Exhibit 10.78
COSO OPERATING COMPANY LLC
OPERATING FEE SUBORDINATION AGREEMENT (BLM)
Dated as of May 28, 1999
between
COSO OPERATING COMPANY LLC,
a Delaware limited liability company,
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
OPERATING FEE SUBORDINATION AGREEMENT (BLM)
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This OPERATING FEE SUBORDINATION AGREEMENT (this "Agreement") dated as
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of May 28, 1999, is entered into by and between COSO OPERATING COMPANY LLC, a
Delaware limited liability company (the "Junior Claimant") and U.S. BANK TRUST
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NATIONAL ASSOCIATION in its capacity as collateral agent ("Collateral Agent")
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for U.S. Bank Trust National Association as trustee ("Trustee") for the holders
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(the "Holders") of the senior secured notes (the "Senior Secured Notes") issued
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pursuant to that certain Indenture dated as of May 28, 1999 (the "Indenture"),
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among Trustee, Caithness Coso Funding Corp., a Delaware corporation (the
"Issuer"), Coso Finance Partners a California general partnership ("Navy I"),
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Coso Energy Developers, a California General partnership ("BLM"), Coso Power
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Developers, a California general partnership ("Navy II" and together with Navy I
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and BLM the "Coso Partnerships") and all other Permitted Additional Senior
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Lenders. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings set forth in the Indenture.
PREFACE
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A. Pursuant to a Guarantee dated as of the date of this Agreement
(the "Guarantee") the Coso Partnerships have guaranteed to the Trustee and the
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Holders of the Senior Secured Notes (the Trustee and the Holders being
collectively referred to herein as the "Senior Claimants") the payment and
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performance of Issuer's obligations under the Senior Secured Notes and the
Indenture.
B. The Issuer, Coso Partnerships, the Collateral Agent and U.S. Bank
Trust National Association in its capacity as Depositary (the "Depositary") have
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entered into that certain Deposit and Disbursement Agreement, dated as of May
28, 1999 (the "Depositary Agreement").
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C. BLM and Junior Claimant have entered into that certain Field
Operation and Maintenance Agreement dated as of May 28, 1999 (the "Field O&M
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Agreement") pursuant to which, subject to and upon the terms and conditions
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contained therein and herein, BLM has agreed to pay to Junior Claimant the
Annual Operating Fee (as defined in the Field O&M Agreement) (the "Subordinated
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O&M Fees").
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D. The Senior Claimants have agreed to enter into the Indenture and
to consummate the purchase of the Senior Secured Notes only if Junior Claimant
shall join in this Agreement and Junior Claimant shall subordinate, to the
extent and in the manner hereinafter set forth, all claims and rights in respect
of the Subordinated O&M Fees to all Senior Claims (as defined below) to the
extent set forth in this Agreement.
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AGREEMENT
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NOW THEREFORE, in consideration of the premises herein and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, Junior Claimant hereby agrees as follows:
1. Definitions. All capitalized terms used herein and not otherwise
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defined herein shall have their meanings given in the Indenture. As used in
this Agreement, the following terms shall have the following respective
meanings:
"Proceeding" means any (a) insolvency, bankruptcy, receivership,
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liquidation, reorganization, readjustment, composition or other similar
proceeding relating to BLM, its property or its creditors as such, (b)
proceeding for any liquidation, dissolution or other winding-up of BLM,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (c) assignment of all or substantially all of the assets of BLM for
the benefit of creditors of BLM or (d) other marshaling of the assets of BLM.
"Senior Claims" means (a) the principal of, and premium, if any, and
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interest on the Senior Secured Notes issued pursuant to the Indenture
(including, without limitation, any interest accruing thereon at the legal rate
after the commencement of any Proceeding and any additional interest that would
have accrued thereon but for the commencement of such Proceeding); and (b) all
other Obligations of BLM to any Senior Claimants, whether now existing or
hereafter incurred or created, under or with respect to the Indenture, the other
Financing Documents and any related documents.
"Base O&M Fee Amount" means an amount equal to the sum of (a) Two
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Million Dollars ($2,000,000) plus (b) the CPI Adjustment (as defined in the
Depositary Agreement).
2. Certain Subordination Terms. Until all Senior Claims shall have
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been paid in full, notwithstanding anything in the Field O&M Agreement to the
contrary:
2.1. Junior Claimant acknowledges that, notwithstanding anything
in the Field O&M Agreement to the contrary, BLM may pay to Junior Claimant
Subordinated O&M Fees due and payable to Junior Claimant, solely to the extent
funds are available for such payment from amounts transferred to the Operating
and Maintenance Fees Account pursuant to subsection (vi) of Section 3.1(c) of
the Deposit and Disbursement Agreement; provided that no Subordinated O&M Fees
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exceeding, in the aggregate with (a) all Subordinated O&M Fees due and payable
to Junior Claimant by BLM or any other Coso Partnership with which Junior
Claimant has entered into an agreement to provide operating and maintenance
services, (b) all Operating and Maintenance Fees (as defined in the Indenture),
exclusive of any reimbursement of costs, payable to FPL Energy Operating
Services, Inc., a Florida corporation, by BLM or any other Coso Partnership, and
(c) all other operating and/or maintenance fees payable to any other present or
future provider of operating and maintenance services to any Coso Partnership
(other than any such fees constituting reimbursement of expenses), in each case
within the twelve month period immediately preceding any date of payment, the
Base O&M Fee Amount, may be paid unless (x) on the date of payment each of the
conditions set forth under Section 3.8 of the Deposit and
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Disbursement Agreement are satisfied, and (y) the Trustee has received a
certificate of a Responsible Officer of BLM certifying to that effect. Except as
and to the extent expressly provided in this Section 2.1, BLM shall not,
directly or indirectly, make any payment on or in respect of the Subordinated
O&M Fees, and BLM shall not in any event transfer any collateral for any part
of, the Subordinated O&M Fees.
2.2. Except for the right to demand and accept payments set forth
in Section 2.1 hereof, Junior Claimant shall not demand, xxx for, or accept from
BLM any such payment or collateral, nor take any other action to enforce or
collect upon any such payment or to enforce its rights, in either case in
respect of the Subordinated O&M Fees, nor set off against obligations owed to
BLM under the Field O&M Agreement or otherwise in respect of the Subordinated
O&M Fees against any part of the Subordinated O&M Fees. Notwithstanding anything
in the Field O&M Agreement to the contrary, the failure by BLM to pay any
Subordinated O&M Fees shall not under any circumstances, except when the funds
are available therefor and payment is permitted under Section 2.1 hereof,
constitute a breach or default under either of the Field O&M Agreement.
2.3. Neither BLM nor Junior Claimant shall otherwise take any
action prejudicial to or inconsistent with the Senior Claimants' priority
position over Junior Claimant created by this Agreement.
2.4. Each negotiable instrument or promissory note, if any,
evidencing Subordinated O&M Fees or a lien, if any, in respect thereof shall
bear a legend (or otherwise include provisions satisfactory to Collateral Agent)
providing that payment of the Subordinated O&M Fees thereunder and the priority
of any such lien have been subordinated to prior payment of the Senior Claims
and the liens in respect thereof in the manner and to the extent set forth in
this Agreement.
2.5. Junior Claimant shall not commence or join with any other
creditor or creditors of BLM in commencing any Proceeding against BLM; provided
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that Junior Claimant shall not be so restricted with respect to claims arising
directly out of BLM's failure to perform its obligations or make any payments of
amounts due to Junior Claimant under the Field O&M Agreement other than the
Subordinated O&M Fees. At any general meeting of creditors of BLM or in the
event of any Proceeding, if all Senior Claims have not been paid in full at such
time, Collateral Agent on behalf of the Senior Claimants is hereby irrevocably
authorized at any such meeting or in any such Proceeding:
2.5.1. to enforce claims comprising the Subordinated O&M
Fees in the name of Junior Claimant, by proof of debt, proof of claim, suit or
otherwise;
2.5.2. to collect any assets of BLM distributed, divided or
applied by way of dividend or payment as a result of a Proceeding, or such
securities issued, on account of the Subordinated O&M Fees as a result thereof
and apply the same, or the proceeds of any realization upon the same that the
Senior Claimants in their discretion elect to effect, to Senior
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Claims until all Senior Claims shall have been paid in full (the Senior
Claimants hereby agreeing to render any surplus as a court of competent
jurisdiction may direct);
2.5.3. other than voting claims comprising the Subordinated
O&M Fees, to take generally any action in connection with any such meeting or
proceeding which Junior Claimant might otherwise take in respect of the
Subordinated O&M Fees and claims relating thereto.
After the commencement of any such Proceeding, Junior Claimant may
inquire of Collateral Agent in writing whether Collateral Agent intends to
exercise the foregoing rights with respect to the Subordinated O&M Fees. Should
Collateral Agent fail, within a reasonable time after receipt of such inquiry,
either to file a proof of claim with respect to the Subordinated O&M Fees and to
furnish a copy thereof to Junior Claimant, or to inform Junior Claimant in
writing that the Senior Claimants intend to exercise their rights to assert the
Subordinated O&M Fees in the manner hereinabove provided, Junior Claimant may,
but shall not be required to, proceed to file a proof of claim with respect to
the Subordinated O&M Fees and take such further steps with respect thereto, not
inconsistent with this Agreement, as Junior Claimant may deem proper.
2.6. If (a) the Senior Claimants foreclose on any or all of their
liens on all or a substantial portion of the assets constituting the BLM Project
(or succeed to such assets by way of a transfer in lieu of foreclosure), and (b)
Collateral Agent or any designee thereof assumes the Field O&M Agreement in
accordance with the terms of that Consent to Collateral Assignment dated as of
May 28, 1999 among Junior Claimant, Collateral Agent and BLM (the "Collateral
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Assignment") (or enter into a new agreement pursuant to Section 1(d) of the
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Collateral Assignment), then notwithstanding anything in the Field O&M Agreement
to the contrary, (i) BLM (or any successor or assign) shall not be obligated to
pay the Subordinated O&M Fees, if any, then due, except as set forth in Section
2.6.1 or 2.6.2, as applicable, (ii) the Field O&M Agreement shall remain in
full force and effect notwithstanding any such foreclosure (but subject to the
terms and conditions thereof), and (iii) the following shall apply:
2.6.1. If the Senior Claimants (including, for purposes of this
Section 2.6.1, their Affiliates) or any of them become the owners of the BLM
Project, the Senior Claimants shall apply to the outstanding balance, if any, of
the Subordinated O&M Fees on (or promptly after) the last day of each June and
December (each such date, a "Semi-Annual Payment Date") all amounts then on
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deposit or deposited in the Operating and Maintenance Fees Account pursuant to
Section 3.6 of the Deposit and Disbursement Agreement. Amounts shall be
deposited in the Operating and Maintenance Fees Account on Semi-Annual Payment
Dates after application of all revenues and other proceeds of BLM to the payment
of all costs in the nature of those specified in subsections (i) through (v) of
Section 3.1(c) of the Depositary Agreement during such period (including the
funding of reserves pursuant to the Depositary Agreement as in effect
immediately prior to the time that the Senior Claimants became owners of the BLM
Project), with provision for a return of and on the investment of the Senior
Claimants, whether such investment is in the form of equity or debt (and whether
or not the Senior Claimants have foreclosed on their liens by way of a partial
or full credit bid or otherwise), which payments shall not be greater than the
periodic payments which would have been payable under the priorities
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specified in subsections (ii) through (v) of Section 3.1(c) of the Depositary
Agreement as in effect immediately prior to such foreclosure, as reasonably
determined by the Senior Claimants. For purposes of calculating such payment (i)
any Senior Subordinated Notes not then paid in full, together with all interest
and premium, if any, thereon, will be deemed to be outstanding ("Deemed Notes")
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(i) such Deemed Notes will be deemed not to have been repaid upon foreclosure,
and (iii) such Deemed Notes will be deemed amortized in accordance with the
scheduled amortization of the Senior Subordinated Notes under the Indenture.
Upon such foreclosure by the Senior Claimants, the Field O&M Agreement shall be
deemed to be amended to reflect such arrangement.
2.6.2. If the Senior Claimants sell the BLM Project to a third party
("New Owner"), the New Owner shall apply to the outstanding balance, if any, of
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the Subordinated O&M Fees on (or promptly after) each Semi-Annual Payment Date
all revenues and other proceeds of BLM received in excess of amounts applied
during the preceding six-month period to (a) the payment of all costs for the
operation and maintenance of the BLM Project in the nature of those costs
defined as "Operating and Maintenance Costs" and "Capital Expenditures" under
the Depositary Agreement, (b) the periodic payment of fees, interest and
principal as required by the lenders to the New Owner, which payments shall not
be materially greater on an annual basis than such amounts payable by BLM to the
Senior Claimants pursuant to the Senior Secured Notes outstanding immediately
prior to foreclosure by the Senior Claimants, as reasonably determined by the
lenders to the New Owner; provided that greater payments shall be permitted so
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long as the payment of such excess amounts is subordinated to the Subordinated
O&M Fees, and (c) the funding of reserves not materially in excess of the
amounts which would have been available for the benefit of the Senior Claimants
under the Depositary Agreement as in effect immediately prior to such
foreclosure. The lenders to such New Owner shall be deemed to be Senior
Claimants hereunder, and the payments specified in clause (b) and (c) of this
Section 2.6.2 shall be deemed to be Senior Claims under this Agreement. Junior
Claimant agrees that it will execute and deliver to New Owner's lenders such new
subordination agreement, such amendments to each of the Field O&M Agreement, and
such other instruments, in each case consistent with the terms of this
Agreement, and Junior Claimant shall take such further action, as the lenders to
the New Owner reasonably request in furtherance of this Section 2.6.2.
3. Deposit and Disbursement Agreement. Junior Claimant acknowledges that
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it has been provided with a copy of the Depositary Agreement and has read and is
familiar with the provisions of the Depositary Agreement, including without
limitation Section 3.1(c) thereof. Junior Claimant hereby consents to the
application of revenues and other proceeds (including proceeds of investments)
of BLM in the order of priority set forth in the Depositary Agreement, including
without limitation Section 3.1(c) thereof, notwithstanding anything in the Field
O&M Agreement to the contrary.
4. Time of Filing. Notwithstanding the time of filing, attachment or
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recording of any document or other instrument, it is agreed by Junior Claimant
that any liens arising under or pursuant to the Financing Documents shall be
senior to any liens arising in favor of Junior Claimant as part of or relating
to the Subordinated O&M Fees.
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5. Wrongful Collections. Should any payment on account of, or any
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collateral for any part of, the Subordinated O&M Fees be received by Junior
Claimant in violation of this Agreement, such payment or collateral shall be
delivered forthwith to Collateral Agent on behalf of the Senior Claimants by the
recipient for application to Senior Claims, in the form received. Collateral
Agent is irrevocably authorized to supply any required endorsement or assignment
which may have been omitted. Until so delivered, any such payment or collateral
shall be held by the recipient in trust for the Senior Claimants and shall not
be commingled with other funds or property of the recipient.
6. Ownership of Subordinated O&M Fees; Amendment of Field O&M Agreement.
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6.1. Junior Claimant represents and warrants that it is the lawful
owner of the right to receive the Subordinated O&M Fees and no part thereof has
been assigned to or subordinated or subjected to any other security interest in
favor of anyone other than the Senior Claimants. Junior Claimant shall not
assign all or any portion of the Subordinated O&M Fees, its commitment under, or
any of its rights or remedies under, the Field O&M Agreement without the prior
written consent of Collateral Agent, which may be granted or withheld in its
sole discretion, and in any event only upon the execution and delivery to
Collateral Agent of an agreement by any such assignee to be bound by the terms
of this Agreement (including provisions relating to assignment), in form and
substance the same as this Agreement, or otherwise as may be reasonably
satisfactory to Collateral Agent.
6.2. Notwithstanding anything in the Field O&M Agreement to the
contrary, Junior Claimant shall not in any material respect amend the Field O&M
Agreement without Collateral Agent's prior written consent.
7. Waivers. Collateral Agent and the Senior Claimants are hereby
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authorized to demand specific performance of this Agreement, whether or not BLM
shall have complied with the provisions hereof applicable to it, at any time
when Junior Claimant shall have failed to comply with any provision hereof
applicable to it. Junior Claimant hereby irrevocably waives any defense based
on the adequacy of a remedy at law which might be asserted as a bar to the
remedy of specific performance hereof in any action brought therefor by the
Senior Claimants. Junior Claimant further waives presentment, notice and
protest in connection with all negotiable instruments evidencing Senior Claims
or Subordinated O&M Fees to which Junior Claimant may be a party, notice of the
acceptance of this Agreement by the Senior Claimants, notice of any loan made,
extension granted or other action taken in reliance hereon, and all demands and
notices of every kind in connection with this Agreement, Senior Claims or time
of payment of Senior Claims or Subordinated O&M Fees. Junior Claimant hereby
assents to any renewal, extension or postponement of the time of payment of
Senior Claims or any other indulgence with respect thereto, to any increase in
the amount of Senior Claims, to any substitution, exchange or release of
collateral therefor and to the addition or release of any person primarily or
secondarily liable thereon and assents to the provisions of any instrument,
security or other writing evidencing Senior Claims.
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8. Subrogation; No Impairment of BLM's Obligations. Subject to and
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from and after the indefeasible payment in full of all Senior Claims and the
irrevocable termination of Senior Claimants' commitments under the Financing
Documents, Junior Claimant shall be subrogated to the rights of the Senior
Claimants to receive payments or distributions of cash, property or securities
of BLM applicable to the Senior Claims until all amounts owing on the
Subordinated O&M Fees shall be paid in full, it being understood that the
provisions of this Agreement are and are intended solely for the purpose of
defining the relative rights of Junior Claimant and the Senior Claimants;
provided that such rights of subrogation shall be nonexclusive, and shall be
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shared with any other subordinated creditor of the BLM which has entered into an
agreement with the Collateral Agent providing similar rights of subrogation.
Nothing contained in this Agreement is intended to or shall impair, as between
BLM, its creditors other than the Senior Claimants and Junior Claimant, the
obligation of BLM, which is absolute and unconditional, to pay to Junior
Claimant the principal of and the premium, if any, and the interest on the
Subordinated O&M Fees as and when the same shall become due and payable in
accordance with the terms of this Agreement and the Field O&M Agreement, or to
affect the relative rights of Junior Claimant and creditors of BLM other than
the Senior Claimants.
9. Reinstatement. The obligations of Junior Claimant under this
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Agreement shall continue to be effective, or be reinstated, as the case may be,
if at any time any payment in respect of any Senior Claim, or any other payment
to any holder of any Senior Claim in its capacity as such, is rescinded or must
otherwise be restored or returned by the holder of such Senior Claims upon the
occurrence of any Proceeding, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, BLM
or any substantial part of its property, or otherwise, all as though such
payment had not been made.
10. Bankruptcy. This Agreement shall remain in full force and effect as
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between the Junior Claimant and Senior Claimant notwithstanding the occurrence
of any Proceeding affecting BLM.
11. Further Assurances. BLM and Junior Claimant shall execute and
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deliver to the Senior Claimants such further instruments and shall take such
further action as the Senior Claimants may at any time or times reasonably
request in order to carry out the provisions and intent of this Agreement.
12. Successors and Assigns. The rights granted to the Senior Claimants
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hereunder are solely for their protection and nothing herein contained shall
impose on the Senior Claimants any duties with respect to any property of BLM or
Junior Claimant received hereunder. The Senior Claimants shall have no duty to
preserve rights against prior parties in any property of any kind received
hereunder.
13. Counterparts. This Agreement may be executed in any number of
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counterparts, but all such counterparts shall together constitute but one
agreement. In making
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proof of this Agreement, it shall not be necessary to produce or account for
more than one counterpart signed by each of the parties hereto.
14. Governing Law. This Agreement is intended to take effect as a sealed
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instrument, shall be binding upon the parties hereto and their respective
executors, administrators, other legal representatives, successors and assigns,
and shall inure to the benefit of the Senior Claimants, their respective
successors and assigns and shall be governed by the laws of the State of New
York without reference to principles of conflict of laws (other than Section 5-
1401 of the New York General Obligations Law). The parties hereto intend and
agree that this Agreement shall remain binding on such parties (other than BLM)
notwithstanding the termination (except upon the payment in full of Senior
Claims) or unenforceability of this Agreement as against BLM.
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IN WITNESS WHEREOF, the parties hereto have caused this Operating Fee
Subordination Agreement to be duly executed as of the date first above written.
COSO OPERATING COMPANY LLC,
a Delaware limited liability company,
as Junior Claimant
By: /s/ Xxxxxxxxxxx X. XxXxxxxxx
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Xxxxxxxxxxx X. XxXxxxxxx
Executive Vice President
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Xxxx X. Xxxxxxxxx
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Name: Xxxx X. Xxxxxxxxx
Title: Trust Officer
The undersigned acknowledges and agrees to the foregoing:
COSO ENERGY DEVELOPERS
a California general partnership
By: NEW CHIP COMPANY, LLC,
a Delaware limited liability company,
its Managing General Partner
By: /s/ Xxxxxxxxxxx X. XxXxxxxxx
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Xxxxxxxxxxx X. XxXxxxxxx
Executive Vice President
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By: Caithness Coso Holdings, LLC,
a Delaware limited liability company,
its General Partner
By: /s/ Xxxxxxxxxxx X. XxXxxxxxx
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Xxxxxxxxxxx X. XxXxxxxxx
Executive Vice President
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