PROJECT PARTICIPANT TERMINATION, RELEASE AND PROCEEDS DIRECTIVE��� �s
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TO:
FROM:
Subject:
Date:
CLEARWATER GAS SYSTEM
Intero�ce Correspondence Sheet
William B. Horne, II, City Manager
Chuck Warrington, Managing Directar
Termination of 2�-Year Gas Prepay Transaction with Florida Gas Utility
May 22, 2009
On Apri124, 2009 the Florida Gas Utility (FGU) Executive Committee authorized thE General Manager of FGU
to negatiate with UBS to terminate the Gas Purchase Agreeznent (GPA), which is a 20-year gas prepay
transaction. On May 12, 2009, UBS & FGU entered into a"GPA Unwind Agreement" which outlines the
provisions on terminating the prepay transaction, which Clearwater is currently a member of through the Gas
Supply Agreement #2 (GSA#2). The terms were based on a UBS offer presented at the Executive Committee
rneeting on 4/24. There are numerous factors that led FGU to start the process of terminating the GPA. One
major reason is UES has decided to exit the gas trading business, and therefore, na longer has the expertise
to support the transaction. Also, the original anticipated discaunt of $0.57 per MMBtu has reduced in value due
to market disruptions that have changed the economics of the transaction. Looking forward, there aze scenarios
under which Clearwater and other Project Participants would actually pay more than the daily gas market. Over
the past few months, in order to maintain the full $0.57 discount to the project participants, FGU has had to use
a working capital account.
On J'une 15, 2006, the City af Clearwater Council adopted Resolutian 06-38, approving the GSA#2 with Flarida
Gas Utility (FGU). FGU executed a 20-year Prepaid Gas Purchase Agreement with UBS AG, which was
effective Septernber 1, 2006. To date, Clearwater has received a financial benefit of approximately $1.1 million
dollars aver this past 2 3/< years.
The gas prepay transaction was considered a"special project." FGU's gas deliveries ta participants were
directly linked to gas received under the Gas Purchase Agreement (GPA) between k'GU and UBS. "Gas" r.ulder
the Gas Services Agreement (between project participants & FGU) was defined as the Gas supplied by UBS
under the GPA, and Sectian 2 of the GSA has a specific termination clause linked to the termination oithe GPA
and the repayrnent of the Bands, which were secured by FGU. So, if the GPA terminates, the GSA terminates
autamaticaXly, as soon as those conditions are met, all af which aze scheduled to occur on June 1 Sr
FGU has negotiated and anticipates receiving a termination payment from UBS of appraximately $28 Million,
which is the tuarealized value of the remaining 17+ years of tl�e agreement. Plus there is an approximate
additional $S Million to be distributed from the termination of an investment contract. Clearwater's share of the
estimated $33 Million tatal is 11.874% or approximately $3.9 million. So, we anticipate that the customers of
Clearwater Gas Syst�m will receive a total $5 rnillion benefit from this prepay transaction.
Attached is the "Project Participant Termination, Release and Proceeds Directive" and associated documents
that must be signed by you atid mailed back to Holland & Knight by May 29th. Laura Mahony, Assistant City
Attorney, has reviewed all of these documents and she and the City Attorney advise that you are authorized to
sign these as the City of Clearwater's designated Project Participant Representative.
CS W/bl
PROJECT PARTICIPANT
TERMINATION, RELEASE AND PROCEEDS DXRECTNE
This Terrr�inatian and Release, effective as of �une 1, 2009 (the "Effective Date"), granted
by the City of C�earwater, Florida, a municipa.i carporation of the State of Florzda ("Participan�")
�o and in favor of FTorida Gas Utility ("FGU").
BACKGRQUND
Participani and FGU are parties to that certain Gas Supply Agreement No. 2 dated as of
�epte:cx�ber 1, 200fi (the "GSA") :relaied io Gas Acquisition Supply �'raject No. 2{"GSAP No. Z"
or the "GSAP No. 2 Pro'ect"}.
Gas under the GSA was to be supplied by UBS AG ("UBS") under and pursuant to that
certaa� �repaici Gas �urcnase .A.greement dated as of �ept�tnber 1, 2G�6, neiween U�S a�d FGU,
as amended by Amendz�ent One to Prepaid Gas Purcha�e Agreement dated as of September 6,
2007, and Amencizz�ent T�vo to Prepaid Gas Purchase Agreement dated as of Septen�bex 21,
2007, and a Gas R�marketing Agent Ag.reement dated as af �eptember l., 2006 (the Prepaid Gas
Purchase Agreez�n.e�t, as amended, and th� Gas Remarke�ing Agent Agreement beir�g collect�vely
referred io as the "GPA") related to GSAP No. 2.
bn cannection with the GPA, FGU issued iis Gas S�pply Acquisition Project No. 2
Revenue Sozzds, 2�106 Series �i-1, 2�i06 Sez�es A--2, 20G6 �eries A-3 and 2G06 �eries A-�- (the
"Bonds"), pursuant to an Indenture af Trfxst dated as of Septezz�ber 1, 2006, betweeY FGU and
Wells Fargo Bank, N.A. (the "Trustee"}, includix�g E�ibit A thereto, as amencled by
Amendment One to Exhibit A io the Indenture of Trust dated as of February 1, 2007, which
contains various detai.ls �elated to the Bonds (the In.denture a�d EXhibit A thereto, as amended on
February 1, 2047, being colleetivel� refez�red ta herein as ihe "Indenture"}. Tezms used herein
in capxtalized forrn and not otherwise her�in defined sha11 have the meanings set forth in the
GSA and the Indeniure.
On May 12, 2009, UBS and FGU entered into a GPA Unwind Agreez�ent Reiated to Gas
Supply Acquisition Project No. 2(the "GPA Urtwind A eerrter�") pursuant to which the parties
have agreed io terFninate and unwind the GPA and related doc�ents in consideration of
settlezxient paymen�s (�he "Te�mfnatian Pavments") and other cozaditions described therein. The
parties thereto acicno�uledged that those condirions have been satisfied or waived as of tlie date
hereof and the GPA has been terminated concurrently �th the effective date of this Terznixzatzon
and Release.
Pursuant to the terms of ihe GSA, if the GPA is terminated, the GSA will terr�inate and
any termination paymenfs received from UBS under the GPA will be applied in accordance with
the �i�denture. (See 4(h)). The Tndent�re provides in 5ection 5.04{C} that USS Terminatian
Paymenis will be used firs� to pay the redemptio� price of the Bonds, nexi to pay the terrnination
settlem�nt amour�t with respect to fihe Calyon Hedge Agreement, and the balance shall be
deposited into the Revenue Fund. Funds in the Revenue Fund, after the Bonds have beez�
redeemed and the Calyon Hedge Agxeemen� has been settled, and after payznent of fees and
expenses related io the foregoing, sha11 be deposited in the General Reserve Fund under Secizoz�
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5.14 af the Indenture and used and applied as provided therein.. Section 5.14(B) gives FGU
discretion as to the application of those excess funds "for any lawful purpose of FGU related to
Gas Project No. 2, including distributxon to the Project Participants." FGU has elected to give
each Project Participant, including Participant, its respective pro rata share of such swplus funds
determined on a percentage basis comparing the City of Clearwater's Gas Entitlement Share
during tb.e period from and including June 1, 2009 through and including September 30, 2026,
the scheduled end of the GPA (the "Calculataon Period"), to the aggregate Gas Ex�titlennent
Shares of all Project Participants far the same period.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby
acknowledged, FGU and Participant hereby ag�ree as follows (ter�ms used herein in capitalized
form and not otherwise de�ned herein shall have the meanings ascribed ta such temxs in the
GSA ax�d the Indenture):
1. Release and Dischar�e. Participant and FGU, for th�mselves, and for their
respective successors, assigns and affiliates, hereby irrevacably and uticonditianally release and
farever discharge each other from all of their respective liabilities and obligations under the
GSA, and all documents related thereto, except that Participant shall remain obligated to pay its
Monthly Costs far Gas delivered during the month of May 2009 in accordance with the terms of
the GSA (which amounts will be due an or befare June 10, 20Q9) and to pay any fees, costs and
expenses incurred by FGU in unwinding the GPA and related documents, to the extent those
amounts are not covered by payrnents from UBS in accordance with the GPA Unwind
Agreernent.
2. Termination of GPA. Each af the parties to the GSA hereby agrees and
certifies that except as provided in Section 1 above, the GSA, as of the date hereof, has been
fully released, termir�ated and discharged, and is no longer in effect.
3. Directive as ta Proceeds. Based on the allocation methodology referred to
above, FGU has determined that Participant's pro rata share of the net Termination Payments
will be approximately Three Millian Nine Hundred Thausand and 00/100 dollazs ($3.90� 0001
(the "Net Settlement Funds"). A final accounting of the Net Settlement Funds is expected to be
completed by August, 2009. Participant has elected to have its share of the Net Settlement
Funds, as adjusted after the final audit, distributed to it in the manner set farth in Exhibit A, or if
not so stated at the tirne of executian hereof, in the manner, reasonably satisfactory to FGU, as
Participant may specify by directive to FGU after the date hereof. Pending such directive or
disbursement, FGU shall hold such Net Settlement Funds in a separate Special Project account in
Participant's name, and shall invest such funds in any of the classes �f investments shown on
Exhibit B hereto. Such Special Project fund may be liquidated and distributed ta Participant at
any time by written directive and upon reasanable notice to FGU, in whole but not in part
without FGU's consent. FGU may, and is hereby authorized to, withhold from the Net
Settlement Funds distributed to Participant, a reasonable reserve for audit adjustments and to pay
any aunounts that may become due fram Participant pwrsuant ta the terrns of this Agreement,
until after the final audit af such funds has been completed and such reimbursement obligatians
become known. FGU will pravide Participant at least quarterly accountings of such funds prior
to the liquidation of such special project account.
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4. Further Assurances. Each of the parties hereto further agrees to execute such
further docurnents and instruments, where necessazy in xecordable form, as the other party may
reasonably request, to evidence the full release, termination and discharge of the obligations of
FGU under the GSA and related documents as and to the extent contemplated hereby.
5. General Provisions.
(a) This Termination and Release shall be governed by and construed in accoxdance
Wli�'l tll� (�O[T1�5t1C laws of the State of Florida, without giving effect to any choice of law ar
conflicting provision ar rule (whether af the State of Florida or any other jurisdiction) that would
cause the laws of any jurisdiction other than the State of Florida to be applied.
(b) All the terms and pravisions of this Termination and Release shall be hinding
upon and inure to the benefit of Participant and FGU, and their respective successors, assigns
and affiliates.
(c) The pravisions af this Termination and Release shall be construed according ta
their fair meaning and neither for nor agaainst any party h�reto, irrespective of which party caused
such provisions to be drafted.
(d) This Ternunation and Release may be executed in any nu.mber af counterparts,
each of which shall be deemed an original but all of which taken together shall constitute one
and the same instrument.
(Signature Page FollowsJ
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IN WITNESS WHEREOF, �lie undersigned have caused this instruinent to be executed 'zn
its name by a duly autharized officer this � day o� }� 1�� , 2009.
Approved as to for�n:
�
�� � �"�
aura Mahony
Assistant City Attorney
CTTY OF CLEARWATER, FLORTDA
By: ` � .
William B. Horne II
City Manager
Attest:
n � ��
C� 'a E. Goudeau
City lerk
FL4RrDA GAS UT�L�TY
By:
Name:
Title:
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IN'WIT'NESS WHEREOF, the undersigaed have caused t7iis instruz�ent � be executed i�
i#s �a.rne by a d�y authorized offic�r ihis 1� day o�J�e, 2009.
TH� C1rTY OF CLEARWAT�R, FLORIDA., a
rnu�cipa.l. corporation of th� State of Florida
By:
Naane:
Tit�e: �
FLORIDA GA� iJ?'IL7T`�
By: � � �
Name:Ka��ina v_ Warren ,,
Tifi��:_ c'rene.ral Manac����„_„CEO .
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EXHIBIT A
PROJECT PARTICIPANT DIRECTIVE
Florida Gas Utility ("FGU") and the City of Clearwater, Florida ("Project Participant")
have entered into a Project Participant Termination, Release and Proceeds Directive, effective as
o� June 1, 2p09 (the "Release") to which this Exhibit A is attached. Capitalized terms not
otherwise deiuied herein shall have the meaning ascribed to them in the Release.
Pwrsuant ta the GPA Unwind Agreement, FGU and UBS have agreed to terminate the
GPA in exchange for certain termination payments, and as a result thereaf, Project Participant
will be entitled to receive approximately Three Million Nine Hundred Thousand dollars and
00/lOQ ($3,900,000) as contemplated in the Release (as adjusted following the FGU audit as
contemplated by the Release, the "Project Participant Shazc af Nct Sctticmcnt Funds"), as its
shaxe of those net terminatian payments.
Project Participant hereby directs FGU to distribute the Project Participant Share of Net
Settlement Funds by wire transfer to the fallawing account, as and when such funds became
available:
Name: Citv of Clearwater
ABA: 025009593 �
Credit to: City of Cleazwater
Account No: 001260030758
Re: FL Gas Utility
Project Participant recognizes that the precise arnount of the Net Settlernent Funds, and
Project Participant's share thereof, will not be known until FGU completes its full audit of the
GSAP #2 Project, which is expected to be completed by August, 2�09, and thus the amount of
the Praject Participant Shaze of Net Settlernent Funds may change frorn the estimated amaunt
reflected in the Release_ All such funds will be held and invested by FGU in investment
securities af the kind described in Exhibit B to the Rel�ase u.ntil that audit is complete and the
exact amaunt of the Project Participant Share of Net Settlement Funds becomes known.
[Signature Page FollowsJ
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Dated this � ��
Approved as to form=
day of June, 2009.
F
�'���
Laura Mahany �
Assistant City Attorney
# 63D9894 vl
CITY OF CLEARWATER, FLORIDA
By .�i�.t.s�e.� ���
William B. Horne II
City Manager
Attest:
_�
C 'a E. Goudeau
City lerk
FLORIDA GAS UTILITY
By:
Name:
Title:
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EXHIBIT S
INVESTMENT SECURITIES
Any of the following, if and to the extent the same are at the time legal for investment of
FGU's funds held pursuant hereto:
(i) any bonds or other obligations which constitute direct obligations of, or as t�
principal and interest are uncanditianally guaranteed by, the United States of
America, including obligations af any of the Federal agencies set forth in clause
(iii) below to the extent unconditionally guaranteed by the United Sta.tes of
America;
(ii) any bonds or other obligations of any state of the United States of America or of
any agency, instrumentality or lacal governxnental unit of any such state (a) which
are not callable prior to maturity, or which have been duly called far redemption
by the abligor on a date or dates specified or as to which irrevocable instructians
have been given to a trustee in respect of such bands or other obligations by the
obligor to give due notice of such redemption an such date ar dates, which date or
dates shall be also specified in such instructions, (b) which are secured as to
principal and interest and redemption premium, if any, by a fund consisting only
of cash or bonds or ather abligations of the character described in clause (i) abave
which fund may be applied only to the payment of such principa.l of and interest
and redemption premium, if any, on such bonds or other obligations on the
maturity date or dates thereof or the redemption date or dates speciiied in the
irrevocable instructions referred to in subclause (a) of this clause (ii), as
appropriate, and (c) as to which the principal of and interest on the bonds and
obligatians af the chazacter described in clause (i) above on deposit in such fiuid
along with any cash on deposit in such fund are sufficient ta pay principal of and
interest and redemption premium, if any, on the bands or other abligations
described in this clause (ii) on the maturity date or dates thereof or on the
redemption date ar dates speci�ied in tk►e irrevocaUle instructions referred to in
subclause (a) of this clause (ii), as appropriate;
(iii) bonds, debentures, or other evidences of indebtedness issued or guaranteed by any
agency or corporation which has been ar may hereafter be created pursuant to an
Act of Congress as an agency or instrumentality of the United States of America;
(iv) New Hausing Authority Bonds issued by public agencies or municipalities and
fully secured as to the payment of both principal and interest by a pledge of
annual contributions under an annual contributions contract or contracts with the
United States oi America; or project notes issued by public agencies or
municipalities and fully secured as to the payment of both principal and interest
by a requisition or payment agreement with the United States of America;
(v) direct and general obligations of any state of the United States of America, to the
payment of the principal af and interest on which the full faith and credit o£ such
state is pledged, provided that at the time of their purchase hereut�der such
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obligations are rated in either of the two high.est whale rating categories by two
nationally recognized rating agencies;
(vi) obligations of, or certificates or other instrurnents that evidence ownership of the
right to payrnents of principal of or interest on obligations of, any state of the
United States of America ar any political subdivision thereof or any agency or
instrumentality of any state or political subdivision, pravided that at the time of
their purchase hereunder such obligations, certifcates or other instrumen.ts are
rated in tl�.e highest whole rating category by two nationally recognized rating
agencies, and provided, further, that, in the case of certificates or other
instniments that evidence ow7tiership o:F the right to payments of principal of or
interest on such obligations, such obligations shall be held in trust by a bank or
trust ca�rnpany or a national banking association authorized to exercise carporttte
trust powers and subject to supervision ar examinatian by federal, state, territorial
or District of Columbia authority and having a combined capital, surplus and
undivided profits of not less than $SO,OOO,OpO;
(vii) direct and general obligations of the State of Florida for the payrnent of the
principal of and interest on which the full faith and credit of said State is pledged,
or any bonds or other obligations which as to principal and interest are
unconditionally guaranteed by the State af Florida;
(viii) certificates that evidence ownership of the right ta payments of principal and/or
interest on obligations described in the foregoing clauses of this definitian,
provided that such obligations shall be held in trust by a bank or trust company or
a national banlcing association authorized to exercise corparate trust powers and
subject to supervision or examination by federal, state, territorial or District of
Columbia authority and having a combined capital, surplus and undivided prafits
of not less than $50,000,000;
(ix) certificates of deposit, whether negotiable or non-negatiable, and banker's
acceptances issued by any bank, trust company or national banking association, in
each case, having a combined capital, surplus and undivided profits of not less
than $100,�00,000, provided that at the time of their purchase hereunder such
instnunents are (a) rated nat lawer than the second highest whole rating categary
by two natianally recognized rating agencies, (b) issued by a bank, txust campany
or national banking association which bank, trust company ar national banking
assaciation has issued and outstanding senior unsecured indebt�dness rated not
lower than the second highest whole rating category by two nationally recognized
rating agencies, or (c) fully insured by the Federal Deposit Insurance Coarporation
or secured, to the extent not insured by the Federal Deposit Txisurance
Corparation, by such securities as aze described in the other clauses of this
definition which sECUrities shall at all times have a market value at least equal to
the principal amount of such certificates of deposit or bamker's acceptances;
(x) commercial paper that, at the date of investment, has been assigned a rating by
any two Rating Agencies of: "P-1" or higher by Moody's, "A-1" or higher by S&P
8
and/or "F1" or higher by Fitch, az�d is issued by an entity that has a long-term
rating of at least A1 by Maody, A+ by Fitch and/ar A+ by S&P;
(xi) any repurchase agreement with any bank or trust company organized under the
laws of an.y state of the United States of America ar any national banking
association or government bond dealer reporting to, trading with, and recognized
as a primary dealer by the Federal Reserv� Bank of New York, which agreement
relates ta the sale and repurchase af any ane ar more of the securities described in
clauses (i), (iii) and (iv) above and which, in the judgment of FGU, conforms as ta
terms and conditions with then prevailing prudent standards in the financial
markets;
(xii) shares of an investment company organized under the Investment Company Act
of 1940, as amended (or successor provision of law), which invests its assets
exclusively in abligations af the type described in the other clauses of this
definition;
(xiii) interests in the State of �'lorida Local Gavernrnent Swplus Funds Trust Fund or
other similar common trust fund for which such state, or a constitutianal or
statutory officer or agency thereof, shall be the custodian; and
(xiv) any agreements or contracts with insurance companies or other financial
institutions (taking into account azxy absolute and unconditional guarantors of
such agreements, without any right of recoupment, counterclaim or set of� (i)
whose short term obligations as of the date of investment in such agreements or
contracts shall have been assigned a rating by any two Rating Agencies a£ "P-1"
or higher by Moody's, "A-1" or higher by S&P andlor "F1" or higher by Fitch;
and (ii) whose senior unsecured indebtedness or claims paying ability as af the
date of investment in such agreements or contracts has been assigned a lang-term
rating by any two Rating Agencies of at least: Aa3 by Moady, AA- by Fitch
and/or AA- by S&P. Any such agreement or contract rnay provide that, with the
approval of FGU, the insurance company or other financial institutian may have
the right to assign its obligatians under any such agreement or contract to any
other inswrance company or other financial institutian meeting the foregoing
criteria at the time of assignment.
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