Resolution No. 8930
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RESOLUTION NO. 8930
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A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
VERNON APPROVING AND AUTHORIZING THE EXECUTION OF
AN AGREEMENT FOR PROFESSIONAL SERVICES BY AND
BETWEEN THE CITY OF VERNON AND CREDIT SUISSE/FIRST
BOSTON
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7 WHEREAS, the City of Vernon is in the process of developing
8 a 800 MW Combined Cycle Power Plant officially named the Vernon Power
9 Plant (the "Vernon Power Plant Project") for the purpose of installing
10 additional generating capacity that will yield an efficient, cost-
11 effective, and reliable source of electric generation to the City of
12 Vernon; and
13 WHEREAS, upon approval of the Application for Certification
14 by the California Energy Commission ("CEC"), the City shall receive a
15 Certification from the CEC for the License to Construct, granting
16 authority to build the Vernon Power Plant Project; and; and
17 WHEREAS, the City Attorney has determined it is necessary to
18 . negotiate a contract service agreement with certain, banking firms for
19 the purpose of obtaining funding and equity partners for the Vernon
20 Power Plant Project to assist the City with financial matters and
21 transactions; and
22 WHEREAS, the banking firm of Credit Suisse/First Boston
23 possesses the technical knowledge and expertise to furnish the
24 advisory, investment banking, and financial services in support of the
25 Vernon Power Plant Project; and
26 WHEREAS, the City Council of the City of Vernon has
27 determined that, pursuant to the provisions of subsection (a) of
28 Section 2.27 of the Vernon City Code, it is in the public interest and
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1 necessity to enter into an agreement with Credit Suisse/First Boston.
2 NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
3 CITY OF VERNON AS FOLLOWS:
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SECTION 1:
The City Council of the City of Vernon hereby
5 finds and determines that the recitals contained hereinabove are true
6 and correct.
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SECTION 2:
The City Council of the City of Vernon hereby
8 approves the Letter Agreement with Credit Suisse/First Boston, in
9 substantially the same form as the copy which is attached hereto as
10 Exhibit A and incorporated by reference.
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SECTION 3:
The City Council of the City of Vernon hereby
12 authorizes and empowers the Acting City Clerk and/or his designee to
13 make whatever non-substantive and administrative changes, upon advice
14 of counsel, to the form.
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SECTION 4:
The City Council of the City of Vernon hereby
16 authorizes the Mayor to execute said Agreement for, and on behalf of,
17 the City of Vernon and the Acting City Clerk is hereby authorized to
18 attest thereto.
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SECTION 5:
The Acting City Clerk of the City of Vernon
20 shall certify to the passage of this resolution, and thereupon and
21 thereafter the same shall be in full force and effect.
22 APPROVED AND ADOPTED this 14th day of December, 2005.
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28 BRUCE V. MALKENHORST, JR.
Acting City Clerk
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1 STATE OF CALIFORNIA
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COUNTY OF LOS ANGELES
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4 I, BRUCE V. MALKENHORST, JR., Acting City Clerk of the City of
5 Vernon, do hereby certify that the foregoing Resolution, being
6 Resolution No. 8930, was duly adopted by the City Council of the City
7 of Vernon at a special meeting of the City Council duly held on
8 Wednesday, Decembe.r 14, 2005, and thereafter was duly signed by the
9 Mayor of the City of Vernon.
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BRUCE V. MALKENHORST, JR.
Acting City Clerk
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EXHIBIT
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[December 13, 2005]
[Bruce V. Malkenhorst]
[Chief Executive Officer of Light and Power Department]
City of Vernon
4305 Santa Fe Avenue
Vernon, California 90058
Dear Mr. [Malkenhorst]:
This letter confirms our understanding that the City of Vernon (the "City" or "you") has engaged
Credit Suisse First Boston LLC and its affiliates, successors and assigns, as appropriate
("CSFB", "we" or "us"), to act as its exclusive financial advisor with respect to the development
and construction of Phase I (approximately 550MW) of the City's proposed gas-fired power
generation station in Vernon, California (the "Project").
As part of our engagement, we will, if appropriate and if requested:
a. undertake financial analyses regarding the Project;
b. assist you in structuring construction contracts, proposed tariff structures, power
purchase agreements and other agreements relating to the Project from a financial point
of view;
c. assist you in the preparation and implementation of a marketing plan for potential equity
investors and power plant developers;
d. assist you in preparing an offering memorandum for distribution and presentation to
potential equity investors and developers;
e. assist you in evaluating proposals which are received from potential equity investors and
developers and in structuring and negotiating a transaction;
f. review with management of the City the financial model of the Project and assist you in
analyzing debt capacity and in identifying sensitivity scenarios that may be required by
investors and / or rating agencies;
g. assist you in evaluating financing alternatives and designing a financing plan to finance
the Project;
h. assist you in coordinating and communicating with the rating agencies; and
i. perform such other activities as the City and CSFB may further mutually agree.
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In connection with CSFB's engagement, the City will furnish CSFB with all infcWtMtion
concerning the Project which CSFB reasonably deems appropriate and will provide CSFB"
access to the City's officers, employees, accountants, counsel and other representatlvea
(collectively, the "Representatives") as they relate to the Project, it being understood Nt CSFB
will rely solely upon such information supplied by the City and its Representatives withOut
assuming any responsibility for independent investigation or verification thereof. All non-public
information concerning the Project which is given to CSFB in connection with this engagement
will be used solely in the course of the performance of our services hereunder and wHlbe
treated confidentially by it for so long as it remains non-public. Except as otherwise required by
law or judicial or regulatory process, CSFB will not disclose this information to a third party
without the City's consent.
As compensation for our services hereunder, the City agrees to pay CSFB the following:
a. a financial advisory fee equal to $150,000 payable per quarter in arrears commencing
with the first quarterly payment due on May 31, 2006 and each quarter thereafter, for as
long as this agreement is in effect, subject to a cap of $600,000 (the "Financial Advisory
Fee"). The Financial Advisory Fee will be fully creditable (to the extent paid and not
otherwise credited) against the Structuring Success Fee (as defined below);
b. a placement fee (the "Equity Placement Fee") equal to 3% of the gross proceeds of any
placement of Project equity with third parties (an "Equity Private Placement") provided
that the Equity Placement Fee shall not be payable with respect to (i) any Project equity
capital contributed by Siemens and (ii) any Project equity capital contributed pursuant to
a written commitment from Deutsche Bank (or an affiliate thereof) executed within 60
days of the date hereof ("Excluded Equity"). The Equity Placement Fee shall be payable
upon the closing of each Equity Private Placement. Except with respect to Excluded
Equity, such Equity Placement Fee will be payable in respect of each Equity Private
Placement whether such sale has been arranged by CSFB, by another agent or directly
by the City; and
c. a structuring success fee equal to 1 % of the aggregate Project costs (including, without
limitation, interest during construction, financing and other transaction fees and all direct
and indirect costs associated with the Project) (the "Structuring Success Fee") payable
upon the closing. of construction financing for the Project.
The City also agrees to offer. CSFB the exclusive role of lead agent, lead arranger, sole
bookrunning lead managing underwriter or initial purchaser (as the case may be), exclusive
placement agent, exclusive financial advisor, principal counterparty and dealer manager, as
applicable, for any financing, offering of securities to the public, private placement, lease
transaction or other external capital-raising or derivatives transaction in connection with
construction of the Project. As compensation for any of the foregoing services, CSFB will be
paid fees as specified in the following paragraph (the "Construction Financing Fees") or as
specified in paragraph (b) above, or, if not so specified, customary fees to be mutually agreed
upon at the appropriate time. The terms of any such additional engagements will be set forth in
separate letter agreements containing terms and conditions to be mutually agreed upon,
including without limitation appropriate indemnification provisions. The transactions described in
this paragraph are referred to as "Financing Transactions."
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Without limiting the generality of the foregoing, any such mandate will provide that CSFBwI be
paid out of the proceeds of any Financing Transaction, at the closing of such Financing
Transaction, the following:
a. an arrangement fee of 1.00% of the gross proceeds of any investment grade (defined as
at least two ratings of Baa3 / BBB- / BBB- or higher from. Moody's, Standard & Poor's
and/or Fitch Ratings) commercial bank loan portion of any Financing Transaction,
payable upon closing of such transaction;
b. an arrangement fee of 2.50% of the gross proceeds of any non-investment grade loan
portion of any Financing Transaction, payable upon closing of such transaction;
c. a bond underwriting fee of 1.00% of the gross proceeds of any investment grade
(defined as at least two ratings of Baa3 / BBB- / BBB- or higher from Moody's, Standard
& Poor's and/or Fitch Ratings) bond portion of any Financing Transaction, payable upon
closing of such transaction; and
d. a bond underwriting fee of 2.50% of the gross proceeds of any non-investment grade
bond portion of any Financing Transaction, payable upon closing of such transaction.
The City also agrees to pay participation fees of up to 0.50% of any bank loan financing to
lenders, which may include CSFB. The participation fees may take the form of an original issue
discount.
In addition, the City agrees to periodically reimburse CSFB for all expenses, including the fees
and expenses of its legal counsel, if any, and any other advisor retained by CSFB (it being
understood that the retention of any such advisor, other than legal counsel, will be made with
the prior approval of the City), resulting from or arising out of this engagement.
All fees and expenses payable hereunder are net of all applicable withholding and similar taxes.
No advice rendered by CSFB, whetherformal or informal, may be disclosed, in whole or in part,
or summarized, excerpted from or otherwise referred to without our prior written consent. In
addition, CSFB may not be otherwise referred to without our prior written consent. If requested
by CSFB, the City shall include a mutually acceptable reference to CSFB in any press release
or other public announcement made by the City regarding the matters described in this letter.
The City (and each employee, representative or other agent of the City) may disclose to any
and all persons, without limitation of any kind, the tax treatment and tax structure of the Project
and all materials of any kind (including opinions or other tax analyses) that are provided to the
City relating to such tax treatment and structure.
Since CSFB will be acting on behalf of the City in connection with its engagement hereunder,
the City and CSFB agree to the indemnity provisions and other matters set forth in Annex A
which is incorporated by reference into this agreement.
CSFB's engagement hereunder may be terminated at any time by the City or by CSFB, with or
without cause, upon 30 days' prior written notice thereof to the other party, provided, however,
that in the event of any termination of CSFB's engagement by the City hereunder, CSFB will
continue to be entitled to (i) the Structuring Success Fee in the event that at any time prior to the
expiration of two years after such termination, the City completes construction financing for the
Project and (ii) the Construction Financing Fees and the Equity Placement Fee in the event that
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at any time prior to the expiration of two years after any such termination, the City completes a
Financing Transaction for the Project. In addition, no termination of CSFB's engagement
hereunder shall affect the City's obligation to pay the Financial Advisory Fee, other fees and
expenses to the extent provided for herein, and to indemnify CSFB and certain related persons
and entities as provided in Annex A referred to above.
We understand that certain private equity funds managed or advised by affiliates of CSFB (the
"CSFB Funds") may participate in an Equity Private Placement. If (i) the CSFB Funds
participate (or propose to participate) in a purchase of more than 50% of the Project equity to be
placed with parties other than the City, (ii) the CSFB Funds participate (or propose to
participate) in the purchase of Project equity on financial terms more favorable than those made
available to any other third party purchasers of such equity, or (iii) CSFB and the City mutually
determine that it is necessary or appropriate, then in case of either (i), (ii) or (iii), you shall retain
an independent financial advisor (the "Second Advisor") in connection with any Equity Private
Placement with the CSFB Funds. Notwithstanding anything to the contrary contained in this
agreement, if you engage a Second Advisor pursuant to this paragraph, any Equity Placement
Fees shall be paid to CSFB and the Second Advisor pro rata based on the respective amount of
Project equity purchased by parties other than the CSFB Funds, on the one. hand, and the
CSFB Funds, on the other hand. The City agrees to waive any claims it may have based on
any actual or potential conflicts of interest that may arise or result from CSFB's engagement by
the City hereunder and the participation by the CSFB Funds in an Equity Private Placement.
If at any time within two years of the date hereof, the City commences development of additional
power generation capacity on the site of the Project, CSFB shall have the right (but not the
obligation) to act as its exclusive financial advisor. As compensation for such services, CSFB
shall be paid customary fees to be mutually agreed upon at the appropriate time. The terms of
any such. additional engagement will be set forth in a separate letter agreement containing
terms and conditions to be mutually agreed upon, including without limitation, appropriate
indemnification provisions.
CSFB is a full service securities firm engaged in securities trading and brokerage activities as
well as providing investment banking and financial advisory services. In the ordinary course of
business, CSFB and its affiliates may provide investment banking and other financial services
to, and/or acquire, hold or sell, for their own accounts and the accounts of customers, equity,
debt and other securities and financial instruments (including bank loans and other obligations)
of, the City and any companies that may be involved in the matters contemplated by this
agreement. In addition, CSFB and its affiliates and certain of their respective employees,
including members of the team performing this engagement, as well as certain private equity
funds associated or affiliated with CSFB in which they may have financial interests, may from
time to time acquire, hold or make direct or indirect investments, in or otherwise finance a wide
variety of companies, including the City. With respect to any securities, financial instruments
and/or investments so held by CSFB or any of its affiliates or customers, all rights in respect of
such securities, financial instruments and investments, including any voting rights, will be
exercised by the holder of the rights, in its sole discretion. CSFB has adopted policies and
procedures designed to preserve the independence of its research analysts whose views may
differ from those of CSFB's investment banking division.
In connection with this engagement, CSFB is acting as an independent contractor and, not in
any other capacity, with obligations owing solely to the City. All aspects of the relationship
created by this agreement shall be governed by and construed in accordance with the laws of
the State of New York, applicable to contracts made and to be performed therein.
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All actions and proceedings arising out of or relating to this letter agreement shall be heard and
determined exclusively In any New York state or feder~1 court sitting in the Borough of
Manhattan of the City of New York, to whose jurisdiction the City hereby irrevocably submits.
The City hereby irrevocably waives any defense or objection to the New York forum designated
above.
We are delighted to accept this engagement and look forward to working with you on this
assignment. Please confirm that the foregoing is in accordance with your understanding by
signing and returning to us the enclosed duplicate of this letter.
Very truly yours,
CREDIT SUISSE FIRST BOSTON LLC
By:
Name: Raymond Wood
Title: Managing Director
Accepted and agreed to as of the date first written above:
CITY OF VERNON
By:
Name: [Bruce V. Malkenhorst]
Title: [CEO of Light and Power Department]
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ANNEX A
December 13, 2005
In further consideration of the agreements contained in our engagement letter dated the date hereof (the
"engagement"), in the event that Credit Suisse First Boston LLC ("CSFB") or any of its affiliates, the
respective directors, officers, partners, agents or employees of CSFB or any of its affiliates, or any other
person controUing CSFB or any of its affiliates (collectively, "Indemnified Persons") becomes involved in
any capacity in any action, claim, suit, investigation or proceeding, actual or threatened, brought by or
against any person in connection with or as a result of the engagement or any matter referred to in the
engagement, the City of Vernon (the "City"), will reimburse such Indemnified Person for its reasonable
and customary legal and other expenses (including without limitation the costs and expenses incurred in
connection with investigating, preparing for and responding to third party subpoenas or enforcing the
engagement) incurred in connection therewith as such expenses are incurred. The City will also
indemnify and hold harmless any Indemnified Person from and against, and the City agrees that no
Indemnified Person shall have any liability to the City or its owners, parents, affiliates, security holders or
creditors for, any losses, claims, damages or liabilities (including actions or proceedings in respect
thereof) (collectively, "Losses") (A) related to or arising out of (i) the City's actions or failures to act
(including statements or omissions made or information provided by the City or its agents) or (ii) actions
or failures to act by an Indemnified Person with the City's consent or in reliance on the City's actions or
failures to act or (B) otherwise related to or arising out of the engagement or CSFB's performance
thereof, except that this clause (B) shall not apply to any Losses that are finally determined by a court or
arbitral tribunal to have resulted primarily from the bad faith or gross negligence of such Indemnified
Person. If such indemnification is for any reason not available or insufficient to hold an Indemnified
Person harmless, the City agrees to contribute to the Losses involved in such proportion as is appropriate
to reflect the relative benefits received (or anticipated to be received) by the City, on the one hand, and by
CSFB, on the other hand, with respect to the engagement or, if such allocation is determined by a court
or arbitral tribunal to be unavailable, in such proportion as is appropriate to reflect other equitable
considerations such as the relative fault of the City on the one hand and of CSFB on the other hand;
provided, however, that, to the extent permitted by applicable law, the Indemnified Persons shall not be
responsible for amounts which in the aggregate are in excess of the amount of all fees actually received
by CSFB from the City in connection with the engagement. Relative benefits to the City, on the one hand,
and CSFB, on the other hand, with respect to the engagement shall be deemed to be in the same
proportion as (i) the total value paid or proposed to be paid or received or proposed to be received by the
City, as the case may be, pursuant to the transaction(s), whether or not consummated, contemplated by
the engagement, bears to (ii) all fees actually received by CSFB in connection with the engagement.
The City will not, without CSFB's prior written consent, settle, compromise, consent to the entry of any
judgment in or otherwise seek to terminate anyaction, claim, suit, investigation or proceeding in respect
of which indemnification may be sought hereunder (whether or not any Indemnified Person is a party
thereto) unless such settlement, compromise, consent or termination includes a release of each
Indemnified Person from any liabilities arising out of such action, claim, suit, investigation or proceeding.
The City will not permit any such settlement, compromise, consent or termination to include a statement
as to, or an admission of, fault, culpability or a failure to act by or on behalf of an Indemnified Person,
without such Indemnified Person's prior written consent. No Indemnified Person seeking indemnification,
reimbursement or contribution under this agreement will, without the City's prior written consent, settle,
compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim,
suit, investigation or proceeding referred to herein.
Prior to entering into any agreement or arrangement with respect to, or effecting, any merger, statutory
exchange or other business combination or proposed sale or exchange, dividend or other distribution or
liquidation of all or a significant portion of its assets in one or a series of transactions or any significant
recapitalization or reclassification of its outstanding securities that does not directly or indirectly provide
for the assumption of the obligations of the City set forth herein, the City will notify CSFB in writing thereof
(if not previously so notified) and, if requested by CSFB, shall arrange in connection therewith alternative
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means of providing for the obligations of the City set forth herein, including the assumption of such
obligations by another party, insurance, surety bonds or the creation of an escrow, in each case in an
amount and upon terms and conditions satisfactory to CSFB.
The City's obligations hereunder shall be in addition to any rights that any Indemnified Person may have
at common law or otherwise. The City acknowledges that in connection with the engagement CSFB is
acting as an independent contractor and not in any other capacity with duties owing solely to the City.
This agreement and any other agreements relating to the engagement shall be governed by and
construed in accordance with the laws of the State of New York, applicable to contracts made and to be
performed therein and, in connection therewith, the parties hereto consent to the exclusive jurisdiction of
the Supreme Court of the State of New York sitting in New York County or the United States District Court
for the Southern District of New York and the respective appellate courts thereof. Notwithstanding the
foregoing, solely for purposes of enforcing the City's obligations hereunder, the City consents to personal
jurisdiction, service and venue in any court proceeding in which any claim subject to this agreement is
brought by or against any Indemnified Person. CSFB HEREBY AGREES, AND THE CITY HEREBY
AGREES ON ITS OWN BEHALF, TO WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO
ANY CLAIM, COUNTER-CLAIM OR ACTION ARISING OUT OF THE ENGAGEMENT OR CSFB'S
PERFORMANCE THEREOF.
The provisions of this agreement shall apply to the engagement (including related activities prior to the
date hereof) and any modification thereof and shall remain in full force and effect regardless of the
completion or termination of the engagement. If any term, provision, covenant or restriction herein is held
by a court of competent jurisdiction to be invalid, void or unenforceable or against public policy, the
remainder of the terms, provisions and restrictions contained herein shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
CITY OF VERNON
By:
Name: [Bruce V. Malkenhorst]
Title: [CEO of Light and Power Department]
Accepted and agreed to as of the date hereof:
CREDIT SUISSE FIRST BOSTON LLC
By:
Name: Raymond Wood
Title: Managing Director
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SUPPORTING
DOCUMENTS
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TroyGould
ATTORNEYS
TROY & GOULD PC
180 I Century Park East, Suite 1600
Los Angeles. Califomia 90067-2367
Tel (310) 553-4441 Fax (310) 201-4746
www.troygould.com
William D. Gould. (310) 789-1338. wgould@troygould.com
File No.
December 22, 2005
VIA U.S. MAIL
Eric T. Fresch
City Attorney
City of Vernon
4305 Santa Fe Avenue
Vernon, CA 90058
Re: Ci/V of Vernon/Credit Suisse
Dear Eric
I am enclosing a copy of the executed Engagement Letter for the City of V ernon
Power Project, which was received today.
Please let us know if you need anything further and have a lovely holiday season.
WDG:mew
Enclosure
1J~\". a LUUJ 0: JJiUYI
. ", CREDIT I FIRST
SUISSE BOSTON
l.i0fD
11 V. 1 J," 1 I.
CREDIT SUISSE FIRST BOSTON LLC
Eleven Madison Avenue
New York, NY 10010.3629
Telephone 212325 2000
T&lefax
To
Bill Gould
Tefefax
310201 4746
Sender
Andre Burba
Direct line
Telefax
212538 1728
9172565044
Date
December 21,2005
Pages
(InclUding lhls page)
9
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City of Vernon Power Project - Executed Engagement Letter
Message
Bill:
Attached please find an executed Engagement Letter for the City of Vernon Power Project. We look
forward to working with you on this Project.
Best regards,
CSFB Team
Should therll be any difficulty with lhl9 Ir4nsmlsslon, plesse notify rile sande, at the lelephone nllmbe, glYQn above.
This telefax Is intended only for the. individual or en~ty to whom it is aaaressed 3nll may eon13ln iniormation whJc/1 is privileoed and conlidemial. II
the reader Of this message is !lOt the inlend~ reciplem or 3'1 employee or agom responsible lor doliverillg the message 10 tne intencled recipient
you are hereby I'lOIIUed that any dissemination. dlsrrlbution or copying of Ihis communication Is Strictly prohibilea. II you have received this
COI'r\munic:llion in error. please nolily liS ImmediSlety by lelepllOne and relurn the original message to us by mall.
V,t\.., u.. '::UU:) d: j:)i\M
I.,i)fn
!lV, l::lt:. 1 I, (.
December 21, 2005
Leonis Malburg
Mayor
City of Vernon
4305 Santa Fe Avenue
Vernon, California 90058
Dear Mr. Malburg:
This letter confirms our understanding that the City of Vernon (the "City" or "you") has engaged
Credit Suisse First Boston LLC and its affiliates, successors and assigns, as appropriate
("CSFB", "we" or"us"), to act as its exclusive financial advisor with respect to the development
and construction of Phase I (approximately 550MW) of the City's proposed gas-fired power
generation station in Vernon. California (the "Projecr').
As part of our engagement, we will, if appropriate and if requested:
a. undertake financial analyses regarding the Project and assist and advise the City in its
analysis of the risks underlying the Project and the proposed financing;
b. advise and assist the City in developing a capital structure for the Project including
acceptable levels of debt and equity;
c. assist the City in developing, analyzing and reviewing (including for acceptability to debt
and equity investors and bank lenders) the key commercial contracts underlying the
Project, including contracts for engineering, procurement and construction, joint venture
or partnership with equity investors, power purchase and gas supply or tolling,
commodities hedges, energy management, long term service, and operations and
maintenance;
d. advise and assist the City in developing an offtake or hedging strategy for the Project,
including the solicitation of bids from prospective off takers and/or hedge counterparties;
e. advise and assist the City in the preparation and implementation of a marketing plan for
potential equity investors and power plant developers;
f. advise and assist the City in preparing an offering memorandum for distribution and
presentation to potential debt and equity investors and developers;
g. advise and assist the City in evaluating proposals which are received from potential
equity and debt investors and developers and in structuring and negotiating a
transaction;
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h. review with management of the City the financial model of the Project and assist the City
in analyzing debt capacity and in identifying senSitivity scenarios that may be required by
investors and I or rating agencies; and
i. perform such other activities as the City and CSFB may further mutually agree.
In connection with CSFB's engagement, the City will furnish CSFB with all information
concerning the Project which CSFB reasonably deems appropriate and will provide CSFB with
access to the City's officers, employees, accountants, counsel and other representatives
(collectively, the "Representatives") as they relate to the Project, it being understood that CSFB
will rely solely upon such information supplied by the City and its Representatives without
assuming any responsibility for independent investigation or verification thereof. All non-public
information concerning the Project which is given to CSFB in connection with this engagement
will be used solely in the course of the performance of our services hereunder and will be
treated confidentially by it for so long as it remains non-public. Except as otherwise required by
law or judicial or regulatory process, CSFB will not disclose this information to a third party
without the City's consent.
As compensation for our services hereunder, the City agrees to pay CSFB the following:
a. a financial advisory fee equal to $150,000 payable per quarter in arrears commencing
with the first quarterly payment due on May 31, 2006 and each quarter thereafter, for as
long as this agreement is in effect, Subject to a cap of $600,000 (the "Financial Advisory
Fee"). The Financial Advisory Fee will be fully creditable (to the extent paid and not
otherwise credited) against the Structuring Success Fee (as defined below):
b. a placement fee (the "Equity Placement Fee") equal to 3% of the gross proceeds of any
placement of Project equity with third parties (an "Equity Private Placemenf') provided
that the Equity Placement Fee shallnot be payable with respect to (i) any Project equity
capital contributed by Siemens and (ii) any Project equity capital contributed pursuant to
a written commitment from Deutsche Bank (or an affiliate thereof) executed within 90
days of the date hereof (or the date on which the City solicits third-party equity
contributions based on materials prepared with our assistance, if earlier)("Excluded
Equity"). The Equity Placement Fee shall be payable upon the closing of each Equity
Private Placement out of the proceeds of such Equity Private Placement. Except with
respect to Excluded Equity, such Equity Placement Fee will be payable in respect of
each Equity Private Placement whether such sale has been arranged by CSFB, by
another agent or directly by the City; and
c. a structuring success fee equal to 1 % of the aggregate Project costs (including, without
limitation, interest during construction, financing and other transaction fees and all direct
and indirect costs associated with the Project) (the "Structuring Success Fee") payable
upon the closing of construction financing for the Project out of the proceeds of such
construction financing. CSFB will credit to the City up to 50% of the Structuring Success
Fee to the extent paid and not previously credited against (i) any Equity Placement Fee
and (ii) any Construction Financing Fees defined below) where CSFB serves as sole
bookrunner or sole lead arranger, provided that the amount of such credit shall not
exceed 33% of the aggregate Construction Financing Fees and Equity Placement Fees
otherwise payable to CSFB without giving effect to the foregOing 50% credit.
0191010001 132()(j8.2
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CSFB agrees. for no additional consideration, to assist the City in the possible sale of its light
and power assets located outside the City (Palo Verde, Hoover and Northern California
transmission lines).
The City also agrees to grant CSFB a right of first refusal to act as lead agent, lead arranger,
sole bookrunning lead managing underwriter or initial purchaser (as the case may be), exclusive
placement agent, exclusive financial advisor, principal counterparty and dealer manager, as
applicable, for any. financing. offering of securities to the public, private placement, lease
transaction or other external capital-raising or derivatives transaction in connection with
construction of the Project. As compensation for any of the foregoing services, CSFB will be
paid fees as specified in the following paragraph (the "Construction Financing Fees") or as
specified in paragraph (b) above, or, if not so specified, customary fees to be mutually agreed
upon at the appropriate time. The terms of any such additional engagements will be set forth in
separate letter agreements containing terms and conditions to be mutually agreed upon,
including without limitation appropriate indemnification provisions. The transactions described in
this paragraph are referred to as "Financing Transactions." Financing Transactions excludes
any municipal securities issued in connection with the Project.
Without limiting the generality of the foregoing, any such mandate will provide that CSFB will be
paid out of the proceeds of any Financing Transaction, at the closing of such Financing
Transaction, the following:
a. an arrangement fee of 1.00% of the gross proceeds of any investment grade (defined as
at least two ratings of Baa3 / BBB- I B8B- or higher from Moody's, Standard & Poor's
and/or Fitch Ratings) commercial bank loan portion of any Financing Transaction,
payable upon closing of such transaction;
b. an arrangement fee of 2.25% of the gross proceeds of any non-investment grade loan
portion of any Financing Transaction, payable upon closing of such transaction;
c. a bond underwriting fee of 1.00% of the gross proceeds of any investment grade
(defined as at least two ratings of Baa3/ BBB- / BBB- or higher from Moody's, Standard
& Poor's and/or Fitch Ratings) bond portion of any Financing Transaction, payable upon
closing of such transaction; and
d. a bond underwriting fee of 2.25% of the gross proceeds of any non-investment grade
bond portion of any Financing Transaction, payable upon closing of such transaction.
None of the foregoing fees will be applicable to any Financing Transaction with Siemens or any
affiliate thereof.
The City also agrees to pay participation fees of up to 0.50% of any bank loan financing to
lenders, which may include CSFB. The partiCipation fees may take the form of an original issue
discount.
In addition, the City agrees to periodically reimburse CSFB for all expenses, including the
reasonable fees and expenses of its legal counsel, if any, and any other advisor retained by
CSFB (it being understood that the retention of any such advisor, other than legal counsel, will
be made with the prior approval of the City), resulting from or arising out of this engagement.
All fees ~nd expenses payable hereunder are net of all applicable withholding and similar taxes.
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No advice rendered by CSFB, whether formal or informal, may be disclosed, in whole or in part,
or summarized, excerpted from or otherwise referred to without our prior written consent. In
addition, CSFB may not be otherwise referred to without our prior written consent. If requested
by CSFB, the City shall include a mutually acceptable reference to CSFB in any press release
or other public announcement made by the City regarding the matters described in this letter.
The City (and each employee, representative or other agent of the City) may disclose to any
and all persons, without limitation of any kind, the tax treatment and tax structure of the Project
and all materials of any kind (including opinions or other tax analyses) that are provided to the
City relating to such tax treatment and structure.
Since CSFB will be acting on behalf of the City in connection with its engagement hereunder,
the City and CSF8 agree to the indemnity provisions and other matters set forth in Annex A
whiCh is incorporated by reference into this agreement.
CSFB's engagement hereunder may be terminated at any time by the City or by CSFB, with or
without Cause (as defined below), upon at least 30 days' prior written notice thereof to the other
party, provided, however, that in the event of any termination of CSFB's engagement by the City
that is not for Cause, CSFB will continue to be entitled to (i) the Structuring Success Fee in the
event that at any time prior to the expiration of one yearafter such termination, the City
completes construction financing for the Project and (ii) the Construction Financing Fee and the
Equity Placement Fee in the event that at any time prior to the expiration of one year after any
such termination, the City completes a Financing Transaction for the Project. In addition, no
termination of CSFB's engagement hereunder will affect the City's obligation (a) to pay the
Financial Advisory Fee for the period prior to the termination date, (b) to pay the Equity
Placement Fee, Structuring Success Fee and/or Construction Financing Fee to the extent
provided for herein with respect to the period prior to the termination date, (c) to reimburse
CSFB for expenses incurred prior to the termination date to the extent provided for herein,
and/or (d) to indemnify CSFB and certain related persons and entities as provided in Annex A
referred to above. For purposes of this agreement, "Cause"shall mean (i) gross negligence or
(ii) willful misconduct.
We understand that certain private equity funds managed or advised by affiliates of CSFB (the
"CSFB Funds") may participate in an Equity Private Placement. If (i) the CSFB Funds
participate (or propose to participate) in a purchase of more than 50% of the Project equity to be
placed with parties other than the City, (ii) the CSFB Funds participate (or propose to
participate) in the purchase of Project equity on financial terms more favorable than those made
available to any other third party purchasers of such equity, or (iii) CSFB and the City mutually
determine that it is necessary or appropriate, then in case of either (i), (ii) or (iii), you shall retain
an independent financial advisor (the "Second Advisor") in connection with any Equity Private
Placement with the CSFB Funds. Notwithstanding anyihing to the contrary contained in this
agreement, if you engage a Second Advisor pursuant to this paragraph, any Equity Placement
Fees shall be paid to CSFB and the Second Advisor pro rata based on the respective amount of
Project equity purchaSed by parties other than the CSFB Funds, on the one hand, and the
CSFB Funds, on the other hand. The City agrees to waive any claims it may have based on
any actual or potential conflicts of interest that may arise or result from CSFS's engagement by
the City hereunder and the participation by the CSFB Funds in an Equity Private Placement.
If at any time within 15 months of the date hereof, the City commences development of
additional power generation capacity on the site of the Project, CSFB shall have the right (but
not the obligation) to act as its exclusive financial advisor. As compensation for such services,
CSFB shall be paid customary fees to be mutually agreed upon at the appropriate time. The
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terms of any such additional engagement will be set forth in a separate letter agreement
containing terms and conditions to be mutually agreed upon, including without limitation,
appropriate indemnification provisions.
CSFB is a full seNice securities firm engaged in securities trading and brokerage activities as
well as providing investment banking and financial advisory services. In the ordinary course of
business, CSFB and its affiliates may provide investment banking and other financial services
to, and/or acquire, hold or sell, for their own accounts and the accounts of customers, equity,
debt and other securities and financial instruments (including bank loans and other obligations)
of, the City and any companies that may be involved in the matters contemplated by this
agreement. In addition, CSFB and its affiliates and certain of their respective employees,
including members of the team performing this engagement, as well as certain private equity
funds associated or affiliated with CSFB in which they may have financial interests, may from
time to time acquire, hold or make direct or indirect investments, in or otherwise finance a wide
variety of companies, including the City. With respect to any securities, financial instruments
and/or investments so held by CSFB or any of its affiliates or customers, all rights in respect of
such securities, financial instruments and investments, including any voting rights, will be
exercised by the holder of the rights, in its sole discretion. CSFB has adopted policies and
procedures designed to preseNe the independence of its research analysts whose views may
differ from those of CSFB's investment banking division.
In connection with this engagement, CSFB is acting as an independent contractor and not in
any other capacity, with obligations owing solely to the City. All aspects of the relationship
created by this agreement shall be governed by and construed in accordance with the laws of
the State of New York, applicable to contracts made and to be performed therein.
All actions and proceedings arising out of or relating to this letter agreement shall be heard and
determined exclusively in any New York state or federal court sitting in the Borough of
Manhattan of the City of New York, to whose jurisdiction the City hereby irrevocably submits.
The City hereby irrevocably waives any defense or objection to the New York forum designated
above.
01910/0001 132068.2
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DEC. 22.2005 8: 37AM
CSFB
N V. I J L I r. I
Weare delighted to accept this engagement and look forward to working with you on this
assignment. Please confirm that the foregoing is in accordance with your understanding by
signing and returning to us the enclosed duplicate of this letter.
Very truly yours,
CREDIT SUISSE FIRST BOSTON LLC
By: ~-.~/ ~ ~~
Name: 4taymond Wood
Title: Managing Director
Accepted and agreed to as of the date first written above:
CITY OF VERNON
By:
Name: Leonis Malburg
Mayor
Attest:
Bruce V. Malkenhorst, Jr.
Aoting City Clerk
Approved as to Form:
Eric T. Fresch,
City Attorney
0191010001132068.2
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ANNEX A
December 21,2005
In further consideration of the agreements contained in our engagement letter dated the date hereof (the
"engagement"), in the event that Credit Suisse First Boston LLC (dCSFB") or any of its affiliates, the
respective direotors, officers, partners, agents or employees of CSFB or any of its affiliates, or any other
person controlling CSFB or any of its affiliates (collectively. "Indemnified Persons") becomes involved in
any capacity in any action, claim. suit. investigation or proceeding, actual or threatened, brought by or
against any person in connection with or as a result of the engagement or any matter referred to in the
engagement, the City of Vernon (the "C~y"), will reimburse such Indemnified Person for its reasonable
and customary legal and other expenses (including without limitation the costs and expenses incurred in
connection with investigating, preparing for and responding to third party subpoenas or enforcing the
engagement) incurred in connection therewith as such expenses are incurred. The City will also
indemnify and hold harmless any Indemnified Person from and against, and the City agrees that no
Indemnified Person shall have any liability to the City or its owners, parents, affiliates, security holders or
creditors for, any losses, claims, damages or liabilities (including actions or proceedings in respect
thereof) (collectively, "LOsses") (A) related to or arising out of (i) the City's actions or failures to. act
(including statements or omissions made or information provided by the City or its agents) or (ii) actions
or failures to act by an Indemnified Person with the City's consent or in reliance on the City's actions or
failures to act or (8) othelWise related to or arising out of the engagement or CSFB's performance
thereat, except that the foregoing clauses (A) and (B) shall not apply to any Losses that are finally
determined by a court or arbitral tribunal to have resulted primarily from the bad faith or gross negligence
of such Indemnified Person. If such indemnification is for any reason not available or insufficient to hold
an Indemnified Person harmless. the City agrees to contribute to the Losses involved in such proportion
as is appropriate to reflect the relative benefits received (or anticipated to be received) by the City, on the
one hand, and by CSF8, on the other hand, with respect to the engagement or, if such allocation is
determined by a court or arbitral tribunal to be unavailable, in such proportion as is appropriate to reflect
other equitable considerations such as the relative fault of the City on the one hand and of CSFB on the
other hand; provided, however, that, to the extent permitted by applicable law. the Indemnified Persons
shall not be responsible for amounts which in the aggregate are in excess of the amount of all fees
actually received by CSFB from the City in connection with the engagement. Relative benefits to the City,
on the one hand, and CSFB, on the other hand, with respect to the engagement shall be deemed to be in
the same proportion as (i) the total value paid or proposed to be paid or received or proposed to be
received by the City, as the case may be, pursuant to the transaction(s), whether or not consummated,
contemplated by the engagement, bears to (ii) all fees actually received by CSFB in connection with the
engagement.
Promptly after receipt by an Indemnified Person at service of any complaint or actual notice of the
commencement of any action or proceeding with respect to which indemnification is being sought
hereunder, such Indemnified. Person will notify the City in writing of such complaint or of the
commencement of such action or proceeding, but failure to so notify the City will relieve the City from the
obligation to indemnify such Indemnified Person only if and only to the extent the City suffers actual
prejudice as a result thereof, and will not in any event relieve the City from any other obligation or liability
that the City may have to any Indemnified Person otherwise than in accordance with the provisions
hereof. If the City so elects, the City will assume the defense of such action or proceeding. In the event,
however, such Indemnified Person reasonably determines in its judgment that having common counsel
would present such counsel with a conflict of interest or if the defendants in or targets of any such action
or proceeding include both an Indemnified Person and the City and such Indemnified Person reasonably
concludes that there may be legal defenses available to it or other Indemnified Persons that are different
from or in addition to those available to the City, or jf the City fails to assume the defense of the action or
proceeding or to employ counsel reasonably satisfactory to such Indemnified Person in a timely manner,
then such Indemnified Person may employ separate counsel to represent or defend it in any such action
or proceeding and the City will pay the reasonable and customary fees and disbursements of such
counsel; provided, however that the City will not be required to pay the fees and disbursements of more
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than one separate counsel (in addition to local counsel) for such Indemnified Persons in any jurisdiction in
any single action or proceeding. In any action or proceeding the defense of which the City assumes. the
Indemnified Person will have the right to participate in such litigation and to retain its own counsel at such
Indemnified Person's own expense.
The City will not, without CSFS's prior written consent, settle, compromise. consent to the entry of any
judgment in or otherwise seek to terminate any action, claim, suit. investigation or proceeding in respect
of which indemnification may be sought hereunder (whether or not any Indemnified Person is a party
thereto) unless such settlement, compromise, consent or termination includes a release of each
Indemnified Person from any liabilities arising out of such action, claim, suit. investigation or proceeding.
The City will not permit any such settlement, compromise, consent or termination to include a statement
as to. or an admission of. fault, culpability or a failure to act by or on behalf of an Indemnified Person.
without such Indemnified Person's prior written consent which shall not be unreasonably withheld. No
Indemnified Person seeking indemnification. reimbursement or contribution under this agreement will,
without the City's prior written consent, settle. compromise, consent to the entry of any judgment in or
otherwise s~ek to terminate any action, claim, suit, investigation or proceeding referred to herein.
Prior to entering into any agreement Or arrangement with respect to, or effecting. any merger, statutory
exchange or other business combination or proposed sale or exchange, dividend or other distribution or
liquidation of all or a significant portion of its assets in one or a series of transactions or any significant
recapitalization or reclassification of its outstanding securities that does not directly or indirectly provide
for the assumption of the obligations of the City set forth herein, the City will notify CSFB in writing thereof
(if not previously so notified) and, if requested by CSFB, shall arrange in connection therewith alternative
means of providing for the obligations of the City set forth herein, including the assumption of such
obligations by another party, insurance, surety bonds or the creation of an escrow, in each case in an
amount and upon terms and conditions satisfactory to CSFB.
The City's obligations hereunder shall be in addition to any rights that any Indemnified Person may have
at common law or otherwise. The City acknowledges that in connection with the engagement CSFB is
acting as an independent contractor and not in any other capacity with duties owing SOlely to the City.
This agreement and any other agreements relating to the engagement shall be governed by and
construed in accordance with the laws of the State of New York, applicable to contracts made and to be
performed therein and, in connection therewith, the parties hereto consent to the exclusive jurisdiction of
the Supreme Court of the State of New York sitting in New York County or the United States District Court
for the Southern District of New York and the respective appellate courts thereof, Notwithstanding the
foregoing, solely for purposes of enforcing the City's obligations hereunder, the City consents to personal
jurisdiction. service and venue in any court proceeding in whiCh any claim subject to this agreement is
brought by or against any Indemnified Person. CSFB HEREBY AGREES, AND THE CITY HEREBY
AGREES ON ITS OWN BEHALF, TO WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO
ANY CLAIM, COUNTER-CLAIM OR ACTION ARISING OUT OF THE ENGAGEMENT OA CSF8'S
PERFORMANCE THEREOF.
The provisions of this agreement shall apply to the engagement (including related activities prior to the
date hereof) and any modification thereof and shall remain in full force and effect regardless of the
completion or termination of the engagement. If any term, provision. covenant or restriction herein is held
by a court of competent jurisdiction to be invalid, void or unenforceable or against pUblic pOlicy. the
remainder of the terms, provisions and restrictions contained herein shall remain in full force and effect
and shall in 110 way be affected, impaired or invalidated.
Ol91OfOOOl 132068.2
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