HomeMy WebLinkAboutAgenda Report - September 4, 2002 I-02CITY OF LODI COUNCIL COMMUNICATION
AGENDA TITLE: Adopt resolution authorizing the City Manager to amend existing contract between the City of
Lodi and Calpine Energy Services, L.P. (CALPINE) and to execute the appropriate
documents to complete the amendment (EUD)
MEETING DATE: September 4, 2002
PREPARED BY: Electric Utility Director
RECOMMENDED ACTION: That the City Council adopt a resolution authorizing the City Manager to
amend the existing contract between the City of Lodi (City) and Calpine
Energy Services, L.P. (CALPINE) and to execute the appropriate documents
to complete the amendment.
BACKGROUND INFORMATION: Currently, the City receives power under a CALPINE contract for 25 MW on a
24-hour basis for the period January 1, 2002 to December 31, 2011. This
contract was entered into during the middle of last year's energy crisis.
Current conditions in the energy and financial markets provide an opportunity to lower existing power supply costs by
amending the existing contract to terminate future energy deliveries associated with the contract. The Electric Utility
Department will then pursue other power supply option purchases that will be shaped to the City's power supply
requirements more closely, at a lower cost to the City.
The goals of the restructuring as presented during a recent City Council Shirtsleeve meeting are as follows:
• Reduce the level of counter party risk associated with the existing contract
• Shape the City's resource portfolio to more closely follow load growth
• Shape bulk power costs to more closely match load/revenue growth
• Accelerate growth of cash reserves
• Maintain regional advantages in terms of rates
The proposed contract amendment provides an opportunity to lower overall power costs by reducing what the City
would have paid to CALPINE. The possible savings range from 15% to 20% on a net present value basis. Equally
important, amending the contract to eliminate future energy deliveries will reduce the risk of a failure of CALPINE to
provide power. At the time the contract was entered into, CALPINE had a substantially better credit rating and
financial condition than it's present condition. In order to mitigate this risk, terminating energy deliveries under the
CALPINE contract is necessary.
Termination of energy deliveries under the existing contract entails, essentially, two steps. The first step would be
amending the existing CALPINE contract by buying the value of the contract out based on a mutually agreed upon
value between CALPINE and the City. The value is equal to the difference in the value of the contract and the current
market price of energy over the contract term. The second step requires the City to fund the agreed upon energy
delivery termination cost with an appropriate bond financing. This resolution is intended to implement the amendment
of the existing contract and set in motion the financing of the agreed upon value of the energy delivery termination.
APPROVED:
'FrDix Flynn - Ci Manager
Upon execution, the City will substantially lower its monthly bulk power costs. The most significant savings will occur
during the first three years. Total expected present value savings are expected to be up to $10,000,000. Final
elements of the contract amendment are being negotiated presently and are expected to be finalized by the time of
the City Council meeting. A copy of the contract amendment will be available for review at the earliest possible time.
The entire team working on this transaction will be present to answer questions.
FUNDING: 160652 — Power Supply Budget
1%J14
Alan N. Vallow
Electric Utility Director
PREPARED BY: Boris Prokop, Power Supply and Rates Manager
ANV/BP/Ist
C: City Clerk
Finance Director
APPROVED:
H. Dixon Flynn - City Manager
RESOLUTION NO. 2002-189
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LODI
APPROVING THE FORM OF, AND AUTHORIZING THE
EXECUTION AND DELIVERY OF, AN AMENDMENT TO AN
ELECTRIC ENERGY PURCHASE AGREEMENT AND
AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO
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WHEREAS, the City of Lodi (the "City"), a municipal corporation duly organized
and existing under and by virtue of the Constitution and laws of the State of California (the
"State"), owns and operates a municipal electric utility system (the "Electric System")
providing electric service to the inhabitants of the City; and
WHEREAS, in order to satisfy the electric service requirements of the inhabitants
of the City, the City has entered into contracts for the purchase of electric capacity and
energy and capacity rights in electric transmission facilities; and
WHEREAS, due to a financial crisis of the investor-owned utilities in the State and
a reduction in the amount of electricity available for purchase to serve consumers in the
State, the Governor of the State declared a state of emergency and the State, through the
Department of Water Resources, commenced purchasing electricity to serve the loads of
the customers of the investor-owned utilities; and
WHEREAS, the conditions leading to the Governor's declaring a state of
emergency created uncertainty as to whether the City would be able to purchase power in
the short-term markets to satisfy the load requirements of the inhabitants of the City; and
WHEREAS, the City, together with certain other members of the Northern
California Power Agency ("NCPA'), acting through NCPA, arranged for the purchase of
electric energy from Calpine Energy Services, L. P. ("Calpine"), on the terms and
conditions of the Western Systems Power Pool Agreement (version effective July 1, 2000)
(the "WSPP Terms") and CAISO confirmations which would contain the specific terms of
the energy purchase; and
WHEREAS, in order to assure adequate electricity to satisfy the expected load
requirements of the inhabitants of the City, the City entered into a long-term, fixed-price
electric energy purchase agreement with Calpine consisting of the WSPP Terms and the
CAISO Confirmation, dated February 9, 2001, setting forth the amount of electric energy
purchased by the City from Calpine (the "Energy"), specifying certain terms and conditions
of such purchase and modifying certain provisions of the WSPP Terms (collectively, the
"Contract"); and
WHEREAS, pursuant to the Contract, the City is obligated to take and pay for the
Energy purchased, resulting in the City's obligation to make installment purchase
payments to Calpine in the amounts and at the times determined pursuant to the Contract;
and
WHEREAS, since the City entered into the Contract, the State has initiated an
electric energy conservation program which has resulted in a reduction of the electric load
requirements of retail customers throughout the State, including within the City; and
WHEREAS, since the City entered into the Contract, the State has supported and
encouraged, through modifications to the power plant approval process and other means,
the construction of new power plants, the repowering of older power plants to increase
production and an expansion of the facilities to import power and natural gas into the State
from other areas of the United States; and
WHEREAS, the reduction in electric load, the increase of electric production
facilities, an increase in the supply of, and reduction in the cost of, natural gas, the
regulation of maintenance schedules for power plants and other factors have significantly
reduced the demand or the rate of growth of demand for electricity in the State, including
the City, and resulted in an increase in the supply, and reduced the cost, of electricity in
the short-term markets; and
WHEREAS, as a result of the factors described above and other factors discussed
with this City Council, much of the Energy is expected to be sold by the City at prices
which the City anticipates will be significantly below the price paid for the Energy by the
City; and
WHEREAS, the City has determined that it is in its best economic interests to
provide for the sale of the Energy in one transaction rather than selling portions of the
Energy in multiple transactions over time; and
WHEREAS, the City has determined that the best economic use by the City of,
and the best return to the City for the sale of, the Energy can be achieved by selling the
Energy to Calpine in a single transaction; and
WHEREAS, the City has determined to sell the Energy to Calpine on the terms
and conditions set forth in an amendment to the Contract denominated Amendment
Number One to Electric Energy Purchase Agreement (the "Amendment"); and
WHEREAS, the City and Calpine have agreed upon the purchase price for the
Energy purchased by Calpine pursuant to the Amendment and have also agreed to net
the payments due from the City for its purchase of the Energy from Calpine against the
payments due from Calpine for its purchase of the Energy from the City; and
WHEREAS, the City and Calpine have agreed that the netting of such amounts
payable by the respective parties is properly reflected by the City making installment
payments (the "Installment Payments") at the times and in the amounts set forth in the
Amendment; and
WHEREAS, the Installment Payments are to be paid from available revenues of
the City's Electric System; and
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WHEREAS, all acts, conditions and things required by the laws of the State of
California to exist, to have happened and to have been performed precedent to and in
connection with the consummation of the transactions authorized hereby do exist, have
happened and have been performed in regular and due time, form and manner as
required by law, and the City is now duly authorized and empowered, pursuant to each
and every requirement of law, to consummate such transactions for the purpose, in the
manner and upon the terms herein provided;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF LODI, AS FOLLOWS:
Section 1. This City Council hereby specifically finds and determines that the
actions authorized hereby constitute and are with respect to the public affairs of the City
and that the statements, findings and determinations set forth above and in the
preambles of the Amendment approved herein are true and correct. This City Council
hereby specifically further finds and determines that the consummation of the
transactions contemplated in this Resolution and in the Amendment shall result in
significant public benefits to the City in that the City expects to improve the costs and
liquidity requirements of the Electric System's operations through sale of the Energy as
provided in the Amendment.
Section 2.The Amendment proposed to be executed and entered into by the City
and Calpine, in the form presented at this meeting and on file with the City Clerk, and
the performance by the City of its obligations thereunder, are hereby approved, and
each of the City Manager and the Finance Director (each a "Designated Officer") is
hereby severally authorized and directed to execute the Amendment, for and in the
name and on behalf of the City, and deliver the Amendment to Calpine. The
Amendment shall be in substantially the form presented to this meeting and on file with
the City Clerk; provided however the Amendment may also include a pledge of the net
revenues of the City's Electric System on a basis consistent with the City's agreements
and obligations relating to such net revenues and such other nonsubstantive changes
therein as the Designated Officer executing the Amendment may approve, such
approval to be conclusively evidenced by the execution and delivery thereof.
Section 3. The provisions of the Amendment requiring or authorizing the
assignment of Calpine's rights to receive the Installment Payments, and certain rights
related to the Installment Payments, including without limitation the rights to enforce the
payment thereof and the other covenant obligations of the City in connection with the
Installment Payments are hereby specifically approved. Such assignment provisions
contemplate, and are included in the Amendment to facilitate, third parties obtaining
rights and benefits under the Amendment directly through such assignment, through an
offering of certificates of participation in the Installment Payments by or on behalf of an
assignee, or through some other structure to securitize the cash flow of the Installment
Payments. As a result the Amendment constitutes a contract within the meaning of
Section 53511 of the Government Code of the State for purposes of Sections 860 and
863 of the Code of Civil Procedure of the State.
DOCSLA1:427695.2
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Section 4. The City Clerk is hereby authorized and directed to attest the
signature of the Designated Officer executing the Amendment on behalf of the City, and
to affix and attest the seal of the City thereto, as may be required or appropriate in
connection with the execution and delivery of the Amendment.
Section 5. Each appropriate officer, employee or agent of the City is hereby
severally authorized and directed to do any and all things and to execute and deliver any
and all certificates, documents and instruments which he or she may deem necessary or
desirable in order to consummate the transactions authorized hereby and to carry out,
give effect to and comply with the terms and intent of this Resolution and the
Amendment. All such actions heretofore taken by any officer, employee or agent of the
City is hereby ratified, confirmed and approved.
Section 6. This Resolution shall take effect immediately upon its passage.
Date: September 4, 2002
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I hereby certify that Resolution 2002-189 was passed and adopted by the City
Council of the City of Lodi in a regular meeting held September 4, 2002 by the following
votes:
AYES: COUNCIL MEMBERS — Hitchcock, Howard, Land, Nakanishi, and
Mayor Pennino
NOES: COUNCIL MEMBERS - None
ABSENT: COUNCIL MEMBERS — None
ABSTAIN: COUNCIL MEMBERS - None
SUSAN J. BLACKSTON
City Clerk
Approved As to Form:
xa::Z�l 1;f *��
Randall A. Hays
City Attorney
T -d
DR,gpT
RESOLUTION NO. 02-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LODI
APPROVING THE FORM OF, AND AUTHORIZING THE EXECUTION AND
DELIVERY OF, AN AMENDMENT TO AN ELECTRIC ENERGY PURCHASE
AGREEMENT AND AUTHORIZING CERTAIN OTHER MATTERS
RELATING THERETO
WHEREAS, the City of Lodi (the "City"), a municipal corporation duly organized and
existing under and by virtue of the Constitution and laws of the State of California (the "State"),
owns and operates a municipal electric utility system (the "Electric System") providing electric
service to the inhabitants of the City; and
WHEREAS, in order to satisfy the electric service requirements of the inhabitants of the
City, the City has entered into contracts for the purchase of electric capacity and energy and
capacity rights in electric transmission facilities; and
WHEREAS, due to a financial crisis of the investor-owned utilities in the State and a
reduction in the amount of electricity available for purchase to serve consumers in the State, the
Governor of the State declared a state of emergency and the State, through the Department of
Water Resources, commenced purchasing electricity to serve the loads of the customers of the
investor-owned utilities; and
WHEREAS, the conditions leading to the Governor's declaring a state of emergency
created uncertainty as to whether the City would be able to purchase power in the short-term
markets to satisfy the load requirements of the inhabitants of the City; and
WHEREAS, the City, together with certain other members of the Northern California
Power Agency ("NCPA"), acting through NCPA, arranged for the purchase of electric energy
from Calpine Energy Services, L. P. ("Calpine"), on the terms and conditions of the Western
Systems Power Pool Agreement (version effective July 1, 2000) (the "WSPP Terms") and CAISO
confirmations which would contain the specific terms of the energy purchase; and
WHEREAS, in order to assure adequate electricity to satisfy the expected load
requirements of the inhabitants of the City, the City entered into a long-term, fixed-price electric
energy purchase agreement with Calpine consisting of the WSPP Terms and the CAISO
Confirmation, dated February 9, 2001, setting forth the amount of electric energy purchased by
the City from Calpine (the "Energy"), specifying certain terms and conditions of such purchase
and modifying certain provisions of the WSPP Terms (collectively, the "Contract"); and
WHEREAS, pursuant to the Contract, the City is obligated to take and pay for the Energy
purchased, resulting in the City's obligation to make installment purchase payments to -the Calpine
in the amounts and at the times determined pursuant to the Contract; and
WHEREAS, since the City entered into the Contract, the State has initiated an electric
energy conservation program which has resulted in a reduction of the electric load requirements
of retail customers throughout the State, including within the City; and
WHEREAS, since the City entered into the Contract, the State has supported and
encouraged, through modifications to the power plant approval process and other means, the
construction of new power plants, the repowering of older power plants to increase production
and an expansion of the facilities to import power and natural gas into the State from other areas
of the United States; and
WHEREAS, the reduction in electric load, the increase of electric production facilities, an
increase in the supply of, and reduction in the cost of, natural gas, the regulation of maintenance
schedules for power plants and other factors have significantly reduced the demand or the rate of
growth of demand for electricity in the State, including the City, and resulted in an increase in the
supply, and reduced the cost, of electricity in the short-term markets; and
WHEREAS, as a result of the factors described above and other factors discussed with
this City Council, much of the Energy is expected to be sold by the City at prices which the City
anticipates will be significantly below the price paid for the Energy by the City; and
WHEREAS, the City has determined that it is in its best economic interests to provide for
the sale of the Energy in one transaction rather than selling portions of the Energy in multiple
transactions over time; and
WHEREAS, the City has determined that the best economic use by the City of, and the
best return to the City for the sale of the Energy can be achieved by selling the Energy to Calpine
in a single transaction; and
WHEREAS, the City has determined to sell the Energy to Calpine on the terms and
conditions set forth in an amendment to the Contract denominated Amendment Number One to
Electric Energy Purchase Agreement (the "Amendment"); and
WHEREAS, the City and Calpine have agreed upon the purchase price for the Energy
purchased by Calpine pursuant to the Amendment and have also agreed to net the payments due
from the City for its purchase of the Energy from Calpine against the payments due from Calpine
for its purchase of the Energy from the City; and
WHEREAS, the City and Calpine have agreed that the netting of such amounts payable by
the respective parties is properly reflected by the City making installment payments (the
"Installment Payments") at the times and in the amounts set forth in the Amendment; and
WHEREAS, the Installment Payments are to be paid from available revenues of the City's
Electric System, and
WHEREAS, all acts, conditions and things required by the laws of the State of California
to exist, to have happened and to have been performed precedent to and in connection with the
consummation of the transactions authorized hereby do exist, have happened and have been
2 DehaView comparison of Powerpocs://DOCSLAI/427695/1 and
Powerpocs://DOCSLAI/427695/2. Performed on 09/04/02.
performed in regular and due time, form and manner as required by law, and the City is now duly
authorized and empowered, pursuant to each and every requirement of law, to consummate such
transactions for the purpose, in the manner and upon the terms herein provided;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF LODI, AS FOLLOWS:
Section 1. This City Council hereby specifically finds and determines that the actions
authorized hereby constitute and are with respect to the public affairs of the City and that the
statements, findings and determinations set forth above and in the preambles of the Amendment
approved herein are true and correct. This City Council hereby specifically further finds and
determines that the consummation of the transactions contemplated in this Resolution and in the
Amendment shall result in significant public benefits to the City in that the City expects to
improve the costs and liquidity requirements of the Electric System's operations through sale of
the Energy as provided in the Amendment.
Section 2. The Amendment proposed to be executed and entered into by the City and
Calpine, in the form presented at this meeting and on file with the City Clerk, and the performance
by the City of its obligations thereunder, are hereby approved, and each of the City Manager and
the Finance Director (each a " Officer") is hereby severally authorized
and directed to execute the Awe for and in the name and on behalf of the City, to
execute-and deliver the Amendu nt to Calpin� Amendment &h�� l� in substantially
saidlU fo, 1 presentad to this meetina and an file with the C'rtv Clerk- provided however
the Amendment may also include a nledue of the net revenues of the City's Flectric S ysF
on a basis consistent with the C'ity's aaareements and ohlications relatin� t =m ch—nzt
revenues and such other nonsubs�tan� changes therein as the Designated Officer executing
snchLU docuinentAineadm= may approve, such approval to be conclusively evidenced by the
execution and delivery thereof.
Section 3. The provisions of the Amendment requiring or authorizing the assignment
of Calpine's rights to receive the Installment Payments, and certain rights related to the
Installment Payments, including without limitation the rights to enforce the payment thereof and
the other covenant obligations of the City in connection with the Installment Payments are hereby
specifically approved. Such assignment provisions contemplate, and are included in the
Amendment to facilitate, third parties obtaining rights and benefits under the Amendment directly
through such assignment, through an offering of certificates of participation in the Installment
Payments by or on behalf of an assignee, or through some other structure to securitize the cash
flow of the Installment Payments. As a result the Amendment constitutes a contract within the
meaning of Section 53511 of the Government Code of the State for purposes of Sections 860 and
863 of the Code of Civil Procedure of the State.
Section 4. The City Clerk is hereby authorized and directed to attest the signature of
the Designated Officer executing the Amendment on behalf of the City, and to affix and attest the
seal of the City thereto, as may be required or appropriate in connection with the execution and
delivery of the Amendment.
3 DehaView comparison of Powerpocs://DOCSLAl/427695/1 and
Powerpocs://DOCSLAI/427695/2. Performed on 09/04/02.
Section 5. Each appropriate officer, employee or agent of the City is hereby severally
authorized and directed to do any and all things and to execute and deliver any and all certificates,
documents and instruments which he or she may deem necessary or desirable in order to
consummate the transactions authorized hereby and to carry out, give effect to and comply with
the terms and intent of this Resolution and the Amendment. All such actions heretofore taken by
any officer, employee or agent of the City is hereby ratified, confirmed and approved.
Section 9. This Resolution shall take effect immediately upon its passage.
Date: September 4, 2002
I hereby certify that Resolution 02- was passed and adopted by the City Council of
the City of Lodi in a regular meeting held September 4, 2002 by the following votes:
AYES: Council Members -
NOES: Council Members -
ABSENT: Council Members -
Susan J. Blackston
City Clerk
Approved As to Form:
Randall A. Hays
City Attorney
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Document comparison done by DeltaView on Wednesday, September 04, 2002
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IT_
City Council Version
AMENDMENT NUMBER ONE TO ELECTRIC ENERGY PURCHASE AGREEMENT
by and between
CITY OF LODI
and
CALPINE ENERGY SERVICES, L.P.
Dated as of September 1, 2002
DOCSLA1:427901.1
AMENDMENT NUMBER ONE TO ELECTRIC ENERGY PURCHASE AGREEMENT
This Amendment Number One to Electric Energy Purchase Agreement (this
"Amendment"), dated as of September 1, 2002, by and between the City of Lodi, California, a
municipal corporation duly organized and existing under and by virtue of the Constitution and
laws of the State of California (the "City"), and Calpine Energy Services, L.P., a limited
partnership duly organized and existing under and by virtue of the laws of the State of Delaware
("Calpine") (each of the City and Calpine being herein referred to individually as a "Party" or
collectively as the "Parties"),
WITNESSETH:
WHEREAS, the City has established the Electric System (capitalized terms used in this
Amendment and not otherwise defined shall have the meanings given such terms in Exhibit A to
Part III) to serve the inhabitants of the City; and
WHEREAS, pursuant to the Public Utilities Code of the State, the City is authorized to
acquire, own, control sell or exchange rights of every nature for the purpose of operating the
Electric System; and
WHEREAS, in order to assure adequate electricity to satisfy the expected load
requirements of the inhabitants of the City, the City entered into the Original Agreement with
Calpine providing for the purchase by the City of the Energy for the term of the Original
Agreement, establishing the fixed-price to be paid for the Energy by the City and specifying the
terms and conditions of such purchase; and
WHEREAS, pursuant to the Original Agreement, the City is obligated to take and pay for
the Energy has delivered, resulting in the City's obligation to make installment purchase
payments to Calpine in the amounts and at the times determined pursuant to the Original
Agreement; and
WHEREAS, the City has determined to sell its interests in the Energy to Calpine, and
Calpine has determined to purchase the City's interests in the Energy, on the terms and
conditions set forth in this Amendment; and
WHEREAS, the City and Calpine have agreed upon the purchase price for the City's
interests in the Energy and have also agreed to net the payments due from the City for its
purchase of the Energy from Calpine pursuant to the Original Agreement against the payments
due from Calpine for its purchase of the City's interests in the Energy pursuant to this
Amendment; and
WHEREAS, the City and Calpine have agreed that the netting of such amounts payable
by the respective Parties is properly reflected by the City making the Installment Payments at the
times and in the amounts set forth in Exhibit B to Part III; and
DOCSLA1:427901.1
WHEREAS, the Installment Payments are to be paid from available Net Revenues of the
City's Electric System; and
WHEREAS, all acts, conditions and things required by the laws of the State to exist, to
have happened and to have been performed precedent to and in connection with the City's
entering into this Amendment and the consummation on the part of the City of the transactions
set forth in this Agreement do exist, have happened and have been performed in regular and due
time, form and manner as required by law, and the City is now duly authorized and empowered,
pursuant to each and every requirement of law, to enter into this Amendment and to consummate
such transactions for the purpose, in the manner and upon the terms herein provided;
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE
MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN AND FOR OTHER
VALUABLE CONSIDERATION, THE PARTIES HERETO DO HEREBY AGREE AS
FOLLOWS:
PART I
GENERAL PROVISIONS OF AMENDMENT
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in
Exhibit A to Part III of the Agreement shall for all purposes of this Part I and of any amendment
hereof or supplement hereto and of any opinion or report or other document mentioned herein
have the meanings given such terms in said Exhibit A to Part III.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.01. Mutual Representations. The Parties each represent and warrant to the
other Parties that (i) it is duly formed and in good standing under the laws of the State of
California, in the case of the City, or the State of Delaware, in the case of Calpine, (ii) it has all
necessary power, authority and legal right to enter into, deliver and perform its respective
obligations under the Amendment, (iii) the execution, delivery and performance of the
Amendment by such Party have been duly authorized by all necessary action, (iv) all consents
and approvals necessary for the execution, delivery and performance of the Amendment by such
Party have been obtained, and (v) the Amendment is the legal, valid and binding obligation of
such Party, enforceable in accordance with its respective turns.
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DOCSLA 1:427901.1
Section 2.02. City Representations. The City further represents and warrants that (i) all
acts necessary to the valid execution, delivery and performance of the Amendment, including
without limitation competitive bidding, public notice, election, referendum, prior appropriation
or other required procedures has or will be taken and performed as required under the City's
ordinances, bylaws or other regulations and under California law, (ii) all persons making up the
City Council of the City are duly elected or appointed incumbents in their positions and hold
such positions in good standing in accordance with California law, (iii) entry into and
performance of the Amendment by the City are for a proper public purpose under California law,
(iv) the terms of the Amendment do not extend beyond any applicable limitation imposed by
California law, and (v) the City's obligations to make the Installment Payments from Net
Revenues are unsubordinated obligations and are on a parity with any and all bonds or other
evidences of indebtedness issued by the City under applicable California law, and (v) the City's
obligations to make the Installment Payments do not violate California law, any order or
judgment of any court or other agency of government applicable to the City or its assets, or any
contractual restriction binding on or affecting the City or any of its assets.
ARTICLE III
PARTS OF AGREEMENT
Section 3.01. Agreement Divided into Parts. The Agreement, as amended and
supplemented by this Amendment, shall be divided into three Parts as follows: Part I shall
consist of those provisions designated as Part I of this Amendment; Part II shall consist of the
Original Agreement; and Part III shall consist of those provisions designated as Part III in this
Amendment.
Section 3.02. Purpose of Division into Parts. The purpose of the division of the
Agreement into the Parts is to recognize and provide that, upon the Effective Date: (i) the
provisions of each of the Parts of the Agreement shall operate independently of the other Parts
and the performance of a Party's obligations under any Part of the Agreement shall not be
dependent or conditioned upon the other Party's performance under any other Part of the
Agreement and each and every agreement and obligation of a Party under a Part of the
Agreement may be enforced by the other Party notwithstanding the failure of such enforcing
Party to have fully performed its agreements and obligations under any other Part of the
Agreement; (ii) except to the extent expressly amended by this Amendment, the provisions of
Part II of the Agreement shall constitute the entire agreement of the Parties hereto with respect to
the subject matter included in such Part II and shall supercede any other agreement,
understanding or arrangement, whether written or oral, between the Parties with respect to the
subject matter of such Part II, including without limitation events of defaults and remedies under
another Part of the Agreement; (iii) Calpine is both the seller and buyer of the Energy pursuant to
the Agreement and as a result Part II of the Agreement is satisfied, discharged and terminated
with the result that Calpine shall have no further obligations or liability under Part II, but such
satisfaction, discharge and termination shall not affect any other Part of the Agreement or the
rights and obligations of the Parties under any other Part of the Agreement, including without
limitation the City's obligations to make the Installment Payments and to perform its other
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DOCSLAI :42790 1.1
obligations under Part III of the Agreement; (iv) the termination of Part II of the Agreement
releases Calpine from any obligation to deliver Energy under Part II of the Agreement and the
City from any obligation to take Energy under the Part II of the Agreement, but does not affect
the City's obligation to make the Installment Payments as provided in Part III of the Agreement;
(v) the payment obligations of the City for the purchase of the Energy pursuant to the Original
Agreement have been netted against the payment obligation of Calpine for the purchase of all of
the City's right, title and interest in and to the Energy pursuant to Section 2.01 of Part III of the
Agreement, with the result that, in all events and without regard to Calpine's performance or
nonperformance of any obligations under Part II of the Agreement, the City remains liable for
the payment of the Installment Payments from available Net Revenues at the times and in the
amount set forth in Exhibit B to Part III of the Agreement which the Parties agree properly
reflect such netting of payments; (vi) any assignment of Calpine's right, title and interest in and
to the Installment Payments pursuant to Section 4.01 of this Part I shall include an assignment of
all of Calpine's rights under Parts I and III of the Agreement, together with the right to enforce
all of the City's obligations and covenants contained in Parts I and III of the Agreement; and
(vii) that the City's obligations under Part III of the Agreement shall continue in full force and
effect until satisfied as provided in said Part III notwithstanding the satisfaction of all the
obligations of the Parties under, and the termination of, Part I and/or Part II of the Agreement or
the completion of all the transactions contemplated by Part I and/or Part II of the Agreement,
and/or the termination or satisfaction of any or all the provisions of Part I and/or Part II of the
Agreement.
ARTICLE IV
ASSIGNMENT OF INSTALLMENT PAYMENTS
Section 4.01. Assignment of Rights to Corporation. Calpine hereby irrevocably grants
to the Corporation the right and option to purchase, and upon the exercise of such right and
option as provided in this Section, Calpine shall sell, transfer and assign, all of Calpine's right,
title and interest in and to Parts I and III of the Agreement, including all rights to the Installment
Payments and the right enforce the City's obligations under Part III of the Agreement to pay the
Installment Payments and to comply with the other covenants and agreements of the City
contained in Part III of the Agreement. The right and option granted to the Corporation in this
Section shall expire on the Option Expiration Date. The right and option granted to the
Corporation in this Section may be exercised by the delivery to Calpine (or if Calpine's rights
under Parts I and III of the Agreement have been sold, transferred and assigned pursuant to
Section 4.02 of this Part I, the assignee of such rights), by or on behalf of the Corporation, on
any Business Day on or before the Option Expiration Date of an amount of money constituting
legal tender of the United States of America equal to the Option Amount as of the date of such
delivery. The City shall give, or cause to be given, notice of the payment of the Option Amount
not less than two (2) days prior to the date of such payment unless Calpine (or if Calpine's rights
under Part III of the Agreement have been sold, transferred and assigned pursuant to Section
4.02 of this Part I, the assignee of such rights) waives such notice by accepting the payment of
the Option Amount.
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Section 4.02. Rights of Calpine to Assign. Calpine shall have the right to sell, transfer
and assign, and to grant options to acquire, all of Calpine's right, title and interest in and to
Parts I and III of the Agreement, including all rights to the Installment Payments and the right to
enforce the City's obligations under Part III of the Agreement to pay the Installment Payments
and to comply with the other covenants and agreements contained in Part III of the Agreement,
to any person or entity selected by Calpine provided that any such sale, transfer and assignment
shall expressly provide that it is subject to the rights granted to the Corporation pursuant to
Section 4.01 of this Part I and Calpine shall provide the City with a written acknowledgement of
the assignee that the rights it is acquiring are so subject to the rights granted to the Corporation
pursuant to said Section 4.01. The provisions of this Section shall apply to each sale, transfer
and assignment of Calpine's rights under Parts I and III of the Agreement made on or prior to the
Option Expiration Date whether made by Calpine, the initial assignee or any subsequent
assignee.
Section 4.03. Parties to Cooperate in any Assignment. The City hereby agrees and
consents to any assignment made pursuant to Section 4.01 or Section 4.02 of this Part I. Each
Party agrees that it will take such actions and adopt, deliver, execute and make any and all
further assurances, instruments and documents as may be reasonably necessary or proper to carry
out the intention or to facilitate the performance of any assignment of Calpine's rights under
Parts I and III of the Agreement in accordance with Section 4.01 or Section 4.02 of this Part I for
the better assuring and confirming unto the assignee all of the rights and benefits provided to it
pursuant to such assignment.
Section 4.04. Settlement of Claims. Each Party agrees, on behalf of itself and its
respective successors and assignees, that this Amendment and the transactions contemplated
hereby are intended to fully and finally settle and resolve any and all claims of any nature
whatsoever that any of them may now or hereafter have or any disputes that may have arisen or
later arise under or with respect to the Original Agreement and the transactions contemplated
thereby (collectively, "Claims'), including without limitation any Claims that the City, its
successors and assignees, may now or hereafter have under Section 206 of the Federal Power
Act. Each Party, on behalf of itself and its respective successors and assignees, hereby waives,
releases, acquits and discharges the other Party, its successors and assignees, from all Claims.
Each Party, on behalf of itself and its respective successors and assignees, expressly waives the
benefit of any statutory provision or common law rule that provides that a release does not
extend to claims which the Party does not know or suspect to exist in its favor at the time of
executing the release, which if known by it, would have materially affected its settlement with
the other Party. In particular, but without limitation, each Party, on behalf of itself and its
respective successors and assignees, expressly waives the provisions of California Civil Code
section 1542, which provides:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
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Each Party, or its respective successors and assignees, may hereafter discover facts other
than or different from those that it knows or believes to be true with respect to the Claims herein
released, but each Party hereby expressly waives and fully, finally and forever settles and
releases any and all known or unknown Claims, without regard to the subsequent discovery or
existence of such different or additional facts.
ARTICLE V
MISCELLANEOUS
Section 5.01. Amendments. This Part I may not be supplemented, amended, modified
or terminated in any manner except by a written instrument signed by the City and Calpine.
Section 5.02. Part I Limited to Parties. Nothing contained in this Part 1, expressed or
implied, is intended to give to any person other than the City and Calpine, and their respective
successors and any assignees pursuant to Section 3.01 or 3.02 of this Part I, any right, remedy or
claim under or pursuant thereto, and any agreement or covenant required herein to be performed
by or on behalf of the City or Calpine shall be for the sole and exclusive benefit of the other
Party and such permitted successors and assignees.
Section 5.03. Successor Is Deemed Included in all References to Predecessor.
Whenever either Calpine or the City is named or referred to herein, such reference shall be
deemed to include the successor to the powers, duties and functions that are presently vested in
Calpine or the City, as applicable, and all agreements and covenants required hereby to be
performed by or on behalf of Calpine or the City shall bind and inure to the benefit of the
respective successors thereof whether so expressed or not.
Section 5.04. Article and Section Headings, Gender and References. The headings or
titles of the several articles and sections of this Part I and any table of contents appended to the
Amendment shall be solely for convenience of reference and shall not affect the meaning,
construction or effect hereof, and words of any gender shall be deemed and construed to include
all genders. Unless otherwise expressly provided, all references herein to "Articles," "Sections,"
"Exhibits" and other subdivisions or clauses are to the corresponding articles, sections, exhibits,
subdivisions or clauses of this Part of the Agreement cited; and the words "hereby," "herein,"
"hereof," "hereto," "herewith" and other words of similar import refer to this Part I of the
Agreement as a whole and not to any particular article, section, exhibit, subdivision or clause of
this Part I.
Section 5.05. Partial Invalidity. If any one or more of the agreements or covenants
contained in this Part 1, or portions thereof, required hereby to be performed by or on the part of
Calpine or the City shall be contrary to law, then such agreement or agreements, such covenant
or covenants or such portions thereof shall be null and void and shall be deemed separable from
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the remaining agreements and covenants or portions thereof and shall in no way affect the
validity thereof. Calpine and the City hereby declare that they would have executed this Part I,
and each and every other article, section, paragraph, subdivision, sentence, clause and phrase
hereof, irrespective of the fact that any one or more articles, sections, paragraphs, subdivisions,
sentences, clauses or phrases hereof or the application thereof to any person or circumstance may
be held to be unconstitutional, unenforceable or invalid.
Section 5.06. Entire Agreement. The provisions of this Part I, including those
provisions of other Parts of the Agreement mentioned in this Part 1, shall constitute the entire
agreement of the Parties hereto with respect to the subject matter included in this Part I and shall
supercede any other agreement, understanding or arrangement, whether written or oral, between
the Parties with respect to the subject matter of this Part I, including without limitation events of
defaults and remedies under another Part of the Agreement.
Section 5.07. California Law. This Part I shall be construed and governed in accordance
with the laws of the State with respect to contracts made and to be performed in the State.
Section 5.08. Effective Date. This Part I shall become effective on the Effective Date
and shall remain in full force and effect until all the transactions contemplated by this Part I have
been completed and all obligations of each of the Parties hereto have been satisfied.
Section 5.09. Execution in Counterpart. This Amendment, including the provisions of
Part I and Part III of the Agreement, may be executed in several counterparts, each of which
shall be deemed an original, and all of which shall constitute but one and the same instrument.
PART III
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in
Exhibit A to this Part III, shall for all purposes of this Part III and of any amendment hereof or
supplement hereto and of any opinion or report or other document mentioned herein have the
meanings given such terms said Exhibit A.
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ARTICLE II
SALE OF INTERESTS IN ENERGY
Sale of City's Interest in Energy. The City hereby sells, assigns and transfers to Calpine,
and Calpine hereby purchases from the City, all of the City's right, title and interest in and to the
Energy and to enforce any rights or obligations related to the purchase or delivery of the Energy.
Such right, title and interest of the City in and to the Energy shall be fully vested in Calpine on
and as of the Effective Date. The sale, assignment and transfer by the City of its right, title and
interest in and to the Energy is made without recourse and no warranties, either express or
implied, as to the availability of the Energy or otherwise is made by the City in connection with
such sale, assignment and transfer other than the City represents and warrants that it has taken no
action which would encumber its title to the Energy, or the rights and obligations related thereto
or the proceeds thereof, or otherwise create a lien on, or security or other interest in, the Energy,
or the rights and obligations related thereto or the proceeds thereof, or which would in any way
prevent or impair the City's ability to make such sale, assignment or transfer.
Section 2.01. Purchase Price of Energy. In consideration of the sale, assignment and
transfer of all of the City's right, title and interest in and to the Energy, Calpine agrees to pay
$34.96 per MWh based on the scheduled amount of Energy to be made available to the City
pursuant to the Original Agreement. Subject to the netting of payment obligations pursuant to
Section 2.02 of this Part III, such payments are to be made at the times and for the Energy that
payment is to be made for the Energy by the City pursuant to the Original Agreement.
Section 2.02. Netting of Payment. Each of the Parties agree that the City's obligation to
make payments for the Energy to be delivered pursuant to the Original Agreement and Calpine's
obligations to pay for the purchase of the City's right, title and interest in and to the Energy
pursuant to Section 2.01 of this Part III shall be netted against each other and that such netting of
payment obligations properly results and is properly reflected in the City's obligation to make
the Installment Payments as provided in Section 3.01 of this Part III.
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ARTICLE III
INSTALLMENT PAYMENTS AND PREPAYMENTS
Section 3.01. Installment Payments. The City shall, subject to any rights of prepayment
provided in Section 3.02 of this Part III and the exercise of any remedies under Article V of this
Part III, pay the Installment Payments (as the netted amount due as a result of the purchase of the
Energy by the City pursuant to the Original Agreement and the purchase by Calpine of the City's
right, title and interest in and to the Energy pursuant to Section 2.01 of this Part III) at the times
and in the amounts set forth in Exhibit B to this Part III.
The obligation of the City to pay the Installment Payments is, subject to Section 7.01 of
this Part III, absolute and unconditional, and until such time as the Installment Payments shall
have been paid in full (or provision for the payment thereof shall have been made pursuant to
Section 6.01 hereof to the extent applicable), the City will not discontinue or suspend any
Installment Payments required to be paid by it under this Section when due for any reason,
including without limitation the reasons set forth in Section 4.01 of this Part III, and such
Installment Payments shall not be subject to reduction whether by offset, abatement or otherwise
and shall not be conditioned upon the performance or nonperformance by any Party to the
Agreement, or any Party to any other agreement or arrangement with respect to the City or its
property or operations, including without limitation the Electric System or its operations, or for
any other reason or cause whatsoever.
Section 3.02. Prepayments. The City shall have the right at any time or from time to
time from any available funds to prepay all or any part of the Installment Payments at the
applicable Prepayment Price. Upon any such prepayment made in accordance with this Section,
Calpine, including any assignee of Calpine pursuant to Article III of Part I of the Agreement,
shall accept such prepayment and the City's obligations to make Installment Payments shall be
reduced accordingly. Upon any such partial prepayment of the Installment Payments, Exhibit B
to this Part III shall be revised to take such prepayment into account and to reflect the amount of
the Installment Payments remaining to be paid by the City on each remaining Installment
Payment date set forth in said Exhibit B.
With respect to prepayments of Installment Payments pursuant to this Section, the City
shall determine the amount of the Installment Payments to be prepaid (but no partial prepayment
of Installment Payments shall be in an amount less than $250,000) and, subject to the provisions
of this Section, the date on which each such prepayment is to be made. Before making any
prepayment pursuant to this Section, the City shall give written notice to Calpine (or its
permitted assignee) specifying the date on which the prepayment will be paid, which date shall
be a Business Day not less than ten (10) days from the date such notice is given; provided, that
notwithstanding any such prepayment, the City shall not be relieved of its obligations hereunder,
including specifically its obligations under this Article, until all Installment Payments shall have
been fully paid (or provision for payment thereof shall have been made pursuant to Section 6.01
hereof to the extent such Section is applicable).
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ARTICLE IV
COVENANTS OF THE CITY
Section 4.01. Payment of Installment Payments. The City will punctually pay the
Installment Payments in strict conformity with the terms of this Part III, and will faithfully
observe and perform all the agreements, conditions, covenants and terms contained in this
Part III required to be observed and performed by it, and will not fail to make any Installment
Payment required by this Part III for any reason or cause including, without limiting the
generality of the foregoing, the completion, satisfaction, discharge or termination of any other
Part of the Agreement, any acts or circumstances that may constitute failure of consideration,
destruction of or damage to all or a portion of any property of the City, including without
limitation the Electric System, commercial frustration of purpose, any change in the tax or other
laws of the United States of America or of the State or any political subdivision of either or any
failure of Calpine or any other Party to observe or perform any agreement, condition, covenant
or term contained in this Part III or in any other Part of the Agreement or any other agreement or
arrangement affecting the City, its property or operations, required to be observed and performed
by it, whether express or implied, or any duty, liability or obligation arising out of or connected
with any of the foregoing or the insolvency, or deemed insolvency, or bankruptcy or liquidation
of Calpine or any other Party or any force majeure, including acts of God, tempest, storm,
earthquake, war, rebellion, riot, civil disorder, acts of public enemies, blockade or embargo,
strikes, industrial disputes, lockouts, lack of transportation facilities, fire, explosion, or acts or
regulations of governmental authorities.
Section 4.02. Against Encumbrances on Electric System. The City will pay or cause to
be paid when due all sums of money that may become due or purporting to be due for any labor,
services, materials, supplies or equipment furnished, or alleged to have been furnished, to or for
the City in, upon, about or relating to the Electric System and will keep the Electric System free
of any and all liens against any portion of the Electric System, including without limitation any
liens securing indebtedness or other payment obligations. In the event any such lien attaches to
or is filed against any portion of the Electric System, the City will cause each such lien to be
fully discharged and released at the time the performance of any obligation secured by any such
lien matures or becomes due, except that if the City desires to contest any such lien it may do so
if contesting such lien will not impair operation of the Electric System. If any such lien shall be
reduced to final judgment and such judgment or any process as may be issued for the
enforcement thereof is not promptly stayed, or if so stayed and such stay thereafter expires, the
City will forthwith pay or cause to be paid and discharged such judgment.
Section 4.03. Sale or Other Disposition of Electric System. The City will not sell,
transfer or otherwise dispose of any of the works, plant, properties, facilities or other part or
rights of the Electric System or any real or personal property comprising a part of the Electric
System if such sale, transfer or disposition would adversely affect the City's ability to satisfy the
requirements of Section 4.09 of this Part III.
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Section 4.04. Maintenance and Operation of the Electric System; Budgets. The City
will maintain and preserve the Electric System in good repair and working order at all times in
accordance with prudent engineering and operating practices and will operate the Electric
System in an efficient and economical manner and will pay all Maintenance and Operation Costs
as they become due and payable. The City will adopt, not later than October 1 of each year, a
budget for the Electric System for such Fiscal Year, providing that all Maintenance and
Operation Costs, all Installment Payments and all other amounts which the City determines are
to be paid from the Revenues during such Fiscal Year have been included in such budget;
provided, that any such budget may be amended at any time during any Fiscal Year provided
such amended budget shall include provision for the payment of all Maintenance and Operation
Costs, all Installment Payments and all other amounts which the City determines are to be paid
from the Revenues during such Fiscal Year.
Section 4.05. Insurance. The City will procure and maintain such insurance relating to
the Electric System which it shall deem advisable or necessary to protect its interests, which
insurance shall afford protection in such amounts and against such risks as are usually covered in
connection with public electric utility systems similar to the Electric System; provided, that any
such insurance may be maintained under a self-insurance program so long as such self-insurance
is maintained in the amounts and manner as is, in the opinion of an accredited actuary,
actuarially sound.
Section 4.06. Accounting Records; Financial Statements and Other Reports.
(a) The City will keep appropriate accounting records in which complete and
correct entries shall be made of all transactions relating to the Electric System, which records
shall be available for inspection by Calpine at reasonable hours and under reasonable conditions.
(b) The City will prepare and file with Calpine annually within one hundred
twenty (120) days after the close of each Fiscal Year (commencing with the Fiscal Year ending
June 30, 2002):
(i) financial statements of the City for such Fiscal Year prepared in
accordance with Generally Accepted Accounting Principles, together with an Accountant's
Report thereon; and
(ii) a detailed report as to all insurance policies maintained and self-insurance
programs maintained by the City with respect to the Electric System as of the close of such
Fiscal Year, including the names of the insurers which have issued the policies and the amounts
thereof and the property or risks covered thereby.
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(c) The City shall from time to time provide Calpine or its successor or
assignee such information as Calpine or its successor or assignee may reasonably request with
respect to the financial condition of the City and the Electric System, the insurance (including
self-insurance) maintained by the City with respect to the Electric System, and any other matters
reasonably related to the City's performance of or ability to perform its obligations under this
Part III.
Section 4.07. Protection of Security and Rights of Calpine. The City will preserve and
protect the security of the Installment Payments under this Part III and the rights of Calpine to
the Installment Payments under this Part III and will warrant and defend such rights against all
claims and demands of all persons.
Section 4.08. Payment of Taxes and Compliance with Governmental Regulations. The
City will pay and discharge all taxes, assessments and other governmental charges which may
hereafter be lawfully imposed upon the Electric System or any part thereof when the same shall
become due. The City will duly observe and conform with all valid regulations and requirements
of any governmental authority relative to the operation of the Electric System or any part thereof,
but the City shall not be required to comply with any regulations or requirements so long as the
validity or application thereof shall be contested in good faith and contesting such validity or
application will not materially impair the operations or financial condition of the Electric
System, will not result in the imposition of a lien on the Electric System in violation of
Section 4.02 of this Part III and will not impair the City's ability to make the Installment
Payments as and when due.
Section 4.09. Amount of Rates and Charges. The City will at all times fix, prescribe and
collect rates and charges for the services, facilities and electricity of the Electric System during
each Fiscal Year which will be at least sufficient to yield Revenues for such Fiscal Year at least
equal to the sum of the following for such Fiscal Year: (i) Maintenance and Operation Costs; (ii)
the Installment Payments, (iii) all other payments required to meet any other obligations of the
City which are charges, liens or encumbrances upon or payable from the Revenues, and (iv)
reasonable and prudent reserves for maintenance, capital expenditures and customers'
delinquencies or failures to pay. The City may make adjustments from time to time in such fees
and charges and may make such classification thereof as it deems necessary, but shall not reduce
the rates and charges then in effect unless the Revenues from such reduced rates and charges will
at all times be sufficient to meet the requirements of this Section.
Section 4.10. Collection of Rates and Charges. The City will have in effect at all times
rules and regulations requiring each consumer or customer located on any premises connected
with the Electric System to pay the rates and charges applicable to the Electric Service provided
to such premises and providing for the billing thereof and for a due date and a delinquency date
for each bill. The City will not permit any part of the Electric System or any facility thereof to
be used or taken advantage of free of charge by any corporation, firm or person, or by any public
agency (including the United States of America, the State and any city, county, district, political
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subdivision, public corporation or agency of any thereof). Nothing herein shall prevent the City,
in its sole and exclusive discretion, from permitting other Parties from selling electricity to retail
customers within the service area of the Electric System; provided, however, that permitting such
sales shall not relieve the City of its obligations hereunder.
Section 4.11. Eminent Domain and Insurance Proceeds. If all or any part of the Electric
System shall be taken by eminent domain proceedings, or if the City receives any insurance
proceeds resulting from a casualty loss to the Electric System, the net proceeds thereof, at the
option of the City, shall be applied either to the ratable prepayment of obligations payable from
the Net Revenues or shall be used to repair, restore or substitute other components for the
condemned, damaged or destroyed components of the Electric System.
Section 4.12. Further Assurances. The City will adopt, deliver, execute and make any
and all further assurances, instruments and resolutions as may be reasonably necessary or proper
to carry out the intention or to facilitate the performance of this Part III and for the better
assuring and confirming unto Calpine (or any assignee of Calpine permitted hereunder) of the
rights and benefits provided to it in this Part III.
ARTICLE V
EVENTS OF DEFAULT AND REMEDIES
Section 5.01. Events of Default and Acceleration of Installment Payments. If one or
more of the following Events of Default shall happen and be continuing, that is to say:
(a) if default shall be made in the due and punctual payment of any
Installment Payment when and as the same shall become due and payable;
(b) if default shall be made by the City in the performance of any of the
agreements or covenants contained herein required to be performed by it under this Part III, other
than as set forth in (a) above, and such default shall have continued for a period of thirty (30)
days after the City shall have been given notice in writing of such default by Calpine; or
(c) if the City shall file a petition or answer seeking arrangement or
reorganization under the federal bankruptcy laws or any other applicable law of the United States
of America or any state therein, or if a court of competent jurisdiction shall approve a petition
filed with or without the consent of the City seeking arrangement or reorganization under the
federal bankruptcy laws or any other applicable law of the United States of America or any state
therein, or if under the provisions of any other law for the relief or aid of debtors any court of
competent jurisdiction shall assume custody or control of the City or of the whole or any
substantial part of its property;
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then and in each and every such case, automatically and without the necessity of notice from
Calpine or any other person during the continuance of such Event of Default specified in clause
(c) above, or upon notice in writing from Calpine to the City with respect to any other such
Event of Default, all unpaid Installment Payments shall become due and payable immediately in
an amount equal to the Default Price as of the date of payment of the Default Price, anything
contained in this Part III to the contrary notwithstanding. This Section is subject to the
condition, however, that if at any time after the unpaid Principal Installments (in an amount
equal to aforementioned Default Price) shall have become due and payable pursuant to this
Section, and before any judgment or decree for the payment of the money due shall have been
obtained or entered, the City shall deposit with Calpine a sum sufficient to pay the unpaid
amount of the Installment Payments due otherwise then as a result of such declaration, and the
City shall have paid the reasonable expenses of Calpine resulting from such declaration, and any
and all other defaults known to Calpine (other than in the payment of the unpaid Installment
Payments in an amount equal to the aforementioned Prepayment Price) due and payable solely
by reason of the acceleration of such Installment Payments pursuant to this Sections) shall have
been made good or cured to the satisfaction of Calpine or provision deemed by Calpine to be
adequate shall have been made therefor, then and in every such case Calpine, by written notice to
the City, may rescind and annul such declaration and its consequences; but no such rescission
and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust
any right or power consequent thereon.
Section 5.02. Other Remedies. Calpine shall also have the right:
(a) by mandamus or other action or proceeding or suit at law or in equity to
enforce its rights against the City or any officer or employee thereof, and to compel the City or
any such officer or employee to perform and carry out its or his or her duties under the law and
the agreements and covenants required to be performed by it or him or her contained in this Part
III;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate
the rights of Calpine; or
(c) by suit in equity upon the happening of an Event of Default to require the
City and its officers and employees to account as the trustee of an express trust.
Section 5.03. Non -Waiver. Nothing in this Article or in any other provision of this Part
III shall affect or impair the obligation of the City, which is absolute and unconditional, to pay
the Installment Payments from the Net Revenues to Calpine at the respective due dates or upon
acceleration or prepayment, or shall affect or impair the right of Calpine, which is also absolute
and unconditional, to institute suit to enforce such payment by virtue of the contract embodied in
this Part III.
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A waiver of any default or breach of duty or contract by Calpine shall not affect any
subsequent default or breach of duty or contract or impair any rights or remedies on any such
subsequent default or breach of duty or contract. No delay or omission by Calpine to exercise
any right or remedy accruing upon any default or breach of duty or contract shall impair any
such right or remedy or shall be construed to be a waiver of any such default or breach of duty or
contract or an acquiescence therein, and every right or remedy conferred upon Calpine by law or
by this article may be enforced and exercised from time to time and as often as shall be deemed
expedient by Calpine.
If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned
or determined adversely to Calpine, the City and Calpine shall be restored to their former
positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.
Section 5.04. Remedies Not Exclusive. No remedy herein conferred upon or reserved to
Calpine is intended to be exclusive of any other remedy, and each such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now or hereafter
existing in law or in equity or by statute or otherwise and may be exercised without exhausting
and without regard to any other remedy conferred by law.
Section 5.05. Waiver of Sovereign Immunity. To the extent permitted by law and
subject to Section 7.01 of this Part 1I1, the City hereby waives and agrees not to assert any
immunity, on the grounds of sovereignty or otherwise, with respect to itself and its assets, the
Electric System or the Revenues, from suit, jurisdiction of any court otherwise having
jurisdiction, relief by way of mandamus, specific performance, injunction or recovery of
damages, or execution or enforcement of any judgment hereunder.
ARTICLE VI
DISCHARGE OF OBLIGATIONS
Section 6.01. Discharge of Obligations.
(a) If the City shall indefeasibly pay or cause to be paid all the Installment
Payments at the times and in the manner provided herein, the right, title and interest of Calpine
or any assignee of Calpine permitted hereunder in and to this Part III and the obligations of the
City under this Part III shall cease, terminate, become void and be completely discharged and
satisfied; provided, however, that if any such payment or payments are rescinded or must
otherwise by returned by Calpine or its successors or assignees as a result of any insolvency,
bankruptcy, reorganization or dissolution of the City or any other person, the City's obligations
under this Part III shall be reinstated as if such payment or payments had not been made.
(b) Any unpaid Installment Payment shall on its payment date or date of
prepayment be deemed to have been paid within the meaning of and with the effect expressed in
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DOCSLA 1:427901.1
subsection (a) of this Section if the City makes payment of such Installment Payments when due
or pays the applicable Prepayment Price with respect to the prepaid Installment Payments in the
manner provided herein.
(c) After an assignment of Calpine's rights under this Part III of the
Agreement to the Corporation pursuant to Section 3.01 of Part I of the Agreement, all or any
portion of the unpaid Installment Payments shall, prior to its payment date or date of
prepayment, be deemed to have been paid within the meaning of and with the effect expressed in
subsection (a) of this Section (except only that the right of the Corporation to receive Installment
Payments and the obligation of the City to pay such Installment Payments but only out of the
money and Defeasance Securities deposited with the Trustee for such payment) if: (i) there shall
have been deposited with an escrow agent or trustee either money in an amount which shall be
sufficient, or Defeasance Securities which are not subject to redemption except by the holder
thereof prior to maturity (including any such securities issued or held in book -entry form), the
interest on and principal of which when paid will provide money which, together with money, if
any, deposited with such escrow agent or trustee, shall be sufficient (as evidenced by a report of
an Independent Certified Public Accountant regarding such sufficiency) to pay when due the
portion of the Installment Payments or the applicable Prepayment Price thereof, or such portion
of the Installment Payments to be deemed paid for purposes of this Section, on its payment date
or its date of prepayment, as the case may be.
(d) After the payment, or provision for the payment as provided in subsection
(c) of this Section, of all Installment Payments or the Prepayment Price thereof, as applicable,
and payment in full of all fees and expenses of the Corporation, the Corporation, upon request of
the City, shall cause an accounting for such period or periods as may be requested by the City to
be prepared and filed with the City and the Corporation shall execute and deliver to the City all
such instruments as may be necessary or desirable to evidence such total discharge and
satisfaction of Part III of the Agreement.
ARTICLE VII
MISCELLANEOUS
Section 7.01. Liability of City Limited to Available Net Revenues. Notwithstanding
anything contained herein, the City shall not be required to advance any moneys derived from
any source of income other than the Net Revenues available for the payment of the Installment
Payments or for the performance of any agreements or covenants required to be performed by it
contained herein. The City may, however, advance moneys for any such purpose so long as such
moneys are derived from a source legally available for such purpose and may be legally used by
the City for such purpose.
The obligation of the City to make the Installment Payments is a special obligation of the
City payable solely from the available Net Revenues as provided herein. The general fund of the
-16-
DOCSLA I :427901. t
City is not liable, and neither the faith and credit nor the taxing power of the City is pledged, for
the payment of the Installment Payments or the performance or satisfaction of any other
obligations of the City under this Part III.
Section 7.02. Amendments. This Part III shall not be supplemented, amended, modified
or terminated in any manner except by an instrument in writing signed by the City and Calpine,
or if Calpine's rights under this Part III have been assigned in accordance with Part I of the
Agreement, by such assignee.
Section 7.03. Assignment of Contract. The City hereby acknowledges that Calpine has
agreed to transfer and assign to the Corporation, and has the right to transfer and assign to others,
all on the terms and conditions set forth in Part I of the Agreement, all of Calpine's right, title
and interest in and to Part III of the Agreement, including without limitation its rights to the
Installment Payments. Upon any such transfer and assignment references to Calpine in this Part
III shall be construed for all purposes of this Part III to be references to the transferee and
assignee of such rights.
Section 7.04. Benefits of Contracts Limited to Parties. Nothing contained in this Part
III, expressed or implied, is intended to give to any person other than the City and Calpine, and
their respective successors and any assignee pursuant to Section 3.01 or 3.02 of Part I of the
Agreement, any right, remedy or claim under or pursuant thereto, and any agreement or covenant
required herein to be performed by or on behalf of the City or Calpine shall be for the sole and
exclusive benefit of the other Party and such permitted successors and assignees.
Section 7.05. Successor Is Deemed Included in all References to Predecessor.
Whenever either Calpine or the City is named or referred to herein, such reference shall be
deemed to include the successor to the powers, duties and functions that are presently vested in
Calpine or the City, and all agreements and covenants required hereby to be performed by or on
behalf of Calpine or the City shall bind and inure to the benefit of the respective successors
thereof whether so expressed or not.
Section 7.06. Waiver of Personal Liability. No officer or employee of the City shall be
individually or personally liable for the payment of the Installment Payments or the performance
or satisfaction of any other obligation of the City under this Part III, but nothing contained herein
shall relieve any officer or employee of the City from the performance of any official duty
provided by any applicable provisions of law or by the terms of this Part III.
Section 7.07. Article and Section Headings, Gender and References. The headings or
titles of the several articles and sections of this Part III, and any table of contents appended
hereto, shall be solely for convenience of reference and shall not affect the meaning, construction
or effect of this Part III, and words of any gender shall be deemed and construed to include all
genders. Unless otherwise specifically provided, all references herein to "Articles," "Sections,"
-17-
DOCSLAI :427901.1
"Exhibits" and other subdivisions or clauses are to the corresponding articles, sections, exhibits,
subdivisions or clauses of this Part III; and the words "hereby," "herein," "hereof," "hereto,"
"herewith" and other words of similar import refer to this Part III as a whole and not to any
particular article, section, exhibit, subdivision or clause of this Part III.
Section 7.08. Partial Invalidity. If any one or more of the agreements or covenants or
portions thereof required hereby to be performed by or on the part of Calpine or the City under
this Part III shall be contrary to law, then such agreement or agreements, such covenant or
covenants or such portions thereof shall be null and void and shall be deemed separable from the
remaining agreements and covenants or portions of this Part III and shall in no way affect the
validity hereof. Calpine and the City hereby declare that they would have executed this Part III,
and each and every other article, section, paragraph, subdivision, sentence, clause and phrase of
this Part III irrespective of the fact that any one or more articles, sections, paragraphs,
subdivisions, sentences, clauses or phrases hereof or the application thereof to any person or
circumstance may be held to be unconstitutional, unenforceable or invalid.
Section 7.09. Net Contract. This Part III shall be deemed and construed to be a net
contract, and the City shall pay absolutely net during the term hereof the Installment Payments
and all other payments required under this Part III, free of any deductions and without
abatement, diminution or set-off whatsoever.
Section 7.10. Term. This Part III shall become effective on the Effective Date and shall
remain in full force and effect until all the Installment Payments have been made (or provided
for in accordance with Section 6.01 if applicable).
Section 7.11. Entire Agreement. The provisions of this Part III, including those
provisions of other Parts of the Agreement mentioned in this Part III and the applicable
provisions of Part I (whether or not specifically mentioned), shall constitute the entire agreement
of the Parties hereto with respect to the subject matter included in this Part III and shall
supercede any other agreement, understanding or arrangement, whether written or oral, between
the Parties with respect to the subject matter of this Part III, including without limitation events
of defaults and remedies under another Part of the Agreement.
Section 7.12. California Law. This Part III shall be construed and governed in
accordance with the laws of the State with respect to contracts made and to be performed in the
State.
[Remainder of Page Intentionally left Blank.]
-18-
DOCSLA1:427901.1
IN WITNESS WHEREOF, the Parties hereto have executed and attested this Amendment
by their respective officers thereunto duly authorized, as of the day and year first written above.
CITY OF LODI
By:
Name:
Title:
Attest:
City Clerk
APPROVED:
City Attorney
CALPINE ENERGY SERVICES, L.P.
Name:
Title:
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DOCSLA 1:427901.1
EXHIBIT A TO PART III
DEFINITIONS
Definitions. Unless the context otherwise requires, the terms defined in this Exhibit A
shall have the meanings herein specified:
"Accountant's Report" means a written report signed by a Independent Certified Public
Accountant.
"Agreement" means the Original Agreement as supplemented by the Amendment.
"Amendment" means the Amendment, supplementing the Original Agreement, dated as
of September 1, 2002, as originally executed by the City and Calpine and as the provisions
thereof may be amended and supplemented in accordance with the terms thereof.
"Business Day" means a day which is not a Saturday, Sunday or any other day banking
institutions located in New York, New York or California are required or authorized to close.
"City" means the City of Lodi, a municipal corporation, duly organized and existing
under and by virtue of the Constitution and laws of the State.
"City Transfers" mean any payments from Revenues to the City for payments in -lieu of
taxes, transfers to the City's General Fund or similar payments but shall not include any item
constituting a Maintenance and Operation Cost.
"Corporation" means the Lodi Public Improvement Corporation, a non-profit, public
benefit corporation duly organized and existing under and by virtue of the laws of the State or
such other nonprofit corporation or other entity as may be designated by the Lodi Public
Improvement Corporation to exercise the option granted pursuant to Section 3.01 of Part I of the
Agreement.
"Default Price" means, with respect to any prepayment of the Installment Payments
pursuant to Section 5.01 of Part III of the Agreement, an amount equal to the present value of the
Installment Payments as of the date of such prepayment determined using a discount rate of 7.0%
per annum and a year of twelve, thirty day months.
"Effective Date" means, if the Amendment has been executed and delivered to the other
Party on behalf of the City and Calpine, respectively, by such date, September [6], 2002. [The
"Effective Date" should be two business days after execution due to scheduling.]
"Electric Service" means the services commodities and products furnished, made
available or provided by the Electric System.
"Electric System" means the electric utility system of the City, comprising all electric
generation, transmission and distribution facilities and all general plant facilities related thereto
now owned by the City and all other properties, structures or works for the generation,
DOCSLA 1:427901.1 A-1
transmission or distribution of electricity hereafter acquired by the City, including all contractual
rights for electricity or the transmission thereof, together with all additions, betterments,
extensions or improvements to such facilities, properties, structures or works or any part thereof,
or any additional contract rights for electricity or the transmission thereof, hereafter acquired.
"Event of Default" means with respect to Part III of the Agreement, an event described in
Section 5.01 of such Part III.
"Fiscal Year" means the period beginning on July 1 of each year and ending on the next
succeeding June 30, or any other annual accounting period hereafter selected and designated by
the City Council of the City as the Fiscal Year of the City.
"Generally Accepted Accounting Principles" mean the uniform accounting and reporting
procedures set forth in publications of the American Institute of Certified Public Accountants or
its successor, or by any other generally accepted authority on such procedures selected by the
City, and includes, as applicable, the standards set forth by the Governmental Accounting
Standards Board or its successor.
"Independent Certified Public Accountant" means any certified public accountant or firm
of such accountants duly licensed and entitled to practice and practicing as such under the laws
of the State, appointed and paid by the City, and whom, or each of whom: (a) is in fact
independent according to the Statement of Auditing Standards No. 1 and not under the
domination of the City; (b) does not have a substantial financial interest, direct or indirect, in the
operations of the City; and (c) is not connected with the City as a director, officer or employee of
the City, but who may be regularly retained to audit the accounting records of, and make reports
thereon to, the City.
"Installment Payments" mean the Installment Payments set forth in Exhibit B to Part III
of the Agreement as the same may be amended in accordance with the provisions of said Part III.
"Maintenance and Operation Costs" mean the costs paid or incurred by the City for
maintaining and operating the Electric System including, but not limited to, (a) all costs of
electric energy and power generated or purchased by the City for resale, costs of transmission,
fuel supply and water supply in connection with the foregoing, (b) all expenses of management
and repair and other expenses necessary to maintain and preserve the Electric System in good
repair and working order, (c) all administrative costs of the City that are charged directly or
apportioned to the operation of the Electric System, such as salaries and wages of employees,
overhead, taxes (if any) and insurance premiums, (d) all other reasonable and necessary costs of
the City or charges required to be paid by it to comply with the terms of any resolution
heretofore adopted by the City Council of the City authorizing the incurrence or issuance of any
obligations payable from the Net Revenues, such as compensation, reimbursement and
indemnification of a trustee, remarketing agent or surety costs, letter of credit fees, fees and
expenses of Independent Certified Public Accountants and independent engineers; (e) all
amounts required to be paid by the City under contracts with a joint powers agency for the
purchase of capacity, energy, transmission capability or any other commodity or service in
connection with the foregoing, which contract requires payments to be made by the City
thereunder to be treated as maintenance and operation costs of the Electric System; (f) all
DOCSLA1:427901.1 A-2
deposits to be made to a rebate fund pursuant to a tax certificate; and (g) any other cost or
expense which, in accordance with Generally Accepted Accounting Principles, is to be treated as
a cost of operating or maintaining the Electric System; but excluding in all cases depreciation,
replacement and obsolescence charges or reserves therefor, amortization of intangibles and City
Transfers.
"Net Revenues" mean, for any period of time in question, the Revenues during such
period less the Maintenance and Operation Costs during such period.
"Option Amount" means an amount equal to Forty -Two Million Dollars
($42,000,000.00) plus interest on such amount from the Effective Date to but not including the
Option Exercise Date at the rate of Five Percent (5%) per annum.
"Option Exercise Date" means the date the Corporation makes the payment contemplated
by Section 3.01 of Part I of the Agreement to acquire Calpine's rights under Part III of the
Agreement.
"Option Expiration Date" means November 30, 2002.
"Original Agreement" means the CAISO energy purchase agreement between the City
and Calpine evidenced by the Transaction Confirmation, identified as a CAISO Confirmation,
dated February 9, 2001, incorporating the terms and conditions of the Western Systems Power
Pool Agreement (version effective July 1, 2000), as modified by such CAISO Confirmation,
executed on behalf of Calpine on February 9, 2001 and executed on behalf of the City on
February 20, 2001, as modified by that certain letter agreement, dated March 9, 2001, and signed
by Dennis W. DeCuir and Janet Dixon.
"Part" means with reference to the Agreement, the portions of the Agreement designated
as separate parts pursuant to Section 2.01 of Part I of the Agreement.
"Prepayment Price" means, with respect to any prepayment of the Installment Payments
pursuant to Section 3.02 of Part III of the Agreement, an amount equal to the present value of the
Installment Payments as of the date of such prepayment determined using a discount rate of 6.5%
per annum and a year of twelve, thirty day months.
"Revenues" mean all gross income and revenue received or receivable by the City from
the ownership or operation of the Electric System, including all rates and charges for the Electric
Service and the other services and facilities of the Electric System, all proceeds of insurance
covering business interruption loss relating to the Electric System and all other income and
revenue howsoever derived by the City from the ownership or operation of the Electric System
or otherwise arising from the Electric System, including all income from the deposit or
investment of any money in the City's Electric Revenue Fund, but excluding (i) proceeds of
taxes and (ii) refundable deposits made to establish credit and advances or contributions in aid of
construction and line extension fees.
"State" means the State of California.
DOCSLA 1:427901.1 A-3
EXHIBIT B TO PART III
INSTALLMENTS PAYMENTS
Payment
Date
12/1/2002
1/1/2003
2/1/2003
3/1/2003
4/1/2003
5/1/2003
6/1/2003
7/1/2003
8/1/2003
9/1/2003
10/1/2003
11/1/2003
12/1/2003
1/1/2004
2/1/2004
3/1/2004
4/1/2004
5/1/2004
6/1/2004
7/1/2004
8/1/2004
9/1/2004
10/1/2004
11/1/2004
12/1/2004
1/1/2005
2/1/2005
3/1/2005
4/1/2005
5/1/2005
6/1/2005
711/2005
8/1/2005
9/l/2005
10/1/2005
11/1/2005
12/1/2005
1/1/2006
2/1/2006
DOCSLA1:427901.1
Amount of
Installment
Payment
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
Payment
Date
3/1/2006
4/1/2006
5/l/2006
6/1/2006
7/1/2006
8/1/2006
9/1/2006
10/1/2006
11/1/2006
12/1/2006
1/1/2007
2/1/2007
3/1/2007
4/1/2007
5/1/2007
6/1/2007
7/1/2007
8/1/2007
9/1/2007
10/1/2007
11/1/2007
12/1/2007
1/1/2008
2/1/2008
3/1/2008
4/1/2008
5/1/2008
6/1/2008
7/112008
8/1/2008
9/1/2008
10/1/2008
11/1/2008
12/1/2008
1/1/2009
2/1/2009
3/1/2009
4/1/2009
5/1/2009
6/1/2009
7/1/2009
8/1/2009
9/1/2009
10/1/2009
11/1/2009
12/1/2009
DOCSLAI:427901.1 -2-
Amount of
Installment
Payment
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
$535,000.00
Amount of
Payment
Installment
Date
Payment
1/1/2010
$535,000.00
2/1/2010
$535,000.00
3/1/2010
$535,000.00
4/1/2010
$535,000.00
5/1/2010
$535,000.00
6/1/2010
$535,000.00
7/1/2010
$535,000.00
8/1/2010
$535,000.00
9/1/2010
$535,000.00
10/1/2010
$535,000.00
11/1/2010
$535,000.00
12/1/2010
$535,000.00
1/1/2011
$535,000.00
2/1/2011
$535,000.00
3/1/2011
$535,000.00
4/1/2011
$535,000.00
5/1/2011
$535,000.00
6/1/2011
$535,000.00
7/1/2011
$535,000.00
8/1/2011
$535,000.00
9/1/2011
$535,000.00
10/1/2011
$535,000.00
11/1/2011
$535,000.00
12/1/2011
$535,000.00
DOCSLA1:427901.1 -3-