                         UNPUBLISHED

UNITED STATES COURT OF APPEALS
                 FOR THE FOURTH CIRCUIT


ENERGY CORPORATION OF AMERICA, a         
West Virginia corporation,
                  Plaintiff-Appellee,
                  v.
MACKAY SHIELDS LLC, a Delaware
limited liability company; DEBT
STRATEGIES FUND, INCORPORATED, a
Maryland corporation; MERRILL
LYNCH VARIABLE SERIES FUNDS,
INCORPORATED, a New Jersey
corporation; MERRILL LYNCH BOND
FUND, INCORPORATED, a New Jersey
corporation; SENIOR HIGH INCOME
PORTFOLIO, INCORPORATED, a
Maryland corporation; MERRILL                  No. 02-2431
LYNCH SERIES FUND, INCORPORATED, a
New Jersey corporation,
                Defendants-Appellants,
                 and
AXP VARIABLE PORTFOLIO INCOME
SERIES, INCORPORATED, a Minnesota
corporation; INCOME TRUST;
AMERICAN EXPRESS FINANCIAL
ADVISORS, INCORPORATED, a Delaware
corporation; MERRILL LYNCH
INVESTMENT MANAGERS, L.P., a
limited partnership,
                        Defendants.
                                         
            Appeal from the United States District Court
     for the Southern District of West Virginia, at Huntington.
                Robert C. Chambers, District Judge.
                          (CA-01-1317-3)
2            ENERGY CORP.   OF   AMERICA v. MACKAY SHIELDS
                     Argued: September 25, 2003

                     Decided: December 15, 2003

Before WILKINSON, TRAXLER, and GREGORY, Circuit Judges.



Reversed and remanded by unpublished opinion. Judge Wilkinson
wrote the opinion, in which Judge Traxler and Judge Gregory joined.


                                 COUNSEL

ARGUED: Mark Floyd Pomerantz, PAUL, WEISS, RIFKIND,
WHARTON & GARRISON, L.L.P., New York, New York, for
Appellants. Thomas Ryan Goodwin, GOODWIN & GOODWIN,
L.L.P., Charleston, West Virginia, for Appellee. ON BRIEF: Daniel
J. Leffell, Cynthia M. Reed, PAUL, WEISS, RIFKIND, WHARTON
& GARRISON, L.L.P., New York, New York; Rebecca A. Betts,
ALLEN, GUTHRIE, MCHUGH & THOMAS, P.L.L.C., Charleston,
West Virginia, for Appellants. Tammy J. Owen, Johnny M. Knisely,
II, GOODWIN & GOODWIN, L.L.P., Charleston, West Virginia, for
Appellee.



Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).


                                 OPINION

WILKINSON, Circuit Judge:

   Energy Corporation of America (ECA) brought a declaratory
action against a group of its noteholders, seeking resolution of its con-
tractual obligations to the noteholders as a result of its sale of certain
of its assets. Under the governing indenture agreement, ECA must
            ENERGY CORP.   OF   AMERICA v. MACKAY SHIELDS              3
reinvest the "Net Proceeds" from such an asset sale in particular ways
and, depending upon the amount of the Net Proceeds that remains
after a 360-day period, it must repurchase a portion of the notes from
their holders. One part of calculating Net Proceeds is to deduct the
"taxes paid or payable as a result" of the sale, after accounting for
"any available tax credits or deductions and any tax sharing arrange-
ments." The dispute here centers around the proper interpretation of
this tax provision; specifically, the parties disagree about which tax
credits, deductions, or arrangements should be accounted for when
calculating Net Proceeds. The district court interpreted the agreement
in ECA’s favor and held that it must account for only those tax credits
and deductions that result directly from the asset sale, which effec-
tively absolved ECA of any further obligations. Because we find that
the indenture agreement’s provision for calculating Net Proceeds con-
templates all tax credits and deductions that ECA realizes during a tax
year and applies to the asset sale at the time it files its return, we
reverse.

                                    I.

   ECA is a holding company whose subsidiaries are primarily
involved in oil and gas exploration, production, and marketing. In
1997, ECA issued $200 million in 9.5% Senior Subordinated Notes.
Appellants own a substantial portion of the outstanding notes.

   The rights and obligations of ECA and the noteholders are defined
in an indenture agreement. One particular covenant in the agreement
is central to this case. Section 4.9 restricts ECA’s use of the "Net Pro-
ceeds" from any "Asset Sale" by requiring that they be used to repur-
chase notes from the noteholders, to reduce certain other debt, to
acquire a controlling interest in another energy business, to make cap-
ital expenditures in its existing businesses, or to purchase long-term
assets for its businesses. J.A. 89-90. Any Net Proceeds not applied to
one of these stated purposes within 360 days of the asset sale become
"Excess Proceeds," which, if exceeding $10 million, must be used to
redeem a pro rata portion of the outstanding notes for 100% of the
principal amount plus accrued and unpaid interest. Id. at 90. The term
"Net Proceeds" is defined in § 1.1 of the agreement, in relevant part,
as follows:
4           ENERGY CORP.   OF   AMERICA v. MACKAY SHIELDS
    [T]he aggregate cash proceeds received by [ECA] in respect
    of any Asset Sale (including, without limitation, any cash
    received upon the sale or other disposition of any non-cash
    consideration received in any Asset Sale, but excluding cash
    amounts placed in escrow, until such amounts are released
    to the Company), net of the direct costs relating to such
    Asset Sale (including, without limitation, legal, accounting
    and investment banking fees and expenses, and sales com-
    missions) and any relocation expenses incurred as a result
    thereof, taxes paid or payable as a result thereof (after taking
    into account any available tax credits or deductions and any
    tax sharing arrangements), amounts required to be applied
    to the repayment of Indebtedness (other than Indebtedness
    under any Credit Facility) . . . .

J.A. 49.

   The basis of this controversy is ECA’s treatment of a major asset
sale under the agreement. In August 2000, one of ECA’s subsidiaries
sold all of the stock of its subsidiary, Mountaineer Gas Company.
ECA received almost $226 million from the sale and expended
approximately $1.2 million in direct costs. After the sale, ECA began
to use the proceeds in the various ways authorized by § 4.9 of the
indenture agreement.

   A dispute arose, however, over the amount of Net Proceeds that
resulted from the sale, as the parties disagreed over the proper way
to calculate the tax component in the definition of "Net Proceeds."
Whereas ECA claimed that it had spent all the Net Proceeds from the
Mountaineer sale, appellants contended that, based on their method of
calculating the "taxes paid or payable as a result" of the sale, the Net
Proceeds were greater than ECA represented. Since the 360-day
period for ECA to use the Net Proceeds had expired, appellants
claimed that ECA had Excess Proceeds over $10 million from the
Mountaineer sale that it must use to repurchase the notes under § 4.9.
After negotiations between ECA and appellants failed to resolve this
disagreement, appellants issued a Notice of Default to ECA on
December 27, 2001.
             ENERGY CORP.    OF   AMERICA v. MACKAY SHIELDS               5
   ECA subsequently brought a declaratory action in federal court in
order to determine the obligations it owed to the noteholders under
the agreement. ECA sought a declaration that it did not possess any
Excess Proceeds from the sale of Mountaineer, and therefore that it
was not in default of its obligations under § 4.9 of the indenture
agreement. Since the parties agreed that this question hinged on the
interpretation of the tax provision in the definition of "Net Proceeds,"
they requested that the district court resolve the issue as a matter of
law. In an order dated January 25, 2002, the district court agreed with
ECA’s interpretation of the tax provision and granted partial summary
judgment to ECA. The court entered final judgment for ECA on
December 3, 2002, and entered a judgment order on December 4,
2002, ruling that ECA did not have any Excess Proceeds from the
Mountaineer sale. Appellants now appeal these orders.*

                                     II.

   This case turns on the interpretation of the definition of "Net Pro-
ceeds" in the indenture agreement, which provides that ECA must
subtract from the "aggregate cash proceeds" from an asset sale,
among other items, the "taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax
sharing arrangements)." J.A. 49. In particular, the parties disagree as
to the scope of the "available tax credits or deductions" that must be
accounted for when calculating Net Proceeds. ECA claims that in cal-
culating Net Proceeds it must account for only those tax credits and
deductions that result directly from the asset sale at issue. Appellants,
by contrast, maintain that ECA must account for all available tax
credits and deductions that it applies to the taxes it pays on the asset
sale, including all such credits and deductions from operations unre-
lated to the asset sale.

   *Appellants also claim that the district court erred in two other orders,
which granted partial summary judgment to ECA on appellants’ counter-
claim and on appellants’ motion for reconsideration, respectively.
Because we reverse the district court’s January 25, 2002 decision grant-
ing partial summary judgment to ECA on its declaratory action, and we
vacate its subsequent orders enforcing that decision, we do not consider
appellants’ other contentions.
6            ENERGY CORP.   OF   AMERICA v. MACKAY SHIELDS
   The difference between these interpretations is a financially signifi-
cant one. Under ECA’s narrower interpretation, there would be rela-
tively few tax credits and deductions, which means that the "taxes
paid or payable" would be larger and consequently the Net Proceeds
from the asset sale would be lower. According to the parties’ esti-
mated figures, because ECA claimed that the federal and state taxes
resulting from the sale were nearly $83.8 million, the Net Proceeds
would be approximately $140 million. This interpretation would
absolve ECA of any further obligations to the noteholders from the
Mountaineer sale because ECA spent over $143 million in ways con-
templated by § 4.9 of the indenture agreement.

   Under appellants’ proposed interpretation, ECA would have to
reduce the $83.8 million figure with the tax credits and deductions it
received from its total operations and applied to the tax expense it
faced from the Mountaineer sale in its year-end filing. In fact, ECA
paid only about $37.9 million in taxes on the Mountaineer sale
because of these other credits and deductions. With less "taxes paid
or payable," under appellants’ interpretation the Net Proceeds subject
to the indenture agreement’s restrictions would be significantly
higher. According to the estimated figures, appellants’ proposed inter-
pretation would result in approximately $186 million in Net Proceeds,
about $43 million of which would constitute Excess Proceeds that
ECA must use to repurchase appellants’ notes. The construction of
the tax provision is therefore of some importance.

                                    A.

   We look first to the text of the tax provision in the definition of Net
Proceeds. It is well established, under governing New York contract
law, that courts may not alter the terms of a contract but instead must
effectuate the intent of the contracting parties. See Gilchrest-Great
Neck, Inc. v. Byers, 219 N.Y.S.2d 401, 402 (N.Y. Special Term
1961).

   The key to determining the proper interpretation of the tax provi-
sion lies in the words "payable" and "any available." First, the non-
parenthetical portion of the tax provision directs ECA to deduct the
"taxes paid or payable as a result" of the asset sale. It is clear that the
"taxes paid" as a result of the asset sale would include all tax credits
            ENERGY CORP.   OF   AMERICA v. MACKAY SHIELDS             7
and deductions that are used to reduce the tax burden on the asset
sale; in this case, ECA paid approximately $37.9 million in taxes on
the Mountaineer sale. But ECA contends that the use of the word
"payable" means that the tax component of Net Proceeds does not
depend only on the taxes actually "paid," but also the taxes that would
be due by looking solely at the asset sale. In other words, ECA
appears to contend that taxes "paid" means something different than
taxes "payable," and that the phrase "taxes paid or payable" gives it
the choice of whether to use the taxes actually "paid" or the taxes that
would be "payable" if one looks only to the asset sale. See Appellee’s
Br. at 23.

    This contention, however, unduly strains the plain meaning of this
portion of the tax provision and ignores the recognized meaning of
the term "taxes paid or payable." ECA’s bifurcated interpretation of
the phrase "taxes paid or payable," where "taxes paid" will always
have a different meaning than "taxes . . . payable," is refuted by the
indenture agreement itself. Section 1.4 of the agreement, which out-
lines the governing Rules of Construction, states that the use of the
word "or" in the agreement is not exclusive. J.A. 60. Consequently,
it is difficult to understand how the phrase "taxes paid or payable" can
be construed as providing two exclusive options, as ECA suggests.
Moreover, by making the terms "paid" and "payable" represent two
different amounts, ECA’s interpretation would apparently allow ECA,
without any governing standards, to decide whether to use the taxes
actually paid or those it deems payable. Given that the company pre-
sumably would always have financial incentives to select the higher
"taxes . . . payable," this interpretation would effectively read the
word "paid" out of the indenture.

   More importantly, ECA’s contention neglects the recognized legal
meaning of the term "taxes payable." The payment of taxes is an
annual event. Accordingly, the term "taxes payable" has an accepted
meaning in Generally Accepted Accounting Principles (GAAP) of
referring to the taxes that must be paid at the end of the year. For
example, in the Statement of Financial Accounting Standards No.
109, the term "taxes payable," though not defined specifically, is con-
sistently used to refer to the taxes that a company must pay at the end
of a given tax year. See FAS-109, "Accounting for Income Taxes"
(Feb. 1992). At one point, the Statement provides that "one objective
8            ENERGY CORP.   OF   AMERICA v. MACKAY SHIELDS
of accounting for income taxes is to recognize the amount of taxes
payable or refundable for the current year." Id. ¶ 6. Similarly, the term
"current tax expense or benefit" is defined in the Statement as "the
amount of income taxes paid or payable (or refundable) for a year
. . . ." Id. app. E. Since § 1.4 of the indenture agreement specifies that
in interpreting the agreement "an accounting term not otherwise
defined has the meaning assigned to it in accordance with GAAP," we
accord due weight to these references. J.A. 60.

   Likewise, Black’s Law Dictionary defines a "payable" sum of
money as one "that is to be paid." Black’s Law Dictionary at 1150
(7th ed. 1999). Other federal courts in commercial settings have
accepted this meaning of the term "payable," i.e., the amount that
must be paid at a specified date. See, e.g., Furrow v. Comm’r of Inter-
nal Revenue, 292 F.2d 604, 607 (10th Cir. 1961); Royal Indem. Co.
v. Wyckoff Heights Hosp., 953 F. Supp. 460, 466 (E.D.N.Y. 1996).
And we have held that federal income taxes are payable upon the date
the relevant tax return is due. See, e.g., Blatt v. United States, 34 F.3d
252, 256-57 (4th Cir. 1994).

   These definitions reveal that taxes "payable" and taxes "paid" differ
not by amount, but by timing: taxes are "payable" until the end of the
year when they are discharged, at which time they become "paid."
The amount of tax liability, however, is the same under both. The use
of the word "payable," in this context, therefore makes clear that the
non-parenthetical portion of the provision calls for a year-end calcula-
tion of the tax consequences of the asset sale at the time that ECA
files its tax return.

   Given that the non-parenthetical portion of the tax provision directs
ECA to compute a year-end "taxes paid or payable" from the asset
sale, it is clear that the parenthetical phrase requires the inclusion of
all year-end tax credits and deductions that are available at the time
of filing and are applied to the taxes to be paid on the asset sale. The
parenthetical phrase directs that the "taxes paid or payable" figure is
complete only "after taking into account any available tax credits or
deductions and any tax sharing arrangements." J.A. 49 (emphasis
added). This phrase, on its face, appears to include all available cred-
its and deductions that are used to reduce the tax burden caused by
the asset sale.
             ENERGY CORP.   OF   AMERICA v. MACKAY SHIELDS              9
   The district court disagreed, however, putting great emphasis on
the fact that this was a parenthetical phrase. The district court asserted
that parenthetical phrases are used merely to offer examples or expla-
nations, rather than to modify accompanying clauses materially. The
non-parenthetical phrase here, the court reasoned, was expressly lim-
ited to the taxes to be paid "as a result" of the asset sale. Conse-
quently, the court concluded, the parenthetical must be read to include
only those "tax credits or deductions" that result from the asset sale.
Dist. Ct. Order Granting Partial Summ. J., Jan. 25, 2002, at 3-5.

   We disagree. First, this narrow construction would essentially read
part of the parenthetical phrase out of the indenture agreement. ECA
could point to only one tax deduction that results directly from an
asset sale and can be used for that asset sale: the federal tax deduction
for the state taxes on the asset sale. See Dist. Ct. Order Granting Par-
tial Summ. J., Jan. 25, 2002, at 6 n.2. There is no evidence of any tax
credit that could possibly be created by an asset sale and used to
reduce the tax liability from that sale, and there is no evidence of any
other such tax deductions. Because the district court’s construction of
the parenthetical phrase would thus deprive it of nearly all its force
— and would read the "tax credits" portion of the phrase out of the
agreement altogether — we view it skeptically. See Tantleff v. Trus-
celli, 493 N.Y.S.2d 979, 983 (N.Y. App. Div. 1985) ("It is a cardinal
rule of construction that a contract should not be interpreted in such
a way as would leave one of its provisions substantially without force
or effect.").

   Second, although it is true that parenthetical phrases oftentimes are
used merely to give examples or explanations, this is not always the
case. The difference in structure between the various parenthetical
phrases within the definition of Net Proceeds illustrates this point.
Several of the parenthetical phrases in the definition of Net Proceeds
begin with the words "including, without limitation." See J.A. 49.
Such parenthetical phrases are clearly meant merely to give examples,
by their own terms. The parenthetical phrase at issue here, however,
specifies that the calculation of "taxes paid or payable as a result" of
the asset sale is complete only "after taking into account any available
tax credits or deductions or any tax sharing arrangements." Id. This
language, as it specifies a particular component that must be included
within the calculations rather than merely listing examples, plays a
10           ENERGY CORP.   OF   AMERICA v. MACKAY SHIELDS
significant role in defining the "taxes paid or payable as a result" of
the asset sale. The district court therefore was wrong to construe the
parenthetical so narrowly and fail to give it its plainly intended effect.

   In so construing the parenthetical, we do not alter the essential
meaning of the non-parenthetical portion of the tax provision, as ECA
suggests. The parenthetical simply emphasizes the commercially real-
istic principle that, in determining the taxes payable from an asset
sale, one must take into account not only the tax expense from the
sale but also the credits and deductions that the company applies to
that tax expense at the end of the tax year. There is nothing inconsis-
tent with specifying the event-specific nature of the "taxes paid or
payable" figure and at the same time clarifying that "any available tax
credits or deductions" that are used to reduce the tax liability from the
asset sale must be taken into account. Thus, the most straightforward
reading of the text is that all tax credits and deductions from ECA’s
operations must be accounted for in calculating Net Proceeds.

                                    B.

   Our construction of the tax provision finds support in the economic
realities surrounding the nature of tax credits and deductions and in
the underlying purpose of the indenture agreement. As noted above,
ECA claimed that its "taxes . . . payable" as a result of the Mountain-
eer sale were $83.8 million. However, ECA had received certain tax
credits and deductions resulting from its pre-existing and current
annual operating losses. At the time of filing, it applied those credits
and deductions to the taxes it owed from the Mountaineer sale and
paid only $37.9 million in taxes on the asset sale.

   Our construction of the tax provision would capture the real eco-
nomics of tax credits and deductions by requiring a year-end calcula-
tion of the tax burden from the asset sale. It is the very nature of tax
liability to be measured annually. See, e.g., U.S. Shelter Corp. v.
United States, 13 Cl. Ct. 606, 609 (1987). Tax credits and deductions
are applied at that time, when a company files its tax returns. By con-
struing the provision in this manner, we therefore give effect to the
most commercially reasonable and fair meaning of the agreement.

  Under ECA’s interpretation of the tax provision, by contrast, ECA
could claim against its noteholders an inflated taxes "payable" figure
            ENERGY CORP.   OF   AMERICA v. MACKAY SHIELDS             11
— one which was never actually paid or payable to any taxing author-
ity — and then pay a substantially lower amount in actual taxes after
applying the "available tax credits or deductions." The difference —
in this case, over $40 million — would then be left to ECA’s discre-
tion and would be kept outside the purview of the restrictions in the
indenture agreement. ECA would therefore benefit from the tax cred-
its and deductions, but its noteholders would not.

   Such an interpretation not only ignores the economic reality that
tax credits and deductions are part of taxes "payable" and are applied
at the time a company files its returns, but it also undermines a central
purpose of the indenture agreement. The indenture agreement and its
various covenants, such as § 4.9, are designed in large part to protect
the noteholders’ investment by guaranteeing that ECA manages its
business in a responsible manner and that ECA reserves sufficient
funds to pay back the noteholders. ECA’s proposed interpretation
would severely weaken one of the key protections afforded to the
noteholders in the indenture agreement. ECA could conceivably pay
almost no taxes at all, given enough tax credits and deductions, and
yet claim substantial taxes "payable" in order to subvert the indenture
agreement’s restrictions and use the cash proceeds for its own uncon-
strained benefit. We reject such an interpretation because it would
undermine the very protections that attract debt financing from credi-
tors such as appellants in the first place.

                                   C.

   Finally, ECA argues, and the district court agreed, that because
§ 4.9 requires that the company use the Net Proceeds from an asset
sale in particular ways and within 360 days of the asset sale, the
amount of Net Proceeds must be determined immediately at the time
of the asset sale. If Net Proceeds are not ascertainable until the end
of the company’s tax year, ECA contends, the proceeds would be tied
up during the reinvestment period. This would be unworkable in
ECA’s view because it would make the amount of Net Proceeds an
uncertain and moving target, it would reduce the period of time for
ECA to make its investment decisions, and it would thereby under-
mine ECA’s ability to reinvest the proceeds according to § 4.9. For
this reason, ECA maintains that the tax component must be deter-
mined at the time of the asset sale, and therefore that ECA should
12          ENERGY CORP.   OF   AMERICA v. MACKAY SHIELDS
account for only those tax credits and deductions that relate directly
to the asset sale and are knowable at the time of the sale. See Appel-
lee’s Br. at 26-28; Dist. Ct. Order Granting Partial Summ. J., Jan. 25,
2002, at 5-6.

   We find this contention to be unpersuasive. First, there is no hint
in the text of the indenture agreement — neither in the restrictions on
the use of Net Proceeds in § 4.9 nor in the definition of Net Proceeds
in § 1.1 — that Net Proceeds must be determined conclusively at the
time of the asset sale. To the contrary, as we noted above, the use of
the words "payable" and "any available" suggest that a year-end anal-
ysis of the tax consequences of the asset sale, accounting for all tax
credits and deductions applied to the asset sale at the time of filing,
is the proper one.

   Moreover, as a matter of economic reality, accounting for all tax
credits and deductions from its total operations would not hamper
ECA’s ability to comply with the indenture agreement’s restrictions.
ECA is entirely capable of planning and projecting the taxes it can
expect to pay at the end of the year on the asset sale. Indeed, at the
time of the Mountaineer sale, ECA had a pre-existing operating loss
from the ongoing annual period. ECA also could forecast the operat-
ing gain or loss it would incur for the remainder of that annual period.
From these figures, ECA could make a reasonably accurate and ongo-
ing estimate of the tax credits and deductions it would realize at year-
end from its annual operations. Such estimates give ECA ample guid-
ance to reinvest the Net Proceeds pursuant to § 4.9 of the agreement.

   And the indenture agreement itself provides several buffers to
facilitate ECA’s use of the Net Proceeds. First, ECA has 360 days
after the asset sale in which it can use the Net Proceeds for the pur-
poses provided in § 4.9. ECA can regularly adjust its tax estimates
during this period, and by the end of that year, ECA will have paid
its annual taxes or will have all the information necessary to compute
its tax liabilities. Throughout the period, with these updated estimates,
ECA can responsibly reinvest the proceeds from the asset sale. Sec-
ond, the agreement provides a $10 million cushion for Excess Pro-
ceeds before ECA would be obligated to repurchase notes. ECA
therefore would not be forced to repurchase notes unless it held more
than $10 million in Excess Proceeds beyond the 360-day period. The
            ENERGY CORP.   OF   AMERICA v. MACKAY SHIELDS             13
inability to know with absolute certainty at the time of the sale its tax
consequences thus does not provide a compelling reason for constru-
ing the indenture as ECA advocates.

                                   III.

   In sum, we hold that the indenture agreement’s provision for calcu-
lating Net Proceeds contemplates all tax credits and deductions that
ECA realizes during a tax year and applies to the asset sale at the time
it files its return. We therefore reverse the January 25, 2002 order of
the district court, and we vacate its final judgment orders of Decem-
ber 3, 2002 and December 4, 2002. We remand to the district court
for further proceedings consistent with this opinion.

                                          REVERSED AND REMANDED
