Document:

Exhibit 10.6

 

 

JPMorgan Chase Bank, National Association

London Branch
 25 Bank Street
 Canary Wharf
 London E14 5JP
 England

 

	
 
    	
August 10, 2016
    

 

To: SM Energy Company 
 1775 Sherman Street, Suite 1200
 Denver, Colorado 80203
 Attention:                                         General Counsel
 Telephone No.:             303-863-4325

 

Re: Additional Call Option Transaction

 

The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the call option transaction entered into between JPMorgan Chase Bank, National Association, London Branch (“Dealer”) and SM Energy Company (“Counterparty”) as of the Trade Date specified below (the “Transaction”).  This letter agreement constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below.  Each party further agrees that this Confirmation together with the Agreement evidence a complete binding agreement between Counterparty and Dealer as to the subject matter and terms of the Transaction to which this Confirmation relates, and shall supersede all prior or contemporaneous written or oral communications with respect thereto.

 

The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc. (“ISDA”) are incorporated into this Confirmation.  In the event of any inconsistency between the Equity Definitions and this Confirmation, this Confirmation shall govern.  Certain defined terms used herein are based on terms that are defined in the Prospectus dated August 8, 2016, as supplemented by the Prospectus Supplement dated August 8, 2016 (as so supplemented, the “Prospectus”) relating to the 1.50% Convertible Senior Notes due 2021 (as originally issued by Counterparty, the “Convertible Notes” and each USD 1,000 principal amount of Convertible Notes, a “Convertible Note”) issued by Counterparty in an aggregate initial principal amount of USD 150,000,000 (as increased by an aggregate principal amount of USD 22,500,000 pursuant to the exercise by the Underwriters (as defined herein) of their option to purchase additional Convertible Notes pursuant to the Underwriting Agreement (as defined herein)) pursuant to an Indenture dated May 21, 2015 (the “Base Indenture”), as supplemented by a Supplemental Indenture thereto to be dated August 12, 2016 (the “Supplemental Indenture”), between Counterparty and U.S. Bank National Association, as trustee (the Base Indenture as so supplemented, the “Indenture”).  In the event of any inconsistency between the terms defined in the Prospectus, the Indenture and this Confirmation, this Confirmation shall govern.  The parties acknowledge that this Confirmation is entered into on the date hereof with the understanding that (i) definitions set forth in the Indenture which are also defined herein by reference to the Indenture and (ii) sections of the Indenture that are referred to herein will conform to the descriptions thereof in the Prospectus.  If any such definitions in the Indenture or any such sections of the Indenture differ from the descriptions thereof in the Prospectus, the descriptions thereof in the Prospectus will govern for purposes of this Confirmation.  The parties further acknowledge that the Supplemental Indenture section numbers used herein are based on the draft of the Supplemental Indenture last reviewed by Dealer as of the date of this Confirmation, and if any such section numbers are changed in the Supplemental Indenture as executed, the parties will amend this Confirmation in good faith to preserve the intent of the parties.  Subject to the foregoing, references to the Base Indenture or Supplemental Indenture herein are references to the Base Indenture or the Supplemental Indenture, as the case may be, as in effect on the date hereof and on the date of its execution, respectively, and if either the Base Indenture or the Supplemental 

 

JPMorgan Chase Bank, National Association

Organised under the laws of the United States as a National Banking Association.

Main Office 1111 Polaris Parkway, Columbus, Ohio 43240

Registered as a branch in England & Wales branch No. BR000746

Registered Branch Office 25 Bank Street, Canary Wharf, London E14 5JP

Authorised by the Office of the Comptroller of the Currency in the jurisdiction of the USA.

Authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct

Authority and to limited regulation by the Prudential Regulation Authority. Details about the

extent of our regulation by the Prudential Regulation Authority are available from us on request.

 

 

Indenture is amended or supplemented following such date (other than any amendment or supplement (x) pursuant to Section 10.02(i) of the Supplemental Indenture that, as determined by the Calculation Agent, conforms the Indenture to the description of Convertible Notes in the Prospectus or (y) pursuant to Section 14.07 of the Supplemental Indenture, subject, in the case of this clause (y), to the second paragraph under “Method of Adjustment” in Section 3), any such amendment or supplement will be disregarded for purposes of this Confirmation (other than as provided in Section 9(i)(iii) below) unless the parties agree otherwise in writing.

 

Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties’ entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.

 

1.                                      This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as to the terms of the Transaction to which this Confirmation relates.  This Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA Master Agreement (the “Agreement”) as if Dealer and Counterparty had executed an agreement in such form (but without any Schedule except for (i) the election of the laws of the State of New York as the governing law (without reference to choice of law doctrine) and (ii) the election that the “Cross Default” provisions of Section 5(a)(vi) of the Agreement shall apply to Dealer with a “Threshold Amount” of 3% of Dealer’s shareholders’ equity (provided that (a) the phrase “, or becoming capable at such time of being declared,” shall be deleted from clause (1) of such Section 5(a)(vi) of the Agreement, (b) “Specified Indebtedness” shall have the meaning specified in Section 14 of the Agreement, except that such term shall not include obligations in respect of deposits received in the ordinary course of Dealer’s banking business and (c) the following sentence shall be added to the end of Section 5(a)(vi) of the Agreement: “Notwithstanding the foregoing, a default under subsection (2) hereof shall not constitute an Event of Default if (x) the default was caused solely by error or omission of an administrative or operational nature; (y) funds were available to enable the relevant party to make the payment when due; and (z) the payment is made within two Local Business Days of such party’s receipt of written notice of its failure to pay.”) on the Trade Date.  In the event of any inconsistency between provisions of the Agreement and this Confirmation, this Confirmation will prevail for the purpose of the Transaction to which this Confirmation relates.  The parties hereby agree that no transaction other than the Transaction to which this Confirmation relates shall be governed by the Agreement.

 

2.                                      The terms of the particular Transaction to which this Confirmation relates are as follows:

 

General Terms.

 

	
Trade Date:
    	
August 10, 2016
    
	
 
    	
 
    
	
Effective Date:
    	
The Trade Date
    
	
 
    	
 
    
	
Option Style:
    	
“Modified American”, as   described under “Procedures for Exercise” below
    
	
 
    	
 
    
	
Option Type:
    	
Call
    
	
 
    	
 
    
	
Buyer:
    	
Counterparty
    
	
 
    	
 
    
	
Seller:
    	
Dealer
    
	
 
    	
 
    
	
Shares:
    	
The common stock of   Counterparty, par value USD 0.01 per share    (Exchange symbol “SM”).
    
	
 
    	
 
    
	
Number of Options:
    	
22,500.  For the avoidance of doubt, the Number of   Options shall be reduced by any Options exercised by Counterparty.  In no event will the Number of Options be   less than zero.
    
	
 
    	
 
    
	
Applicable Percentage:
    	
30.75%
    

 

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Option Entitlement:
    	
A number equal to the   product of the Applicable Percentage and 24.6914.
    
	
 
    	
 
    
	
Strike Price:
    	
USD 40.50
    
	
 
    	
 
    
	
Cap Price:
    	
USD 60.00
    
	
 
    	
 
    
	
Premium:
    	
USD 965,165.63
    
	
 
    	
 
    
	
Premium Payment Date:
    	
August 12, 2016
    
	
 
    	
 
    
	
Exchange:
    	
The   New York Stock Exchange
    
	
 
    	
 
    
	
Related Exchange(s):
    	
All Exchanges
    
	
 
    	
 
    
	
Excluded Provisions:
    	
Section 14.04(h) and   Section 14.03 of the Supplemental Indenture.
    

 

Procedures for Exercise.

 

	
Conversion Date:
    	
With respect to any   conversion of a Convertible Note (other than any conversion of Convertible   Notes with a Conversion Date occurring prior to the Free Convertibility Date   (any such conversion, an “Early Conversion”),   to which the provisions of Section 9(i)(i) of this Confirmation   shall apply), the date on which the Holder (as such term is defined in the   Indenture) of such Convertible Note satisfies all of the requirements for   conversion thereof as set forth in Section 14.02(b) of the   Supplemental Indenture.
    
	
 
    	
 
    
	
Free Convertibility   Date:
    	
January 1, 2021
    
	
 
    	
 
    
	
Expiration Time:
    	
The Valuation Time
    
	
 
    	
 
    
	
Expiration Date:
    	
July 1, 2021,   subject to earlier exercise.
    
	
 
    	
 
    
	
Multiple Exercise:
    	
Applicable, as   described under “Automatic Exercise” below.
    
	
 
    	
 
    
	
Automatic Exercise:
    	
Notwithstanding   Section 3.4 of the Equity Definitions, on each Conversion Date occurring   on or after the Free Convertibility Date, in respect of which a Notice of   Conversion that is effective as to Counterparty has been delivered by the   relevant converting Holder, a number of Options equal to (i) the number   of Convertible Notes in denominations of USD 1,000 as to which such   Conversion Date has occurred minus (ii) the   number of Options that are or are deemed to be automatically exercised on   such Conversion Date under the Base Call Option Transaction Confirmation   letter agreement dated August 8, 2016 between Dealer and Counterparty   (the “Base Call Option Confirmation”),   shall be deemed to be automatically exercised; provided that   such Options shall be exercised or deemed exercised only if
    

 

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Counterparty has   provided a Notice of Exercise to Dealer in accordance with “Notice of   Exercise” below.
    
	
 
    	
 
    
	
 
    	
Notwithstanding the   foregoing, in no event shall the number of Options that are exercised or   deemed exercised hereunder exceed the Number of Options.
    
	
 
    	
 
    
	
Notice of Exercise:
    	
Notwithstanding   anything to the contrary in the Equity Definitions or under “Automatic   Exercise” above, in order to exercise any Options relating to Convertible   Notes with a Conversion Date occurring on or after the Free Convertibility   Date, Counterparty must notify Dealer in writing before 5:00 p.m. (New   York City time) on the Scheduled Valid Day immediately preceding the Expiration   Date specifying the number of such Options; provided   that if the Relevant Settlement Method for such Options is (x) Net Share   Settlement and the Specified Cash Amount (as defined below) is not USD 1,000,   (y) Cash Settlement or (z) Combination Settlement, Dealer shall   have received a separate notice (the “Notice of Final   Settlement Method”) in respect of all such Convertible Notes   before 5:00 p.m. (New York City time) on the Free Convertibility Date   specifying (1) the Relevant Settlement Method for such Options, and   (2) if the settlement method for the related Convertible Notes is not   Settlement in Shares or Settlement in Cash (each as defined below), the   “Specified Dollar Amount” that Counterparty has elected (as such term is   defined in the Indenture) (the “Specified Cash Amount”).   Counterparty acknowledges its responsibilities under applicable securities   laws, and in particular Section 9 and Section 10(b) of the   Exchange Act (as defined below) and the rules and regulations   thereunder, in respect of any election of a settlement method with respect to   the Convertible Notes.
    
	
 
    	
 
    
	
Valuation Time:
    	
At the close of trading   of the regular trading session on the Exchange; provided   that if the principal trading session is extended, the Calculation Agent   shall determine the Valuation Time in its reasonable discretion.
    
	
 
    	
 
    
	
Market Disruption   Event:
    	
Section 6.3(a) of   the Equity Definitions is hereby replaced in its entirety by the following:
    
	
 
    	
 
    
	
 
    	
“‘Market Disruption   Event’ means, in respect of a Share, (i) a failure by the primary United   States national or regional securities exchange or market on which the Shares   are listed or admitted for trading to open for trading during its regular   trading session or (ii) the occurrence or existence prior to 1:00   p.m. (New York City time) on any Scheduled Valid Day for the Shares for   more than one half-hour period in the aggregate during regular trading hours   of any suspension or limitation imposed on trading (by reason of movements in   price exceeding limits permitted by the relevant stock exchange
    

 

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or otherwise) in the   Shares or in any options contracts or futures contracts relating to the   Shares.”
    
	
 
    	
 
    
	
Settlement   Terms.
    	
 
    
	
 
    	
 
    
	
Settlement Method:
    	
For any Option, Net   Share Settlement; provided that   if the Relevant Settlement Method set forth below for such Option is not Net   Share Settlement, then the Settlement Method for such Option shall be such   Relevant Settlement Method, but only if Counterparty shall have notified   Dealer of the Relevant Settlement Method in the Notice of Final Settlement   Method for such Option.
    
	
 
    	
 
    
	
Relevant Settlement   Method:
    	
In respect of any   Option:
    
	
 
    	
 
    
	
 
    	
(i)             if Counterparty has   elected to settle its conversion obligations in respect of the related   Convertible Note (A) entirely in Shares pursuant to   Section 14.02(a)(iv)(A) of the Supplemental Indenture (together   with cash in lieu of fractional Shares) (such settlement method, “Settlement in Shares”), (B) in a combination of cash   and Shares pursuant to Section 14.02(a)(iv)(C) of the Supplemental   Indenture with a Specified Cash Amount less than USD 1,000 (such settlement   method, “Low Cash Combination Settlement”)   or (C) in a combination of cash and Shares pursuant to   Section 14.02(a)(iv)(C) of the Supplemental Indenture with a   Specified Cash Amount equal to USD 1,000, then, in each case, the   Relevant Settlement Method for such Option shall be Net Share Settlement;

 

(ii)          if Counterparty has   elected to settle its conversion obligations in respect of the related   Convertible Note in a combination of cash and Shares pursuant to   Section 14.02(a)(iv)(C) of the Supplemental Indenture with a   Specified Cash Amount greater than USD 1,000, then the Relevant Settlement   Method for such Option shall be Combination Settlement; and

 

(iii)       if Counterparty has   elected to settle its conversion obligations in respect of the related   Convertible Note entirely in cash pursuant to   Section 14.02(a)(iv)(B) of the Supplemental Indenture (such   settlement method, “Settlement in Cash”),   then the Relevant Settlement Method for such Option shall be Cash Settlement.
    
	
 
    	
 
    
	
Net Share Settlement:
    	
If Net Share Settlement   is applicable to any Option exercised or deemed exercised hereunder, Dealer   will deliver to Counterparty, on the relevant Settlement Date for each such   Option, a number of Shares (the “Net Share Settlement   Amount”) equal to the sum, for each Valid Day during the   Settlement Averaging Period for each such Option, of (i) (a) the   Daily Option Value for such Valid Day, divided by   (b) the Relevant Price on such Valid Day, divided by   (ii) the number of Valid Days in the Settlement Averaging Period; provided that in no event shall the Net   Share Settlement Amount for any Option
    

 

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exceed a number of   Shares equal to the Applicable Limit for such Option divided by the   Applicable Limit Price on the Settlement Date for such Option.
    
	
 
    	
 
    
	
 
    	
Dealer will pay cash in   lieu of delivering any fractional Shares to be delivered with respect to any   Net Share Settlement Amount valued at the Relevant Price for the last Valid   Day of the Settlement Averaging Period.
    
	
 
    	
 
    
	
Combination Settlement:
    	
If Combination   Settlement is applicable to any Option exercised or deemed exercised   hereunder, Dealer will pay or deliver, as the case may be, to Counterparty,   on the relevant Settlement Date for each such Option:
    
	
 
    	
 
    
	
 
    	
(i)            cash (the “Combination Settlement Cash Amount”) equal to the sum, for   each Valid Day during the Settlement Averaging Period for such Option, of   (A) an amount (the “Daily Combination   Settlement Cash Amount”) equal to the lesser of (1) the   product of (x) the Applicable Percentage and (y) the Specified Cash   Amount minus USD 1,000 and (2) the Daily   Option Value, divided by (B) the number   of Valid Days in the Settlement Averaging Period; provided   that if the calculation in clause (A) above results in zero or a   negative number for any Valid Day, the Daily Combination Settlement Cash   Amount for such Valid Day shall be deemed to be zero; and

 

(ii)           Shares (the “Combination Settlement Share Amount”) equal to the sum,   for each Valid Day during the Settlement Averaging Period for such Option, of   a number of Shares for such Valid Day (the “Daily   Combination Settlement Share Amount”) equal to   (A) (1) the Daily Option Value on such Valid Day minus the Daily Combination Settlement Cash Amount for   such Valid Day, divided by (2) the   Relevant Price on such Valid Day, divided by   (B) the number of Valid Days in the Settlement Averaging Period; provided that if the calculation in sub-clause   (A)(1) above results in zero or a negative number for any Valid Day, the   Daily Combination Settlement Share Amount for such Valid Day shall be deemed   to be zero;

 

provided   that in no event shall the sum of (x) the Combination Settlement Cash   Amount for any Option and (y) the Combination Settlement Share Amount   for such Option multiplied by   the Applicable Limit Price on the Settlement Date for such Option, exceed the   Applicable Limit for such Option.

 

Dealer will pay cash in   lieu of delivering any fractional Shares to be delivered with respect to any   Combination
    

 

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Settlement Share Amount   valued at the Relevant Price for the last Valid Day of the Settlement   Averaging Period.
    
	
 
    	
 
    
	
Cash Settlement:
    	
If Cash Settlement is   applicable to any Option exercised or deemed exercised hereunder, in lieu of   Section 8.1 of the Equity Definitions, Dealer will pay to Counterparty,   on the relevant Settlement Date for each such Option, an amount of cash (the   “Cash Settlement Amount”) equal to the   sum, for each Valid Day during the Settlement Averaging Period for such   Option, of (i) the Daily Option Value for such Valid Day, divided by (ii) the number of Valid Days in the   Settlement Averaging Period.
    
	
 
    	
 
    
	
Daily Option Value:
    	
For any Valid Day, an   amount equal to (i) the Option Entitlement on such Valid Day, multiplied by (ii) (A) the lesser of the   Relevant Price on such Valid Day and the Cap Price, less   (B) the Strike Price on such Valid Day; provided   that if the calculation contained in clause (ii) above results in a   negative number, the Daily Option Value for such Valid Day shall be deemed to   be zero.  In no event will the Daily   Option Value be less than zero.
    
	
 
    	
 
    
	
Applicable Limit
    	
For any Option, an   amount of cash equal to the Applicable Percentage multiplied by the excess of (i) the aggregate of   (A) the amount of cash, if any, paid to the Holder of the related   Convertible Note upon conversion of such Convertible Note and (B) the   number of Shares, if any, delivered to the Holder of the related Convertible   Note upon conversion of such Convertible Note multiplied by the Applicable   Limit Price on the Settlement Date for such Option, over (ii) USD 1,000.
    
	
 
    	
 
    
	
Applicable Limit Price
    	
On any day, the opening   price as displayed under the heading “Op” on Bloomberg page SM <equity>   (or any successor thereto).
    
	
 
    	
 
    
	
Valid Day:
    	
A day on which   (i) there is no Market Disruption Event and (ii) trading in the   Shares generally occurs on the Exchange or, if the Shares are not then listed   on the Exchange, on the principal other United States national or regional   securities exchange on which the Shares are then listed or, if the Shares are   not then listed on a United States national or regional securities exchange,   on the principal other market on which the Shares are then listed or admitted   for trading. If the Shares are not so listed or admitted for trading, “Valid   Day” means a Business Day.
    
	
 
    	
 
    
	
Scheduled Valid Day:
    	
A day that is scheduled   to be a Valid Day on the principal United States national or regional   securities exchange or market on which the Shares are listed or admitted for   trading.  If the Shares are not so   listed or admitted for trading, “Scheduled Valid Day” means a Business Day.
    
	
 
    	
 
    
	
Business Day:
    	
Any day other than a   Saturday, a Sunday or a day on which the Federal Reserve Bank of New York is
    

 

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authorized or required   by law or executive order to close or be closed.
    
	
 
    	
 
    
	
Relevant Price:
    	
On any Valid Day, the   per Share volume-weighted average price as displayed under the heading   “Bloomberg VWAP” on Bloomberg page SM <equity> AQR (or its   equivalent successor if such page is not available) in respect of the   period from the scheduled opening time of the Exchange to the Scheduled   Closing Time of the Exchange on such Valid Day (or if such volume-weighted   average price is unavailable at such time, the market value of one Share on   such Valid Day, as determined by the Calculation Agent using, if practicable,   a volume-weighted average method). The Relevant Price will be determined   without regard to after-hours trading or any other trading outside of the   regular trading session trading hours.
    
	
 
    	
 
    
	
Settlement Averaging   Period:
    	
For any Option and   regardless of the Settlement Method applicable to such Option, the 20   consecutive Valid Days commencing on, and including, the 22nd   Scheduled Valid Day immediately prior to the Expiration Date.
    
	
 
    	
 
    
	
Settlement Date:
    	
For any Option, the   third Business Day immediately following the final Valid Day of the   Settlement Averaging Period for such Option.
    
	
 
    	
 
    
	
Settlement Currency:
    	
USD
    
	
 
    	
 
    
	
Other Applicable   Provisions:
    	
The provisions of   Sections 9.1(c), 9.8, 9.9 and 9.11 of the Equity Definitions will be   applicable, except that all references in such provisions to   “Physically-settled” shall be read as references to “Share Settled”.  “Share Settled” in relation to any Option   means that Net Share Settlement or Combination Settlement is applicable to   that Option.
    
	
 
    	
 
    
	
Representation and   Agreement:
    	
Notwithstanding   anything to the contrary in the Equity Definitions (including, but not   limited to, Section 9.11 thereof), the parties acknowledge that   (i) any Shares delivered to Counterparty shall be, upon delivery,   subject to restrictions and limitations arising from Counterparty’s status as   issuer of the Shares under applicable securities laws, (ii) Dealer may   deliver any Shares required to be delivered hereunder in certificated form in   lieu of delivery through the Clearance System and (iii) any Shares   delivered to Counterparty may be “restricted securities” (as defined in   Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”)).
    

 

3.                                      Additional Terms applicable to the Transaction.

 

Adjustments applicable to the Transaction:

 

	
Potential Adjustment   Events:
    	
Notwithstanding Section 11.2(e) of   the Equity Definitions, a “Potential Adjustment Event” means an occurrence of   any event or condition, as set forth in any
    

 

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Dilution Adjustment   Provision, that would result in an adjustment under the Indenture to the   “Conversion Rate” or the composition of a “unit of Reference Property” or to   any “Last Reported Sale Price”, “Daily VWAP,” “Daily Conversion Value” or   “Daily Settlement Amount” (each as defined in the Indenture).  For the avoidance of doubt, Dealer shall   not have any delivery or payment obligation hereunder, and no adjustment   shall be made to the terms of the Transaction, on account of (x) any   distribution of cash, property or securities by Counterparty to holders of   the Convertible Notes (upon conversion or otherwise) or (y) any other   transaction in which holders of the Convertible Notes are entitled to   participate, in each case, in lieu of an adjustment under the Indenture of   the type referred to in the immediately preceding sentence (including,   without limitation, pursuant to the fourth sentence of   Section 14.04(c) of the Supplemental Indenture or the fifth   sentence of Section 14.04(d) of the Supplemental Indenture).
    
	
 
    	
 
    
	
Method of Adjustment:
    	
Calculation Agent Adjustment,   which means that, notwithstanding Section 11.2(c) of the Equity   Definitions, upon any Potential Adjustment Event, the Calculation Agent shall   make a corresponding adjustment to any one or more of the Strike Price,   Number of Options, Option Entitlement and any other variable relevant to the   exercise, settlement or payment for the Transaction, in each case, to the   extent an analogous adjustment is made under the Indenture.
    
	
 
    	
 
    
	
 
    	
Notwithstanding the   foregoing and “Consequences of Merger Events / Tender Offers” below:
    
	
 
    	
 
    
	
 
    	
(i)                                     if   the Calculation Agent in good faith disagrees with any adjustment to the   Convertible Notes that involves an exercise of discretion by Counterparty or   its board of directors (including, without limitation, pursuant to   Section 14.04(c) of the Supplemental Indenture, Section 14.05   of the Supplemental Indenture, Section 14.07 of the Supplemental   Indenture or any supplemental indenture entered into thereunder or in   connection with any proportional adjustment or the determination of the fair   value of any securities, property, rights or other assets), then in each such   case, the Calculation Agent will determine the adjustment to be made to any   one or more of the Strike Price, Number of Options, Option Entitlement and   any other variable relevant to the exercise, settlement or payment for the   Transaction in a commercially reasonable manner; provided   that, notwithstanding the foregoing, if   any Potential Adjustment Event occurs during the Settlement Averaging Period   but no adjustment was made to any Convertible
    

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Note   under the Indenture because the relevant Holder (as such term is defined in   the Indenture) was deemed to be a record owner of the underlying Shares on   the related Conversion Date, then the Calculation Agent shall make an   adjustment, as determined by it, to the terms hereof in order to account for   such Potential Adjustment Event;

 

(ii)                                  in   connection with any Potential Adjustment Event as a result of an event or   condition set forth in Section 14.04(b) of the Supplemental   Indenture or Section 14.04(c) of the Supplemental Indenture where,   in either case, the period for determining “Y” (as such term is used in   Section 14.04(b) of the Supplemental Indenture) or “SP0” (as such term is used in   Section 14.04(c) of the Supplemental Indenture), as the case may   be, begins before Counterparty has publicly announced the event or condition   giving rise to such Potential Adjustment Event, then the Calculation Agent   shall have the right to adjust any variable relevant to the exercise,   settlement or payment for the Transaction as appropriate to reflect the costs   (including, but not limited to, hedging mismatches and market losses) and   expenses incurred by Dealer in connection with its commercially reasonable   hedging activities as a result of such event or condition not having been   publicly announced prior to the beginning of such period; and

 

(iii)                               if   any Potential Adjustment Event is declared and (a) the event or   condition giving rise to such Potential Adjustment Event is subsequently   amended, modified, cancelled or abandoned, (b) the “Conversion Rate” (as   defined in the Indenture) is otherwise not adjusted at the time or in the   manner contemplated by the relevant Dilution Adjustment Provision based on   such declaration or (c) the “Conversion Rate” (as defined in the   Indenture) is adjusted as a result of such Potential Adjustment Event and   subsequently re-adjusted (each of clauses (a), (b) and (c), a “Potential Adjustment Event Change”) then,   in each case, the Calculation Agent shall have the right to adjust any   variable relevant to the exercise, settlement or payment for the Transaction   as appropriate to reflect the costs (including, but not limited to, hedging   mismatches and market losses) and expenses incurred by Dealer in connection   with its commercially reasonable hedging activities as a result of such   Potential Adjustment Event Change.
    

 

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Dilution Adjustment   Provisions:
    	
Sections 14.04(a), (b),   (c), (d) and (e) and Section 14.05 of the Supplemental   Indenture.
    

 

Extraordinary Events applicable to the Transaction:

 

	
Merger Events:
    	
Applicable; provided that notwithstanding Section 12.1(b) of   the Equity Definitions, a “Merger Event” means the occurrence of any event or   condition set forth in the definition of “Merger Event” in Section 14.07   of the Supplemental Indenture.
    
	
 
    	
 
    
	
Tender Offers:
    	
Applicable; provided that notwithstanding Section 12.1(d) of   the Equity Definitions, a “Tender Offer” means the occurrence of any event or   condition set forth in Section 14.04(e) of the Indenture.
    
	
 
    	
 
    
	
Consequences of Merger   Events/Tender Offers:
    	
Notwithstanding   Section 12.2 and Section 12.3 of the Equity Definitions, upon the   occurrence of a Merger Event or a Tender Offer, the Calculation Agent shall   make a corresponding adjustment in respect of any adjustment under the   Indenture to any one or more of the nature of the Shares (in the case of a   Merger Event), Strike Price, Number of Options, Option Entitlement and any   other variable relevant to the exercise, settlement or payment for the   Transaction, subject to the second paragraph under “Method of Adjustment”; provided, however,   that such adjustment shall be made without regard to any adjustment to the   Conversion Rate pursuant to any Excluded Provision; provided   further that if, with respect to a Merger Event or a Tender Offer,   (i) the consideration for the Shares includes (or, at the option of a   holder of Shares, may include) shares of an entity or person that is not a   corporation or is not organized under the laws of the United States, any   State thereof or the District of Columbia or (ii) the Counterparty to   the Transaction following such Merger Event or Tender Offer will not be a   corporation, then, in either case, Cancellation and Payment (Calculation   Agent Determination) may apply at Dealer’s sole election; provided further that, for the avoidance of doubt,   adjustments shall be made pursuant to the provisions set forth above   regardless of whether any Merger Event or Tender Offer gives rise to an Early   Conversion.
    
	
 
    	
 
    
	
Consequences of   Announcement Events:
    	
Modified Calculation   Agent Adjustment as set forth in Section 12.3(d) of the Equity   Definitions; provided that, in respect of an Announcement Event,   (x) references to “Tender Offer” shall be replaced by references to   “Announcement Event” and references to “Tender Offer Date” shall be replaced   by references to “date of such Announcement Event”, (y) the word “shall”   in the second line shall be replaced with “may” and the phrase “exercise,   settlement, payment or any other terms of the Transaction (including, without   limitation, the spread)”
    

 

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shall be replaced with   the phrase “Cap Price (provided that in no event shall the Cap Price be less   than the Strike Price)”, and (z) for the avoidance of doubt, the   Calculation Agent may determine whether the relevant Announcement Event has   had an economic effect on the Transaction (and, if so, may adjust the Cap   Price accordingly) on one or more occasions on or after the date of the   Announcement Event up to, and including, the Expiration Date, any Early   Termination Date and/or any other date of cancellation, it being understood   that any adjustment in respect of an Announcement Event shall take into   account any earlier adjustment relating to the same Announcement Event. An   Announcement Event shall be an “Extraordinary Event” for purposes of the   Equity Definitions, to which Article 12 of the Equity Definitions is   applicable.
    
	
 
    	
 
    
	
Announcement Event:
    	
(i) The public   announcement by any third party reasonably capable (as determined by the   Calculation Agent) of executing the Merger Event or Tender Offer of a firm   intention (or in the case of the Issuer or its affiliates, any public   announcement) of (x) any transaction or event that, if completed, would   constitute a Merger Event or Tender Offer, (y) any potential acquisition   by Issuer and/or its subsidiaries where the aggregate consideration exceeds   20% of the market capitalization of Issuer as of the date of such   announcement (an “Acquisition Transaction”)   or (z) the intention to enter into a Merger Event or Tender Offer or an   Acquisition Transaction, (ii) the public announcement by Issuer of an   intention to solicit or enter into, or to explore strategic alternatives or   other similar undertaking that may include, a Merger Event or Tender Offer or   an Acquisition Transaction or (iii) any subsequent public announcement   by any entity of a change to a transaction or intention that is the subject   of an announcement of the type described in clause (i) or (ii) of   this sentence (including, without limitation, a new announcement, whether or   not by the same party, relating to such a transaction or intention or the   announcement of a withdrawal from, or the abandonment or discontinuation of,   such a transaction or intention), as determined by the Calculation Agent. For   the avoidance of doubt, the occurrence of an Announcement Event with respect   to any transaction or intention shall not preclude the occurrence of a later   Announcement Event with respect to such transaction or intention. For   purposes of this definition of “Announcement Event,” (A) “Merger Event”   shall mean such term as defined under Section 12.1(b) of the Equity   Definitions (but, for the avoidance of doubt, the remainder of the definition   of “Merger Event” in Section 12.1(b) of the Equity Definitions   following the definition of “Reverse Merger” therein shall be disregarded)   and (B) “Tender Offer” shall mean such term
    

 

12

 

	
 
    	
as defined under   Section 12.1(d) of the Equity Definitions.
    
	
 
    	
 
    
	
Nationalization, Insolvency   or Delisting:
    	
Cancellation and   Payment (Calculation Agent Determination); provided   that, in addition to the provisions of Section 12.6(a)(iii) of the   Equity Definitions, it will also constitute a Delisting if the Exchange is   located in the United States and the Shares are not immediately re-listed,   re-traded or re-quoted on any of the New York Stock Exchange, The NASDAQ   Global Select Market or The NASDAQ Global Market (or their respective   successors); if the Shares are immediately re-listed, re-traded or re-quoted   on any of the New York Stock Exchange, The NASDAQ Global Select Market or The   NASDAQ Global Market (or their respective successors), such exchange or   quotation system shall thereafter be deemed to be the Exchange.
    
	
 
    	
 
    
	
Additional Disruption   Events:
    	
 
    
	
 
    	
 
    
	
Change in Law:
    	
Applicable; provided that Section 12.9(a)(ii) of the Equity   Definitions is hereby amended by (i) replacing the word “Shares” with   the phrase “Hedge Positions” in clause (X) thereof and   (ii) inserting the parenthetical “(including, for the avoidance of doubt   and without limitation, adoption or promulgation of new regulations   authorized or mandated by existing statute)” at the end of clause   (A) thereof.
    
	
 
    	
 
    
	
Failure to Deliver:
    	
Applicable
    
	
 
    	
 
    
	
Hedging Disruption:
    	
Applicable; provided that:
    
	
 
    	
 
    
	
 
    	
(i)                           Section 12.9(a)(v) of   the Equity Definitions is hereby amended by (a) inserting the following   words at the end of clause (A) thereof:    “in the manner contemplated by the Hedging Party on the Trade Date”   and (b) inserting the following two phrases at the end of such Section:

 

“For the avoidance of   doubt, the term “equity price risk” shall be deemed to include, but shall not   be limited to, stock price and volatility risk. And, for the further   avoidance of doubt, any such transactions or assets referred to in phrases   (A) or (B) above must be available on commercially reasonable   pricing terms.”; and

 

(ii)                        Section 12.9(b)(iii) of   the Equity Definitions is hereby amended by inserting in the third line   thereof,  after the words “to terminate   the Transaction”, the words “or a portion of the Transaction affected by such   Hedging Disruption”.
    
	
 
    	
 
    
	
Increased Cost of   Hedging:
    	
Not applicable
    
	
 
    	
 
    
	
Hedging Party:
    	
For all applicable   Additional Disruption Events, Dealer.
    

 

13

 

	
Determining Party:
    	
For all applicable Extraordinary   Events, Dealer.
    
	
 
    	
 
    
	
Non-Reliance:
    	
Applicable
    
	
 
    	
 
    
	
Agreements and   Acknowledgments
    	
 
    
	
Regarding Hedging   Activities:
    	
Applicable
    
	
 
    	
 
    
	
Additional   Acknowledgments:
    	
Applicable
    
	
 
    	
 
    
	
4.                                      Calculation Agent.
    	
Dealer; provided that if an Event of Default of   the type described in Section 5(a)(vii) of the Agreement occurs   with respect to Dealer, Counterparty shall have the right to appoint a   successor calculation agent which shall be a nationally recognized third-party   dealer in over-the-counter corporate equity derivatives.
    

 

5.                                      Account Details.

 

(a)                                 Account for payments to Counterparty:

 

Bank:                                            Wells Fargo Bank, N.A.

ABA#:                                      121000248

Acct No.:                         1010811249

Name:                                         SM Energy Company

 

Account for delivery of Shares to Counterparty:

 

To be provided separately.

 

(b)                                 Account for payments to Dealer:

 

Bank:                                            JPMorgan Chase Bank, N.A.

ABA#:                                      021000021

Acct No.:                         099997979

Beneficiary:         JPMorgan Chase Bank, N.A. New York

Ref:                                                    Derivatives

 

Account for delivery of Shares from Dealer:

 

To be provided separately.

 

6.                                      Offices.

 

(a)                                 The Office of Counterparty for the Transaction is:  Inapplicable, Counterparty is not a Multibranch Party.

 

(b)                                 The Office of Dealer for the Transaction is: London

 

7.                                      Notices.

 

(a)                                 Address for notices or communications to Counterparty:

 

SM Energy Company
 1775 Sherman Street, Suite 1200
 Denver, Colorado 80203
 Attention:                                         General Counsel

 

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Telephone No.:             303-863-4325

 

(b)                                 Address for notices or communications to Dealer:

 

JPMorgan Chase Bank, National Association
 EDG Marketing Support
 Email:                                                              edg_notices@jpmorgan.com
                                                                                                    edg.us.flow.corporates.mo@jpmorgan.com
 Facsimile No:                      1-866-886-4506

 

With a copy to:

 

Attention:                                         Santosh Sreenivasan
 Title:                                                                    Managing Director
 Telephone No:                212-622-5604
 Email:                                                            santosh.sreenivasan@jpmorgan.com

 

8.                                      Representations and Warranties of Counterparty.

 

Each of the representations and warranties of Counterparty set forth in Section 1 of the Underwriting Agreement (the “Underwriting Agreement”) dated as of August 8, 2016, between Counterparty and Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as representatives of the Underwriters party thereto (the “Underwriters”), are true and correct and are hereby deemed to be repeated to Dealer as if set forth herein.  Counterparty hereby further represents and warrants to Dealer on the date hereof and on and as of the Premium Payment Date that:

 

(a)                                 Counterparty has all necessary corporate power and authority to execute, deliver and perform its obligations in respect of the Transaction; such execution, delivery and performance have been duly authorized by all necessary corporate action on Counterparty’s part; and this Confirmation has been duly and validly executed and delivered by Counterparty and constitutes its valid and binding obligation, enforceable against Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except that rights to indemnification and contribution hereunder may be limited by federal or state securities laws or public policy relating thereto.

 

(b)                                 Neither the execution and delivery of this Confirmation nor the incurrence or performance of obligations of Counterparty hereunder will conflict with or result in a breach of the certificate of incorporation or by-laws (or any equivalent documents) of Counterparty, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which Counterparty or any of its subsidiaries is a party or by which Counterparty or any of its subsidiaries is bound or to which Counterparty or any of its subsidiaries is subject, or constitute a default under, or result in the creation of any lien under, any such agreement or instrument.

 

(c)                                  No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required in connection with the execution, delivery or performance by Counterparty of this Confirmation, except such as have been obtained or made and such as may be required under the Securities Act or state securities laws.

 

(d)                                 Counterparty is not and, after consummation of the transactions contemplated hereby, will not be required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

 

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(e)                                  Counterparty is an “eligible contract participant” (as such term is defined in Section 1a(18) of the Commodity Exchange Act, as amended, other than a person that is an eligible contract participant under Section 1a(18)(C) of the Commodity Exchange Act).

 

(f)                                   It is not, on the date hereof, in possession of any material non-public information with respect to Counterparty or the Shares.

 

(g)                                  No state or local (including any non-U.S. jurisdiction’s) law, rule, regulation or regulatory order applicable to the Shares would give rise to any reporting, consent, registration or other requirement (including without limitation a requirement to obtain prior approval from any person or entity) as a result of Dealer or its affiliates owning or holding (however defined) Shares.

 

(h)                                 Counterparty (A) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities; (B) will exercise independent judgment in evaluating the recommendations of any broker-dealer or its associated persons, unless it has otherwise notified the broker-dealer in writing; and (C) has total assets of at least USD 50 million.

 

9.                                      Other Provisions.

 

(a)                                 Opinions.  Counterparty shall deliver to Dealer opinions of counsel, dated as of the Premium Payment Date, with respect to the matters set forth in Sections 8(a) through (c) of this Confirmation.  Delivery of such opinions to Dealer shall be a condition precedent for the purpose of Section 2(a)(iii) of the Agreement with respect to each obligation of Dealer under Section 2(a)(i) of the Agreement.

 

(b)                                 Repurchase Notices.  Counterparty shall, on any day on which Counterparty effects any repurchase of Shares, promptly give Dealer a written notice of such repurchase (a “Repurchase Notice”) on such day if following such repurchase, the number of outstanding Shares as determined on such day is (i) less than 56.64 million (in the case of the first such notice) or (ii) thereafter more than 8.34 million less than the number of Shares included in the immediately preceding Repurchase Notice.  Counterparty agrees to indemnify and hold harmless Dealer and its affiliates and their respective officers, directors, employees, affiliates, advisors, agents and controlling persons (each, an “Indemnified Person”) from and against any and all losses (including losses relating to Dealer’s hedging activities as a consequence of becoming, or of the risk of becoming, a Section 16 “insider”, including without limitation, any forbearance from hedging activities or cessation of hedging activities and any losses in connection therewith with respect to the Transaction), claims, damages, judgments, liabilities and expenses (including reasonable attorney’s fees), joint or several, which an Indemnified Person may become subject to, as a result of Counterparty’s failure to provide Dealer with a Repurchase Notice on the day and in the manner specified in this paragraph, and to reimburse, within 30 days, upon written request, each of such Indemnified Persons for any commercially reasonable legal or other expenses incurred in connection with investigating, preparing for, providing testimony or other evidence in connection with or defending any of the foregoing.  If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against the Indemnified Person as a result of Counterparty’s failure to provide Dealer with a Repurchase Notice in accordance with this paragraph, such Indemnified Person shall promptly notify Counterparty in writing, and Counterparty, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others Counterparty may designate in such proceeding and shall pay the commercially reasonable fees and expenses of such counsel related to such proceeding.  Counterparty shall not be liable for any settlement of any proceeding contemplated by this paragraph that is effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, Counterparty agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment.  Counterparty shall not, without the prior

 

16

 

written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding contemplated by this paragraph that is in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding on terms reasonably satisfactory to such Indemnified Person.  If the indemnification provided for in this paragraph is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then Counterparty, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities.  The remedies provided for in this paragraph (b) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity.  The indemnity and contribution agreements contained in this paragraph shall remain operative and in full force and effect regardless of the termination of the Transaction.

 

(c)                                  Regulation M.  Counterparty is not on the Trade Date engaged in a distribution, as such term is used in Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of any securities of Counterparty, other than (i) a distribution meeting the requirements of the exception set forth in Rules 101(b)(10) and 102(b)(7) of Regulation M and (ii) the distribution of the Convertible Notes and the concurrent distribution of Shares.  Counterparty shall not, until the second Scheduled Trading Day immediately following the Effective Date, engage in any such distribution.

 

(d)                                 No Manipulation.  Counterparty is not entering into the Transaction to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for the Shares) or otherwise in violation of the Exchange Act.

 

(e)                                  Transfer or Assignment.

 

(i)                                     Counterparty may not transfer any of its rights or obligations under the Transaction without the prior written consent of Dealer.

 

(ii)                                  Dealer may, without Counterparty’s consent, transfer or assign all or any part of its rights or obligations under the Transaction (A) to any affiliate of Dealer (1) that has a long-term issuer rating or a rating for its long term, unsecured and unsubordinated indebtedness that is equal to or better than Dealer’s long-term issuer rating or the rating for Dealer’s long-term, unsecured and unsubordinated indebtedness at the time of such transfer or assignment, or (2) whose obligations hereunder will be guaranteed, pursuant to the terms of a customary guarantee in a form used by Dealer generally for similar transactions, by Dealer (or its ultimate parent), or (B) if any Excess Ownership Position exists, with Counterparty’s consent (such consent not to be unreasonably withheld or delayed), to any third party financial institution that is a recognized dealer in the market for U.S. corporate equity derivatives.  Notwithstanding anything to the contrary set forth herein, no transfer or assignment by dealer shall be permitted to any third party unless such third party provides Counterparty with a duly executed IRS Form W-9 or applicable IRS Form W-8.

 

(iii)                               If at any time at which (A) the Section 16 Percentage exceeds 8.5%, (B) the Option Equity Percentage exceeds 14.5% or (C) the Share Amount exceeds the Applicable Share Limit (if any applies) (any such condition described in clauses (A), (B) or (C), an “Excess Ownership Position”), Dealer is unable after using its commercially reasonable efforts to effect a transfer or assignment of Options to a third party financial institution pursuant to clause (ii)(B) of this Section 9(e) on pricing terms reasonably acceptable to Dealer and within a time period reasonably acceptable to Dealer such that no Excess Ownership Position exists, then Dealer may designate any Exchange Business Day as an

 

17

 

Early Termination Date with respect to a portion of the Transaction (the “Terminated Portion”), such that following such partial termination no Excess Ownership Position exists.  In the event that Dealer so designates an Early Termination Date with respect to a portion of the Transaction, a payment shall be made pursuant to Section 6 of the Agreement as if (1) an Early Termination Date had been designated in respect of a Transaction having terms identical to the Transaction and a Number of Options equal to the number of Options underlying the Terminated Portion, (2) Counterparty were the sole Affected Party with respect to such partial termination and (3) the Terminated Portion were the sole Affected Transaction (and, for the avoidance of doubt, the provisions of Section 9(l) shall apply to any amount that is payable by Dealer to Counterparty pursuant to this sentence as if Counterparty was not the Affected Party). The “Section 16 Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the number of Shares that Dealer and any of its affiliates or any other person subject to aggregation with Dealer for purposes of the “beneficial ownership” test under Section 13 of the Exchange Act, or any “group” (within the meaning of Section 13 of the Exchange Act) of which Dealer is or may be deemed to be a part beneficially owns (within the meaning of Section 13 of the Exchange Act), without duplication, on such day (or, to the extent that for any reason the equivalent calculation under Section 16 of the Exchange Act and the rules and regulations thereunder results in a higher number, such higher number) and (B) the denominator of which is the number of Shares outstanding on such day.  The “Option Equity Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the sum of (1) the product of the Number of Options and the Option Entitlement and (2) the aggregate number of Shares underlying any other call option transaction sold by Dealer to Counterparty, and (B) the denominator of which is the number of Shares outstanding.  The “Share Amount” as of any day is the number of Shares that Dealer and any person whose ownership position would be aggregated with that of Dealer (Dealer or any such person, a “Dealer Person”) under any law, rule, regulation, regulatory order or organizational documents or contracts of Counterparty that are, in each case, applicable to ownership of Shares (“Applicable Restrictions”), owns, beneficially owns, constructively owns, controls, holds the power to vote or otherwise meets a relevant definition of ownership under any Applicable Restriction, as determined by Dealer in its reasonable discretion.  The “Applicable Share Limit” means a number of Shares equal to (A) the minimum number of Shares that could give rise to reporting or registration obligations or other requirements (including obtaining prior approval from any person or entity, but excluding any filings of Form 13F, Schedule 13D or Schedule 13G under the Exchange Act) of a Dealer Person, or could result in an adverse effect on a Dealer Person, under any Applicable Restriction, as determined by Dealer in its reasonable discretion, minus (B) 1% of the number of Shares outstanding.

 

(iv)                              Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities, or make or receive any payment in cash, to or from Counterparty, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such Shares or other securities, or to make or receive such payment in cash, and otherwise to perform Dealer’s obligations in respect of the Transaction and any such designee may assume such obligations.  Dealer shall be discharged of its obligations to Counterparty to the extent of any such performance.

 

(f)                                   Staggered Settlement.  If upon advice of counsel with respect to applicable legal and regulatory requirements, including any requirements relating to Dealer’s hedging activities hereunder, Dealer reasonably determines that it would not be practicable or advisable to deliver, or to acquire Shares to deliver, any or all of the Shares to be delivered by Dealer on any Settlement Date for the Transaction, Dealer may, by notice to Counterparty on or prior to any Settlement Date (a

 

18

 

“Nominal Settlement Date”), elect to deliver the Shares on two or more dates (each, a “Staggered Settlement Date”) as follows:

 

(i)                                     in such notice, Dealer will specify to Counterparty the related Staggered Settlement Dates (the first of which will be such Nominal Settlement Date and the last of which will be no later than the twentieth (20th) Exchange Business Day following such Nominal Settlement Date) and the number of Shares that it will deliver on each Staggered Settlement Date;

 

(ii)                                  the aggregate number of Shares that Dealer will deliver to Counterparty hereunder on all such Staggered Settlement Dates will equal the number of Shares that Dealer would otherwise be required to deliver on such Nominal Settlement Date; and

 

(iii)                               if the Net Share Settlement terms or the Combination Settlement terms set forth above were to apply on the Nominal Settlement Date, then the Net Share Settlement terms or the Combination Settlement terms, as the case may be, will apply on each Staggered Settlement Date, except that the Shares otherwise deliverable on such Nominal Settlement Date will be allocated among such Staggered Settlement Dates as specified by Dealer in the notice referred to in clause (i) above.

 

(g)                                  Role of Agent.  Each party agrees and acknowledges that (i) J.P. Morgan Securities LLC, an affiliate of Dealer (“JPMS”), has acted solely as agent and not as principal with respect to the Transaction and (ii) JPMS has no obligation or liability, by way of guaranty, endorsement or otherwise, in any manner in respect of the Transaction (including, if applicable, in respect of the settlement thereof). Each party agrees it will look solely to the other party (or any guarantor in respect thereof) for performance of such other party’s obligations under the Transaction.  JPMS is authorized to act as agent for Dealer.

 

(h)                                 Dividends. If at any time during the period from and including the Effective Date, to but excluding the Expiration Date, (i) an ex-dividend date for a regular semi-annual cash dividend occurs with respect to the Shares (an “Ex-Dividend Date”), and that dividend is less than the Regular Dividend on a per Share basis or (ii) if no Ex-Dividend Date for a regular semi-annual cash dividend occurs with respect to the Shares in any semi-annual dividend period of Counterparty, then the Calculation Agent will adjust the Cap Price to preserve the fair value of the Options to Dealer after taking into account such dividend or lack thereof. “Regular Dividend” shall mean USD 0.05 per Share per semi-annual dividend period of Counterparty.  Upon any adjustment to the Initial Dividend Threshold (as defined in the Indenture) for the Convertible Notes pursuant to the Indenture, the Calculation Agent will make a corresponding adjustment to the Regular Dividend for the Transaction.

 

(i)                                     Additional Termination Events.

 

(i)                                     Notwithstanding anything to the contrary in this Confirmation, upon any Early Conversion in respect of which a Notice of Conversion that is effective as to Counterparty has been delivered by the relevant converting Holder:

 

(A)                               Counterparty shall, within one Scheduled Trading Day of the Conversion Date for such Early Conversion, provide written notice (an “Early Conversion Notice”) to Dealer specifying the number of Convertible Notes surrendered for conversion on such Conversion Date (such Convertible Notes, the “Affected Convertible Notes”), and the giving of such Early Conversion Notice shall constitute an Additional Termination Event as provided in this clause (i);

 

(B)                               upon receipt of any such Early Conversion Notice, Dealer shall designate an Exchange Business Day as an Early Termination Date (which Exchange Business Day shall be no earlier than one Scheduled Trading Day following the

 

19

 

Conversion Date for such Early Conversion) with respect to the portion of the Transaction corresponding to a number of Options (the “Affected Number of Options”) equal to the lesser of (x) the number of Affected Convertible Notes minus the “Affected Number of Options” (as defined in the Base Call Option Confirmation), if any, that relate to such Affected Convertible Notes and (y) the Number of Options as of the Conversion Date for such Early Conversion;

 

(C)                               any payment hereunder with respect to such termination shall be calculated pursuant to Section 6 of the Agreement as if (x) an Early Termination Date had been designated in respect of a Transaction having terms identical to the Transaction and a Number of Options equal to the Affected Number of Options, (y) Counterparty were the sole Affected Party with respect to such Additional Termination Event and (z) the terminated portion of the Transaction were the sole Affected Transaction; provided that the amount payable with respect to such termination shall not be greater than (1) the Applicable Percentage, multiplied by (2) the Affected Number of Options, multiplied by (3) (x) the sum of (i) the amount of cash paid (if any) and (ii) the number of Shares delivered (if any) to the Holder (as such term is defined in the Indenture) of an Affected Convertible Note upon conversion of such Affected Convertible Note, multiplied by the Applicable Limit Price on the date on which such payment is made, minus (y) USD 1,000.

 

(D)                               for the avoidance of doubt, in determining the amount payable in respect of such Affected Transaction pursuant to Section 6 of the Agreement, the Calculation Agent shall assume that (x) the relevant Early Conversion and any conversions, adjustments, agreements, payments, deliveries or acquisitions by or on behalf of Counterparty leading thereto had not occurred, (y) no adjustments to the Conversion Rate have occurred pursuant to any Excluded Provision and (z) the corresponding Convertible Notes remain outstanding; and

 

(E)                                the Transaction shall remain in full force and effect, except that, as of the Conversion Date for such Early Conversion, the Number of Options shall be reduced by the Affected Number of Options.

 

(ii)                                  Notwithstanding anything to the contrary in this Confirmation if an event of default with respect to Counterparty occurs under the terms of the Convertible Notes as set forth in Section 6.02 of the Supplemental Indenture, then such event of default shall constitute an Additional Termination Event applicable to the Transaction and, with respect to such Additional Termination Event, (A) Counterparty shall be deemed to be the sole Affected Party, (B) the Transaction shall be the sole Affected Transaction and (C) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.

 

(iii)                               Notwithstanding anything to the contrary in this Confirmation, the occurrence of an Amendment Event shall constitute an Additional Termination Event applicable to the Transaction and, with respect to such Additional Termination Event, (A) Counterparty shall be deemed to be the sole Affected Party, (B) the Transaction shall be the sole Affected Transaction and (C) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement. “Amendment Event” means that Counterparty amends, modifies, supplements, waives or obtains a waiver in respect of any term of the Indenture or the Convertible Notes governing the principal amount, coupon, maturity, repurchase obligation of Counterparty, any term relating to conversion of the Convertible Notes (including changes to the conversion rate, conversion rate adjustment provisions, conversion settlement dates or conversion conditions), or any term that would require consent of the holders of not less than 100%

 

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of the principal amount of the Convertible Notes to amend (other than, in each case, any amendment or supplement (x) pursuant to Section 10.02(i) of the Supplemental Indenture that, as determined by the Calculation Agent, conforms the Indenture to the description of Convertible Notes in the Prospectus or (y) pursuant to Section 14.07 of the Supplemental Indenture), in each case, without the consent of Dealer.

 

(iv)                              Promptly (but in any event within five Scheduled Trading Days) following any Repurchase Event (as defined below), Counterparty may notify Dealer of such Repurchase Event and the aggregate principal amount of Convertible Notes subject to such Repurchase Event (any such notice, a “Convertible Notes Repurchase Notice”); provided that any such Convertible Notes Repurchase Notice shall contain an acknowledgment by Counterparty of its responsibilities under applicable securities laws, and in particular Section 9 and Section 10(b) of the Exchange Act and the rules and regulations thereunder, in respect of such Repurchase Event and the delivery of such Convertible Notes Repurchase Notice. The receipt by Dealer from Counterparty of any Convertible Notes Repurchase Notice shall constitute an Additional Termination Event as provided in this Section 9(i)(iv). Upon receipt of any such Convertible Notes Repurchase Notice, Dealer shall designate an Exchange Business Day following receipt of such Convertible Notes Repurchase Notice (which Exchange Business Day shall be on or as promptly as reasonably practicable after the related settlement date for the relevant Repurchase Event) as an Early Termination Date with respect to the portion of the Transaction corresponding to a number of Options (the “Repurchase Options”) equal to the lesser of (A) (x) the aggregate principal amount of such Convertible Notes specified in such Convertible Notes Repurchase Notice, divided by USD 1,000, minus (y) the number of Repurchase Options (as defined in the Base Call Option Confirmation), if any, that relate to such Convertible Notes, and (B) the Number of Options as of the date Dealer designates such Early Termination Date and, as of such date, the Number of Options shall be reduced by the number of Repurchase Options. Any payment hereunder with respect to such termination (the “Repurchase Unwind Payment”) shall be calculated pursuant to Section 6 of the Agreement as if (1) an Early Termination Date had been designated in respect of a Transaction having terms identical to the Transaction and a Number of Options equal to the number of Repurchase Options, (2) Counterparty were the sole Affected Party with respect to such Additional Termination Event and (3) the terminated portion of the Transaction were the sole Affected Transaction (and, for the avoidance of doubt, the provisions of Section 9(l) shall apply to any amount that is payable by Dealer to Counterparty pursuant to this Section  9(i)(iv) as if Counterparty was not the Affected Party). “Repurchase Event” means that (i) any Convertible Notes are repurchased (whether pursuant to Section 15.02 of the Supplemental Indenture or otherwise) by Counterparty or any of its subsidiaries, (ii) any Convertible Notes are delivered to Counterparty in exchange for delivery of any property or assets of Counterparty or any of its subsidiaries (howsoever described), (iii) any principal of any of the Convertible Notes is repaid prior to the final maturity date of the Convertible Notes (other than upon acceleration of the Convertible Notes described in Section 9(i)(ii)), or (iv) any Convertible Notes are exchanged by or for the benefit of the Holders (as defined in the Indenture) thereof for any other securities of Counterparty or any of its Affiliates (or any other property, or any combination thereof) pursuant to any exchange offer or similar transaction; provided that any conversion of Convertible Notes pursuant to the terms of the Indenture shall not constitute a Repurchase Event.

 

(j)                                    Amendments to Equity Definitions.

 

(i)                                     Section 11.2(e)(vii) of the Equity Definitions is hereby amended by deleting the words “a diluting or concentrative” and replacing them with the words “a material” and adding the phrase “or the Options” at the end of the sentence.

 

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(ii)                                  Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (1) deleting from the fourth line thereof the word “or” after the word “official” and inserting a comma therefor, and (2) deleting the semi-colon at the end of subsection (B) thereof and inserting the following words therefor “or (C) the occurrence of any of the events specified in Section 5(a)(vii) (1) through (9) of  the ISDA Master Agreement with respect to that Issuer.”

 

(iii)                               Section 12.9(b)(i) of the Equity Definitions is hereby amended by (1) replacing “either party may elect” with “Dealer may elect” and (2) replacing “notice to the other party” with “notice to Counterparty” in the first sentence of such section.

 

(iv)                              Section 12.9(b)(vi) of the Equity Definitions is hereby amended by (1) adding the word “or” immediately before subsection “(B)”, (2) deleting the comma at the end of subsection (A), (3) deleting subsection (C) in its entirety, (4) deleting the word “or” immediately preceding subsection (C) and (5) replacing the words “either party” in the last sentence of such Section with “Dealer”.

 

(k)                                 No Collateral or Setoff.  Notwithstanding any provision of the Agreement or any other agreement between the parties to the contrary, the obligations of Counterparty hereunder are not secured by any collateral. Obligations under the Transaction shall not be set off against any other obligations of the parties, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise, and no other obligations of the parties shall be set off against obligations under the Transaction, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise, and each party hereby waives any such right of setoff.

 

(l)                                     Alternative Calculations and Payment on Early Termination and on Certain  Extraordinary Events.  If (a) an Early Termination Date (whether as a result of an Event of Default or a Termination Event) occurs or is designated with respect to the Transaction or (b) the Transaction is cancelled or terminated upon the occurrence of an Extraordinary Event (except as a result of (i) a Nationalization, Insolvency or Merger Event in which the consideration to be paid to all holders of Shares consists solely of cash, (ii) a Merger Event or Tender Offer that is within Counterparty’s control, or (iii) an Event of Default in which Counterparty is the Defaulting Party or a Termination Event in which Counterparty is the Affected Party other than an Event of Default of the type described in Section 5(a)(iii), (v), (vi), (vii) or (viii) of the Agreement or a Termination Event of the type described in Section 5(b) of the Agreement, in each case that resulted from an event or events outside Counterparty’s control), and if Dealer would owe any amount to Counterparty pursuant to Section 6(d)(ii) of the Agreement or any Cancellation Amount pursuant to Article 12 of the Equity Definitions (any such amount, a “Payment Obligation”), then Dealer shall satisfy the Payment Obligation by the Share Termination Alternative (as defined below), unless (a) Counterparty gives irrevocable telephonic notice to Dealer, confirmed in writing within one Scheduled Trading Day, no later than 12:00 p.m. (New York City time) on the Merger Date, Tender Offer Date, Announcement Date (in the case of a Nationalization, Insolvency or Delisting), Early Termination Date or date of cancellation, as applicable, of its election that the Share Termination Alternative shall not apply, (b) Counterparty remakes the representation set forth in Section 8(f) as of the date of such election and (c) Dealer consents to such election (such consent not to be unreasonably withheld or delayed), in which case the provisions of Section 12.7 or Section 12.9 of the Equity Definitions, or the provisions of Section 6(d)(ii) of the Agreement, as the case may be, shall apply.

 

Share Termination Alternative:                                                                        If applicable, Dealer shall deliver to Counterparty the Share Termination Delivery Property on, or within a commercially reasonable period of time after, the date when the relevant Payment Obligation would otherwise be due pursuant to Section 12.7 or 12.9 of the Equity Definitions or Section 6(d)(ii) and 6(e) of

 

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                                                                                                                                                                                                                                                the Agreement, as applicable, in satisfaction of such Payment Obligation in the manner reasonably requested by Counterparty free of payment.

 

Share Termination Delivery Property:                                      A number of Share Termination Delivery Units, as calculated by the Calculation Agent, equal to the Payment Obligation divided by the Share Termination Unit Price.  The Calculation Agent shall adjust the Share Termination Delivery Property by replacing any fractional portion of a security therein with an amount of cash equal to the value of such fractional security based on the values used to calculate the Share Termination Unit Price.

 

Share Termination Unit Price:                                                                                The value to Dealer of property contained in one Share Termination Delivery Unit, as determined by the Calculation Agent in its discretion by commercially reasonable means and notified by the Calculation Agent to Dealer at the time of notification of the Payment Obligation. For the avoidance of doubt, the parties agree that in determining the Share Termination Delivery Unit Price the Calculation Agent may consider the purchase price paid in connection with the purchase of Share Termination Delivery Property acquired by Dealer to satisfy its delivery obligations hereunder.

 

Share Termination Delivery Unit:                                                             One Share or, if the Shares have changed into cash or any other property or the right to receive cash or any other property as the result of a Nationalization, Insolvency or Merger Event (any such cash or other property, the “Exchange Property”), a unit consisting of the type and amount of such Exchange Property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts of any securities) in such Nationalization, Insolvency or Merger Event, as determined by the Calculation Agent.

 

Failure to Deliver:                                                                                                                                                Applicable

 

Other applicable provisions:                                                                                         If Share Termination Alternative is applicable, the provisions of Sections 9.8, 9.9 and 9.11 (as modified above) of the Equity Definitions and the provisions set forth opposite the caption “Representation and Agreement” in Section 2 will be applicable, except that all references in such provisions to “Physically-settled” shall be read as references to “Share Termination Settled” and all references to “Shares” shall be read as references to “Share Termination Delivery Units”.  “Share Termination Settled” in relation to the Transaction means that Share Termination Alternative is applicable to the Transaction.

 

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(m)                             Waiver of Jury Trial.  Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating to the Transaction.  Each party (i) certifies that no representative, agent or attorney of either party has represented, expressly or otherwise, that such other party would not, in the event of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been induced to enter into the Transaction, as applicable, by, among other things, the mutual waivers and certifications provided herein.

 

(n)                                 Registration.  Counterparty hereby agrees that if, in the good faith reasonable judgment of Dealer, the Shares  (“Hedge Shares”) acquired by Dealer for the purpose of hedging its obligations pursuant to the Transaction cannot be sold in the public market by Dealer without registration under the Securities Act, Counterparty shall, at its election, either (i) in order to allow Dealer to sell the Hedge Shares in a registered offering, make available to Dealer an effective registration statement under the Securities Act and enter into an agreement, in form and substance satisfactory to Dealer, substantially in the form of an underwriting agreement for a registered secondary offering of a similar size; provided, however, that if Dealer, in its sole reasonable discretion, is not satisfied with access to due diligence materials, the results of its due diligence investigation, or the procedures and documentation for the registered offering referred to above, then clause (ii) or clause (iii) of this paragraph shall apply at the election of Counterparty, (ii) in order to allow Dealer to sell the Hedge Shares in a private placement, enter into a private placement agreement substantially similar to private placement purchase agreements customary for private placements of equity securities, in form and substance satisfactory to Dealer (in which case, the Calculation Agent shall make any adjustments to the terms of the Transaction that are necessary, in its commercially reasonable judgment, to compensate Dealer for any discount from the public market price of the Shares incurred on the sale of Hedge Shares in a private placement), or (iii) purchase the Hedge Shares from Dealer at the Relevant Price on such Exchange Business Days, and in the amounts, requested by Dealer.

 

(o)                                 Tax Disclosure.  Effective from the date of commencement of discussions concerning the Transaction, Counterparty and each of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to Counterparty relating to such tax treatment and tax structure.

 

(p)                                 Right to Extend.  Dealer may postpone or add, in whole or in part, any Valid Day or Valid Days during the Settlement Averaging Period or any other date of valuation, payment or delivery by Dealer, with respect to some or all of the Options hereunder, if (i) Dealer reasonably determines, in its commercially reasonable discretion, that such action is reasonably necessary or appropriate to preserve Dealer’s commercially reasonable hedging or hedge unwind activity hereunder in light of existing liquidity conditions (but only in the case of a material decrease in liquidity relative to the Trade Date) or (ii) Dealer determines, based on the advice of counsel, that such action is reasonably necessary or appropriate to enable Dealer to effect purchases of Shares in connection with its hedging, hedge unwind or settlement activity hereunder in a manner that would, if Dealer were Counterparty or an affiliated purchaser of Counterparty, be in compliance with applicable legal, regulatory or self-regulatory requirements, or with related policies and procedures applicable to Dealer.

 

(q)                                 Status of Claims in Bankruptcy.  Dealer acknowledges and agrees that this Confirmation is not intended to convey to Dealer rights against Counterparty with respect to the Transaction that are senior to the claims of common stockholders of Counterparty in any United States bankruptcy proceedings of Counterparty; provided that nothing herein shall limit or shall be deemed to limit Dealer’s right to pursue remedies in the event of a breach by Counterparty of its obligations and agreements with respect to the Transaction; provided, further that nothing herein shall limit or shall be deemed to limit Dealer’s rights in respect of any transactions other than the Transaction.

 

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(r)                                    Securities Contract; Swap Agreement.  The parties hereto intend for (i) the Transaction to be a “securities contract” and a “swap agreement” as defined in the Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”), and the parties hereto to be entitled to the protections afforded by, among other Sections, Sections 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the Bankruptcy Code, (ii) a party’s right to liquidate the Transaction and to exercise any other remedies upon the occurrence of any Event of Default under the Agreement with respect to the other party to constitute a “contractual right” as described in the Bankruptcy Code, and (iii) each payment and delivery of cash, securities or other property hereunder to constitute a “margin payment” or “settlement payment” and a “transfer” as defined in the Bankruptcy Code.

 

(s)                                   Notice of Certain Other Events. Counterparty covenants and agrees that:

 

(i)            promptly following the public announcement of the results of any election by the holders of Shares with respect to the consideration due upon consummation of any Merger Event, Counterparty shall give Dealer written notice of (x) the weighted average of the types and amounts of consideration that holders of Shares have elected to receive upon consummation of such Merger Event or (y) if no holders of Shares affirmatively make such election, the types and amounts of consideration actually received by holders of Shares (the date of such notification, the “Consideration Notification Date”); provided that in no event shall the Consideration Notification Date be later than the date on which such Merger Event is consummated; and

 

(ii)           promptly following any adjustment to the Convertible Notes in connection with any Potential Adjustment Event, Merger Event or Tender Offer, Counterparty shall give Dealer written notice of the details of such adjustment.

 

(t)                                    Wall Street Transparency and Accountability Act.  In connection with Section 739 of the Wall Street Transparency and Accountability Act of 2010 (“WSTAA”), the parties hereby agree that neither the enactment of WSTAA or any regulation under the WSTAA, nor any requirement under WSTAA or an amendment made by WSTAA, shall limit or otherwise impair either party’s otherwise applicable rights to terminate, renegotiate, modify, amend or supplement this Confirmation or the Agreement, as applicable, arising from a termination event, force majeure, illegality, increased costs, regulatory change or similar event under this Confirmation, the Equity Definitions incorporated herein, or the Agreement (including, but not limited to, rights arising from Change in Law, Hedging Disruption, Increased Cost of Hedging, an Excess Ownership Position, or Illegality (as defined in the Agreement)).

 

(u)                                 Agreements and Acknowledgements Regarding Hedging. Counterparty understands, acknowledges and agrees that: (A) at any time on and prior to the Expiration Date, Dealer and its affiliates may buy or sell Shares or other securities or buy or sell options or futures contracts or enter into swaps or other derivative securities in order to adjust its hedge position with respect to the Transaction; (B) Dealer and its affiliates also may be active in the market for Shares other than in connection with hedging activities in relation to the Transaction; (C) Dealer shall make its own determination as to whether, when or in what manner any hedging or market activities in securities of Issuer shall be conducted and shall do so in a manner that it deems appropriate to hedge its price and market risk with respect to the Relevant Prices; and (D) any market activities of Dealer and its affiliates with respect to Shares may affect the market price and volatility of Shares, as well as the Relevant Prices, each in a manner that may be adverse to Counterparty.

 

(v)                                 Early Unwind. In the event the sale of the “Option Notes” (as defined in the Underwriting Agreement) is not consummated with the Underwriter for any reason, or Counterparty fails to deliver to Dealer opinions of counsel as required pursuant to Section 9(a), in each case by 5:00 p.m. (New York City time) on the Premium Payment Date, or such later date as agreed upon by the parties (the Premium Payment Date or such later date the “Early Unwind Date”), the Transaction shall automatically terminate (the “Early Unwind”), on the Early Unwind Date and

 

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(i) the Transaction and all of the respective rights and obligations of Dealer and Counterparty under the Transaction shall be cancelled and terminated and (ii) each party shall be released and discharged by the other party from and agrees not to make any claim against the other party with respect to any obligations or liabilities of the other party arising out of and to be performed in connection with the Transaction either prior to or after the Early Unwind Date; provided that Counterparty shall purchase from Dealer on the Early Unwind Date all Shares purchased by Dealer or one or more of its affiliates in connection with the Transaction at the then prevailing market price.  Each of Dealer and Counterparty represents and acknowledges to the other that, subject to the proviso included in this Section 9(v), upon an Early Unwind, all obligations with respect to the Transaction shall be deemed fully and finally discharged.

 

(w)                               Payment by Counterparty. In the event that, following payment of the Premium, (i) an Early Termination Date occurs or is designated with respect to the Transaction as a result of a Termination Event or an Event of Default (other than an Event of Default arising under Section 5(a)(ii) or 5(a)(iv) of the Agreement) and, as a result, Counterparty owes to Dealer an amount calculated under Section 6(e) of the Agreement, or (ii) Counterparty owes to Dealer, pursuant to Section 12.7 or Section 12.9 of the Equity Definitions, an amount calculated under Section 12.8 of the Equity Definitions, such amount shall be deemed to be zero.

 

(x)                                 Other Adjustments Pursuant to the Equity Definitions.  Notwithstanding anything to the contrary in this Confirmation, solely for the purpose of adjusting the Cap Price, the terms “Potential Adjustment Event,” “Merger Event,” and “Tender Offer” shall each have the meanings assigned to such term in the Equity Definitions (as amended by Section 9(j)(i)), and upon the occurrence of a Merger Date, the occurrence of a Tender Offer Date, or declaration by Counterparty of the terms of any Potential Adjustment Event, respectively, as such terms are defined in the Equity Definitions, the Calculation Agent may, in its sole discretion, adjust the Cap Price to preserve the fair value of the Options to Dealer; provided that in no event shall the Cap Price be less than the Strike Price.

 

(y)                                 Determinations; Adjustments.

 

(i)                                     All calculations, adjustments and determinations made by Dealer hereunder, whether as Calculation Agent, as Determining Party, as Hedging Party, or following the occurrence of an Early Termination Date, shall be made in good faith and in a commercially reasonable manner. Following any determination, adjustment or calculation by Calculation Agent hereunder, Calculation Agent shall deliver to Counterparty, within five Exchange Business Days after a written request by Counterparty, a report in a commonly used file format for the storage and manipulation of financial data (including the methodology, interest rates, quotations and market data (including volatility) but without disclosing any proprietary or confidential models or other proprietary or confidential information) displaying in reasonable detail the basis for such determination, adjustment or calculation, as the case may be.

 

(ii)                                  For the avoidance of doubt, whenever the Calculation Agent or Determining Party is called upon to make an adjustment pursuant to the terms of this Confirmation or the Equity Definitions to take into account the effect of an event, the Calculation Agent or Determining Party shall make such adjustment by reference to the effect of such event on the Hedging Party, assuming that the Hedging Party maintains a commercially reasonable hedge position.

 

(z)                                  Tax Matters. For purposes of Section 4(a)(i) of the Agreement, each party (including any successor, transferee or assignee of a party) shall deliver to the other party one duly executed and completed United States Internal Revenue Service Form W-9 (or successor thereto) or appropriate Form W-8 (or succesor thereto), together with any appropriate attachments.

 

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(aa)                          FATCA and Dividend Equivalent Tax. “Indemnifiable Tax” as defined in Section 14 of the Agreement shall not include (i) any U.S. federal withholding tax imposed or collected pursuant to Sections 1471 through 1474 of the United States Internal Revenue Code of 1986, as amended (the Code”), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b) of the Code, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code (a “FATCA Withholding Tax”) or (ii) any U.S. federal withholding tax imposed under Section 871(m) of the Code (or any Treasury regulations or other guidance issued thereunder). For the avoidance of doubt, a FATCA Withholding Tax is a Tax the deduction or withholding of which is required by applicable law for the purposes of Section 2(d) of the Agreement.

 

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Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Confirmation and returning it to Dealer.

 

	
 
    	
Very truly yours,
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
J.P.   Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ Yun Xie
    
	
 
    	
 
    	
Authorized Signatory
    
	
 
    	
 
    	
Name:
    	
Yun Xie
    
					

 

 

Accepted and confirmed
 as of the Trade Date:

 

	
SM Energy Company
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/ A. Wade Pursell
    	
 
    
	
Name:
    	
A. Wade Pursell
    	
 
    
	
Title:
    	
Executive Vice   President and Chief Financial OfficerEX-10.5

 Exhibit 10.5 

ESCROW DEPOSIT AGREEMENT 

This ESCROW DEPOSIT AGREEMENT (this “Agreement”), dated as of this      day of
             2016, by and among FOTV MEDIA NETWORKS INC., a Delaware corporation (the “Company”), having an address at 338 N. Canon Drive, 3rd Floor, Beverly Hills, California 90210, MONARCH BAY SECURITIES, LLC (the “Underwriter”), a California limited liability company, having an address at 898 N. Sepulveda Blvd,
Suite 475 El Segundo, CA 90245, and UMB BANK, N.A. (the “Escrow Agent”), a nationally chartered bank, having an office at 1670 Broadway, Denver, CO 80202. All capitalized terms not herein defined shall have the meaning
ascribed to them in that certain Prospectus incorporated in the Registration Statement on Form S-1, originally filed with the U.S. Securities and Exchange Commission on July 5, 2016, in connection with the Company’s initial public offering of
its shares of Common Stock, as amended or supplemented from time to time, including all exhibits thereto (the “Prospectus”). 

W I T N E S S E T H: 

WHEREAS, pursuant to the terms of the Prospectus, the Company desires to sell (the “Offering”) a minimum of
$20,000,000 (the “Minimum Amount”) and a maximum of $30,000,000 (the “Maximum Amount”) of its shares of Common Stock (the “Shares”), with each Share being sold at a price of $8.00 per Share; 

WHEREAS, unless the Company sells the Minimum Amount and the Shares are listed for trading on the Nasdaq Capital Market on or before
sixty (60) days after the date of the Prospectus (the “Termination Date”), the Offering shall terminate and all funds shall be returned to the subscribers in the Offering, and if the Minimum Amount and Nasdaq listing are satisfied,
the Offering may continue until the Termination Date; 
 WHEREAS, the Company and Underwriter desire to establish an escrow account
with the Escrow Agent into which the Company and Underwriter shall instruct subscribers introduced to the Company by Underwriter (the “Subscribers”) to deposit checks and other instruments for the payment of money made payable to
the order of “UMB Bank as Escrow Agent for FOTV Media Networks Inc.,” and the Escrow Agent is willing to accept said checks and other instruments for the payment of money in accordance with the terms hereinafter set forth; 

WHEREAS, the Company, as issuer, and Underwriter, as the lead managing underwriter, represent and warrant to the Escrow Agent that they
will comply with all of their respective obligations under applicable federal and state securities laws and regulations with respect to sale of the Offering; 

WHEREAS, the Company and Underwriter represent and warrant to the Escrow Agent that they have not stated to any individual or entity
that the Escrow Agent’s duties will include anything other than those duties stated in this Agreement; and 
 WHEREAS, the
Company and Underwriter warrant to the Escrow Agent that a copy of each document that has been delivered to Subscribers and third parties that includes the Escrow Agent’s name and duties has been attached hereto as Schedule I. 

 NOW, THEREFORE, IT IS AGREED as follows: 

1. Delivery of Escrow Funds. 
 (a) The
Underwriter and the Company shall instruct Subscribers to deliver to the Escrow Agent checks made payable to the order of “UMB Bank, as Escrow Agent for FOTV Media Networks Inc.,” or by ACH or wire transfer to UMB Bank, ABA No.
            , 1670 Broadway, Denver, CO 80202, for credit to UMB Bank, as Escrow Agent for FOTV Media Networks Inc., Account No.
            , in each case with the name and address of the individual or entity making payment. In the event any Subscriber’s address is not provided to Escrow Agent by the
Subscriber, then the Company agrees to promptly provide Escrow Agent with such information in writing. The checks, ACH or wire transfers shall be deposited into a non-interest-bearing account at UMB Bank entitled “UMB Bank as Escrow Agent for
FOTV Media Networks Inc.” (the “Escrow Account”).
 (b) The collected funds deposited into the Escrow Account are
referred to as the “Escrow Funds.” 
 (c) The Escrow Agent shall have no duty or responsibility to enforce the collection
or demand payment of any funds deposited into the Escrow Account. If, for any reason, any check deposited into the Escrow Account shall be returned unpaid to the Escrow Agent, the sole duty of the Escrow Agent shall be to return the check to
the Subscriber and advise the Company and Underwriter promptly thereof. 
 2. Release of Escrow Funds. The Escrow Funds shall be paid by the
Escrow Agent in accordance with the following: 
 (a) In the event that the Company and Underwriter advise the Escrow Agent in writing that
the Offering has been terminated (the “Termination Notice”), the Escrow Agent shall promptly return the funds paid by each Subscriber to said Subscriber without interest or offset. 

(b) Provided that the Escrow Agent does not receive the Termination Notice in accordance with Section 2(a) and there is the Minimum
Amount deposited into the Escrow Account and the Company satisfies the listing conditions to trade the Shares on the Nasdaq Capital Market on or prior to the Termination Date, the Escrow Agent shall, upon receipt of written instructions, in the form
of Exhibit A attached hereto and made a part hereof, or in a form and substance satisfactory to the Escrow Agent, received from the Company and Underwriter, pay the Escrow Funds in accordance with such written instructions, which
instructions shall be limited to the payment of the Underwriter’s fee and other offering expenses and the payment of the balance to the Company. Such payment or payments shall be made by wire transfer within one (1) Business Day of receipt
of such written instructions, which must be received by the Escrow Agent no later than 3:00 p.m., Eastern Time, on a Business Day for the Escrow Agent to process such instructions that Business Day.

(c) If by 3:00 p.m., Eastern time, on the Termination Date, the Escrow Agent has not received written instructions from the Company and
Underwriter regarding the disbursement of 

  
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the Escrow Funds and the total amount of the Escrow Funds is less than the Minimum Amount or the Nasdaq listing conditions have not been satisfied, then the Escrow Agent shall promptly return the
Escrow Funds to the Subscribers without interest or offset. The Escrow Funds returned to each Subscriber shall be free and clear of any and all claims of the Escrow Agent. 

(d) The Escrow Agent shall not be required to pay any uncollected funds or any funds that are not available for withdrawal. 

(e) If the Termination Date or any date that is a deadline under this Agreement for giving the Escrow Agent notice or instructions or for the
Escrow Agent to take action is not a Business Day, then such date shall be the Business Day that immediately precedes that date. A “Business Day” is any day other than a Saturday, Sunday or a Bank holiday. 

3. Acceptance by Escrow Agent. The Escrow Agent hereby accepts and agrees to perform its obligations hereunder, provided that: 

(a) The Escrow Agent may act in reliance upon any signature believed by it to be genuine, and may assume that any person who has been
designated by Underwriter or the Company to give any written instructions, notice or receipt, or make any statements in connection with the provisions hereof has been duly authorized to do so. Escrow Agent shall have no duty to make inquiry as
to the genuineness, accuracy or validity of any statements or instructions or any signatures on statements or instructions. The names and true signatures of each individual authorized to act singly on behalf of the Company and Underwriter are
stated in Schedule II, which is attached hereto and made a part hereof. The Company and Underwriter may each remove or add one or more of its authorized signers stated on Schedule II by notifying the Escrow Agent of such change in
accordance with this Agreement, which notice shall include the true signature for any new authorized signatories. 
 (b) The Escrow Agent
may act relative hereto in reliance upon advice of counsel in reference to any matter connected herewith. The Escrow Agent shall not be liable for any mistake of fact or error of judgment or law, or for any acts or omissions of any kind, unless
caused by its willful misconduct or gross negligence. 
 (c) The Underwriter and the Company agree to indemnify and hold the Escrow Agent
harmless from and against any and all claims, losses, costs, liabilities, damages, suits, demands, judgments or expenses (including but not limited to reasonable attorney’s fees) claimed against or incurred by Escrow Agent arising out of or
related, directly or indirectly, to this Escrow Agreement unless caused by the Escrow Agent’s gross negligence or willful misconduct. 

(d) In the event that the Escrow Agent shall be uncertain as to its duties or rights hereunder, the Escrow Agent shall be entitled to (i)
refrain from taking any action other than to keep safely the Escrow Funds until it shall be directed otherwise by a court of competent jurisdiction, or (ii) deliver the Escrow Funds to a court of competent jurisdiction. 

(e) The Escrow Agent shall have no duty, responsibility or obligation to interpret or enforce the terms of any agreement other than Escrow
Agent’s obligations hereunder, and the Escrow Agent shall not be required to make a request that any monies be delivered to the Escrow Account, it being agreed that the sole duties and responsibilities of the Escrow Agent shall be to

  
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the extent not prohibited by applicable law (i) to accept checks or other instruments for the payment of money and wire transfers delivered to the Escrow Agent for the Escrow Account and deposit
said checks and wire transfers into the non-interest bearing Escrow Account, and (ii) to disburse or refrain from disbursing the Escrow Funds as stated above, provided that the checks received by the Escrow Agent have been collected and are
available for withdrawal. 
 4. Escrow Account Statements and Information. The Escrow Agent agrees to send to the Company and/or the Underwriter
a copy of the Escrow Account periodic statement, upon request in accordance with the Escrow Agent’s regular practices for providing account statements to its non-escrow clients and to also provide the Company and/or Underwriter, or their
designee, upon request other deposit account information, including Escrow Account balances, by telephone or by computer communication, to the extent practicable. The Company and Underwriter agree to complete and sign all forms or agreements
required by the Escrow Agent for that purpose. The Company and Underwriter each consent to the Escrow Agent’s release of such Escrow Account information to any of the individuals designated by Company or Underwriter, which designation has been
signed in accordance with Section 3(a) by any of the persons in Schedule II. Further, the Company and Underwriter have an option to receive e-mail notification of incoming and outgoing wire transfers. If this e-mail notification
service is requested and subsequently approved by the Escrow Agent, the Company and/or Underwriter agrees to provide a valid e-mail address and other information necessary to set-up this service and sign all forms and agreements required for such
service. The Company and Underwriter each consent to the Escrow Agent’s release of wire transfer information to the designated e-mail address(es). The Escrow Agent’s liability for failure to comply with this section shall not
exceed the cost of providing such information. 
 5. Resignation and Termination of the Escrow Agent. The Escrow Agent may resign at any time by
giving thirty (30) days’ prior written notice of such resignation to Underwriter and the Company. Upon providing such notice, the Escrow Agent shall have no further obligation hereunder except to hold as depositary the Escrow Funds that it
receives until the end of such thirty (30)-day period. In such event, the Escrow Agent shall not take any action, other than receiving and depositing Subscribers checks and wire transfers in accordance with this Agreement, until the Company has
designated a banking corporation, trust company, attorney or other person as successor. Upon receipt of such written designation signed by Underwriter and the Company, the Escrow Agent shall promptly deliver the Escrow Funds to such successor
and shall thereafter have no further obligations hereunder. If such instructions are not received within thirty (30) days following the effective date of such resignation, then the Escrow Agent may deposit the Escrow Funds held by it pursuant
to this Agreement with a clerk of a court of competent jurisdiction pending the appointment of a successor. In either case provided for in this section, the Escrow Agent shall be relieved of all further obligations and released from all liability
thereafter arising with respect to the Escrow Funds. 
 6. Termination. The Company and Underwriter may terminate the appointment of the Escrow
Agent hereunder upon written notice specifying the date upon which such termination shall take effect, which date shall be at least thirty (30) days from the date of such notice. In the event of such termination, the Company and Underwriter
shall, within thirty (30) days of such notice, appoint a successor escrow agent and the Escrow Agent shall, upon receipt of written instructions signed by the Company and Underwriter, turn over to such successor escrow agent

  
 4 

 
all of the Escrow Funds; provided, however, that if the Company and Underwriter fail to appoint a successor escrow agent within such thirty (30) day period, such termination notice
shall be null and void and the Escrow Agent shall continue to be bound by all of the provisions hereof. Upon receipt of the Escrow Funds, the successor escrow agent shall become the escrow agent hereunder and shall be bound by all of the
provisions hereof and Escrow Agent shall be relieved of all further obligations and released from all liability thereafter arising with respect to the Escrow Funds and under this Agreement. 

7. Investment. All funds received by the Escrow Agent shall be held only in non-interest bearing bank accounts at Escrow Agent. 

8. Compensation. The Escrow Agent shall be entitled, for the duties to be performed by it hereunder, to a fee of $[4,000], which fee shall be paid
by the Company upon the signing of this Agreement. In addition, the Company shall be obligated to reimburse Escrow Agent for all fees, costs and expenses incurred or that become due in connection with this Agreement or the Escrow Account,
including reasonable attorney’s fees. Neither the modification, cancellation, termination or rescission of this Agreement nor the resignation or termination of the Escrow Agent shall affect the right of Escrow Agent to retain the amount of
any fee which has been paid, or to be reimbursed or paid any amount which has been incurred or becomes due, prior to the effective date of any such modification, cancellation, termination, resignation or rescission. To the extent the Escrow
Agent has incurred any such expenses, or any such fee becomes due, prior to any closing, the Escrow Agent shall advise the Company and the Company shall direct all such amounts to be paid directly at any such closing.

9. Notices. All notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if sent by hand-delivery, by facsimile (followed by first-class mail), by nationally recognized overnight courier service or by prepaid registered or certified mail, return receipt requested, to the addresses set forth
below: 
 If to Underwriter: 

Monarch Bay Securities, LLC 
 898
N. Sepulveda Blvd, Suite 475 
 El Segundo, CA 90245 

Attention: Mr. Daniel J. McClory, Managing Director 

Fax: 

  
 5 

 If to the Company: 

FOTV Media Networks Inc. 
 338 N.
Canon Drive, 3rd Floor 
 Beverly Hills, California 90210 

Attention: Mr. Alkiviades (Alki) David, Chairman and Chief Executive Officer 

Fax: (310) 861-1059 
 If to
Escrow Agent: 
 UMB Bank 
 1670
Broadway 
 Denver, CO 80202 

Attention: 
 Fax: 

10. General. 
 (a) This Agreement shall
be governed by and construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be entirely performed within such State, without regard to choice of law principles and any action brought hereunder
shall be brought in the courts of the State of New York, located in the County of New York. Each party hereto irrevocably waives any objection on the grounds of venue, forum nonconveniens or any similar grounds and irrevocably consents to
service of process by mail or in any manner permitted by applicable law and consents to the jurisdiction of said courts. Each of the parties hereto hereby waives all right to trial by jury in any action, proceeding or counterclaim arising out
of the transactions contemplated by this Agreement. 
 (b) This Agreement sets forth the entire agreement and understanding of the parties
with respect to the matters contained herein and supersedes all prior agreements, arrangements and understandings relating thereto. 
 (c)
All of the terms and conditions of this Agreement shall be binding upon, and inure to the benefit of and be enforceable by, the parties hereto, as well as their respective successors and assigns. 

(d) This Agreement may be amended, modified, superseded or canceled, and any of the terms or conditions hereof may be waived, only by a
written instrument executed by each party hereto or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect its right at a
later time to enforce the same. No waiver of any party of any condition, or of the breach of any term contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement. No party may assign any rights, duties or obligations hereunder unless all other parties have given their
prior written consent. 
 (e) If any provision included in this Agreement proves to be invalid or unenforceable, it shall not affect the
validity of the remaining provisions. 
 (f) This Agreement and any modification or amendment of this Agreement may be executed in several
counterparts or by separate instruments and all of such counterparts and instruments shall constitute one agreement, binding on all of the parties hereto. 

  
 6 

 11. Form of Signature. The parties hereto agree to accept a facsimile transmission copy of their
respective actual signatures as evidence of their actual signatures to this Agreement and any modification or amendment of this Agreement; provided, however, that each party who produces a facsimile signature agrees, by the express
terms hereof, to place, promptly after transmission of his or her signature by fax, a true and correct original copy of his or her signature in overnight mail to the address of the other party. 

12. No Third-Party Beneficiaries. This Agreement is solely for the benefit of the parties and their respective successors and permitted assigns,
and no other person has any right, benefit, priority, or interest under or because of the existence of this Agreement. 
 [Signature page
follows] 

  
 7 

 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first set
forth above. 
  

					
	 FOTV MEDIA NETWORKS INC.

		
	By:	 	  

		 	Name:	 	
		 	Title:	 	
	
	MONARCH BAY SECURITIES, LLC
		
	By:	 	  

		 	Name:	 	
		 	Title:	 	
	
	UMB BANK
		
	By:	 	  

		 	Name:	 	
		 	Title:	 	
		
	By:	 	  

		 	Name:	 	
		 	Title:	 	

  
 8 

 Schedule I 

OFFERING DOCUMENTS 

  
 9 

 Schedule II 

The Escrow Agent is authorized to accept instructions signed or believed by the Escrow Agent to be signed by any one of the following on
behalf of the Company and Underwriter. 
 FOTV MEDIA NETWORKS INC. 

 

					
	 Name
	 	 	 	 True Signature

			
	  
	 		 	  

			
	  
	 		 	  

 MONARCH BAY SECURITIES, LLC. 
  

					
	 Name
	 	 	 	 True Signature

			
	  
	 		 	  

			
	  
	 		 	  

  
 10 

 Exhibit A 

FORM OF ESCROW RELEASE NOTICE 

Date:             , 201     

UMB Bank 
 1670 Broadway 

Denver, CO 80202 
 Attention: 

Dear Sirs: 
 In accordance with the terms of
Section 2(b) of an Escrow Agreement dated as of August     , 2016 (the “Escrow Agreement”), by and between FOTV Media Networks Inc. (the “Company”), Monarch Bay Securities, LLC (the
“Underwriter”), and UMB Bank (the “Escrow Agent”), the Company and Underwriter hereby notify the Escrow Agent that the              closing will be held on
             for gross proceeds of $        . 
 PLEASE
DISTRIBUTE FUNDS BY WIRE TRANSFER AS FOLLOWS (wire instructions attached): 
  

			
	FOTV Media Networks Inc.:	  	$            
		
	Monarch Bay Securities, LLC:	  	        $            

 Very truly yours, 
  

			
	FOTV MEDIA NETWORKS INC.
		
	By:	 	  

	Name:	 	  

	Title:	 	  

	
	MONARCH BAY SECURITIES, LLC
		
	By:	 	  

	Name:	 	  

	Title:	 	  

  
 11

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