EXHIBIT 10.3
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement (this "Agreement")
dated as of December 12, 2001 is entered into by and between El Paso Merchant
Energy, L.P., a Delaware limited partnership ("Servicer"), and Cedar Brakes II,
L.L.C., a Delaware limited liability company ("CBII"; Servicer and CBII
individually are referred to as a "Party" and collectively as the "Parties").
WHEREAS, Public Service Electric and Gas Company ("PSE&G") and
CBII are parties to that certain Amended and Restated Power Purchase Agreement
dated May 23, 2001 whereby CBII agrees to sell and deliver energy and capacity
to PSE&G (the "Amended and Restated PPA");
WHEREAS, CBII and El Paso Merchant Energy, L.P. have entered
into a Power Purchase Agreement dated October 1, 2001, as amended on November
26, 2001, pursuant to which Servicer has agreed to sell and deliver to CBII
capacity and energy sufficient to enable CBII to meet its obligations under the
Amended and Restated PPA (the "Mirror PPA");
WHEREAS, CBII intends to enter into an Indenture to be dated
on or about the date of this Agreement between CBII and Bankers Trust Company, a
New York banking corporation, as trustee (the "Indenture") as well as certain
other Financing Documents (as defined in the Indenture), each in accordance with
the terms of the Indenture; and
WHEREAS, CBII desires to engage Servicer to perform all of the
administrative and management functions to be performed by CBII under the
Amended and Restated PPA, the Mirror PPA, the Indenture, the other Financing
Documents, and certain other agreements to which CBII is a party, as set forth
herein.
NOW, THEREFORE, in consideration of the mutual obligations and
undertakings set forth herein, it is agreed as follows:
ARTICLE 1
DEFINITIONS; EFFECTIVE DATE; TERM;
SERVICER AS AGENT; EXPENSES
1.1 Definitions. Unless otherwise specified, capitalized terms
used herein but not defined herein have the respective meanings assigned to such
terms in the Indenture.
1.2 Effective Date. This Agreement shall become effective, and
the rights and obligations of Servicer and CBII with respect to this Agreement
shall commence, on the date of this Agreement (the "Effective Date").
1.3 Term.
1.3.1 The term of this Agreement shall run from the Effective
Date until the earlier of (a) September 30, 2013 and (b) the early
termination of the Mirror PPA in accordance with Article III thereof,
unless earlier terminated in accordance with the provisions hereof.
1.3.2 This Agreement may be terminated by CBII (a) at any time
on sixty (60) days' written notice by CBII to Servicer and the payment
by CBII to Servicer of all outstanding amounts owed to Servicer by CBII
under this Agreement or (b) upon the bankruptcy, insolvency, or
liquidation of Servicer.
1.3.3 Either Party may terminate this Agreement in accordance
with the terms of Section 5.2.
1.3.4 Notwithstanding the provisions of this Section 1.3, the
termination of this Agreement shall not in any manner impact the
obligations of Servicer under this Agreement arising prior to such
termination.
1.4 Agent. CBII hereby appoints Servicer to be and act as its
agent to do and perform those obligations, and protect and exercise such rights,
of CBII that are specified herein, and such other things as may be necessary or
convenient thereto. As agent for CBII, Servicer is authorized to act for CBII in
its own name or in the name of CBII, as deemed necessary or advisable by
Servicer.
1.5 Expenses. Any expenses incurred by Servicer in performing
its obligations under this Agreement shall be paid by Servicer from its own
accounts and, thereafter, shall be reimbursed by CBII in accordance with Section
4.2 hereof.
ARTICLE 2
SUPPORT OBLIGATIONS
2.1 Management and Administrative Services. Subject to the
terms of this Agreement, Servicer shall perform for CBII all management and
administrative services necessary and advisable for CBII to perform its
obligations and to exercise its rights under the following agreements: the
Amended and Restated PPA, the Mirror PPA, the EP Guaranty, the Funding
Agreement, the Indenture, each other Material Agreement and Financing Document,
and any other contracts to which CBII is a party and of which Servicer has been
given prior notice. Without limiting the generality of the foregoing, Servicer
shall perform for CBII the following management and administrative services:
accounting, auditing, financial reporting, budgeting and forecasting, tax, cash
management, review of significant operating and financial matters, contract
administrative services, invoicing, computer and information services, and such
other management, administrative, and regulatory filing services as directed by
CBII. Without limiting the foregoing, Servicer shall provide the following
services:
2
(a) maintain the books and records of CBII in accordance with
good business practice, Internal Revenue Service regulations,
applicable law, and generally accepted accounting principles and retain
and oversee independent auditors to review such books and records on an
annual basis;
(b) provide services regarding the cash of CBII, including (i)
establishing bank accounts and (ii) investing and transferring funds
and effecting payments in accordance with the Financing Documents and
the Material Agreements;
(c) provide accounting services related to the development and
implementation of financial controls and systems of CBII and the
administering of the financing proceeds;
(d) exercise all rights and administer all obligations of CBII
under the Financing Documents, including, without limitation, taking
all actions necessary or desirable in order to perfect and maintain the
perfection and priority of any security interests granted by CBII to
any lender or creditor of CBII over any assets of CBII (including,
without limitation, the Material Agreements);
(e) administer the Amended and Restated PPA, the Mirror PPA,
and the other Material Agreements, exercise all rights and perform all
of the administrative and management obligations of CBII thereunder,
including, without limitation, serving as CBII's point-of-contact,
coordinating the exercise of CBII's rights under the Mirror PPA and the
performance of its obligations under the Amended and Restated PPA,
providing and receiving notices in accordance with the terms thereof,
invoicing for all transactions of CBII and amounts payable to CBII and
collecting all such amounts due CBII, applying set-offs against amounts
owed to Servicer by CBII as permitted under the terms of the Amended
and Restated PPA, reviewing invoices provided to CBII and exercising
its rights to dispute any invoice, and resolving any disputes and
coordinating the resolution of disputes (including any arbitration
proceedings) under the Amended and Restated PPA and the Mirror PPA on
the most favorable terms available to CBII;
(f) to the extent that amounts are available from CBII, pay
all fees, debts, and obligations of CBII;
(g) provide tax related services, including, without
limitation, paying from Servicer's accounts directly to any third-party
payees, upon demand, any taxes or other administrative fees and
expenses due and payable by CBII;
(h) make and prosecute, or cause to be made and prosecuted,
such filings and reports, keep such records, and take or cause to be
taken such other actions as may be necessary and lawful to maintain the
existence and good standing of CBII and to ensure the compliance by
CBII with all applicable laws, regulations, authorizations,
3
and orders of any government agencies (including, without limitation,
the Federal Energy Regulatory Commission); and
(i) do and perform such other acts as may be mutually agreed
to by Servicer and CBII from time to time.
2.2 Notice of Payment Obligations.
2.2.1 El Paso Merchant Energy, L.P., in its capacity as a
party to the Mirror PPA and not in its capacity as Servicer under this
Agreement, is referred to as "EPM" in this Section 2.2.
2.2.2 Within two (2) Business Days of CBII receiving from
PSE&G a notice stating that (a) Distribution Surcharges (as defined in
the Amended and Restated PPA) are due and payable to PSE&G pursuant to
Article II(E) of the Amended and Restated PPA, (b) damage amounts are
due and payable to PSE&G pursuant to Article XIV of the Amended and
Restated PPA, or (c) indemnity payments are due and payable to PSE&G
pursuant to Article XII or Article XIII of the Amended and Restated
PPA, Servicer will send a written notice to EPM notifying EPM of such
damage amounts or indemnity payments and requiring EPM to pay such
amounts in accordance with Article II(E) and Article X of the Mirror
PPA. If any such amounts are not paid by EPM within five (5) Business
Days of CBII receiving from PSE&G a notice reflecting that such damage
or indemnity payments are due and payable, Servicer will immediately
send a written notice to EP notifying EP that such amounts are due and
payable and requiring EP to pay such amounts pursuant to the EP
Guaranty.
2.2.3 On the last day of each month, Servicer shall send a
written notice to EPM notifying EPM of any outstanding credit at the
end of such month and requiring EPM to pay any Delivery Point Excess
(as defined in the Mirror PPA) amount in accordance with Article IV(B)
of the Mirror PPA or any Article V(E) Energy Payment or Article V(E)
Capacity Payment (each as defined in the Mirror PPA) in accordance with
Article V(E) of the Mirror PPA, as the case may be. If any such amounts
are not paid within two (2) Business Days after EPM's receipt of
notice, Servicer will immediately send a written notice to EP notifying
EP that such amounts are due and payable and requiring EP to pay such
amounts pursuant to the EP Guaranty.
2.2.4 Prior to February 5 of each calendar year, Servicer
shall send a written notice to EPM in accordance with Article V(F) of
the Mirror PPA, notifying EPM of the Energy Shortfall Liquidated
Damages (as defined in the Mirror PPA) (if any) due for such year. If
any such amounts are not paid by EPM in accordance with Article V(F) of
the Mirror PPA within five (5) days' of EPM's receipt of such notice
from Servicer, Servicer will immediately send a written notice to EP
notifying EP that such amounts are due and payable and requiring EP to
pay such amounts pursuant to the EP Guaranty.
4
2.2.5 If Servicer has received notice from the trustee under
the Indenture that Additional Interest (as defined in the Registration
Rights Agreement) is due and payable in accordance with the
Registration Rights Agreement and that there are insufficient funds in
the Collections Account to pay such Additional Interest in addition to
any other interest and principal payable on the next interest payment
date, then Servicer will promptly send a written notice to EP requiring
EP to pay such Additional Interest pursuant to the Funding Agreement.
ARTICLE 3
ASSIGNMENT
3.1 Assignment and Assumption of Obligations. CBII may at any
time and from time to time during the term of this Agreement, without the
consent of Servicer, assign its rights in this Agreement to (a) any lender(s) or
any third party designated by any lender(s) in connection with the transfer,
pledge, encumbrance, or assignment of this Agreement or the accounts, revenues,
or proceeds hereof in connection with any financing or other financial
arrangements or (b) to any person or entity succeeding to all or substantially
all of the assets of CBII. Servicer shall, at CBII's request, execute a consent
to assignment provided that the terms and conditions of same are reasonably
acceptable to Servicer. Servicer may not assign its rights and/or transfer its
rights and obligations under this Agreement without the prior written consent of
CBII, which consent shall not be unreasonably withheld or delayed. Nothing
contained herein shall prevent CBII from pledging or mortgaging all or any part
of its assets or interests in connection with any financing for or related to
the transactions contemplated herein. Except as otherwise provided herein, CBII
may not assign its rights and/or transfer its obligations under this Agreement
without the prior written consent of Servicer. Servicer shall not unreasonably
delay or withhold any approval of an assignment or assignment/transfer by CBII
provided that the assignee or assignee/transferee agrees to be bound by, subject
to, and to comply with the terms and conditions of this Agreement.
ARTICLE 4
FEE STRUCTURE
4.1 Semi-Annual Fee. CBII shall pay Servicer fifty thousand
dollars ($50,000) in arrears for each semi-annual period beginning on the date
of this Agreement and ending on March 1 and September 1 of each year during the
term of this Agreement and on the last day of the term of this Agreement (or if
such day is not a Business Day, on the first Business Day thereafter, each, a
"Fee Payment Date") for services provided under this Agreement (the "Fee"),
which shall cover all internal and overhead costs of Servicer; provided,
however, that (a) the amount of the Fee shall be prorated for the actual number
of days in the period (i) from the Effective Date to the first Fee Payment Date
and (ii) ending on the last Fee Payment Date of the term and (b) the Fee shall
be due and payable only to the extent that there are amounts on deposit in the
Collections Account after payment in accordance with Section 502 of the
Indenture of all current and past due amounts ranking prior to the payment of
the Fee.
5
4.2 Reimbursement of Expenses. Servicer shall, not less than
thirty (30) days prior to each Fee Payment Date, deliver to CBII an invoice for
all expenses (other than internal and overhead costs of Servicer, which are
covered by the Fee) incurred by Servicer in performing its obligations hereunder
since the Effective Date or the date of Servicer's last invoice under this
Section 4.2 (whichever is later). Each invoice shall contain a statement
explaining in reasonable detail how the expenses on the invoice were calculated.
CBII shall pay the amount shown on Servicer's invoice on the next Fee Payment
Date; provided, however, that such amount shall be due and payable only to the
extent that there are amounts on deposit in the Collections Account after
payment in accordance with Section 502 of the Indenture of all current and past
due amounts ranking prior to the payment of such expenses.
ARTICLE 5
EVENTS OF DEFAULT
5.1 Events of Default. An "Event of Default" shall mean with
respect to a Party (the "Defaulting Party"):
5.1.1 The failure by the Defaulting Party to make, when due,
any payment required hereunder if such failure is not remedied within
ten (10) Business Days after written notice of such failure is given to
the Defaulting Party by the other Party;
5.1.2 Any representation or warranty made by the Defaulting
Party herein shall prove to have been false or misleading in any
material respect when made; or
5.1.3 The failure by the Defaulting Party to perform any
material covenant set forth in this Agreement (other than with respect
to a payment obligation described in Section 5.1.1 above).
5.2 Termination Right. Upon an Event of Default, the Party not
in default may terminate this Agreement by notice to the Defaulting Party.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Organization; Powers.
6.1.1 Servicer represents and warrants that it is a duly
formed and validly existing limited partnership under the laws of the
State of Delaware and has the requisite power and authority to carry on
its business as now being conducted and currently proposed to be
conducted and to execute, deliver, and perform its obligations under
this Agreement.
6.1.2 CBII represents and warrants that it is a duly formed
and validly existing limited liability company under the laws of the
State of Delaware and has the requisite power and authority to carry on
its business as now being conducted and currently proposed to be
conducted and to execute, deliver, and perform its obligations under
this Agreement.
6
6.2 Authorization; Enforceability.
6.2.1 Servicer represents and warrants that it has taken all
action necessary to authorize it to execute, deliver, and perform its
obligations under this Agreement and that this Agreement, when executed
and delivered, will constitute a legal, valid, and binding obligation
of Servicer, enforceable in accordance with its terms, subject to
bankruptcy, reorganization, moratorium, or other similar laws affecting
the enforcement of the rights of creditors generally and to general
principles of equity.
6.2.2 CBII represents and warrants that it has taken all
action necessary to authorize it to execute, deliver, and perform its
obligations under this Agreement and that this Agreement, when executed
and delivered, will constitute a legal, valid, and binding obligation
of CBII, enforceable in accordance with its terms, subject to
bankruptcy, reorganization, moratorium, or other similar laws affecting
the enforcement of the rights of creditors generally and to general
principles of equity.
6.3 No Conflict.
6.3.1 Servicer represents and warrants that the execution,
delivery, and performance of this Agreement does not and will not (a)
violate any laws, statutes, codes, acts, ordinances, orders, judgments,
decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions, and requirements of any federal, state,
local, or foreign governmental department, commission, board, bureau,
authority, agency, court, instrumentality, or judicial or regulatory
body or entity ("Legal Requirement") applicable to Servicer or the
violation of which could reasonably be expected to result in a material
adverse effect on the business, assets, or financial condition of
Servicer or (b) conflict with, result in a breach of, or constitute a
default under any of Servicer's limited partnership agreement,
certificate of limited partnership, or other similar document, or any
indenture or agreement to which Servicer is a party.
6.3.2 CBII represents and warrants that the execution,
delivery and performance of this Agreement does not and will not (a)
violate any Legal Requirement applicable to CBII or the violation of
which could reasonably be expected to result in a material adverse
effect on the business, assets, or financial condition of CBII or (b)
conflict with, result in a breach of, or constitute a default under
CBII's limited liability company agreement, certificate of formation,
or other similar document, or any indenture or agreement to which CBII
is a party.
7
6.4 Compliance.
6.4.1 Servicer represents and warrants that it is in
compliance with all Legal Requirements and governmental approvals
applicable to it and this Agreement, except to the extent that
non-compliance could not reasonably be expected to result in a material
adverse effect on the business, assets, or financial condition of
Servicer, or on Servicer's ability to perform under this Agreement.
6.4.2 CBII represents and warrants that it is in compliance
with all Legal Requirements and governmental approvals applicable to it
and this Agreement, except to the extent that non-compliance could not
reasonably be expected to result in a material adverse effect on the
business, assets, or financial condition of CBII, or on CBII's ability
to perform under this Agreement.
6.5 Litigation.
6.5.1 Servicer represents and warrants that there are no
actions, suits, or proceedings pending or, to the best of its
knowledge, threatened (in writing) against Servicer in any court or
before or by any federal, state, local, or foreign governmental
department, commission, board, bureau, authority, agency, court,
instrumentality, or judicial or regulatory body or entity, wherein an
unfavorable ruling or finding could reasonably be expected to result in
a material adverse effect on Servicer's business, assets, or financial
condition, or on the ability of Servicer to perform its obligations
under this Agreement.
6.5.2 CBII represents and warrants that there are no actions,
suits, or proceedings pending or, to the best of its knowledge,
threatened (in writing) against CBII in any court or before or by any
federal, state, local, or foreign governmental department, commission,
board, bureau, authority, agency, court, instrumentality, or judicial
or regulatory body or entity, wherein an unfavorable ruling or finding
could reasonably be expected to result in a material adverse effect on
CBII's business, assets, or financial condition, or the ability of CBII
to perform its obligations under this Agreement.
6.6 Governmental Approvals.
6.6.1 Servicer represents and warrants that all governmental
and/or third party approvals necessary for it to enter into, and
perform its obligations under, this Agreement have been obtained, are
in full force and effect, and are final and non-appealable.
6.6.2 CBII represents and warrants that all governmental
and/or third party approvals necessary for it to enter into, and
perform its obligations under, this Agreement have been obtained, are
in full force and effect, and are final and non-appealable.
8
6.7 No Default.
6.7.1 Servicer represents and warrants that as of the date
hereof, no condition or event that would constitute an Event of Default
has occurred and is continuing.
6.7.2 CBII represents and warrants that as of the date hereof,
no condition or event that would constitute an Event of Default has
occurred and is continuing.
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 Amendments. This Agreement may be amended only by a
written instrument duly executed by each of CBII and Servicer.
7.2 Binding Effect. This Agreement and any extension shall
inure to the benefit of and shall be binding upon the Parties and their
respective permitted successors and assigns.
7.3 Specific Performance. Each of the Parties hereto hereby
acknowledges that money damages would not be a sufficient remedy for any breach
of this Agreement and that irreparable harm would result if this Agreement were
not specifically enforced. Therefore, notwithstanding any other provision
hereof, the rights and obligations of the Parties under this Agreement shall be
enforceable by a decree of specific performance issued by any court of competent
jurisdiction and appropriate injunctive relief may be applied for and granted in
connection therewith. The right of a Party hereto to specific performance
hereunder shall be in addition to all other legal or equitable remedies
available to such Party.
7.4 Counterparts. This Agreement may be executed in two or
more counterparts. Each counterpart shall be deemed an original but together
shall constitute one and the same instrument.
7.5 Notices. Any notice, request, demand, or statement to be
given by a Party hereunder shall be in writing and shall be deemed to have been
duly given to the addressee when mailed by certified mail, return receipt
requested, or delivered against receipt by messenger or overnight courier
addressed as follows:
To Servicer :
El Paso Merchant Energy, L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
9
To CBII:
Cedar Brakes II, L.L.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
or to such other address as may be designated by the addressee by notice to the
other Party.
7.6 Entire Agreement. The Agreement constitutes the entire
agreement between the Parties with respect to the matters contained herein and
all prior agreements with respect thereto are superseded hereby. Each Party
confirms that it is not relying on any oral representations or warranties of the
other Party.
7.7 Governing Law. This Agreement shall be interpreted,
construed, governed by, performed, and enforced in accordance with the laws of
the State of New York without giving effect to the principles thereof relating
to conflicts of law except Section 5-1401 of the New York General Obligations
Law.
7.8 Headings. The subject headings of the Articles and
Sections of this Agreement are inserted solely for the purpose of convenient
reference and are not intended to, nor shall same affect the meaning of any
provision of this Agreement.
7.9 Severability. If any term or provision of this Agreement
or the application thereof to any person, entity, or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement, and the
application of such term or provision to persons, entities, or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
7.10 Set-offs. CBII shall have the right to set off against
any and all amounts owed by CBII to Servicer pursuant to this Agreement any and
all amounts owed by (a) Servicer to CBII or (b) EP to CBII under the Funding
Agreement or the EP Guaranty.
[The remainder of this page was left blank intentionally.]
10
IN WITNESS WHEREOF, the Parties have duly executed this
Administrative Services Agreement as of the date first above written.
CEDAR BRAKES II, L.L.C.
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President and Chief
Financial Officer
EL PASO MERCHANT ENERGY, L.P.
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President and Chief
Financial Officer