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Resolution No. 2010-103RESOLUTION NO. 2010-103 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON APPROVING AND AUTHORIZING THE EXECUTION OF AN AGREEMENT BY AND BETWEEN THE CITY OF VERNON AND BLX GROUP, LLC FOR FINANCIAL ADVISORY SERVICES IN CONNECTION WITH PROJECT VOLT WHEREAS, the City of Vernon ("City") is a chartered municipal corporation of the State of California; and WHEREAS, the City desires consultants to provide certain services for its Light and Power utility. 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 does hereby find and determine that the recitals contained hereinabove are true and correct. SECTION 2: The City Council of the City of Vernon hereby approves the basic financial terms set forth in agreement with BLX Group, LLC, a copy which is attached hereto as Exhibit A (the "Agreement"). SECTION 3: Subject to revisions to the Agreement satisfactory to the City Attorney, the City Council of the City of Vernon hereby authorizes the Mayor or Mayor Pro-Tem to execute the Agreement with such revisions for, and on behalf of, the City and the City Clerk or Deputy City Clerk is hereby authorized to attest thereto. SECTION 4: The City Council of the City of Vernon hereby directs the City Clerk, or the City Clerk's designee, to send a fully executed Agreement to BLX. SECTION 5: The City Clerk of the City of Vernon shall certify to the passage, approval and adoption of this resolution, and the City Clerk of the City of Vernon shall cause this resolution and the City Clerk's certification to be entered in the File of Resolutions of the Council of this City. APPROVED AND ADOPTED this 2Id day of August, 2010. Name: Hilario Gonzales Title: Mayor / or ro- MrZ7 IWM STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ). I, Willard G. Yamaguchi, City Clerk of the City of Vernon, do hereby certify that the foregoing Resolution, being Resolution No. 2010-103, was duly passed, approved and adopted by the City Council of the City of Vernon at a regular meeting of the City Council duly held on Monday, August 2, 2010, and thereafter was duly signed by the Mayor or Mayor Pro-Tem of the City of Vernon. Executed this 7) day of August, 2010, at Vernon, California. illard V Amau hi, City Clerk (SEAL) -3- 1 ,a., B X<I> ADVISORS - A.S.9Gf MANAGEMEN1' • BOND LOGISIIX 777 South Figueroa St. Suite 3200 Los Angeles, CA 90017 moNF 213 612 2200 FAx 213 612 2499 www.bondlogistix.com BOSTON DALLAS DENVER LOS ANGELES NEW YORK PHOENIX PORTLAND $AN FRANCISCO TAMPA July 27, 2010 Honorable Mayor Larry Gonzalez and Honorable Members of the City Council 4305 Santa Fe Avenue Vernon, CA 90058 Honorable Mayor and City Council Members: This letter agreement (this "Agreement") will confirm the understanding and agreement between the BLX Group LLC (BLX") and the City of Vernon, California. (the "City") as provided below. BLX will provide financial advisory, energy and electric utility asset restructuring services to the City and its Light and Power Department in connection with the Transaction (as described below). The terms of this Agreement shall apply to all services provided by BLX at the City's direction in connection with its engagement hereunder. 1. The City hereby engages BLX for the purpose of providing financial, investment, energy consulting and advisory services to the City with respect to the Transaction (as defined below) involving the City's electric system (the "Electric System"). 2. BLX hereby accepts the engagement described in paragraph 1 and, in that connection, agrees to: (a) provide general business, financial and valuation analyses of the Electric System; (b) provide financial and investment services in connection with proceeds derived from the transaction; (c) coordinate with legal counsel on matters relating to the tax-exempt status on the City's outstanding debt; (d) provide ongoing advice and evaluation of investment banking recommendations relating to the Transaction; (e) assist the Transaction financing team in preparing a briefing memorandum and other marketing materials, concerning the Electric System, to be shared with prospective counterparties; (f) consult with and advise concerning financing, hedging, and asset management opportunities that could be undertaken by a prospective counterparty in connection with a Transaction involving the Electric System; (g) assist in negotiating transactional contracts with any prospective counterparty; City of Vernon July 27, 2010 lX—: . Page 2 �cd)L[$rtlt�•i1g1,Y 3i531t,'i\iPhu.R(`i1ya GC�,hfNI - (h) provide electricity utility asset restructuring services, including generation and transmission asset acquisition; (i) assist in negotiating of public/private partnership transaction with international equity/pension/insurance portfolio funds; 0) assist with negotiating load -serving counterparties for contracted load supply/power pool arrangements. 3. For purposes of this Agreement: (a) A "Transaction" shall mean, with respect to the Electric System, any transaction or series or combination of related transactions, other than in the ordinary course of business, whereby, directly or indirectly, a material interest (including any economic interests) in, or a material portion of the assets of (which assets shall not include the land acquired by the City in 2008, located in Kern County, California), such Electric System is sold to, acquired by or otherwise transferred to a counterparty or counterparties for cash or any other consideration, including, without limitation, by means of a sale or exchange of assets or capital stock, other securities or ownership interests, a merger or consolidation, a leveraged buy-out, a minority investment, the formation of a joint venture or partnership, a derivative or hedging transaction or any similar transaction. In addition "Transaction", shall mean the acquisition of generation and/or transmission assets and the contracting of electric power load outside the City limits. 4. As compensation for the services rendered by BLX hereunder, the City agrees as follows: (a) If, during the term of BLX's engagement hereunder or at any time during a period of 36 months following the effective date of termination of BLX's engagement hereunder, an agreement to effect a Transaction with respect to the Electric System is entered into or a Transaction with respect to the Electric System is consummated, the City shall pay BLX an advisory fee with respect to such Transaction equal to ninety five basis points (0.95%) multiplied by the notional and/or principal amount of the Transaction (the "Transaction Fee"). The fee shall be payable to BLX upon closing of the Transaction by the City. (b) For each month starting August 2, 2010, the City agrees to pay BLX a fee of $75,000 per month (the "Monthly Fee"). The aggregate amount of the Monthly Fee shall be credited against the Transaction Fee provided that the Monthly Fees shall not be refundable if there is no Transaction Fee or if the Transaction Fee is less the aggregate Monthly Fees. (c) For investment management services, BLX will charge annual fees equal to seventeen and a half basis points (0.175%) of any funds derived from the Transaction. shall reimburse BLX, promptly upon request, for any reasonable expenses incurred, however BLX r ,the City's approval for any significant professional and legal fees and disbursements. 6. In connection with the Transaction, BLX will engage various other firms, as needed, to provide consulting services-in,the fields of energy, engineering, financial and mathematical modeling. Any firms BLX engages willhave'recognized'reputations for excellence in the professional community in which they practice. Fees paid to, all outside consultants which BLX will engage in connection with the Transaction will be paid by BLX to such consultants.to the extent BLX has received full payment of all fees due to BLX. August 24, 2010 A. Craig Underwood, President BLX Group LLC 777 South Figueroa Street, Suite 3200 Los Angeles, CA 90017 Re: Financial Advisory Services in Connection with Project Volt Dear Mr. Underwood: Transmitted herewith is a fully executed original of the above -referenced agreement, approved by City Council on August 2, 2010, through Resolution No. 2010-103. If you have any questions regarding this matter, please call Mr. Donal O'Callaghan at (323) 583- 8811 ext. 834. Very'Aruly yours, WIL ARD G. Y GU City Clerk Enclosure WGY:dj c: Donal O'Callaghan Laurence Wiener Resolution No. 2010-103 Agreement File No. 10-051 Excfusivefy Industriaf 777 South Figueroa St. Suite 3200 Los Angeles, CA 90017 P,*,iL 213 612 2200 FAY. 213 612 2499 www.blxgroup.com August 18, 2010 Honorable Mayor Larry Gonzalez and Honorable Members of the City Council 4305 Santa Fe Avenue Vernon; CA 90058 Honorable Mayor and City Council Members: 'Phis letter agreement (this "Agreement") will confirm the understanding and agreement between the BLX Group LLC ("BLX") and the City of Vernon, California. (the "City") as provided below. BLX will provide financial advisory, energy and electric utility asset restructuring services to the City and its Light and Power Department in connection with the Transaction (as described below). The terms of this Agreement shall apply to all services provided by BLX at the City's direction in connection with its engagement hereunder. 1. The City hereby engages BLX for the purpose of providing energy asset restructuring and financial consulting and advisory services to the City with respect to the Transaction (as defined below) involving the City's electric transmission and distribution system (the "Electric System"). 2, BLX hereby accepts the engagement described in paragraph 1 and, in that connection, agrees to perform all services that are consistent -,with such consulting and advisory role with due diligence and promptness, including but not limited to: (a) provide general business, financial and valuation analyses of the Electric System; (b) provide financial and investment services,in connection with proceeds derived from the Transaction; (c) coordinate with legal counsel on matters relating to the tax-exempt status on the City's outstanding debt; (d) provide ongoing advice and evaluation of investment banking recommendations relating to the Transaction; (e) assist the Transaction financing team in preparing a briefing memorandum and other marketing materials, concerning the Electric System, to be shared with prospective counterparties; (f) consult with and advise concerning financing, hedging, and asset management opportunities that could be undertaken by a prospective counterparty in connection with the Transaction involving the Electric System; Qly of T lemon /ltr,gusl 18, 2010 page 2 B L LX ! <a> (g) assist in negotiating transactional contracts with any prospective counterparty; (h) provide electricity utility asset restructuring services, including generation and transmission asset acquisition; (i) assist in negotiating of public/private partnership transaction with international equity/pension/insurance portfolio funds; (j) assist with negotiating load -serving counterparties for contracted load supply/power pool arrangements. 3. For purposes of this Agreement: (a) The "Transaction" shall mean a transaction (or a series or combination of related transactions), other than in the ordinary course of business, involving the sale of tangible and/or intangible assets of the Electric System to one or more unaffiliated counterparties, at the closing of which the City will raise $500 trillion or more in capital (which may be in the form of cash or securities that can be immediately sold on the open market for cash) for use at the City's discretion (i.e., without any restriction imposed by the counterparty or counterparties). (b) "Raised Capital" shall mean the capital received by the City at the closing of the Transaction, as the result of the Transaction. If the Raised Capital is paid by a counterparty in any currency other than the U.S. dollar, the value of such foreign currency for purposes hereof shall be converted into U.S. dollars at the prevailing exchange rate on the date on which such Raised Capital is received by the City.. (c) "Closing" shall mean the date and time at which the Transaction is consummated by the City and the counterparty or counterparties thereto, and the Raised Capital is received by the City. 4. As compensation for the services rendered by BLX hereunder, the City agrees as follows: (a) The City shall pay BLX an advisory fee (the "Advisory Fee") with respect to the 'Transaction equal to,ninety five basis points (0,65%) multiplied by the amount of Raised Capital, subject to the following: (i) The Advisory Fee will be payable to BLX upon the Closing of the Transaction, if such Closing occurs duing the term of this Agreement; or (ii) Notwithstanding the foregoing, the City shall pay the Advisory Fee if the Closing of the Transaction occurs within 12 months after the effective date of the termination of thus .Agreement if all of the conditions below apply: (A) BLX did not breach this Agreement and was not otherwise terminated for cause; City q f f"ernon August 18, 2010 11gge 3 (B) The termination of this ,Agreement was not due to BLX's voluntary resignation; and (C) BLX played a substantial' role in assisting the City to develop the Transaction during the term of this Agreement. (iii) For clarification, the City shall be obligated to pay the Advisory Fee to BLX only once with respect to the engagement under this Agreement and only if the .Transaction closes Successfully as described in Subsection 4(a)(i) or 4(a)(ii) above, regardless whether the Transaction involves one transaction or a series of transactions. (b) For each month starting August 2, 2010, the City agrees to pay BLX a fee of $75,000 per month (the "Monthly, Fee"). The aggregate amount of the Monthly Fee shall be credited against the Transaction Fee, provided that the Monthly Fees shall not be refundable if there is no Transaction Fee or if the Transaction Fee is less than the aggregate Monthly Fees. 5. The City shall reimburse BLX, promptly upon request, for any reasonable expenses incurred, however BLX will require the City's approval for any significant (i.e., over $1,000) professional and legal fees and disbursements. 6. In connection with the Transaction, BLX may engage various other firms, as needed, to provide consulting services in the fields of energy, engineering, financial and mathematical modeling. Upon such an engagement, BLX shall promptly notify the City, in writing, identifying the name of such firm and its primary responsible person for providing the consulting services. Any firms BLX engages will have recognized reputations for excellence in the professional community in which they practice. Fees paid to all outside consultants which BLX will engage in connection with the Transaction will be paid by BLX to such consultants to the extent BLX has received full payment of all fees due to BLX. To the extent that a consultant engaged by BLX will receive materials of the types described in Section 8, the consultant shall acknowledge and agree in writing that: (i) such materials shall be property of the City, and (h) the consultant shall promptly return any and all such materials to.the City upon the City's request, To the extent that BLX has obtained the City's prior approval to disclose confidential information to a consultant pursuant to Section 9, the consultant shall agree in writing to maintain such confidentiality and comply with Section 9 (substituting references to BLX therein with the name of the consultant). 7. All information provided by the City to BLX shall be accurate in all material respects . ' BLX and the City hereby agree that, as of the execution date of this Agreement, BLX has already performed work that qualifies it as having played a substantial role in assisting the City with respect to the development of the Transaction. Such work includes, among other things: (1) the creation of a forecasting financial model for the Electric System; (2) the development of the initial Volt slide deck shown to early, interest bidders; (3) the making of a presentation that allows a consistent comparison between the City's prior annual financial results (going back to 2003) and the current forecast model; (4) participation in various meetings and conference calls) with City staff, legal team, bankers and potential bidders to advise the City on deal structure, economics, bid process, potential bidder reaction to structure, potential tax exemption options; and (5) the provision of assistance to City staff to analyze and organize electric customer data from past seven years for presentation to potential bidders. City of l ernon August 18, 2010 BLX<�> 13,�ge 4 8. As between the City and BLX, all materials furnished by the City (or the City's agents or consultants) to BLX in connection with the engagement hereunder shall remain the property of the City. All briefing memoranda, marketing materials, business analyses and other work products created pursuant to this Agreement shall be the property of the City. Upon receiving a request to return of any of the above to the City, BLX shall promptly do so. 9. To the extent that the City provides BLX any confidential information, BLX shall maintain such confidentiality, shall not disclose or make available the information to third parties except under the following circumstances: (i) BLX has obtained the City's prior written approval for the disclosure, or (ii) BLX is required by law to make the disclosure (in which case, such disclosure shall be limited to the extent required by law and BLX will notify the City and the City Attorney as soon as possible upon learning its obligation to disclose). 10. Either party may terminate BLX's engagement hereunder at any time by giving the other party at least five days' prior written notice. In the event of such termination, the Monthly Fee for the last month will be prorated based on the number of days elapsed relative to the number of days remaining in that month. 11. The rights and obligations created by this agreement shall not be subject to assignment by the City or BLX without the prior written consent of the other party hereto. 12. Nothing in this Agreement, express or implied, is intended to confer or does confer to any person or entities other than the City and BLX (and their successors and permitted assigns), any right, remedy or claim under or by reason of this Agreement. BLX acknowledges that no elected or appointed official, employee, agent or advisor of the City shall be individually or personally liable for the payment toBLX under this Agreement. 13. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 14. This Agreement may not be amended or modified except in writing signed by each of the parties. 15. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. 16. All notices and other communications provided for hereunder may be in written, electronic or telephonic form (including e-mail, fax or similar means) and shall be given to the party to whom sent at the address set forth below or other address, e-mail address or telephone or fax number as such party may hereafter specify. Each such notice or communication shall be effective (i) if given by telephone, fax, e-mail or other electronic means, when such communication is transmitted to the specified address and any appropriate answerback or confirmation is received, (ii) if given by certified or registered mail, return receipt requested, on the date of receipt appearing on the return postal receipt for notices given by certified or registered mail, (iii) if given by hand deliverv, when delivered at the specified address: If to BLX: City of ' I ez-ton /1 zagust 18, 2010 Pale 5 City of Vernon 4305 Santa Fe Avenue Vernon, California 90058 Attn: Marla Whitworth, Interim City Administrator Telephone: (323) 583-8811 Fax: (323) 826-1408 E-mail: mwhit\vorth@c.i.vernon.ca.us For all consent requests, or notices under Section 9 (disclosure of confidential information), Paragraph 10 (Agreement termination), or Section 10 (assignment) or communication regarding legal proceedings, a copy of the request, notice or communication shall be sent to the City Attorney: Laurence Wiener, Esq. Richards, Watson & Gershon, A Professional Corporation 355 S. Grand Avenue, 40t" Floor Los Angeles, California 90071 Telephone: (213) 626-8484 Fax: (213) 626--0078 E-mail: lw1ener((-P.rw0aw.corn BLX Group LLC. 777 S. Figueroa Street, Suite 3200 Los Angeles, California 90017 Attn: Craig Underwood, President Telephone: (213) 612-2463 Fax: (213) 612-2499 E-mail: cnderwood@bLxgroup.com BLX<3> City oj' l%ernon Augusi 18, 2010 Page 6 If the foregoing correctly sets forth the understanding and agreement between BLX and the City, please so indicate in the space provided for that purpose below, whereupon this letter shall constitute a binding agreement as of the date First written above. BLX GROUP LLC Bv: A. raig Underwood President ACCEPTED AND AGREED: CITY OF VERNON HILARIO GONZALES, Mayor nr�� AI" EST A�xgCity lerk it rd . Yamaguchi APPWX7ED A FORM: LAURENCE S. WIENER, City Attorney RECEIVED :11 1. 2 8 2010 CITY CLERK'S OFFICE STAFF REPORT City Attorney Department DATE: August 2, 2010 TO: The Honorable Mayor and Members of the City Council FROM: Laurence S. Wiener, City Attorney RE: Consultant Contract for Project Volt Background: As Mr. Eric Fresch has previously reported to the City Council, he has been assembling a consultant team to explore non traditional methods to raise capital for the Light and Power utility. He has titled this effort "Project Volt." At its meeting of July 19, the City Council approved the basic financial terms of two consultant contracts in connection with Project Volt. One of those contracts was with Barclays Capital, the other with Latham and Watkins Discussion:• Mr. Fresch is now proposing that the City enter into a third consultant contract, this one, with BLX Group LLC for financial and energy advisory services in connection with Project Volt. The fee set forth in the contract is 0.95% of the value of the transaction (the "Transaction Fee"). Additionally, BLX would _be paid $75,000 monthly. If the transaction is completed, then the Transaction Fee due to BLX will be reduced by the monthly fees that have already been paid. If the transaction is never completed, then BLX will keep the monthly fee as its compensation. The agreement also allows BLX to engage other firms for energy, engineering, financial or mathematical modeling services. Mr. Fresch reports that he has no current relationship with BLX. However, since Mr. Fresch is no longer a public official or an employee of the City; and is merely providing legal and consulting services on an hourly basis as requested by the City, he is free to work with BLX through this contract and he has indicated that he may do so in the future. The BLX contract was provided to the City shortly before the agenda materials were prepared for City Council review. Upon initial review of the contract, it appears that the contract requires some revision to ensure that the contract will clearly define the scope of the project to which the contract applies and does not include certain provisions that are unacceptable to the City. However, if the City Council finds the basic financial terms of the contract acceptable and wishes to allow Project Volt to move forward as quickly as possible, the City Attorney's Office would recommend that the City Council approve the basic financial terms presented in the contract and authorize the Mayor to execute the contract, with revisions satisfactory to the City Attorney. Recommendation: If the City Council finds the basic financial terms of the contract acceptable and wishes to allow Project Volt to move forward as quickly as possible, the City Attorney's Office recommends that the City Council approve the basic financial terms presented in the contract and authorize the Mayor to execute the contract, with revisions satisfactory to the City Attorney.