option in any court referred to in
subsection (a) of this Section. Each party hereto irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of any such suit, action or proceeding in any such court.
(c) If Purchaser is not headquartered in the United States, it
will mat all times a U.S. agent for service of process. Service of process on
the Issuer may be accomplished by service on CDCS, as agent. Nothing in this
Agreement shall affect the right of either party to serve process.
31. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
15
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
16
IN WITNESS WHEREOF, the parties have executed this Special Expiration
Price Options Master Agreement by their duly authorized signatories as of this
20 day of January, 2004.
ISSUER
CDC Derivatives, Inc.
By: CDCS, as agent
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
Issuer's Contact Information:
Attn:
-----------------------------
Phone:
-----------------------------
Fax:
-------------------------------
Email:
-----------------------------
Address:
---------------------------
PURCHASER
Wood River Partners, LP
(Name of partnership or corporation)
X: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: General Partner
Purchaser's Contact Information:
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
Phone: ▇▇▇-▇▇▇-▇▇▇▇
----------------------------
Fax: ▇▇▇-▇▇▇-▇▇▇▇
-------------------------------
Email: ▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
-----------------------------
Address: ▇.▇. ▇▇▇ ▇▇▇▇
---------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
17