Resolution No. 90291
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RESOLUTION NO. 9029
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
VERNON APPROVING AND AUTHORIZING THE EXECUTION OF A
LETTER AGREEMENT BY AND BETWEEN THE CITY OF VERNON
AND CAITHNESS ENERGY, L.L.C. RELATING TO. POWER
GENERATING STATION
WHEREAS, the City of Vernon is in the process of developing a
914 MW natural gas fired, combined cycle power generating station to be
located on a portion of land known as 3200 Fruitland Avenue in the City
of Vernon (the "Project") for the purpose of installing additional
generating capacity that will yield an efficient, cost-effective and
reliable source of generation to the City of Vernon; and
WHEREAS, on February 1, 2006, the City Council of the City of
Vernon adopted Resolution No. 8963 approving a Mutual Non -Disclosure
Agreement with Caithness Energy, L.L.C. ("Caithness") setting forth the
terms and conditions under which certain confidential information and
documents would be exchanged by the parties respecting the Project; and
WHEREAS, City staff has determined that Caithness possesses
the technical knowledge and expertise to provide the necessary
collaboration with the City; and
WHEREAS, the City and Caithness desire to collaborate in the
development, financing, construction, management and ownership of the
Project, the terms and conditions of which are still being negotiated;
and
WHEREAS, the City and Caithness desire to enter into a
letter agreement expressing the intent to enter into a Joint
Development Agreement prior to May 31, 2006 and setting forth the
terms and conditions under which certain activities will be performed
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and costs shared; and
WHEREAS, the City Council of the City of Vernon has
determined that, pursuant to the provisions of subsection (a) of
Section 2.27 of the Vernon City Code, it is in the public interest and
necessity to enter into an interim Letter Agreement with Caithness
setting forth the terms and conditions of the development activities
between the City and Caithness regarding the Project.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF VERNON AS FOLLOWS:
SECTION 1: The City Council of the City of Vernon hereby
finds and determines that the recitals contained hereinabove are true
land correct.
SECTION 2: The City Council of the City of Vernon hereby
approves the Letter Agreement with Caithness, in substantially the
same form as the copy which is attached hereto as Exhibit A and
incorporated by reference.
SECTION 3: The City.Council of the City of Vernon hereby
authorizes the Mayor to execute the Letter Agreement for, and on
behalf of, the City of Vernon and the Acting City Clerk is hereby
authorized to attest thereto.
SECTION 4: The City Council of the City of Vernon hereby
lauthorizes the Acting City Clerk, or his designee, to make whatever
nonsubstantive, administrative and/or text changes, upon advice of
counsel, to the Letter Agreement.
SECTION 5: The City Council of the City of Vernon hereby
authorizes the Acting City Clerk, or his designee, to execute any and
all documents as shall be required to implement the Letter Agreement
consistent with the terms of said Letter Agreement approved herein.
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SECTION 6: The Acting City Clerk of the City of Vernon
shall certify to the passage of this resolution, and thereupon and
thereafter the same shall be in full force and effect.
APPROVED AND ADOPTED this 3rd day of May, 2006.
LEONIS C. D4ALBURG, Mayor
ATTEST:
�i
BRUC,F'- V. MA4LKENHORST, JR., Acting City Clerk
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STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
I, BRUCE V. MALKENHORST, JR., Acting City Clerk of the City of
Vernon, do hereby certify that the foregoing Resolution, being
Resolution No. 9029, was duly adopted by the City Council of the City
of Vernon at a regular meeting of the City Council duly held on
Wednesday, May 3, 2006, and thereafter was duly signed by the Mayor of
the City of Vernon.
(SEAL)
BRUC V. ALKENHORST, JR.
Acti g C'ty Clerk
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April 26, 2006 DD � L F Ir
f1,, _ _
James R. Pagano
Senior Vice President - Development
Caithness Energy, L.L.C.
565 Fifth Avenue, 291h Floor
New York, New York 10017
Re: City of Vernon Power Project
Dear Mr. Pagano:
This letter ("Letter Agreement") sets forth certain aspects of the business terms under which the
City of Vernon ("COW) and Caithness Energy, L.L.C. ("Caithness", and together with COV,
the "Sponsors") will collaborate in the development, financing, construction, management and
ownership of a proposed 914MW natural gas fired, combined cycle power generating station to
be located within the City of Vernon, California (the "Project"). The Project will be constructed
on a portion of an approximately 27 acre parcel of land known as 3200 Fruitland Avenue being
acquired by COV (the "Project Site"). Each Sponsor agrees that the development activities
described in this Letter Agreement may be undertaken directly by such Sponsor or by one or
more of its affiliates.
1. Joint Development Agreement. In connection with the Project, the
Sponsors intend to enter into a Joint Development Agreement (the "JDA") in order to set forth
definitive terms and conditions regarding the ongoing development activities. Following the
effective date of this Letter Agreement, the parties agree to negotiate in good faith the terms and
conditions of the JDA with the intent of entering into the JDA prior to expiration of the
Exclusivity Period (as hereinafter defined). It is intended that the JDA will supersede this Letter
Agreement and that, upon the effective date of the JDA, the terms of this Letter Agreement will
be terminated except to the extent incorporated in the JDA. It is intended that the JDA will
include customary provisions found in such agreements to the extent applicable, such as
provisions relating to allocation of development responsibilities, governance, deadlock (e.g.,
buy/sell arrangements), project financing, expense restraint, capital account allocations and
transfer restrictions (e.g., right of first offer/refusal).
2. Development Activities. During the period from the date hereof until the
date of execution and delivery of the JDA, the Sponsors agree that they shall cooperate and share
responsibilities in connection with all tasks that are necessary and advisable (to the extent
mutually agreed in writing) in connection with the development of the Project, including all
necessary permitting activities, negotiation of commercial agreements and other due diligence
efforts (including obtaining of third party expert reports and other diligence required). The
parties intend that the JDA will set out (i) the specific roles and responsibilities of each Sponsor,
allocating all responsibilities relating to construction, technical, permitting, operating and related
development matters to Caithness with support from COV as needed and (ii) the voting
01910/0035 138420.2
procedures with respect to key Project development and financing decisions. Until the effective
date of the JDA, all major decisions during the Development Period shall be made jointly by the
Sponsors. Consultants will be retained pursuant to agreements with an individual Sponsor, but
the costs of the performance of such consultants' work will be borne by the Sponsors as set out
in Section 3 below.
3. Cost -Sharing; Work Product. The Sponsors intend that during the period
commencing on the effective date of the JDA and ending on the date of the financial closing (the
"Financial Closing") for the Project debt financing (the "Development Period"), and until such
time as the costs incurred by Caithness shall have reached the aggregate sum of $3,300,000
(representing all Development Costs expended by COV in connection with the Project through
the effective date of this Letter Agreement, as detailed in Annex 1), Caithness shall be
responsible for paying all of the costs associated with all activities set forth in Section 2 above
but excluding the COV Costs, as defined below (the "Development Costs"). Thereafter, during
the Development Period, each Sponsor shall be responsible for paying 50% of the Development
Costs in accordance with a mutually acceptable Development Cost budget. Each Sponsor
agrees that its internal costs and expenses shall be for its own account. All information
generated in connection with the due diligence process for which costs are shared hereunder shall
be considered "Work Product" for purposes of this Letter Agreement. Subject to Section 6 of
this Letter Agreement, each Sponsor shall have an independent right to the Work Product and,
with respect to Work Product produced by a consultant, each Sponsor shall have such an
independent right without regard to which Sponsor formally retained the consultant that
developed such Work Product. The parties agree that COV has made, and will make, certain
acquisitions and expenditures with respect to the Project (including the Project Site and certain
environmental credits) in respect of which COV will not seek reimbursement or ratable
contribution from Caithness prior to the Financial Closing and which are excluded from the
Development Costs described above ("COV Costs"). It is intended that such property and
intangibles procured by COV will be contributed to the Project on the Financial Closing and
reimbursement of COV Costs will be made from the Project financing proceeds.
4. Formation of Development Entity; Purchase of Project Site. Pursuant to
the JDA, Caithness will form an entity for the purpose of ownership and continued development
of the Project (the "Project Company"). The parties anticipate that at the Financial Closing, (a)
the Project Company will purchase the Project Site and the environmental credits referred to
above from COV at a purchase price equal to the sum of the Development Costs and COV Costs
theretofore incurred by COV; (b) the Project Company and COV will enter into a long-term
power purchase agreement ("PPA") pursuant to which COV will be entitled to up to 150 MW of
the Project's capacity and energy at preferential rates mutually acceptable to both parties, and a
gas transportation contract pursuant to which COV will provide gas transportation services to the
Project on mutually acceptable terms; and (c) COV will make available to the Project easements
and rights of way required for the Project's electric and gas transmission and interconnection
facilities, and reclaimed water and sewer facilities. In addition, COV will use its best efforts to
obtain and make available to the Project all Vernon permits that may be required for the
construction and operation of the Project, and the Project Company shall reimburse COV for all
COV Costs incurred in connection therewith at the time of Financial Closing. In lieu of or in
addition to entering into the PPA and payment of the Development Costs and COV Costs
incurred by COV at Financial Closing, Caithness and COV may agree that COV can acquire a
01910/0035 13 8420.2
percentage equity interest in the Project Company reflecting the value of COV's contributions to
the Project; provided, however, that (i) such percentage interest shall be subject to a mutually
agreeable adjustment in proportion to the equity capital (including COV Costs, opportunity value
and other intangibles as agreed by the parties) which has, or will be, contributed into the Project
Company by each Sponsor and other third -party equity participants and (ii) upon such
adjustment of equity ownership in the Project Company, the Sponsor whose equity ownership is
being reduced will be refunded the proportionate share of the aggregate Development Costs (and
COV Costs, if appropriate) incurred to date such that the aggregate Development Costs incurred
by the equity participants upon such reduction shall be proportionate to the respective ownership
interests in the Project Company.
5. Confidentiality. Except as otherwise required by law, regulation or
applicable securities exchange rules, the contents of this Letter Agreement, the subject matter
discussed in the negotiation hereof, and any information regarding the Project shall not be
disclosed by either Sponsor to anyone other than employees, officers, directors, partners,
consultants, affiliates and members of such Sponsor, and its advisors, agents or government
agencies (to the extent required by law) without the prior written consent of the other Sponsor.
Subject to the provisions of the immediately preceding sentence, all public announcements, press
releases and public relations programs and any disclosure to third parties relating to the structure
or nature of the relationship between the Sponsors or the Project must be jointly approved in
writing by the Sponsors. The provisions of this Section 5 shall survive any termination of this
Letter Agreement for a period of one (1) year and shall remain binding obligations on the
Sponsors during such period.
6. Exclusivity. The Sponsors intend to jointly develop the Project and, in
furtherance thereof, it is expressly understood that during the period from the date hereof through
and including May 31, 2006 (the "Exclusivity Period"), neither Sponsor nor any of its respective
affiliates will pursue the Project with any person other than the other Sponsor, without the prior
written consent of such other Sponsor; provided that in the event that the Sponsors cannot reach
mutual agreement on the terms and conditions of the JDA prior to such date, either Sponsor shall
have the right to end the collaboration described herein by notifying the other Sponsor that it is
terminating this Letter Agreement. Following termination of this Letter Agreement pursuant to
the preceding sentence (i) COV shall have the exclusive right to develop the Project and use all
Work Product, (ii) neither Sponsor shall have any right to seek reimbursement of the
Development Costs incurred prior to such date from the other Sponsor and (iii) COV shall have
the exclusive right to use and dispose of all items and properties in respect of which COV Costs
have been incurred.
7. Binding Commitment. Although the parties agree to be bound by the
terms of this Letter Agreement, it is expressly understood that this Letter Agreement does not
create a binding commitment or obligation on either Sponsor to invest in the Project, provided
that neither Sponsor shall have any right to seek reimbursement of any Development Costs
incurred during the course of the activities described in this Letter Agreement.
8. Counterparts. This Letter Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which together shall be
deemed one and the same document.
01910/0035 138420.2
9. Governing Law. This Letter Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
If the foregoing accurately sets forth the basic business terms of our agreement,
kindly acknowledge the same by executing and returning the enclosed duplicate copy of this
Letter Agreement.
Very truly yours,
CITY OF VERNON
LEONIS C. MALBURG, Mayor
ATTEST:
IN
BRUCE V. MALKENHORST, JR.
Acting City Clerk
APPROVED AS TO FORM:
us
ACCEPTED AND AGREED TO
this 26th day of April, 2006
CAITHNESS ENERGY, L.L.C.
Its: Sole Manager
ERIC T. FRESCH, City Attorney
01910/0035 138420.2
ANNEX 1
COV DEVELOPMENT COSTS THROUGH EFFECTIVE DATE
01910/0035 138420.2
v I F Ah - I I I LIJ Irt 11 LIDA IV, I -IAJ
Date: October 4, 2006
To: Craig Underwood
From: Eric Fresch
Re: Caithness Letter Agreement
Enclosed is a copy of a letter terminating our Letter Agreement with Caithness.
cc: Agreement File 06-053
Resolution No. 9029
LEONIS C. MALBURG oftJ
Mayor27
THOMAS A. YBARRA#01"
,',
Mayor Pro-Tem
!
WM. 'BILL" DAVIS0 k
{ !
Councilman ! s r
H. "LARRY" GONZALES FqYear
Councilmanx
W. MICHAEL McCORMICK 4305 Santa Fe Avenue, Vernon, California 90058
Councilman telephone (323) 583-8811
September 25, 2006
Via Facsimile No. (212) 921-9239
and U.S. Mail
James R. Pagano
Senior Vice President - Development
Caithness Energy, L.L.C.
565 Fifth Avenue, 29" Floor
New York, New York 10017
Re: City of Vernon and Caithness Letter Agreement
Dear Jim:
SOL BENUDIZ
Police Chief
MARK C. WHITWORTH
Acting Fire Chief
LEWIS J. POZZEBON
Director of Environmental Health
S. KEVIN WILSON
Director of Community Services
SHARON L. DUCKWORTH
Acting City Treasurer
The draft agreement and memorandum that we received from Caithness on
September 5, 2006, make clear that there are still significant differences in our
respective positions. Accordingly, pursuant to Paragraph 6 of our May 10, 2006 Letter
Agreement, the City of Vernon hereby terminates the Letter Agreement and all
obligations arising from it. ,F
We remain willing to discuss, on a non-exclusive basis, potential collaboration with
Caithness in connection with the power plant construction project. Please let us know if
you are interested in such discussions.
Very truly yours,
City of Vernon
J ,� Harrison
Chiof Assistant City Attorney
cc: Andre Burba, Credit Suisse