Independent Amounts

I've gone back through the ISDA Credit Support Annex and the "green book" and
my conclusion is that unless we modify the standard form, we have to give an
Independent Amount back to the counterparty when we go out of the money far
enough (note that the definition of Exposure results in a negative number
when we are out of the money reducing the Credit Support Amount below the
Independent Amount). The theory there is that as the market moves against
us, we are cushioned by our "out-of-the-moneyness" and will be able to ask
for support as the market moves back in our favor before we are actually in
the money. I'm afraid that Credit has been operating under the assumption
that we get to keep Independent Amounts until the Transaction terminates. We
need to set up a system with Credit so we all know what is meant on the
credit work sheets -- i.e. whether a cushion or up-front amount should be
given back to the counterparty as we go out of the money or not (maybe the
paralegals can suggest something?). I suggest we add the following language
(taken from the green book) when we are using Paragraph 13 and Credit tells
us they don't want to have to give the cushion amount back, no matter how far
we go out of the money:

"Credit Support Amount" will mean the higher of (i) the amount calculated as
provided in the definition of that
term in Paragraph 3(b) and (ii) the sum of the Pledgor's Independent
Amounts.

I will modify the Force Energy document to include it and, unless you would
like to suggest alternative language, ask Tana to add it to our list of
alternatives for Paragraph 13.