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Calpine Generation Company, - Project Undertaking And Agreement
EXHIBIT 10.14
EXECUTION COPY
PROJECT UNDERTAKING AND AGREEMENT
This PROJECT UNDERTAKING AND AGREEMENT (this "Agreement"), dated as of March 23, 2004, is made by and between CALPINE CORPORATION, a Delaware corporation ("Calpine"). CALPINE GENERATING COMPANY., LLC, a Delaware limited partnership ("CGC"), and the indirect wholly-owned subsidiaries of CGC listed on the signature page hereof (each a "Facility Owner").
RECITALS
A. Calpine indirectly owns all the outstanding equity interest of CGC, and CGC indirectly owns all of the outstanding equity interest of the Facility Owners.
B. CGC has agreed to (i) issue $235,000,000 in principal amount of its First Priority Secured Floating Rate Notes due 2009, $640,000,000 in principal amount of its Second Priority Secured Floating Rate Notes due 2010, $680,000,000 in principal amount of its Third Priority Secured Floating Rate Notes due 2011, and $150,000,000 in aggregate principal amount of its 11.5% Secured Notes due 2011 (collectively, the "Notes") pursuant to certain Indentures dated as of March 23, 2004, in each case with Wilmington Trust FSB, as Trustee thereunder (the "Indentures"), (ii) enter into a new $600,000,000 First Priority Term Loan Agreement dated as of March 23, 2004 and a $100,000,000 Second Priority Term Loan Agreement dated as of March 23, 2004 (the "Term Loan Agreements"), in each case with Morgan Stanley Senior Funding, Inc., as joint lead arranger, sole book-runner and administrative agent, The Bank of Nova Scotia, as joint lead arranger, and certain financial institutions party thereto from time to time, and (iii) enter into a $200,000,000 Amended and Restated Credit Agreement dated as of March 23, 2004 (the "Revolving Credit Agreement") with The Bank of Nova Scotia, as sole lead arranger, administrative agent, LC bank and sole book-runner, and certain financial institutions party thereto from time to time, The Indentures, the Term Loan Agreements and the Revolving Credit Agreement are referred to herein collectively as the "Debt Agreements".
C. Columbia Energy, LLC, a Delaware limited liability company and an indirect wholly-owned subsidiary of CGC ("Columbia"), owns and is developing a gas-fired electric generation facility in Columbia, South Carolina known as the Columbia Energy Center (the "Columbia Facility").
D. Pastoria Energy Facility, L.L.C., a Delaware limited liability company and an indirect wholly-owned subsidiary of CGC ("Pastoria"), owns and is developing a gas-fired electric generation facility in Kern County, California known as the Pastoria Energy Center (the "Pastoria Facility").
E. Goldendale Energy Center, LLC, a Delaware limited liability company and an indirect wholly-owned subsidiary of CGC ("Goldendale"), owns and is developing a gas-fired
electric generation facility in Goldendale, Washington known as the Goldendale Energy Center (the "Goldendale Facility"). The Columbia Facility, the Pastoria Facility and the Goldendale Facilities are referred to collectively herein as the "Facilities Under Construction".
F. CGC and certain other Facility Owners also own and have constructed certain other gas-fired electric generation facilities listed on Exhibit A attached hereto (collectively, the "Other Facilities").
G. Calpine has entered into a settlement agreement (the "Siemens Settlement Agreement") with Siemens Westinghouse Power Corporation ("Siemens") relating to combustion turbines purchased or to be purchased by Calpine and several of its subsidiaries, including certain Facility Owners, which may result in Siemens setting off amounts due from other Calpine subsidiaries against amounts otherwise due to the Facility Owners.
H. Calpine Operating Services Company, Inc., a Delaware corporation and a wholly-owned subsidiary of Calpine ("COSCI"), CGC and the Facility Owners are concurrently entering into a Master Maintenance Services Agreement dated as of March 23, 2004 (the "Maintenance Services Agreement") for the various electric generating facilities owned by the Facility Owners, which may involve cancelling certain long term service agreements (each an "LTSA" and collectively the "LTSAs") with Siemens Westinghouse Power Corporation ("Siemens") and General Electric Company ("GE") and the payment of cancellation payments to Siemens and/or GE in connection with such cancellation.
I. Calpine acknowledges that it will benefit, directly and indirectly, if CGC issues the Notes and enters into the Debt Agreements.
J. The obligations of Calpine hereunder are being incurred concurrently with the obligations of CGC under the Notes and the Debt Agreements.
AGREEMENT
NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Calpine, CGC and the Facility Owners hereby agree as follows:
1. Commercial Operation of Facilities Under Construction; Other Obligations; Certain Indemnities.
(a) Calpine agrees that it will use commercially reasonable efforts to cause commercial operation of the Facilities Under Construction to be achieved at the output levels specified on Exhibit A, Part 1 (at the reference conditions described on Exhibit A, Part 1) in accordance with prudent engineering practices and all legal requirements and applicable permits (with respect to each such Facility Under Construction, "Commercial Operation" of such Facility), in order that such Facilities Under Construction will be capable of generating power for sale to Calpine Energy Services, L.P. ("CES") under the Index Based Gas Sale and Power Purchase Agreement dated as of March 23, 2004 among CGC, the Facility Owners and CES within a reasonable period of time, taking into account the current states of construction and project construction schedules for such Facilities (the "Completion Obligations"). To the extent
that funds therefor are available to CGC or the Facility Owners under the Revolving Credit Agreement or from Excess Cash Flow (as defined in the Indenture), CGC or the applicable Facility Owner may use such funds to pay for and discharge the Completion Obligations, and in such event Calpine shall be relieved of its Completion Obligations to the extent of such payment, but if such funds are not available to CGC or the Facility Owners, or CGC or the Facility Owners elect not to use such funds, for such purpose, or if CGC or the Facility Owners otherwise fail to discharge the Completion Obligations with respect to the Facilities Under Construction, Calpine shall pay and discharge such Completion Obligations from its own funds and resources. In fulfilling its obligations hereunder with respect to the Completion Obligations, Calpine hereby agrees to cause any and all costs of achieving Commercial Operation of the Facilities Under Construction, including without limitation the costs of all labor, materials, supplies and equipment related thereto and any and all costs and cost overruns prior to Commercial Operation (regardless of when Commercial Operation is achieved), to be funded, paid and satisfied from Calpine's own resources as the same shall become due, either by direct payment or through contributions (including subordinated debt) to CGC and/or the Facility Owners; provided, however, that the foregoing costs shall not include any consequential damages or costs related to delay in achieving Commercial Operation of the Facilities Under Construction, such as liquidated damages, lost revenues, interest charges or damages from loss of use of such Facilities.
(b) Calpine hereby agrees that, subject to the following sentence, it will cause the costs and expenses related to the Other Facilities as described on Exhibit A, Part 2 (the "Capital Improvements") to be funded, paid and satisfied from Calpine's own resources as the same shall become due, either by direct payment or through contributions (including subordinated debt) to CGC or the applicable Facility Owner (collectively, the "Other Capital Obligations"). Without limiting Calpine's obligations under this Section 1(b), to the extent that funds therefor are available to CGC or the Facility Owners under the Revolving Credit Agreement or from Excess Cash Flow, CGC or the applicable Facility Owner may use such funds to pay for such Capital Improvements, and in such event Calpine shall be relieved of its Other Capital Obligations to the extent of such payment, but if such funds are not available to CGC or the Facility Owners, or CGC or the Facility Owners elect not to use such funds, for such purpose, or if CGC or the Facility Owners otherwise fail to discharge the Other Capital Obligations, Calpine shall pay and discharge such Other Capital Obligations from its own funds and resources.
(c) Calpine hereby agrees to reimburse CGC and/or the appropriate Facility Owners, as applicable, upon demand, from Calpine's own resources for any amounts otherwise due and owing by Siemens to CGC and/or such Facility Owners which Siemens fails to pay because it has or asserts a right under the Siemens Settlement Agreement to set off claims against amounts owing from Calpine or its subsidiaries other than CGC and the Facility Owners against amounts otherwise due and owing by Siemens to CGC and/or the Facility Owners (the foregoing obligations are referred to herein as the "Siemens Obligations").
(d) Calpine agrees that it will pay or cause to be paid from Calpine's own resources, and to indemnify and hold CGC and the Facility Owners harmless from and against any and all cancellation charges, termination charges or similar charges payable to Siemens or GE in connection with any termination of the existing LTSAs in order to commence services for
any electric generating facility under the Maintenance Services Agreement (the foregoing obligations are referred to herein as the "LTSA Obligations"'). The Completion Obligations, the Other Capital Obligations, the Siemens Obligations and the LISA Obligations are referred to herein collectively as the "Obligations."
2. Obligations Not Subject To Defenses.
(a) The Obligations set forth in Section 1 are primary obligations of Calpine and are in no way conditioned on or contingent upon any attempt to enforce in whole or in part CGC's liabilities and obligations under the Notes, the Debt Agreements, the Maintenance Services Agreement, the LTSAs or any other document or agreement relating to the Facilities Under Construction, the Other Facilities or otherwise; provided, however, that Calpine shall be entitled to cause CGC to draw funds under the Revolving Credit Agreement (to the extent they are available) or to use Excess Cash Flow to pay any or all of such costs. Calpine shall pay or perform, as the case may be, the Obligations regardless of whether or not CGC or the applicable Facility Owner perform any of their obligations under the Notes, the Debt Agreements, any agreements related to achieving Commercial Operation of the Facilities Under Construction, the Maintenance Services Agreement, the LTSAs or any agreement relating to the construction of the Capital Improvements.
(b) CGC and, to the extent applicable, each affected Facility Owner may, at any time and from time to time, without the consent of or notice to Calpine, except such notice as may be required by applicable law which cannot be waived, without incurring responsibility to Calpine, without impairing or releasing the obligations of Calpine hereunder, upon or without any terms or conditions and in whole or in part:
(i) change the manner, place and terms of payment or performance or change or extend the time of payment or performance of, or renew or alter, any obligations and liabilities under or in respect of, or in any manner modify, amend or supplement the terms of, the Notes, the Debt Agreements, the Maintenance Services Agreement, the LTSAs or any other document or agreement relating to the Facilities Under Construction, the Other Facilities or otherwise;
(ii) exercise or refrain from exercising any rights against any third party, or otherwise act or refrain from acting;
(iii) settle or compromise any obligations and liabilities related directly or indirectly to the Obligations or the subject matter thereof;
(iv) apply any sums by whomsoever paid or howsoever realized to any obligations and liabilities of CGC or the Facility Owners under the Notes, the Debt Agreements, the Maintenance Services Agreement, the LTSAs or any other document or agreement relating to the Facilities Under Construction, the Other Facilities or otherwise in the manner provided therein regardless of what obligations and liabilities remain unpaid;
(v) consent to or waive any breach of, or any act, omission or default under, the construction contracts or supply agreements relating to the Facilities Under Construction, the LTSAs, the Maintenance Services Agreement or any other document or
agreement relating to the Facilities Under Construction, the Other Facilities or otherwise, or amend, modify or supplement the Notes, the Debt Agreements, the LTSAs, the Maintenance Services Agreement or any other document or agreement relating to the Facilities Under Construction, the Other Facilities or otherwise; and/or
(vi) act or fail to act in any manner referred to in this Agreement which may deprive Calpine of its right to subrogation against CGC or a Facility Owner to recover full indemnity for any payments or performances made pursuant to this Agreement or of its right of contribution against any other person.
(c) No invalidity, irregularity or unenforceability of the obligations or liabilities under the construction contracts or supply agreements relating to the Facilities Under Construction, the Maintenance Services Agreement, the LTSAs or any other document or agreement relating to the Facilities Under Construction, the Other Facilities or otherwise shall affect, impair or be a defense to the performance of the Obligations by Calpine.
3. Representations and Warranties. Calpine makes the following representations and warranties to CGC and the Facility Owners as of the date hereof:
(a) Calpine is duly formed, validly existing and in good standing under the laws of the State of Delaware and has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder.
(b) Calpine has taken all necessary corporate action to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder.
(c) All governmental authorizations and actions necessary in connection with the execution and delivery by Calpine of this Agreement and the performance of its obligations hereunder have been obtained or performed and remain valid and in full force and effect.
(d) This Agreement has been duly executed and delivered by Calpine and constitutes the legal, valid and binding obligation of Calpine, enforceable against Calpine in accordance with the terms of this Agreement, subject to applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally.
(e) The execution, delivery and performance of this Agreement (i) do not and will not contravene any provisions of Calpine's certificate of incorporation or bylaws, or any law, rule, regulation, order, judgment or decree applicable to or binding on Calpine or any of its affiliates or properties; (ii) do not and will not contravene, or result in any breach of or constitute any default under, any agreement or instrument to which Calpine is a party or by which Calpine or any of its properties may be bound or affected; and (iii) do not and will not require the consent of any person under any existing law or agreement which has not already been obtained.
4. Certain Waivers. Calpine hereby waives and relinquishes all rights and remedies accorded by applicable law to sureties or guarantors and agrees not to assert or take advantage of any such rights or remedies, including without limitation (a) any right to require CGC or a Facility Owner to proceed against, or to exhaust any security held by, any other person or to at any time or to pursue any other remedy in CGC's or a Facility Owner's power before proceeding
against Calpine, (b) any defense that may arise by reason of the incapacity, lack of power or authority, death, dissolution, merger, termination or disability of CGC, a Facil...
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